John Murphy (Lowe, Australian Labor Party, Shadow Parliamentary Secretary to the Leader of the Opposition) Share this | Hansard source

I have had the benefit of reading the Treasurer’s second reading speech and note his conviction that the Trade Practices Legislation Amendment Bill (No. 1) 2007 will improve the Trades Practices Act’s ability to foster competition in Australian markets and to protect us from anticompetitive and unconscionable conduct. How this bill adds anything new to existing provisions which purport to safeguard small businesses from bigger rivals is a mystery. How this bill contributes substantively to existing provisions that purport to ‘enhance the welfare of Australians through the promotion of competition’ also remains a mystery. Nonetheless, the debate into these trade practices matters, particularly the issue of misuse of market power, is timely indeed. It comes at a time when PricewaterhouseCooper’s report suggests that Australia’s two biggest retailers hold 79 per cent of the market in Australia despite mum-and-dad grocers making up 50 per cent of the sector’s workforce.

The bill also comes at a time when an election is looming and the Howard government would have us believe that it is friends with almost anyone and anything. We have heard the Howard government proclaim self-righteously that it is ‘the best friend Medicare has ever had’, despite trying to gut our universal healthcare system. We have also heard the con that the government is the best friend ordinary workers have ever had, despite the government’s unfair and extreme industrial relations laws. Now the government is trying to pull the wool over the eyes of small businesses by suggesting that mum-and-dad proprietors have no better friend than the Howard government.

The government has sought to use these trade practices amendments as a case in point. In a document published in 2004 titled Committed to small business the Prime Minister rightly extolled the virtues of small business and the important contribution it makes to Australia’s economy. The Prime Minister said:

The Government’s commitment to small business is undiminished. That is why we remain attuned to their needs and why we continue to respond to their concerns with practical measures.

One of the ‘practical measures’ is identified further in the document as amending section 46 of the Trade Practices Act ‘to provide additional guidance to the courts in the consideration of predatory pricing cases’. Despite the government’s assurances as far back as 2004, these amendments to section 46 of the Trade Practices Act contain changes so mild that they are, in effect, not real changes at all. The amendments proposed in this bill are hopelessly ineffective and bear the hallmarks of a government engaged in smoke and mirrors—promise plenty, deliver little and create a false expectation that you are locking in people’s prosperity. This is transparently cynical politics at its worst.

Remarkably, it has taken three years to deal with legislation that apparently was a priority for the government. The government has also remained ‘attuned to the needs’ of small business by responding with measures three years down the track that are anything but practical. During the inquiry into this bill by the Senate Standing Committee on Economics, New South Wales Labor Senator Ursula Stephens asked a number of pertinent questions which the chair ruled out of order. The questions were highly relevant. Senator Stephens sought advice from Associate Professor Frank Zumbo, a distinguished expert in trade practices law, on the complexity of the government’s proposed changes to the Trade Practices Act and whether, in his view, they are so complex that they would have taken this long to draft. Professor Zumbo was not given the opportunity to respond. Suffice to say, we all know what the answer would have been, as do members of the government. These amendments are so minimalist and simplistic that they would have taken a competent draftsman days, not years, to draft. It has taken three years for the Howard government to deal with a matter of priority, and it has done so in a perfunctory and disingenuous fashion. One can only assume that matters which have not been prioritised by the government will make fascinating reading for those with a penchant for ancient history.

Small business and all Australians who are the beneficiaries of competition laws are entitled to shake their heads at the ineptitude shown by the government in managing the very obvious failings in the Trade Practices Act. All manner of experts in trade practices have pointed out the failings, yet nothing has been done. The government should have done more in the past, and it could be doing more now, to resuscitate some sections of the Trade Practices Act. The government has chosen not to. We do not know whether it did not have the political will or whether it fell captive to furious lobbying from those with no interest in promoting a level playing field for small and big business. However, there are several things of which we can be sure: the Trade Practices Act is no friend of small business; the Howard government is no friend of small business, given these disingenuous amendments; consumers will be the ultimate losers in any failure to keep market power under check; and substantive amendments to section 46 are long overdue.

As a result of the High Court’s 2003 decision in Boral, big business will not have ‘substantial market power’ unless they have the power to raise prices without losing any custom to their rivals. This notion of having absolute freedom of constraint to raise prices before one is considered to have a ‘substantial degree of market power’ has rendered section 46 useless. It is hard to imagine any business having this power unless it was a monopoly or near monopoly. Presumably a business with any small or large competitors will lose at least some of its custom to those competitors if it raises prices. Section 46 cannot purport to foster competition when one can only resort to the provision when the market is already a monopoly, or close to it. This runs completely counter to the purpose of an amendment introduced in 1986 to replace the ‘substantial control of market power test’ to the current ‘substantial degree of market power’ test. The then Attorney-General, Lionel Bowen, stated:

Unfortunately, section 46 as presently drafted has proved of quite limited effectiveness in achieving that result, principally because the section applies only to monopolists or those with overwhelming market dominance.

The current interpretation of section 46 ‘substantial degree of market power’ test has had the same effect, but by different means. This much is obvious, given that the Australian Competition and Consumer Commission has not launched a single section 46 case since the Boral decision. The ‘substantial power’ test is a threshold issue which then triggers the operation of section 46. If the ACCC or a small business is unable to leap over this onerously high threshold, the accused company’s conduct automatically escapes scrutiny. This also means any anticompetitive conduct escapes scrutiny. The lack of section 46 action by the ACCC should not be seen as a glowing endorsement of corporate conduct in Australia—not having a single case through the courts is analogous to a lack of penalties in a football match. While the teams are generally well behaved, surely the referee cannot be saying that both teams have been perfect for the duration of the match.

