Judi Moylan (Pearce, Liberal Party) Share this | Link to this | Hansard source

I am pleased to have the opportunity to pick up where I left off last week. We are in this chamber to debate the Trade Practices Legislation Amendment Bill 2008. It is really a change to the Birdsville amendment—a bill the coalition introduced less than a year ago. The Prime Minister seems to be living proof of the saying, ‘You either die a hero or you live long enough to see yourself become a villain,’ because changing the Birdsville amendment will certainly make him an enemy of Australia’s small business operators.

The provisions of part IV of the Trade Practices Act, which include section 46, prohibit various trade practices that tend to prevent or lessen competition in an Australian market for goods and services. They lay down rules which, as interpreted by the courts from time to time, restrain anticompetitive behaviour and promote competition in the marketplace. The Birdsville amendment was introduced by the coalition to specifically address the issue of predatory pricing. It clearly states:

A corporation that has a substantial share of the market must not supply or offer to supply goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying such goods and services—

for a prescribed purpose.

The delineation between market share and market power is essential to how this bill works, especially in how it impacts on predatory pricing. The predatory pricing prohibition introduced by the Birdsville amendment can be considered to apply in a broader sense. The major reason for this is that it is applied to firms with a substantial share of the market rather than firms with substantial market power. The coalition feel this is crucial to protecting small business in this country and we want it given the chance to have some impact. It was enacted less than 12 months ago and we are yet to see it properly tested in the courts. It has not been in place long enough for it to be clear whether it needs changing or indeed how it needs changing. Sound economic policy is one thing but change for change’s sake is something we do not want to see, especially when small businesses are such a significant part of the economy and stand to be substantial losers.

The Prime Minister spoke in July of last year, funnily enough, before he was elected, about helping small business. At that time, he said:

There is no doubt that prosperous small businesses equal a prosperous economy. And the role of government policy is to support them, not to get in their way.

Now he and his colleagues are asking us to support legislation that is going to not only make it more difficult for small businesses but possibly put many operators out of business. The idea behind the Howard government’s introduction of the Birdsville amendment was to bring a level of certainty to the Trade Practices Act. They say the only certainties in life are death and taxes. It is quite ironic, in this instance, as changing the threshold test from market share to market power will, along with the introduction of many new taxes by this government, spell certain death to many of the small businesses in Australia, particularly in my electorate of Pearce.

Thirty per cent of Australia’s wealth comes from small business. More than 90 per cent of Australia’s businesses are small businesses and, as the Prime Minister pointed out last year, small business already employs half the private sector workforce—more than four million Australians—and this number continues to grow. Having said that, the coalition recognise the importance of having both diversity and balance in the marketplace. While we recognise the importance of promoting and encouraging the growth of small businesses, this should not be to the detriment of corporate Australia. Finding the balance between the two has always been a strength of the coalition and if Labor cannot manage this perhaps they should step aside.

While Labor will be quick to point out how certain sections of the corporate sector were quick to voice their disapproval of the Birdsville amendment, it will no doubt ignore the support and praise it received from the very people who will benefit from the amendment—small businesses. The Motor Trades Association of Australia welcomed the introduction of this bill as it will allow small business operators to seek redress against predatory behaviour. The Australian Retailers Association also supported the bill because it distinguishes predatory pricing from legitimate competitive discounting, which was previously unclear. The Council of Small Business of Australia and the ACCC both gave their support to the bill that we had introduced. Apparently they can see its benefits, but the Prime Minister and the member for Lilley cannot.

Small business owners have long claimed the pricing strategies of bigger competitors have been deliberately harming their trade, and I have seen firsthand evidence of this. Following the introduction of the Birdsville amendment, Michael Delaney from the Fair Trading Coalition told the ABC:

There’s been a tendency to, in big business, to see it get ever larger and to capture more and more market share with the effect of driving out small businesses. Now this has been happening on a grand scale, particularly in grocery and in liquor and certainly in petrol.

Despite cries for help, the ACCC has previously been powerless to stop alleged predatory pricing—selling below cost to intentionally harm or eliminate smaller rivals. Professor Allan Fels, the former Chair of the ACCC, said:

It’s a bit like a murder case, if the commission steps in early and saves someone from being wiped out by predatory behaviour, then it’s very difficult to go to court and argue there’s been murder when the person’s still alive. And on the other hand, if they’ve been destroyed and you’ve got a dead body, dead men don’t talk. There’s no evidence you can take to court.

Greg Hoy, finance editor for ABC news, then said:

So for many years the pressure’s been on the Federal Government to give the market watchdog, the ACCC, the legal teeth to do something by bolstering the Trade Practices Act.

I was shadow minister in this place in 1994, and recommendations were made then. It seems to have taken a long time to get to the point where we got good legislation in this place, only now to see it overturned. The Prime Minister and the Member for Lilley, I am sure, would agree healthy competition is absolutely vital for a strong economy. Competition increases efficiency, lowers prices for consumers, provides greater choice, encourages innovation and the uptake of new technology and lifts productivity. As the Prime Minister alluded in his speech from July of last year:

Competition policy properly implemented also provides fairness.

Properly implemented it levels the playing field for small business giving small business people the opportunity to compete with bigger players on fair terms.

The clear imbalance in bargaining positions puts small business at risk of being treated unfairly.

That is why the Trade Practices Act is so important – because it protects competition by stopping big business from abusing their power by driving competitors out of the market and prohibits unfair dealings with small business.

Small business, consumers and the economy are the winners from strong competition laws, and this is why Labor has always supported laws to strengthen competition.

Those were the Prime Minister’s own words. He then goes on to say how the then Howard government was ‘dragging its feet’ in this regard; however, by introducing the Birdsville amendment, the coalition government legislated for what the Prime Minister seems to be advocating in his speech of last July. On top of that, he now wants to change the Birdsville amendment to favour those with market power. The Prime Minister may be the most indecisive figure since Hamlet. Let us just hope his and the member for Lilley’s economic mismanagement does not have the same tragic outcome for the people of Australia—particularly small businesses—as it did for Denmark.

Many proprietors in my electorate of Pearce are already feeling the negative impact. As a former small business owner as well as the former shadow minister for small business, I have maintained regular contact with small business owners and continue to take a great interest in what they have to say. They are the ones who are out there fighting to make a living. I recently conducted a small business survey, and many people had concerns about the amount of red tape that is being introduced by this government, particularly in the form of additional taxes. As the member for Dickson, the shadow minister for finance, competition policy and deregulation, said on the steps of Parliament House on Tuesday:

The reality is that business and consumer confidence has plummeted under this Government over the last eight months and that really is compounding the international problems that are facing our economy at the moment as well.

‘Small business is petrified’ about where our $1.1 trillion economy is headed, he said.

