Luke Hartsuyker (Cowper, National Party, Deputy Manager of Opposition Business in the House) Share this | Hansard source

I welcome the opportunity to speak on this proposed amendment to the Trade Practices Act. The minister, in his second reading speech, noted that competition is the primary means by which consumers get the best possible product or service at the lowest possible price. I think that all members of this House would be in furious agreement with that proposition, with the concept that competition delivers lower prices, better services and a more efficient economy. He also noted that competition enhances Australia’s welfare generally because of the efficiencies it creates and which lead to improved productivity and ultimately to increased standards of living. There would be no argument from the opposition with regard to the positive impact of competition on efficiency and our standard of living.

Given the minister’s support for competition and his acknowledgement of the great benefits of competition for individuals and the general economy, one might ask: why would this same minister introduce the Fuelwatch legislation, which would reduce competition, drive independents out of the market and drive up the price of fuel? Here we have a minister introducing this cartel legislation into the House—the very same minister who brought us the screaming dog that was Fuelwatch. I am delighted that the parliament rejected the Fuelwatch legislation. I am delighted that the parliament rejected the notion of price fixing for 24 hours. What would be the logic of fixing prices for fuel for 24 hours? I put that to one of the ACCC commissioners. I asked: what benefit could there be? Why must prices be fixed for 24 hours? He said that the information is of no use to motorists unless it is actually fixed for 24 hours because, if a motorist saw a particular price, if it was not fixed for 24 hours he could not guarantee he would get that same price when he came back to fill his car up. I would maintain that that statement was nothing more than an unsubstantiated value judgment. I would say that, in any other market, I think it is pretty well universally agreed that price fixing of the nature that was proposed under Fuelwatch would be considered unlawful. If two companies were to engage in such a practice they would be pursued by the ACCC and vilified by the ACCC, but here we had this minister, the minister who has introduced this cartel legislation into the House, being the minister responsible for Fuelwatch—legislation that was clearly anticompetitive and was clearly not in the best interests of the motorists. It was legislation that was designed to be nothing more than a political fix for the Rudd Labor government, for the Prime Minister who made promises on fuel—promises he could not keep, promises he had no intention of keeping, and yet they came up with Fuelwatch. It does seem a strange irony that this minister who sought to introduce that legislation—legislation that would constrain the free market—is here championing this anticartel bill.

Let me say at the outset that the coalition supports the broad thrust of the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 legislation. But we do have reservations with regard to some potential unintended consequences. Regrettably, the government has form in relation to unintended consequences—one needs to look no further than the bungled bank guarantee that was introduced by this government without proper consultation with the Reserve Bank and without carefully thinking through what was a very important decision. As a result, thousands of self-funded retirees and other Australians had their deposits frozen. And why? Because this Prime Minister had to make a quick decision to meet the six o’clock media cycle. These were absolutely outrageous unintended consequences that were very severe for many people out there. So whilst the opposition supports the broad thrust, we are certainly mindful of the potential for this government to deliver legislation that has unintended consequences which could have great adverse effects on Australians. I will revisit the issue of unintended consequences later in my contribution.

Criminalising cartel conduct is really about protecting the consumer. It is clear that the penalties available in the past have been inadequate to deter cartel activity of a hardcore nature, and the availability of criminal sanctions should provide a deterrent to those who might engage in such activities. This bill also provides the mechanism through which relevant agencies can use electronic surveillance. This will be useful in prosecuting cartel offences which may, by their nature, be difficult to prove. The Organisation for Economic Cooperation and Development, or the OECD, defines hardcore cartel conduct as:

… an anticompetitive agreement, anticompetitive concerted practice, or anticompetitive arrangement by competitors to fix prices, make rigged bids (collusive tenders), establish output restrictions or quotas, or share or divide markets by allocating customers, suppliers, territories, or lines of commerce.

The OECD considers hardcore cartel conduct the most egregious of violations of competition law in that cartels may injure consumers in many countries by raising prices or restricting supply, perhaps making goods and services unavailable to some consumers and making them unnecessarily expensive to others. Furthermore, the OECD recommended that member companies should ensure that their competition laws effectively halt and deter hardcore cartels. The OECD said, in particular, that their laws should provide for, firstly, effective sanctions of a kind and at a level adequate to deter firms and individuals from participating in such cartels and, secondly, enforcement procedures and institutions with powers adequate to detect and remedy hardcore cartels, including powers to obtain documents and information and to impose penalties for noncompliance.

