Tuesday, 7 October 2014

Harper Review Draft Report: An appetite for reform


The much anticipated draft report of the Competition Policy Review Panel was released last week with the Panel making over 50 draft recommendations.  With over 300 submissions considered and over 300 pages making up the draft report, one thing is clear from the broad array of issues addressed: Australia’s competition policy is in need of a makeover.

The Panel took seriously its mandate to undertake a ‘root and branch’ review of competition law.  It considered sectors of the economy that are currently exempt from competition law and made specific recommendations about them.  The panel also made overall recommendations relating to competition law generally and the agencies that administer competition law.

The key areas for reform are:

Misuse of market power

Probably the most hotly debated area of reform, the Panel is pushing for a re-think of the current test for when a corporation is considered to have used its market power to thwart competition.  The Panel has completely re-written this controversial section so that it becomes illegal for big companies to do anything that reduces competition, except where the company can show that any company (big or small) would find it rational to do the same thing and consumers will be better off in the long run.  The Panel is seeking further submissions on this proposed change.

Concerted practices

The Panel has drafted a recommendation to change to the law around anti-competitive contracts between competitors, so that if competitors engage in concerted practices that reduce competition, these will also be illegal.  This extends the current law (which requires evidence of some sort of agreement) to potentially apply to looser arrangements where competitors may not have reached an agreement but are deliberately coordinating their conduct for an anti-competitive purpose.

Yes to parallel imports

The resistance to parallel imports has weakened over time.  Their banning has often proven difficult to enforce and with the benefit of offering local consumers cheaper foreign alternatives the Panel reasons that a relaxing of current restrictions is in order.

No to price signalling

The Panel has moved for the repeal of the price signaling provisions that prevent public and private signalling of future price changes.  These laws were introduced back in June 2012 and only apply to the banking industry.  They’ve never been used and their utility has been questioned from the outset.  However, the concerted practices prohibition will likely be triggered by Retail trading restrictions.

Acknowledging the increasing popularity of online shopping, the Panel advocates for the scrapping of current trading hours restrictions for retailers.  Under this recommendation, stores should be able to operate for longer to compete with their virtual counterparts.  A removal of location and ownership restrictions for pharmacies was also recommended, the Panel considering that current limitations do not significantly promote the quality of advice and care provided to patients and that competition would be improved without them.

Taxi reforms

In advocating for the deregulation of the taxi industry, the Panel commented that current restrictions on the number of service providers and licences issued inhibit the entry of more innovative providers like Uber.  The comments have predictably been met with resistance from the industry however the Panel has been clear in its position that conventional business models need to make way for cost-effective ride sharing opportunities.

Fixing cartel laws and exceptions

Anyone who has had to consider the new criminal cartel laws will know how complicated and technical they are.  The Panel has recommended a simplification of these provisions so that they only apply to deals between real competitors or parties who are likely to be competitors (they currently catch a much broader range of parties) and with better exceptions where competitors are entering into a JV together or are also supplier and customer.

Fixing exclusivity provisions

The Panel has recommended a simplification of the provisions relating to when exclusivity clauses in supply contracts will be illegal.  As part of this, ‘third line forcing’ (where you require your customers buy something from a third party) will also be changed so that it will only be illegal if it reduces competition.  Third line forcing is currently illegal in all circumstances, even if it increases competition.

New regulatory bodies

The Panel has two new regulatory bodies in mind: an Australian Council for Competition Policy to replace the National Competition Council and drive competition reforms; and an independent pricing watchdog to oversee government regulated industries such as gas, electricity, telecommunications and water.  This structure would remove a number of functions from the ACCC, leaving it as the enforcer of competition and consumer laws, while no longer having a role in setting up-front prices and terms in regulated industries or arbitrating access to essential infrastructure.

It is clear from the draft report that there is certainly an appetite for change.

Stakeholders will have until November this year to provide submissions, after which the final report will be commissioned in March 2015.  It is then a matter for the Government to decide whether it will accept the recommendations (and which ones) and to pass them through the Parliament.  Some changes will also require the consent or legislation from State Parliaments.

If you would like to make a submission so that the Panel understands the impact of the changes on your business, our Competition Law partners would be happy to assist you in preparing it.

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