The Labor government clearly cannot manage issues of inflation, and it wants to heap further pressure on it with a new $2.5 billion tax on condensate from the North West Shelf of Western Australia. In light of confirmation from Woodside Petroleum last week that Labor’s $2.5 billion tax grab on condensate will be passed on to consumers, the Rudd government seems inclined to do whatever it wants, regardless of its impact on the businesses and families of Australia. This is again demonstrated by the government’s desire to shift from market share to market power, especially as many small businesses are concerned with the meaning of market power as defined by the High Court. Its narrow definition means the scope of the Birdsville amendment would make it harder for the ACCC to bring action against large businesses who engage in predatory pricing. Whether market share or market power is used as the threshold test, to be found guilty of predatory pricing a business would have to have priced their goods below cost with the intent of substantially damaging or eliminating competition. Unfortunately, this is not easy to prove in court—not that it seems to worry the Prime Minister. Maintaining his government’s white knight image is all that seems to matter at the moment.

We the coalition believe the Birdsville amendment will be beneficial to small business in Australia but will not ultimately be detrimental to big business. This legislation works towards an environment where both can operate in harmony, and it deserves a chance to run its course. Let’s see how it plays out in action. Let’s see whether it does need any amendments and then take any necessary action. But my concern continues to be—and I know that many on our side of the House share this concern—that these practices have made life very difficult and at times tenuous for small business proprietors in Australia. I totally agree with the recommendation of the shadow minister for finance, competition policy and deregulation, the member for Dickson, that the coalition support the bill, with the exception of changes to the Birdsville amendment and the Federal Magistrates Court consideration of section 46 cases.

Jason Clare (Blaxland, Australian Labor Party) Share this | Link to this | Hansard source

Thank you, Mr Speaker, for the opportunity to make a contribution to this important debate. Can I also welcome the school groups that are in the upper gallery today and another school group which is present in the parliament today, Wattawa Heights Public School from my electorate. Welcome to Canberra; welcome to Parliament House.

I have to tell those school groups that this is not one of the most exciting debates that they will see in parliament today—that comes a little later, at 2 o’clock—but it is one of the most important, because the Trade Practices Act 1974 is one of the most important pieces of legislation that this parliament has ever considered, and the amending legislation that we are considering today, the Trade Practices Legislation Amendment Bill 2008, is perhaps the most significant reform to that act in the last two decades. What it does is as follows. It strengthens predatory pricing to ensure that big companies cannot persistently sell goods at a loss to run their smaller competitors out of business, it abolishes the monetary thresholds for unconscionable conduct claims and it also helps small business by allowing them to litigate claims in the Federal Magistrates Court, meaning quicker and hopefully cheaper resolution of competition disputes. The bill also gives small business a guaranteed voice on the ACCC, requiring at least one ACCC deputy chairperson to have a small business background, and it clarifies the ACCC’s investigative powers.

It is worth pointing out, and I acknowledge that the member for Pearce has done this, that small business has welcomed this legislation. Richard Evans, the Executive Director of the Australian Retailers Association, says it is:

… very good news for smaller retailers.

Tony Steven, the CEO of the Council of Small Business Organisations Australia, said the legislation would:

… only help in the area of anticompetitive conduct.

Michael Delaney of the Motor Traders Association said the bill offers:

… retail motor traders and other small business operators long denied access to justice against unfair and anti-competitive behaviour.

Small business is crucial to our economy. It employs more than 3½ million Australians and generates about 40 per cent of our GDP. To survive, it needs a fair and competitive environment, and that is what this bill is all about.

So where does it fit in the history of competition policy in Australia? For the better part of the last century, Australian competition laws were well intentioned but frustrated by judicial interpretation. At the turn of the century, the Sherman act fostered a strong culture of competition in the United States. The 1906 attempt by this parliament to replicate it with the Australian Industries Preservation Act fell victim to constitutional challenge. The High Court’s decision in the Huddart Parker case in 1913 effectively gutted the act.

The story of the revival of Australian competition law is the story of two Attorneys-General, two men who served that office with distinction and were both later appointed to the High Court. The first was Sir Garfield Barwick. While I think his advice to John Kerr in 1975 was pretty lousy, I think his advice to Robert Menzies in 1960 was spot on. He convinced the then Prime Minister that restricting the behaviour of monopolies was necessary, and that culminated in the Restrictive Trade Practices Act of 1965. In the ‘Concrete Pipes’ case, the High Court judged that that was unconstitutional, but importantly it did overturn the majority opinion in Huddart Parker, opening the door for the Commonwealth to make a third attempt at competition policy.

Enter Lionel Murphy. After the election of the Whitlam government in 1972, Murphy developed a new competition bill: the Trade Practices Act. As legal academic Russell Miller says, the:

Impact on Australian business was enormous.

In a few short, broadly expressed clauses, the Act prohibited contracts, arrangements or understanding in restraint of trade, monopolisation, resale price maintenance, price discrimination, and mergers likely to have an effect on competition.

The Trade Practices Act was an integral part of the Keating government’s national competition policy, which in turn was part of the enormous structural reforms of the 1980s and the 1990s—reforms that set up the last decade of economic growth. The COAG process enabled the Keating government to drive its reform agenda. COAG proved a very effective vehicle for competition reform, and that is why this government is using COAG again as a vehicle for more reform, not just in competition but in water, health, housing and education, and in an area that is of specific concern to me—and, I know, to the member for Lindsay—the regulation of financial services and credit.

In all of these areas, national leadership is necessary to drive real reform. There is still a lot of work to do to improve competition between big businesses and small businesses. Nowhere is this more obvious than in the supermarket. I will say more about the ACCC’s inquiry into grocery prices in a minute, but first I want to take a look at the predatory price changes that are in this bill. The bill beefs up protections against predatory pricing. In simple terms, predatory pricing is when a company consistently sells goods at a loss to force smaller competitors out of the market. Section 46 of the Trade Practices Act says that that is illegal. Applying this section, however, has proved more difficult. A number of recent court decisions have undermined its operation and you can almost feel the frustration of the ACCC when you read its 2003 annual report. In that report the commission said it had:

… concerns about the application and effectiveness of the misuse of market power provision. The ACCC has reviewed a number of its investigations following the—

Boral—

judgement and discontinued some of these.

In other words, the court’s decision in Boral made it impossible for the ACCC to act. I recognise that there have been a number of attempts to correct this since then.

This bill amends subsection 46(1AA) to direct the court’s attention to a corporation’s market power rather than just their market share. I know there are differing opinions on this in the chamber but I think this the better approach because it recognises that the reality of a corporation’s power in a given market is not necessarily reflected by their market share. Professor Stephen Corones made this point in the Financial Review last week:

... having a substantial market share tells us nothing, or very little, about whether there is a problem that warrants regulation. In a sense, market share is meaningless: the key question is whether a firm, acting on its own, has discretionary power – whether it has to take into account the competitive reaction from other firms.