Past observations from the ACCC would suggest that the competition referee is saying anything but. To the contrary, it would be appear that this referee wants to act but the rules will not allow it to do so. The commissioner stated that the Boral decision has restored the section 46 threshold to ‘monopolists or near monopolists contrary to parliament’s intention behind the 1986 amendments’. While the amendments in this bill clarify that the ‘substantial power’ test is not the same as the ‘substantial cost’ test, this would have already been abundantly clear to the High Court during Boral when it read the 1986 amendment’s explanatory memorandum or the second reading speech of the minister at the time.

To say that a company may have substantial market power even though it does control a market, I think simply restates a consideration that has already been applied by the High Court in a string of cases, including Boral. The government is telling the High Court what it already knows. This bill, in my view, does not provide a clarification of the original intent of the test; it provides an affirmation of the High Court’s interpretation of the test, which now runs contrary to the best interests of small businesses and consumers.

Why is it not possible to amend section 46 to rid it of the misguided judicial gloss applied to it? I am not a legislative draftsman, nor have I had years to prepare, but a statement could be imposed to the effect that ‘a corporation may have substantial market power, even though it does not have the ability to raise prices without losing business to rivals’. This would allow the court to engage in a more sophisticated analysis of the issue—a broad analysis that is not initially stonewalled by an overly restrictive definition. Only then would we see the application of section 46 in the manner intended and only then would we see some serious scrutiny of corporate conduct. Of course, the government will not make such amendments. The government will say that the aim of competition is to beat competition. The government will say that ‘substantial market power’ threshold has been set deliberately high so as not to deprive consumers of the benefits of competitive innovation, such as reduced prices.

It is true that many businesses compete vigorously and fairly to capture market share through product and price differentiation. Naturally, competition should be vigorous; indeed, competition can be ruthless. However, this is not inconsistent with the proposition that there must be effective laws against any form of anticompetitive conduct, including the misuse of market power. The fruits of the misuse of market power may be beneficial for consumers in the short run; in the long run, however, such anticompetitive conduct threatens to eliminate firms that are providing options that consumers would actually prefer.

The intrusion of a new section 46 provision, as outlined earlier, will not cause any thorough haemorrhaging of marketplace competition. The amendment moved by the opposition will not stifle the fair competitive activities of business to the detriment of consumers. The line between vigorous and healthy competition and anticompetitive conduct can be hard to draw. That said, I think it is a line that must be drawn and not ignored—as the government has done. The Howard government cannot continue to hide behind the cloak of healthy competition if conduct is, in fact, strategically engaged in by powerful businesses to undermine the competitive process. Conduct that could be anticompetitive cannot continue to go undetected—and I am sure the government would agree with that.

The government ought to adopt our amendment, which provides sensible incremental steps. The influence or lack thereof of section 46 in protecting small businesses is part of the broader subject of what many believe to be the crises of the effectiveness of the Trade Practices Act. Many of the provisions in the act are said to be, at best, idealistic. Section 46 of the Trade Practices Act has come under increased fire for talking tough but delivering little.

It is not the only provision; there are many amendments that ought to have been proposed in this bill but have not been. Section 51AC of the Trade Practices Act, which prohibits unconscionable conduct, applies only to transactions under $3 million. The government proposes to increase this threshold to another artificial figure of $10 million. It seems absurd to me to suggest that unconscionable conduct during the course of a transaction that is one dollar above the threshold amount should no longer be pursued by the ACCC. The focus of section 51AC should be on the nature of unconscionable conduct, not on arbitrary dollar amounts. Unconscionable conduct is unconscionable conduct, irrespective of the value of the transaction in which that conduct arose. A one-dollar threshold has nothing to add to this analysis. I encourage the government to adopt the opposition’s amendment to abolish this arbitrary threshold.

Finally, I remind the Treasurer that the Dawson review, which reported in 2003, recommended the imposition of prison terms for individuals found to have engaged in serious cartel behaviour, yet four years later the government has still not legislated to this effect. Why? This is yet another example of hubris from a government that purports to remain attuned to our needs and to respond with practical measures. Far wiser heads than ours on these matters, including the Chairman of the ACCC and Professor Frank Zumbo, have identified the risk that the mere deterrent of financial penalties may enable cartel operators to weigh up those penalties against the millions that can be earned from a cartel.

This cost-benefit analysis needs to be removed from the cartel operators, and a bill that includes prison terms in the Trade Practices Act will go a long way to doing just that. Australia is one of the few countries in the OECD that does not have jail terms for serious cartel conduct, and it appears that that will be the case for some time.

The Howard Government cannot continue to pretend that the disparity between the power of small and big business does not exist. Members need only to visit any shopping mall or strip in my electorate of Lowe to see that the relationship is trammelled by inequality, which could lead to abuse by the powerful. The Trade Practices Legislation Amendment Bill (No. 1) 2007 does nothing to alleviate those concerns. The bill fails small businesses in the three key areas that I have mentioned: misuse of market power, unconscionable conduct and cartels. It does not represent genuine reform; it makes amendments that are purely cosmetic, not substantive. However, it does accurately reflect the approach of the government that drafted it: cunning, out of touch and ineffectual. I call on the government to adopt the amendments to be moved by this side of the House so that it can salvage something from a bill that will have a limited effect in a very limited range of circumstances.

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