Chris Bowen (Prospect, Australian Labor Party, Assistant Treasurer) Share this | Hansard source

It gives me great pleasure to sum up debate on the Trade Practices Legislation Amendment Bill 2008. The passing of this bill will be a significant event in the development of trade practices law in Australia. It represents the biggest reforms to the Trade Practices Act in 22 years. I thank all honourable members who have made a contribution to this debate—the member for Shortland and all those who went before her.

These reforms put beyond doubt the intention of the parliament, first expressed by Lionel Bowen in the 1986 reforms, for a strong law to deal with predatory pricing. This bill will at last deal with the problems created by the various court decisions, most notably the High Court in the Boral case of 2003. Importantly, this bill strikes the right balance. Competition law is a very nuanced thing. It is very easy to have anticompetitive consequences when you are trying to have pro-competitive results, and getting competition law just a little wrong can have very, very serious impacts throughout the economy—and I will return to this point a little later in my contribution.

Importantly, this bill implements a key election commitment outlined by me in the House almost exactly 12 months ago in response to the previous government’s trade practices reform bill. The two most important elements of this bill are the removal of the necessity to prove the ability to recoup losses in predatory pricing cases and the clarification of the ‘take advantage’ element in the abuse of market power cases.

In the Boral case, the High Court held that it would be necessary to prove that a firm would be able to recoup its losses when pricing below cost in order to damage a smaller firm. On any objective reading, in my view, the reforms that Attorney-General Bowen pushed in 1986 were designed to show the courts that it was the intention of the parliament that this would not be a relevant evidentiary burden. It is most concerning that the High Court put this evidentiary burden in these cases, although how their Honours interpret the law is up to them. But what is much more concerning is that the previous government allowed that situation to continue and did not clarify the law. As a result of that court case, the ACCC immediately dropped all the predatory pricing cases it had been working on, because it would have been a waste of taxpayers’ money to continue them, as the evidentiary burden could never be met.

The previous government was prepared to see the neutering of predatory pricing law in this country. The Senate Economics References Committee recommended, in 2004, that the necessity to prove the ability to recoup losses be removed, and the previous government refused to act. By requiring proof that a firm could at some time in the future recoup its losses if successful in driving a smaller firm out of operation, the previous government gave predatory pricing a green light. The ACCC has made it clear that this reform is necessary. In addition, many commentators have made this very clear. For example, Smith and Trindade put it this way:

... the High Court has introduced what amounts to a threshold dominant test and failed to provide a proper framework for distinguishing between conduct which the act is designed to foster and that which the community expects it to present.

It is up to the High Court to interpret the law but it is up to the parliament to make our will clear. This amendment makes our will clear. It is four years after it should have been made clear, but we make it clear tonight.

The second important reform contained in this bill is the clarification of the term ‘take advantage’ in relation to taking advantage of substantial market power. On the face of it, this might not seem like such an important thing—but it certainly is important. To be found to be in breach of section 46, a firm must be found to have taken advantage of its market power. ‘Take advantage’ has been defined by courts in different ways, in different cases. But most concerning is that, in the Rural Press case, the High Court defined ‘take advantage’ in a very restrictive way, focusing on whether the firm in question could have undertaken the action in question in the absence of market power. Justice Kirby, in his dissent ruling, described this interpretation as being based on a ‘narrow, formalistic and substantially verbal ground’. The bill clarifies the term ‘take advantage’ in a more expansive way than the High Court defined it, breaking down the other big barrier to the effectiveness of section 46 of the act. Again, this is an overdue reform.

There are other less significant but still important components of this bill. It expands the information gathering powers of the ACCC and enshrines the role of the small business deputy chairman in the bill. It also adopts the recommendation of the Senate Standing Committee on Economics of 2004 to give the Federal Magistrates Court some jurisdiction over section 46 cases. I do not consider it likely that many section 46 cases will be brought in the Federal Magistrates Court; nevertheless, if a small business wishes to bring a section 46 case and not leave it to the ACCC, they should have the ability to do so in a low-cost jurisdiction. The Federal Magistrates Court will retain its ability to refer complex cases to the Federal Court, and the normal limits on damages in the Federal Magistrates Court will apply. Importantly, the conciliation mechanism in the Federal Magistrates Court could be useful in assisting small business. Most small businesses, if subject to predatory pricing, simply want it to stop. They do not necessarily want to run a big, complex and expensive law case; they simply want a mechanism which helps them stop the predatory pricing from occurring.

I would now like to turn to the so-called Birdsville amendment. After years of telling the Labor Party and every other commentator that there was no problem with the operation of section 46 of the act, the previous government at five minutes to midnight, with zero consultation, introduced the Birdsville amendment. It is called the Birdsville amendment because it was conceived by Senator Joyce in the Birdsville Hotel. Like the member for Shortland, I have nothing against the Birdsville Hotel—it is a lovely place—but it is not where I would write trade practices law. The amendment was rushed through by the previous government as part of a deal to secure Senator Joyce’s support. There was no consultation on its effects, and it was greeted with amazement and incredulity by the vast majority of experts in competition law. The Birdsville amendment replaced market power as the threshold test in predatory pricing cases. One word can make lot of difference.

Given that it was the only change that the previous government was willing to accept, the Labor Party did not oppose the change. However, at the time, we expressed our misgivings and the view that it would be much better to implement the recommendations of the numerous inquiries, implement the recommendations of the ACCC and improve the operation of market power rather than throwing market power out the window and introducing a whole new test. Now that the government is restoring substantial market power to a more appropriate test, a pre-Boral test, there is no good reason to keep the market share test.