In other words, it is market power that is the antithesis of competition.

The bill also makes a number of other changes to section 46. It ensures that victims of predatory pricing do not need to prove that the predator has the ability to recoup their losses—one of the problems that was created in the High Court’s decision in Boral. It also implements the recommendation of the 2004 Senate inquiry into the trade practices legislation clarifying the meaning of ‘take advantage’ in section 46 to allow courts to widen the scope of this test in response to the High Court’s decision in Rural Press.

The changes to the provisions prohibiting unconscionable conduct contained in section 51AC of the Trade Practices Act should also help small business. Unconscionability is a legal principle developed in the law of equity. One of the innovations of the original Trades Practices Act was to inject this equitable principle into statute. While the credit for this innovation rests with Lionel Murphy, the Howard government did extend its operation to small business through the addition of section 51AC in 1998. For that, they should be commended. This bill takes it one step further. It abolishes arbitrary monetary thresholds for actions brought under section 51AC, drawing the law’s attention to the wrongdoing rather than the regularly disputed question of whether monetary thresholds have been reached. I think that is a good thing. It will help to discourage unconscionable conduct between corporations and between businesses and their customers.

As I mentioned earlier, the bill also assists small business by making it easier to litigate section 46 matters. Currently these matters must be heard in the Federal Court. This process is thorough, but it can also be pretty costly and slow. It is an unattractive legal avenue for small business. The bill extends the jurisdiction of the Federal Magistrates Court to section 46 matters, making it easier and cheaper for small businesses to pursue legal protection from anticompetitive behaviour.

Taken together, these three reforms—changing the definition of market power, abolishing monetary thresholds for section 51AC matters and allowing easier access to legal remedies—represent a significant extension of the protection for small business under the Trade Practices Act. They do not protect small business from competition; they help ensure markets operate in a fair and more competitive way.

As I said earlier, a lot of work is needed to improve competition in our supermarkets. The ACCC’s grocery inquiry identifies several areas where competition is not working as well as it should be. I note that the government has already acted on some of these fronts. Easing restrictions on foreign investment in the grocery industry is one of them, and this morning I noticed that the minister has foreshadowed changes to creeping acquisition laws; but today I want to focus on two other barriers to competition mentioned in that report. The first is restrictive covenants. These are agreements in commercial leases that restrict shopping centre landlords from bringing new tenants that might compete for business, usually other supermarkets or independent grocers. The effect of these restrictive covenants is obvious. If a supermarket can act in a virtual local monopoly, then customers will have no choice and will end up paying more for the shopping that they want to do. But the problem is deeper than that. The ACCC report says this:

As well as acting as an impediment to entry into local areas, restrictive provisions in leases also act as a broader barrier to entry, particularly for independent chains, as access to prime sites across a range of locations is restricted, which serves to entrench the dominance of the MSCs both in localised areas and more broadly.

These sorts of provisions are already prohibited under part IV of the Trade Practices Act if they have the purpose or effect of substantially reducing competition. I know Aldi complained bitterly about these in their evidence to the inquiry. The Shopping Centre Council have also said that they would like to see the back of them. The ACCC, I think, should be using section 47(4) and section 46 to challenge these covenants in leases. They are bad for shoppers, they are bad for small and independent grocers and, in the long run, they are bad for our economy. The ACCC’s report suggests that they are going to be looking at this in the future. In my view, if their attempts to crack down on these types of restrictive covenants fail in the court, we need to come back here and have a look at what changes are needed to strengthen their hand.

The other issue raised in the ACCC’s report is planning and zoning laws. These laws play an important role in protecting local communities from overdevelopment and congestion and in ensuring the delivery of local communities. Their purpose is to protect the community interest. This is a good thing, but the system is often abused. Large commercial retailers like Woolworths and Coles ‘game’ the system to protect their own commercial interests. In evidence to the grocery inquiry, Woolworths admitted lodging 22 development objections since 2005. Often, they have little to do with planning issues that affect Woolworths; they are about protecting their market position. For example, the ACCC report describes the case of objections raised by Woolworths to an independent supermarket opening in the Appin area in New South Wales. The report states:

Woolworths acknowledged that the grounds on which it had lodged the appeal—traffic and access, heritage, noise impact and overshading—had no impact on Woolworths. Rather, Woolworths acknowledged, the objection was lodged for the purpose of pursuing a commercial opportunity.

What is clear is that a system that has been set up to protect the community interest is being abused by big companies like Woolworths to advance their own commercial interests. I think governments should respond with structural reform that stops these abuses of process from occurring and builds a more competitive market environment. Uniform planning laws are already on the COAG agenda and I understand the Assistant Treasurer has written to the Prime Minister to request COAG consider this in light of the ACCC report. This is important. Beating the abuses of the planning system is essential if we are going to make the grocery industry more competitive, and it requires national leadership.

There are a few other amendments in this bill that are worthy of note. The bill ensures that at least one of the ACCC commissioners needs to have a background in small business. This is a good thing and it gives clear legislative purpose to the intention of the previous government. The bill also strengthens the ACCC’s powers, making it easier to obtain information, documents and evidence under section 155 of the act. This is another common-sense amendment and I think it is long overdue. There are many critics of the ACCC in this parliament, but I think we should all agree that we need to give the ACCC the powers to do their job, and these amendments do that.

Thirty-four years old and Lionel Murphy’s Trade Practices Act is still a work in progress. There is always more work to do, but this bill represents a major step forward in the continual improvement of competition policy in this country. I hope it attracts the support that it deserves, both in the Senate and in the courts. If not, I guess we will be back here again, because small business and consumers deserve the support that the Trade Practices Act is designed to give them. I commend the bill to the House.

Nola Marino (Forrest, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Trade Practices Legislation Amendment Bill 2008. I endorse the coalition’s opposition to the proposed amendments to section 46 of the Trade Practices Act, known as the ‘Birdsville amendment’. These amendments seek to amend existing subsection 46(1AA) so that the terms ‘substantial market share’, ‘substantial period’ and ‘relevant cost’ are omitted and the wording of the subsection will be in the same terms as subsection 46(1). The proposed amendments are supposed to reduce uncertainty as to the act’s operation and to improve its ability to target anticompetitive unilateral conduct.

The coalition introduced the Birdsville amendment in September 2007 and it has been in place for less than a year. Clearly this is not long enough for the amendment to have been tested properly in the courts, and the provisions have not been in place long enough for it to be clear why they might need to be changed. There have been 75 complaints to date; however, there have been no court cases yet. Effectively, the Birdsville amendment has not been tested through the courts.

