Craig Kelly (Hughes, Liberal Party) Share this | Hansard source

There is a debate currently going on this in this country about the best way to repair our broken competition laws and much of it has been around what has been promoted as an effects test. I would like to argue tonight that what is being called an 'effects test' is actually a misleading name. In fact, what is being called an 'effects test' is actually no more than a Trojan Horse and something that is actually a classic bait-and-switch, but, if adopted, it would be contrary to the interests of those who believe in our free and competitive enterprise system.

The current provisions of section 46, which apply to misuse of market power, are that a corporation has a substantial degree of power in the market. That is the first hurdle. The second hurdle is they should not take advantage of that power. The third hurdle is it has to be for the purpose of eliminating or substantially damaging a competitor, preventing entry of a person into a market, or deterring or preventing a person from engaging in competitive conduct.

What is being proposed is not just an effects test; it is actually four separate changes. Firstly, there is the deletion of the take advantage test. There is an effects test but not the one that has been debated for years. There is the addition of a substantial lessening competition test. Most of all, there is the deletion of all the provisions we have to act against predatory pricing, under what is called the effects test that is being wiped out.

Regarding the deletion of the effects test, this seems to be mostly a furphy. It has been argued that the Cement Australia case, a predatory buying case involving fly-ash, which is used in the manufacture of cement, is an example of why the effects test must be limited. But this overlooks the fact of the 2008 amendments. In fact, if you look at the commentary on this case by the renowned legal firm Clayton Utz, they note that even though that case failed because Cement Australia did not take advantage of its market power, they note in this case that the courts did not need to consider the changes made to the law in 2008 which made it easier to take advantage of the take advantage test. They said:

Properly understood, the Cement Australia decision is not cause for major concerns over reform of section 46, because it was considered under the old form of the legislation that has since been significantly amended to capture a wider scope of conduct.

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The 2008 amendments make it easier to prove market power was 'used' because they were intended to capture conduct which even a small company could have engaged in.

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So it is possible the section 46 part of the Cement Australia case might have turned out differently if the 2008 amendments had applied …

We have those 2008 amendments and there simply has not been a case to test them in the courts. The idea that this is simply changing the word 'purpose' to 'effect' is almost a red herring, because we have a section in our competition law, section 46(7), which gives the court's the ability to infer purpose from the conduct.

In the ACCC's own submission to the Harper review, they noted not a single case had determined on their inability to prove the purpose. But what they are doing is adding a substantial lessening of competition test, which makes it harder to prove.

Let me give an example. Say, we have a Woolworths at one end of town and a Coles at the other end of town and a small business in the middle. If that small business gets wiped out by anticompetitive conduct, under the substantial lessening of competition test that does not apply. In theory, because you have a Woolworths at one end of town and a Coles at the other, there has been no substantial lessening of competition with that small business being wiped out. So for small businesses, putting that additional test in simply makes the act completely useless to them.

Thirdly, and most concerning of all, are the so-called amendments sneaking through under the so-called effects test, removing the two provisions that we have on predatory pricing. Predatory pricing only occurs because you have a smaller, pesky competitor that you want to get rid of. Do not take my word for it; Justice McHugh in the Boral case noted how ill-drawn the previous section was. He said:

Conduct that is predatory in economic terms and anti-competitive may not be captured by s 46 simply because the predator does not have substantial market power when it sets out on its course to deter or injure competitors.

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Section 46 is ill drawn to deal with claims of predatory pricing under these conditions.

So back in 2007, that ill-drawn provision was fixed by changing the substantial degree of market power test to a substantial share of the market test. Now, what is being proposed is to eliminate that. These are retrograde steps and I cannot and will not support them.

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