International experience, and experience in Australia, demonstrates the need for effective cartel legislation. There has been a range of high-profile cases in relation to the operation of cartels. We had the global vitamins cartel. Other major cartels included the Spanish sugar cartel, where Spanish sugar prices were for many years five to nine per cent higher than those in the rest of Europe—four different producers received a total of €8.7 million in fines. There was the global lysine cartel that doubled the world price of lysine, an amino acid, for three years. There was the global graphite electrodes cartel that affected between $5 billion and $7 billion in sales worldwide, and there was the air cargo cartel which involved our local airline Qantas. By way of an indication of the timeliness of this legislation, it is interesting to note that, only today, the ACCC instituted proceedings in the Federal Court against four airlines, seeking penalties for alleged price fixing between 2003 and 2006. The alleged contraventions relate to fuel surcharges applied to the international carriage of air cargo during that period. The airlines which are the subject of the allegations are Air France, KLM, Martinair and Cargolux—major names in the international airline industry. Australia has also experienced local cartel operations, most notably the Visy case, a very high profile and widely documented case in this country.

This legislation, in criminalising serious or hardcore cartel behaviour, brings Australia into line with the United States, Canada and the United Kingdom—countries which have similar sanctions in place. This becomes particularly important in a globalised world where businesses and cartels operate across a range of jurisdictions. The legislation before the House makes it an offence for a corporation to make or give effect to a contract, arrangement or understanding between competitors that contains a provision to fix prices, to restrict output, divide or share markets or rig bids. The legislation provides, for an individual, a maximum jail term of 10 years imprisonment and a fine of up to $220,000 and, for a corporation, a fine that is the greater of $10 million or three times the value of the cartel or, where that value cannot be determined, 10 per cent of the turnover. The penalty for individuals brings Australia into line with the penalties of the United States. The amendments to the Trade Practices Act proposed by this bill would make a cartel offence a relevant offence under the Surveillance Devices Act and, although the ACCC is not a law enforcement officer under the Surveillance Devices Act, the amendments to the bill will allow the AFP to obtain a surveillance device warrant to aid in the investigation of cartel conduct. Amendments to the Telecommunications (Interception and Access) Act 1979 would facilitate this surveillance.

The minister, in his second reading speech, referred to consultation which occurred in relation to the bill, the exposure draft and the period of public consultation, and that it should be said that during that time of public consultation there were significant concerns. The government issued its second cartel conduct exposure draft on 27 October last year, which it indicated would be the final bill. This bill prompted concerns to be raised by competition experts who warned that legitimate commercial arrangements and conduct that are not currently prohibited under the Trade Practices Act might inadvertently be captured as cartel conduct. Competition lawyers complained that the bill was lacking crucial anti-overlap exemptions. Minter Ellison have been reported in the media as saying:

… would have had significant consequences for corporate structures and operations that have historically been clearly compliant with the Trade Practices Act. … This would have caused substantial implications for joint ventures, joint buying groups, franchises, co-operatives and any supply arrangements between competitors that contain exclusivity restrictions.

Quite clearly there are a range of business operating models that, by necessity, require territories to be divided—not for the purpose of having an adverse effect on the consumer but more for commercial practicality. I think that was a very important observation by Minters.

Blake Dawson Waldron partner Peter Armitage said:

People could go to prison for entering into pretty ordinary commercial arrangements.

That is quite worrying. Competition expert Brent Fisse has been quoted as saying that it is impossible to understand why the government would have omitted the anti-overlap provisions. He also said:

The need to introduce cartel offences does not justify amendments to the TPA that are ill-designed and bound to produce unsatisfactory and counterproductive results.

The Australian Financial Review, in an editorial, said:

The resort to criminal sanctions brings added dangers that innocent company officers, engaged in tough competition, may get caught up in unwarranted legal action that can blacken their careers, even if acquitted.

That is one of the real challenges of competition law—that dividing line where rigorous and rugged competition ends and corrupt conduct starts. It can be a grey area and one that legislators have to be very mindful of.

The opposition welcomed the amendments which were subsequently made and incorporated in the bill as introduced, which addressed many of the concerns—though some concerns remain. The opposition will be reserving our position on the bill until the Senate Standing Committee on Economics delivers its findings.