The breadth of submissions and the nature of the recommendations by the 2004 Senate committee reflected a level of frustration experienced by both business and the ACCC with the manner in which section 46 had been interpreted by the courts. As a consequence of those interpretations, the ACCC had not been able to successfully prosecute a number of corporations which it had considered had engaged in a misuse of market power. Therefore the Trade Practices Legislation Amendment Bill (No. 1) 2007 was introduced into the Senate on 20 June 2007. The two subsections (1AA) and (1AB) included ‘substantial share of a market’ and became known as the Birdsville amendment. The subsections were significantly different from subsection 46(1), which provides:

A corporation that has a substantial degree of power in a market shall not take advantage of that power …

The Birdsville amendment prevents a company with a substantial market share from selling or offering to sell goods or services below cost for a sustained period of time for the purpose of:

(a)

eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market; or

(b)

preventing the entry of a person into that or any other market; or

(c)

deterring or preventing a person from engaging in competitive conduct in that or any other market.

The Labor government’s proposed amendment would change ‘market share’ to ‘market power’. The coalition opposes this amendment. Small business in particular is concerned that the meaning of ‘market power’ as defined by the High Court is too narrow. Labor’s amendment would further reduce the scope of the Birdsville amendment and make it harder for small businesses, via the ACCC, to bring an action against corporations or large businesses which engage in predatory pricing. The term ‘market share’ is also likely to be a simpler economic term for the courts to apply.

Changes to the 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’. The definition of market power 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.

The changes will also make it even more difficult for a small business to assess whether it has a case against a larger competitor for predatory pricing. Just imagine you are the corner store in a small community, or in Bunbury or Busselton in my electorate in the south-west of Western Australia, and you need to bring a case against one of the two major supermarket chains in Australia or perhaps even Costco, that retailing giant planning to open in Australia. This is a company with annual sales of around US$65 billion. It would be a daunting prospect for any small business to bring a case in such a David and Goliath situation, particularly as a significant proportion of small businesses are family owned and run. Making the time, going through the process and finding the money to do so in such circumstances can be prohibitive for small business owners. ‘Market share’ as a definition in this instance would be critical to the small business.

Regardless of the threshold test that is used, be it market share or market power, to be found guilty of predatory pricing a business would have to price their goods below cost with the intent of substantially damaging or eliminating competition. However, the Birdsville amendment does not stop legitimate and procompetitive discounting, as is claimed by some large business organisations. The amendment will only be triggered by below-cost pricing where that occurs over an extended period of time for an anticompetitive purpose. It should not stop any company from matching a competitor’s price, holding Christmas or any other clearance sales or sales to clear old stock at the end of the trading day. Customers will not miss out on this activity.

Small business is the engine room of our economy. We understand very well that there are millions of people employed in small business—nearly half of the working population. There are approximately 2.5 million small businesses in Australia, representing 96 per cent of businesses, and there are over 13,000 local small businesses in my electorate of Forrest. A majority of these are family businesses, and I will not compromise those businesses or those families by agreeing to amendments that will in any way lessen their capacity to compete with the duopolies that are open for business in many areas.

Given the importance of the small business sector and the fact that we know that numbers of small business actually increase competition in the marketplace to the benefit of consumers, the coalition will not support the government’s proposed amendments to the Birdsville amendment. This was enacted only at the end of 2007. I believe it needs time to work and to be tested through the judicial system. We want to ensure that small businesses are not forced out of the market by unfair competitive practices by much larger competitors. The only businesses that could be affected by the Birdsville amendment would be those who are engaging in predatory pricing or, in other words, selling goods below cost in order to substantially damage or eliminate their competition. Effectively, that is the misuse of market power through market share, which it is the intent of section 46 to deal with.

If predatory pricing is allowed, consumers will ultimately pay higher prices due to a lessening of competition, with fewer businesses in the market. Small businesses will be forced to close, and families and communities will suffer. Predatory pricing occurs when a corporation prices a product below some measure of cost and it does so with the intention of driving a competitor out of the market. The corporation subsequently raises the price again in an attempt to recoup the losses it incurred as a result of its below cost conduct. This is referred to as ‘recoupment’. In effect, predatory pricing is an exclusionary tactic, because the corporation is actively seeking to exclude competitors for the product from the market in its pricing. This can be done in one of two ways: the corporation excludes an existing competitor from the market for the product because the competitor cannot match the below cost price that has been set, or, for a new competitor, the corporation sets the price so low that it deters anyone else from entering the market.

The difficulty with predatory pricing is that, in some instances, it can appear to be a legitimate competitive behaviour because the existence of a price war is often an indicator of competition—as happened in the Boral case. I note a recent article by the Australian Financial Review’s chief political correspondent, David Crowe, who wrote of Associate Professor Zumbo’s comments that the Birdsville amendment protected small business without raising any risk that short-term or legitimate discounting practices could be considered predatory. Associate Professor Zumbo said that small business taking action under the law needed to prove that bigger rivals had substantial market share, priced their goods below cost, did so for a sustained period and did so for an anti-competitive purpose. I also note that the National Association of Retail Grocers of Australia is concerned the changes will not improve the Birdsville amendment. Ken Henrick, CEO, recently stated to the Senate committee that NARGA was not entirely comfortable with a return to the concept of market power, largely because of the precedent set in the Boral case.

In addition, this bill also seeks to extend the jurisdiction for section 46 cases to the Federal Magistrates Court and to remove the price threshold for unconscionable conduct. The coalition also does not support the proposal to allow the Federal Magistrates Court to hear section 46 cases. They are, of their nature, complex and usually long and unlikely to be beneficial to small businesses. Conducting the hearings in the Federal Magistrates Court will not necessarily make them less complex or shorter. In fact, section 46 cases can often end up in the High Court of Australia. The Federal Court of Australia has a well-developed competency and long experience in hearing such cases and is best placed in hear section 46 cases.

The Law Council of Australia has expressed concern that the government’s amendments to enable section 46 cases to be dealt with by the Federal Magistrates Court will not have the effect of lowering costs and could, in fact, potentially increase them. I reiterate that the coalition opposes these changes to the Birdsville amendment in section 46. It has not had enough time to prove itself and be tested by the court system. The Birdsville amendment defines a company’s influence by its market share, not its market power. Market power is a more general concept that was too hard to prove. It also allows small business a fighting chance, and they should be provided with that continuing opportunity.