But the reasons for getting rid of the Birdsville amendment go much deeper. The Birdsville amendment, I accept, is designed to help small business. I accept that is its intention. But it could very well harm small business. There is also contained in it the potential to harm consumers. It puts Australia in breach of the OECD guidelines on the appropriate test of dominance, which is quite concerning. The OECD guidelines state:

Market share data continue to be the high priest in assessing whether a firm has substantial market power. Although the limitations of market shares as a proxy of market power are widely acknowledged.

Further, they state:

Entry barriers are arguably the single most important factor in assessing whether a firm has substantial market power. If other firms can enter or rivals can expand, the firm will not be able to maintain market power in the long run; hence, its market power will not be durable.

The market share test was ill-conceived, rushed, poorly drafted, and it creates considerable problems. By introducing a new concept into the act, it creates considerable uncertainty. I can understand the superficial attraction of market share as being a simpler dominant test—but it is far from simple. Who knows what substantial market share is? No-one from the opposition has been able to say in this debate what substantial market share would be. It could be 20 per cent, 30 per cent, 50 per cent or 70 per cent. It would take years of court cases to determine what a substantial market share would be regarded as by Australian courts, and to do that would be to perpetrate a substantial disservice on Australian businesses, both big and small, and on Australian consumers.

My second concern is that, by making market share the test, we will potentially be bringing into the purview of section 46 small businesses that are not meant to be in its purview. If the courts define substantial market share at a low level of, say, 20 per cent, then businesses which have a reasonably large market share, for instance, a hardware store in a small country town which has 20 per cent of the market, could be prosecuted for being in breach of the predatory pricing law. Almost every academic and expert commentator in this field agrees with the government that this is an ill-conceived clause. In fact, the only academic I can find in all my research who supports the Birdsville amendment is the one who helped Senator Joyce draft it. Not one other prominent academic in Australia supports the Birdsville amendment.

I will share with the House some examples of the views of experts on the Birdsville amendment. Julie Clarke of Deakin University said that, if small business was defined, for example, at 20 per cent, which I referred to before:

Small business could thus be exposed to liability was it to challenge a larger rival by aggressive and sustained price cutting.

So the opposition say they are trying to help small business but, in fact, the view of a large number of expert commentators is that they could be harming small business. Arlen Duke of the University of Melbourne said:

The Birdsville amendments introduced considerable uncertainty into the law by introducing the concepts of ‘substantial market share’, ‘sustained period’ and ‘relevant cost’.

Bob Baxt, who I regard as the pre-eminent trade practices commentator in this country, said:

Those who support the Birdsville amendment ignore the fundamental basis upon which competition law operates.

He went on to say:

The Birdsville amendment is apparently based on a simplistic and unprincipled evaluation of how competition law should operate.

That is a pretty powerful indictment of the views of the previous government, the current opposition.

Professor Stephen Corones, professor of law at the Queensland University of Technology, said of this government:

The government is to be congratulated for attempting to fix a significant problem that is working to the detriment of Australian consumers, including small business, every day that it is on the statute books.

So we have a consensus of every expert commentator in the country bar one that the Birdsville amendment is erroneous, ill-conceived, poorly drafted and will have adverse consequences on Australian consumers and on Australian small businesses.

Not one of the written submissions to the Senate inquiry, which expressed some sympathy for the market share test, recommended that the market share test be retained at this point. When you look through those submissions, whether they be from NARGA or the Consumer Action Law Centre in Victoria, none of them said that it is urgent and important to keep the Birdsville amendment in place but rather called on the government to monitor the situation to ensure that our amendments have the desired effect. So the case for keeping the Birdsville amendment is very thin indeed.

The opposition have indicated they will oppose removing the Birdsville amendment—although, I must say, Mr Acting Deputy Speaker, you would not know it from the shadow minister’s second reading speech. I had to get to the amendment at the end before I found any reference to this bill whatsoever in his contribution. The shadow minister joins us in the House now. I must say, with due respect, that his contribution to the second reading debate was an insult to the House. To talk about the most substantial trade practices reforms in this country in 22 years, in representing the opposition, and not make one reference to those reforms in his opening remarks in this debate was an insult to the House.

I gather that the opposition will be opposing the changes to the Birdsville amendment. I gather that because I have had made available to me the coalition joint party submission from the shadow minister. It is a particularly flimsy document. If I took such a submission to my caucus room, I would be laughed out of the building. This submission from the shadow minister, the member for Dickson, makes the case to the coalition joint party room that the changes to the Birdsville amendment will return a level of uncertainty to the Trade Practices Act to the detriment of small business, as the threshold test will change from market share to market power, as the definition of market power that has been defined by the High Court following the Boral case in 2003 is a very high threshold which essentially applies to only monopolists or near monopolists. So the whole basis on which the opposition has decided to oppose the removal of the Birdsville amendment is in error. The shadow minister’s submission to his joint party room ignores the fact that these amendments do not return the market power test to the Boral situation but to the pre-Boral situation and that the government’s amendments return the market power test to the test envisaged by Attorney-General Bowen in 1986.

So I fear what we have is the opposition playing cheap politics and attempting to garner the small business lobby when every qualified academic commentator in the nation says that this has the capacity to hurt small business. It certainly has the capacity to chill competition and, over time, reduce discounting, and yet the opposition thinks it is acceptable to oppose the removal of the Birdsville amendment. I understand the politics of this are difficult. I understand there are various views in the opposition shadow cabinet and in the opposition party room. There are various views in my party room on this, but this is a matter on which you have to show leadership. This is a matter on which you have to say the Birdsville amendment, which was rushed through the parliament with zero consultation as part of a cheap deal 12 months ago, simply will not work. We should stand as a parliament and say to the small business lobby, the small business groups in this country, that we are united in restoring the market power test to its proper 1986 test. That is what the opposition indicated they would do when we first announced this policy, but they backflipped.

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