The final bill, tabled in parliament on 3 December, was accompanied by a memorandum of understanding between the Australian Competition and Consumer Commission and the Director of Public Prosecutions. The revised MOU that was introduced set out the respective roles and responsibilities of the ACCC and the DPP in relation to the prosecution of cartel conduct and how the organisations would interact. It is interesting to look at this document, which is entitled ‘Memorandum of Understanding between the Commonwealth Director of Public Prosecutions and the Australian Competition and Consumer Commission regarding’—and the next bit is very interesting—‘Serious Cartel Conduct’. But clause 4.3 of the MOU says:

The ACCC will not ordinarily refer relatively minor cartel conduct to the DPP for consideration for prosecution.

It is a document that says it is in relation to serious cartel conduct, but clause 4.3 says that the ACCC would not ordinarily refer minor cartel conduct to the DPP for prosecution. Certainly the spirit of this legislation is that the criminal sanctions relate to serious, hardcore cartel conduct and that conduct of a minor nature would be dealt with in a civil jurisdiction, not in a criminal jurisdiction. But 4.3 is worryingly ambiguous. Clause 4.4 goes on to say:

Referral of possible serious cartel conduct will concentrate upon conduct of the type that can cause large scale or serious economic harm, and the ACCC will have regard to considerations including such as whether:

• the conduct was longstanding or had, or could have, a significant impact on the market in which the conduct occurred
• the conduct caused, or could cause, significant detriment to the public, or a class thereof, or caused, or could cause, significant loss or damage to one or more customers of the alleged participants
• one or more of the alleged participants has previously been found by a court to have participated in, or has admitted to participating in, cartel conduct either criminal or civil
• the value of the affected commerce exceeded or would exceed $1 million within a 12 month period—

with regard to the combined value of all those involved in the cartel. And the final part of clause 4.4 is:

• in the case of bid rigging, the value of the bid or series of bids exceeded $1 million within a 12 month period.

This is of concern to the opposition, with regard to the lack of clarity in the definition of ‘hardcore’ and the fact that clause 4.3 of the memorandum of understanding is exceedingly ambiguous where it says that the ACCC would not ordinarily refer relatively minor cartel conduct to the DPP—but it might. That certainly is of concern. I put this thought clearly on the public record and, as I said, the opposition will be waiting for the results of the Senate inquiry into this legislation.

Competition policy is vitally important to ensuring that we have an efficient economy that allocates resources effectively and ensures that, if you start a business, you can operate that business in an environment where you are free from illegal competition. It is not about protecting businesses, large or small; it is about protecting competition. When you have a cartel, you have the potential for the community to be paying very substantial additional funds—far more than it should be paying—for a particular good or service. You have the potential for the losses to the community and the loss of efficiency to be very great indeed. So this is very important legislation. That is why the opposition support the broad thrust of the bill. But we are certainly concerned about the issue which I raised about the lack of clarity in relation to that definition. It is something on which we will be waiting for the results of that Senate inquiry. The memorandum of understanding between the DPP and the ACCC is quite an interesting document. It says:

Price fixing, market sharing, output control and bid rigging … adversely affect Australia’s domestic and international competitiveness. Such conduct harms consumers, businesses and the economy by increasing prices and reducing choice, service, innovation and efficiencies.

I think that that opening comment pretty much sums up the intent of the legislation in ensuring that we do not have a situation where cartels are fixing prices, where they are sharing the markets, where they are dividing up the cake and where they are colluding with their mates to get a better deal at the very significant expense of the consumer. It is a very important concept that Australia may well be a less efficient country and have a less efficient economy because of the actions of cartels.

I believe that the community will welcome this legislation. I believe that if an executive from the big end of town is ripping off the Australian public, he should face the consequences. If someone goes into a 727 store and robs the till of $1,000, he would go to jail. But without criminal sanctions against serious cartel conduct, a cartel could rip off the 727 chain for $50 million and the executives of the cartel who are conducting the operation would not go to jail. There is a question of equity here: robbing a store through the front door by stealing the money out of the till is a crime; robbing the store through the loading dock—effectively taking money and causing consumers to pay more than they otherwise would for a particular product by making the 727 chain, for example, pay more than they need—is not a crime.

This bill not only puts us into line with Canada, the UK and the US but it also meets community expectations. Cartel crooks deserve to go to jail, and people involved in the legal system need clarity. That is why the opposition was keen to see the issue of the definition of hardcore cartel conduct considered. That is why we raised that concern—because cartels have the potential to seriously disadvantage the interests of consumers. Cartels have the ability to make consumers pay more than they need to for a particular product. Cartel activity can cause substantial inefficiencies in the market. As I have said, we certainly support the thrust of the legislation and we await the outcome of the Senate inquiry.

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