Let me remind the House that it is the Labor government that have been inconsistent on this matter, as they unanimously supported the introduction of the Birdsville amendment last year. We have already seen a fall in business confidence since the election of the Rudd Labor government, and we have seen the government receive the worst rating of any government in Australia in the latest Sensis business index for small and medium enterprises. In fact, the report shows business confidence has fallen eight percentage points to reach 25 points, the lowest level since the survey began 15 years ago and less than half the level recorded at the same time last year

We have also seen the introduction of the GroceryWatch website. On this website we see the Rudd government endorsing one of the two major supermarket chains as having the lowest prices in the vast majority of regions across Australia. However, Kevin Rudd has said that, to increase competition, there needs to be a greater number of retailers to challenge the two major supermarket chains. Yet his government has officially advised people to buy their groceries at one of the two major chains. This is nothing more than free promotion for the major supermarket retailers. The Assistant Treasurer was quoted in the West Australian on 26 June as saying:

We’re not doing it for a price impact, we’re doing it to give people more information ...

I would ask: what does this information on the GroceryWatch website actually deliver to people who live in regional Australia, who do not live close to one of these major supermarket chains? The site notes that basket prices for individual stores are not available. How does this help someone living in my electorate in the towns of Harvey or Augusta? For the $3.70 difference in price on what is termed a ‘basic staples’ basket when I checked the site on Saturday, someone in these towns would have to get in their car and drive to find them. With the current price of fuel, this would cost a lot more than the potential savings.

I would ask again: how does this site help people in those small towns, and how does it encourage people to support small business in their small towns? These are the businesses that set up in areas that the major supermarket chains do not. These small supermarkets provide an invaluable service and support to the community. They provide prizes for local raffles and support the local sporting and community service organisations. How does recommending that people travel to shop at one of the major supermarket chains help regional small business, local people or their community?

Today, former Woolworths boss, Reg Clairs, is quoted in the Australian as fearing for Australian’s food industry under the Coles-Woolworths duopoly and the growth of global manufacturers. He said he was concerned about the power at the top of the chain. Mr Clairs is quoted as saying:

… there’s been a greater emphasis on the retailer taking charge of the supply chain … I am immensely worried about the ultimate destiny of a lot of food manufacturers in this country.

And further:

… ultimately, the global manufacturers will take the power base.

I would add here that it will not only be food manufacturers who will be at risk; it will be our farmers, our growers, our small and local businesses and their communities. And they will continue to be at risk.

Section 46 is about the misuse of market power, and anyone in small business is very aware of the challenges and issues involved in taking on a major corporation or a large business, firstly, in the marketplace itself and, secondly, in the courts through the Trade Practices Act. The Birdsville amendment was born out of the frustrations and community concerns that came to light in the inquiry of the former Senate Economics References Committee into the effectiveness of the Trade Practices Act in protecting small business. The concerns centred around the High Court’s interpretation of section 46 of not providing adequate protections to small business. The intention of the section was to provide a simpler test, a market share test that was easier to understand and litigate, rather than a market power test.

I will not support any changes to the act which reduce the competitiveness of small businesses, increase their exposure to major corporations and increase the misuse of market power. As I said earlier, small businesses are a critical part of the economic and social fabric of many regional centres and towns right across Australia. The majority of these businesses are family owned and run. They are a major employer nationally. They are the cornerstone of our society and a critical player in strengthening competition in the marketplace. And let us not forget that a win for small business is a win for consumers every time.

Shayne Neumann (Blair, Australian Labor Party) Share this | Link to this | Hansard source

The aim of the Trade Practices Act 1974 is to improve the welfare of Australians through the promotion of competition, fair trading and consumer protection in relation to unfair pricing, abuse of market power and violation of consumer rights. The role of the Australian Competition and Consumer Commission is to apply the act for the benefit of consumers everywhere in Australia, both urban and rural. The role of the ACCC is to administer and enforce particularly part IVA, anticompetitive behaviour; part V, consumer protection; and part IVA, unconscionable conduct in relation to commercial transactions and consumer dealings.

I speak in support of the Trade Practices Legislation Amendment Bill 2008. The Trade Practices Act 1974 was a wonderful groundbreaking law, an initiative of the Whitlam Labor government in the 1970s, after decades of inaction by conservative coalition governments. I am a bit less charitable to former Attorney-General Garfield Barwick, the then member for Blaxland. Certainly, there were plenty of opportunities during 23 years of coalition rule, from 1949 to 1972, to do something about this. But it took a Labor government, in 1974, to bring in the Trade Practices Act, which has made such a difference to the lives of individuals, small businesses and large corporations in this country, particularly in the areas of competition, fair trading and consumer protection.

When I listen to speakers opposite, they often parade themselves as champions of free enterprise and a free market. I just do not think they get it when it comes to this sort of legislation. Their record seems always to socialise losses and privatise profits, and it is left to Labor governments to do the hard yakka when it comes to providing pro-market and pro-competition reform in the economy. It is Labor which has a proven record when it comes to these areas.

All too often those opposite seem to side with big business—big oil companies, big tobacco companies, big liquor companies and big supermarkets. They seem to worship at the feet of oligopoly. They always side with big producers and forget consumers. In contrast, Labor governments strengthen the trade practices legislation. We did it in 1986; and we were the architects of National Competition Policy, which set the parameters for policy to enhance the economic performance of Australia in the last few decades. It was National Competition Policy which contributed to the strong economic experience that we have enjoyed.

This bill is long overdue and is probably the most substantive legislative change in more than 20 years. The bill amends by schedule. It makes amendments to section 46 of the act, to enhance anticompetitive unilateral conduct. There will be a requirement that at least one of the deputy chairs of the ACCC has knowledge and experience in the area of small business. There is a significant amendment to section 51AC to extend protection against unconscionable conduct in business arrangements.

Schedule 1 relates to the misuse by corporations of their power in the market. Section 46 amendments to the Trade Practices Act focus on promoting business competition and reducing anticompetitive behaviour of big business. It is a fact that competition reduces prices and that helps consumers—and it helps those people in my electorate. Oligopolies, even monopolies, allow big business to set prices, and consumers have to take it or leave it. Schedule 1 of the legislation deals with predatory pricing, the role of recoupment in predatory pricing litigation under section 46—and, in particular, clarifies the meaning of ‘take advantage’ for the purposes of section 46—and makes a wonderful reform in conferring jurisdiction on the Federal Magistrates Court in relation to matters under section 46.

I am surprised that the member for Forrest opposes that conferral of jurisdiction, because it was the Howard coalition government which established the Federal Magistrates Court and kept on conferring jurisdiction after jurisdiction and enhancing, in an imperialistic way, the jurisdiction of the Federal Magistrates Court. And now, when they sit opposite, they oppose the extension of the jurisdiction. I cannot get it, because the Federal Magistrates Court has simpler procedures—justice can be done for people more expeditiously and the court proceedings themselves are less formal. Everything about that court is more user-friendly than lots of other courts in this country—certainly the supreme courts and the federal courts—so I just do not get why the coalition is opposed to the deferral of jurisdiction.

