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

I am pleased to rise to speak on the Competition and Consumer Amendment (Competition Policy Review) Bill 2017. I'd like to make some comments on what the member for Kingsford Smith said about the effects test back in section 46 of what was previously known as the Trade Practices Act and is now known as the Australian competition law.

The effects test has long been debated, and some of the things that the member for Kingsford Smith said about criticism of the effects test in the past were correct. But he is confused. The effects test that has been put in recent legislation is not the effects test that has been debated over many decades. To explain further, previously under section 46, for there to be a violation, the company had to firstly have what is called a substantial degree of market power. Unless it could show that it had a substantial degree of market power, it could not be in breach of section 46. And that was the basic problem with the law. In fact, in the Boral decision, one of the learned judges highlighted the issue in predatory pricing cases. He said the problem with the law was that it's not applicable at the time that the conduct is engaged in, even if a substantial degree of market power is obtained. His words in that case were that section 46 was ill drawn because of that first-up 'substantial degree of market power' test. The second test under section 46 was that a company had to take advantage of that power. 'Take advantage of' is simply defined as 'used', which is fair enough—you have to use your market power to be in breach. The third section—the section to which the effects test debate relates—previously said it had to be for the purpose of damaging a competitor, restricting entry into a market or limiting a supply. Basically, it was about having a substantial degree of market power and taking advantage of that power for the purpose of damaging a competitor.

The effects test debate over many years was about replacing the word 'purpose' with the word 'effect', so the act would say that a corporation that has a substantial degree of power in a market shall not take advantage of that power for the 'effect' of damaging a competitor. But the change that was made was not just replacing the word 'purpose' with 'effect'. Firstly, there was a strong case that that was not required, because another section in our competition law, section 46(7) said that the purpose could be ascertained from the conduct. In proving purpose, you did not need a smoking gun, you did not need an admission from the company accused that they actually went out for the purpose of damaging their smaller competitor and wiping them out, because a specific section, section 46(7), enabled purpose to be ascertained not by direct evidence but simply by inference of the purpose of the conduct. So much of the debate over the effects test over many years was simply a debate about nothing, because the purpose could be inferred.

We are not just substituting 'effect' for 'purpose'. That was one thing that the member for Kingsford Smith seemed to be confused about. But we're not just changing the word from 'purpose' to 'effect'. We are changing the test from 'damaging a competitor' or 'limiting a competitor's opportunity to enter the market' to 'a substantial lessening of competition'. So it is no longer the purpose of damaging a competitor; it is the effect of substantially lessening competition. Those words may not mean very much, but 'a substantially lessening of competition' and 'damaging a competitor' are two completely different concepts. For there to be a substantial lessening of competition, you almost need a case where the act of substantially lessening the competition results in a near monopoly in a market, or where one player is able, as the court said, to increase their prices without losing business to their competitors.

Under the new effects test, if a small business has been damaged or has been the victim of a predatory scheme of a company taking advantage of their market power—not using their greater efficiencies, not using a superior product or a superior marketing platform but simply using a predatory scheme, using the weight of their market power to eliminate a smaller competitor—that will not be an offence unless there is also a substantial lessening of competition. You have the test up-front that that company must also have a substantial degree of market power and it must engage in conduct that involves a substantial lessening of competition. It's almost like being pregnant and engaging in an act to get yourself pregnant again. The concepts simply do not make sense. Yet this is what the Labor Party are accusing the coalition of not understanding. Clearly, it is the Labor Party who do not understand the effects test. They do not understand the significant change from 'damaging a competitor' to 'a substantial lessening of competition'. If they did, we would not hear speeches like we've heard from the member for Kingsford Smith, who clearly does not understand the concept. I hope I am wrong in this, but my prediction is that we will see even fewer cases and less ability for small business to take advantage of section 46 with that change.

We're doing many great things for small business—lowering the rate of corporate tax and extending the instant asset write-off. We have encouraged small business to invest in this economy, and we have seen that in the numbers. We have seen substantial increases in the number of people being employed by small business in this country. We will see what effect the change to the effects test and section 46 will have. But there is one thing that I can assure you. The concerns about the effects test raised by the Labor Party simply will not come to fruition.

This bill makes numerous changes. One of the changes is to the law on resale price maintenance. I would have preferred to do what they have done in the USA and actually eliminate our resale price maintenance laws. That is what they have done in the USA. Resale price maintenance is the concept where the supplier of a good, a wholesaler or a manufacturer sets out to the retailer the minimum price that he can sell his goods for. We've seen numerous examples over the years. It could be a retailer of jewellery or of perfumes setting a minimum retail price that their goods can be sold for. That may very well be anticompetitive in highly concentrated markets where there's not much interbrand competition, but in markets today, where they are highly competitive, a law on retail price maintenance simply no longer makes sense. That's what they discovered about a decade ago, because there is interbrand competition. I believe that a wholesaler or a manufacturer in a highly competitive market should be able to determine the retailers that stock their product and ensure that their product is sold under certain conditions which enable them to set a resale price. If they set that price too high, there is such competition from so many other brands, they could actually be harming themselves.

This law was introduced into the Trade Practices Act in 1974. Since that time we've seen this law used against very small businesses in the wholesale sector and in the manufacturing sector that simply haven't been aware of the law and have done something that they thought they could do in a free market—that is, they selected the retailers that they distribute their goods through on the basis of the price and the quality that they sell for. Many of these small companies have found themselves before the ACCC, before the courts, and fined hundreds of thousands of dollars, when all they have done is try to protect their brand.

So I welcome the change in this legislation that allows a business that wishes to set the retail price amongst their retailers to obtain an authorisation from the ACCC. This is good policy. This is pro-competitive policy. This is pro-small business policy. I hope that the ACCC understand the intent of the parliament in allowing businesses to obtain this authorisation, and that they grant those authorisations where they practically can, because we've seen many cases where the law has been unfairly and very harshly used against many, many small businesses.

See this speech in context