What is the background to this legislation? The Senate referred to its Economics References Committee the issue of whether the Trade Practices Act adequately dealt with small business and protection from unconscionable conduct and the misuse of market power. The committee tabled its report on 1 March 2004. The report made 17 recommendations, including nine in relation to prohibitions against the misuse of market power. It was not about market share; it was about the misuse of market power.

The former coalition government implemented some of those recommendations in relation to predatory pricing but failed on others. In 2007 the coalition government did not listen to and act upon the anxiety of business, nor of the ACCC, which expressed its views to the Senate inquiry concerning a range of matters—recruitment and predatory pricing litigation, the ‘take advantage’ term in section 46 and others. Instead, on 19 September 2007, the Howard government dropped the ball; they squibbed the issue. That is what they did when it comes to consumer protection—and still they do not get it. When we hear speeches by those opposite, it is clear that they still do not understand the difference. They just cannot get it. They just do not understand.

The Birdsville amendment—the ‘Howard-Joyce amendment’—threw out all the principles in relation to the ban that applied on predatory pricing. Still they focused on market share, which is just one factor alone, rather than on the misuse of market power. The Birdsville amendment was made without any consultation with the business community—and they say they have such a great relationship with the business community! They did not contact the Treasury, they did not contact the ACCC and they passed the legislation just to satisfy Senator Joyce. Thank you, Senator Joyce, for what you have done—and I say that in a very ironic way.

Let us have a look at what 2007 brought to us, and the folly of the Birdsville amendment. That section made an amendment to the legislation. This is what they did: section 46(1AA) purported to prohibit a corporation with a substantial share of the market from supplying, or offering to supply, goods and services for a sustained period at a price less than the relevant cost to the corporation of providing them. That is what it said: ‘market share’. It did not mention market power, despite the fact that the Senate report referred to it. So they looked at one aspect. They did not look at the fact that big corporations can take advantage of their power in the market.

The new section 46(1AA) contains significant improvements, and there are provisions which do not exist in the current legislation. The new section 46(1AA) states that a corporation may still be found to have contravened the legislation even if the corporation cannot, and might not ever be able to, recoup losses incurred by supplying goods and services at a price less than cost. I think everyone in this House would agree that it is wrong for corporations to engage in this type of behaviour to prevent market entry by a competitor or to rid the market of a competitor in this way. The amendment we are bringing in today gives the Federal Magistrates Court guidance as to the factors which must be taken into consideration when a court looks at whether a corporation has taken advantage of its substantial degree of market power. The court may have regard to whether a corporation’s conduct was materially facilitated by its substantial degree of market power; whether the corporation engaged in that conduct in reliance on its substantial degree of market power; whether the corporation was likely to have engaged in that conduct if it lacked a substantial degree of market power; and whether the conduct was otherwise related to the corporation’s substantial degree of market power.

Presently section 46 does not explicitly state whether it is necessary to prove recruitment in a case of predatory pricing. The amendment takes up the Senate inquiry recommendation to expressly state that it is not necessary to establish such a case. That Senate inquiry followed several cases which have been referred to. It also followed the Dawson review, which considered the use and scope of section 155 of the act. Soon after the Dawson review provided its report to the government, several important Trade Practices Act cases were considered by the courts. The High Court considered the application and interpretation of section 46 in Boral Besser Masonry Ltd v ACCC in 2003, commonly called the Boral case. There was also Rural Press Ltd v ACCC, commonly called the Rural Press case—and that was the 2003 decision. There were other cases discussed in the Federal Court. The full Federal Court considered the issue in Universal Music Australia Pty Ltd v ACCC in 2003 and in Australian Safeway Stores Pty Ltd v ACCC in 2003.

All these cases raised questions about the adequacy of the legislation to protect small business from anticompetitive behaviour and conduct, including the misuse of market power. And guess what? The Howard coalition government ignored it all and the Birdsville amendment was enacted. What did Peter Armitage, head of competition and consumer protection at Blake Dawson Waldron, have to say concerning the Birdsville amendment? On 28 September 2007 he said:

Make no mistake: this law is bad for consumers and bad for competition.

The fact that there is no equivalent law in any other country in the OECD reflects their understanding that it is highly undesirable to chill the flames of competition and is no basis for thinking that the amendment is progressive or beneficial. But we have heard from the member for Forrest that the opposition are going to support the Birdsville amendment.

What was substantial market share? In the current legislation there is no definition and there are no factors listed to give us guidance—as the amendments in relation to market power provide. It is just hopeless. It leaves it all up to the courts to decide—a complete abdication of legislative responsibility, courtesy of Senator Joyce. The new amendments rectify these omissions and clarify the ‘take advantage’ provision and recognise the reality of life for consumers and business—that it is market power, not market share, that counts. Market share is just the tool. It is just something that you can look at to identify whether or not corporations have market power. You have to look at a rigorous analysis of the economy, of the section, of the pricing policy and a host of other factors when you consider market power. To focus alone on market share is not good enough.

What do other people say about the Birdsville amendment? Professor Alan Fels, the former chair of the ACCC, has also been highly critical of the Birdsville amendment, as has Bob Baxt, who is a former chairman of the Trade Practices Commission and is a partner in the law firm Freehills—a well-known and well-respected law firm which has been engaged by governments to do legal work on the behalf of governments. Bob Baxt said:

The Birdsville amendment, which prohibits corporations with a substantial share of the market from engaging in predatory pricing for the purposes of damaging competition, is apparently based on a simplistic and unprincipled evaluation of how competition law should operate.

…            …            …

As the government has been previously advised by many, this is an inadequate guide for corporations to assess whether they are engaged in anti-competitive behaviour.

He went on to say in his opinion piece in the Australian Financial Review of 19 September 2007:

The Australian Competition and Consumer Commission has recently consistently said that market share will no longer be regarded as the most important or relevant factor in evaluating anti-competitive mergers. The commission correctly notes that, in assessing whether competition is lessened, other important issues include barriers to entry, countervailing power and related matters.

…            …            …

Far from protecting small businesses, this amendment—

the Birdsville amendment—

is likely to prove unwelcome to them as well as to others, as increased complexity will lead to litigation and lengthy appeals. Not only will the small business sector not enjoy any real success as a result of these amendments, but most importantly, consumers will suffer significantly as companies abandon any attempt to discount in situations where they have any degree of market share.

A damning indictment indeed.

The amendment contained in the bill that we are dealing with today—conferring jurisdiction and dealing with the reality of business experience and experience with consumers—is really important. In one sector alone it is important. The report of the ACCC inquiry into the competitiveness of retail prices for standard groceries recommended a number of things, including unit pricing with a nationally consistent approach, changes to the zoning and planning laws to get rid of obstacles to supermarkets coming into shopping centres and changes to the horticultural code of conduct. The overview of that particular report said the bleeding obvious, that most Australians regularly visit supermarkets for their grocery needs, but then went on to say:

As the average Australian household spends around 12 to 14 per cent of its after tax income on standard groceries, increasing prices for these goods have been strongly felt.

The ACCC received 250 public submissions and a vast quantity of data, information and documents from supermarkets and other retailers, suppliers and groups for this inquiry. So, in one sector alone, consumers really feel the pinch when it comes to abuse of market power. When I do my grocery shopping, consumers talk to me about the fact that there are too few businesses in the market.

There are also changes in this amendment legislation in relation to unconscionable conduct. Currently under section 51AC of the Trade Practices Act, unconscionable conduct is proscribed in connection with the supply of goods or services to or the acquisition of the same from a corporation, and there are limits there when it comes to prices up to $10 million in terms of the supply of goods and services. The Senate inquiry recommended that the $10 million price limit be repealed. This bill abolishes the $10 million price threshold. This amendment will help to protect non-listed businesses engaged in business dealings exceeding $10 million.

This bill will have a big impact in helping the people in my electorate. I do not live in an electorate where people are rich; the people in my electorate battle and struggle. It is a rural and regional seat. I know from my experience growing up in Ipswich that anything to help consumers will help the average person in my electorate. The consumers in my electorate do not have much opportunity to express themselves in the market on a day-to-day basis. When it comes to supermarkets, big producers and big suppliers are the ones who tend, in an oligopolistic way, to dictate the prices. Any amendments that will enhance the rights and roles of consumers in our society and improve competition and fair trading will help the people of Blair, and I strongly support this bill. It is an indictment on the previous coalition government that it took this government, the Rudd Labor government, to make these amendments, which are long overdue.

Stuart Robert (Fadden, Liberal Party) Share this | Link to this | Hansard source

I rise to speak on the Trade Practices Legislation Amendment Bill 2008. The big question this afternoon is: is there a difference between market power and market share? The member for Blair would have us believe, through diatribe and legalese, that indeed market power is the panacea for all evil and that the current market power test will sustain all corporate evil and provide the right and best thing for small business. May I remind the honourable member for Blair that history has proven otherwise, and by history he stands condemned. Labor says no, the market power test is sufficient; I contend very strongly that the market power test is not sufficient and that the market share test, that of the Birdsville amendment, needs to remain.

Small business in this country employs almost 50 per cent of the nation’s workforce, and up to 50 per cent of these small businesses employ no-one. They are the engine room of the modern economy. Small business knows what it is to fight against large predatory competitors. They know what it is to battle daily to increase market share, feed their families and employ Australians—notwithstanding Labor’s recent budget of 134,000 unemployed; something, I contend, the Labor Party takes rather glibly.

I speak on behalf of the hardworking men and women of my electorate of Fadden, the fastest-growing electorate in the nation and one of three Gold Coast seats. As this House knows only too well, those three seats of the Gold Coast are the small-business powerhouse of the nation. The Gold Coast has more small to medium-sized enterprises per capita than any commensurate city or area in the country. And small business says the market power test is not sufficient to protect it from predatory pricing from competitors. So, whilst I support elements of the bill, I cannot support a return to market power by removing the Birdsville amendment on market share, nor can I support the move to allow the Federal Magistrates Court to hear section 46 cases.

Before understanding where we are to go in the future, it is important to understand where we have come from in the past. The provisions of part IV of the Trade Practices Act, which includes section 46, prohibit various trade practices that tend to prevent or lessen competition in an Australian market for goods and services. These provisions are at the heart of the Trade Practices Act. Since 1974 they have been instrumental in shaping the Australian economy. They lay down rules which, as interpreted by the courts from time to time, restrain anticompetitive behaviour and promote competition in the marketplace.

The original form of section 46 of the TPA reflected provisions which went back to Sherman Antitrust Act 1890 in the United States and the Australian Industries Preservation Act 1906. It was directed at a corporation operating independently using its market power against a competitor. Since that time, section 46 has been the subject of a number of formal inquiries and resultant amendments. Today, subsection 46(1) provides that:

A corporation that has a substantial degree of power in a market shall not take advantage of that power in that or any other market for the purpose of:

(a)

eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;

(b)

preventing the entry of a person into that or any other market; or

(c)

deterring or preventing a person from engaging in competitive conduct in that or any other market.

Despite the amendments to section 46 over the years, there remain concerns that the section does not achieve its purpose of prohibiting the misuse of market power.

The Review of competition provisions of the Trade Practices Act, the Dawson report, was released in April 2003. Its terms of reference were broadly cast, as there had not been a comprehensive review of the provisions since the Independent Committee of Inquiry into a National Competition Policy for Australia in 1993. After the Dawson committee had completed its consultations, a number of decisions about section 46 of the TPA were handed down by the full Federal Court and High Court. Of these, Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 215 CLR 374, the Boral case, raised a number of issues. However, the full weight of these judgements and decisions and the impacts they would have were not fully known; thus, the Dawson committee did not make any recommendations for change.

The following year, the Senate Economics References Committee conducted an inquiry into the effectiveness of the Trade Practices Act 1974 in protecting small business, which detailed a number of concerns about the effectiveness of section 46 at that time; specifically: whether the TPA gives sufficient guidance as to what constitutes substantial power in a market; whether the TPA provides guidance as to what constitutes taking advantage of market power; whether there is protection against predatory pricing; whether a financial power test should be introduced; whether the TPA should proscribe the misuse of market power in a second market; whether there is sufficient protection against the use of co-ordinated market power; and whether an effects test should be included as an addition to or substitute for the current purpose test. These have been recurring themes in calls for an update to section 46; hence the coalition’s addition of the Birdsville amendment in 2007 to further protect business from predatory firms who have a substantial market share.

The Birdsville amendment was introduced a year or so ago. It stops a company with a substantial market share from selling or offering to sell goods or services below cost for a sustained period of time for the purpose of eliminating or substantially damaging a competitor of the corporation, or of a body corporate that is related to the corporation; preventing the entry of a person into that or any other market; or deterring or preventing a person from engaging in competitive conduct in that or any market.

Some on the Labor benches will argue that the Birdsville amendment introduced considerable uncertainty into the law by introducing concepts of ‘substantial market share’, ‘sustained period’ and ‘relevant cost’, terms which had not been determined by the courts. May I refer my honourable Labor colleagues to the fact that, in the vast bulk of legislation in this House, terms will be defined by the courts from time to time and that waiting for the courts to determine the relevant meaning of phrases or words before enshrining them in legislation is farcical at best and perhaps a little stupid at worst.

The bottom line is this: this amendment has not been in long enough for it to be properly tested in the courts in any way, shape or manner. Because the amendment is less than 12 months old, it clearly could not have any of the morose effects that are being suggested in such hyperbole from the Labor government or, indeed, from big business. The provisions have not been in long enough for it to be clear how they need to be changed. All law needs time to settle down, to shake out, and for its relevance to be judged by industry. In this case, 12 months is clearly not enough.

The overwhelming question is: why would a company sell or offer to sell goods and services below cost for a sustained period of time if not to wipe out a competitor? The market share test simply says you cannot sell or offer to sell your goods and services at less than what you paid for them for a long period of time to knock out the bloke next door. And if you have got your goods and services for sale at a price less than what you paid for them for a sustained period of time, unless you have large market share, I would suggest very quickly you are heading for the bankruptcy courts. It is poor business practice to sell things for less than you bought things for, and the only reason you would do it for a sustained period of time is to knock out a competitor. This is not about sales over Christmas; this is not about a special to get customers through your front door; all of those things have a short duration attached to them. This is below-cost pricing for a sustained period of time. There is only one viable, economic reason why you would do that and that is to knock out your competitor, to put them out of business. I would have thought there would have been a term or a phrase or a concept that an economic conservative would understand, but clearly, in this form of government, I am vastly mistaken.

The government wants to repeal the Birdsville amendment; it wants to get rid of the market share test and return to market power. Let me give the parliament a brief example. The Woolies and the Coles service stations have something like 16 to 17 per cent of service station locations, yet they control 80 per cent of the market. Their market power is 16 per cent of service stations; their market share is 80 per cent of fuel sold. The two concepts are different and needed. Labor’s amendment would reduce the scope of Birdsville and make it harder for the ACCC to bring action against large businesses who engage in some form of predatory pricing. Small business in particular, and especially in my electorate, is concerned that the meaning of market power, as defined by the High Court, is far too narrow. Market share is highly likely to be a simpler economic term for the courts to apply within their judgements.

It is interesting to reflect upon the Boral case, as this has defined, more than any other case, what the market power test means. By way of history, Boral manufactures concrete masonry products—blocks, bricks, pavers. Boral, Pioneer, C&M, Rocla and Budget—five companies—all supply these products in the Melbourne marketplace. In the 1990s a price war broke out between manufacturers of these masonry products for the supply of products into Melbourne. By their nature, a price war is a good thing for consumers. The price war took place when the Victorian economy was in recession. Surprise, surprise—a Labor government at the helm! It had an adverse effect upon the commercial building industry and the level of demand for concrete masonry products. Boral and Pioneer cut the prices charged for concrete and masonry significantly and, in many cases during the war, Boral’s prices were less than their variable costs. In 1995 Rocla closed down all its Victorian masonry operations, followed in June 1996 by Budget, which stopped making concrete and masonry products. The ACCC alleged that between 1994 and 1996 Boral engaged in conduct that contravened section 46 of the TPA. In particular, the ACCC alleged that Boral reduced the prices—

Bill Shorten (Maribyrnong, Australian Labor Party, Parliamentary Secretary for Disabilities and Children's Services) Share this | Link to this | Hansard source

Madam Deputy Speaker, I rise on a point of order. Between 1992 and 1999 it was a conservative government in Victoria.

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

There is no point of order.

Stuart Robert (Fadden, Liberal Party) Share this | Link to this | Hansard source

Hence I referred to it as being in the early 1990s, when the Labor Party was actually in power, that the price war broke out. But I thank the parliamentary secretary for his grasp of history, as only a great Labor man could possibly understand.

Referring to the Boral case in particular, the ACCC alleged that the conduct of Boral was designed to eliminate or substantially damage C&M and other competitors, including Rocla and Budget. The majority of the High Court, with Justice Kirby in dissent, decided that Boral had not breached section 46 of the TPA. Section 46 did not contain, at the time, any concerns or words regarding predatory pricing. Clearly this case demonstrates that market power by itself is not sufficient. If market power could not be attached to the Boral case—Boral being the size that it was at the time when the price war started, when the Labor Party of Victoria had destroyed the economy, causing Kennett to come back in and restore the economy to the sort of First World economy that it was—market power by itself was not sufficient, considering what had happened during that time.

Birdsville will not stop legitimate and pro-competitive discounting, as is claimed by some large business organisations. The amendment will only be triggered by below-cost pricing, when that occurs, over an extended period of time for an anti-competitive purpose—an extended period of time; the period of time it took the Labor government in Victoria to almost wipe the economy out prior to the Kennett government.

Ms Anna Burke (Chisholm, Deputy-Speaker) Share this | Link to this | Hansard source

The member for Fadden will refer to the bill before the House.

Stuart Robert (Fadden, Liberal Party) Share this | Link to this | Hansard source

Birdsville will not stop pro-competitive discounting. It should not stop any company from matching a competitor’s price or from holding Christmas sales, any other clearance sales, or sales to clear old stock at the end of the trading day. The Birdsville amendment is designed to protect small business from predatory pricing over an extended period of time. It is a good amendment. It needs time to work its way out. It has the support of the small business community—a community that Labor is perhaps not listening to, as they are seeking to remove the market share test.

Moving onto the Federal Magistrates Court, the coalition does not support the proposal to allow the Federal Magistrates Court to hear section 46 cases. Existing section 86(1) confers jurisdiction on the Federal Court in respect of any civil proceeding arising under the Trade Practices Act. Existing section 86(1A) confers an additional jurisdiction on the Federal Magistrates Court under certain limited parts of the Trade Practices Act. During the Senate inquiry, submissions expressed concerns about the costs and delays associated with bringing section 46 matters, particularly for smaller businesses. If the costs associated with enforcing section 46 are prohibitively high, then it will not be effective in addressing anticompetitive conduct, no matter how well it is otherwise suited to doing so.

Section 46 cases are, by their very nature, complex and are unlikely to be beneficial to small and medium business—that section of the economy that employs up to half of all Australian workers and that the coalition stands by, supports and defends. Section 46 cases often end up in the High Court. The Federal Court is best placed to hear section 46 cases because it contains most of the expertise pertaining to the TPA.

It is unclear what this Labor government actually plan to do with the Magistrates Court. The jury is clearly out as to whether the court will remain or be subsumed. The government may abolish it, which may make the whole process completely useless. The coalition will stand up for small business. I will stand up for small business in the electorate of Fadden and for small business on the Gold Coast. The powerhouse that actually runs the economy is the small to medium enterprises. The coalition will stand up for it, and we will stand up for the Birdsville amendment. We will stand up for those hardworking men and women who, through incentive, through opportunity and through choice, go out to make a difference for their families. We will stand up for these people and will not support the government’s changes to these two elements of the TPA.

Sid Sidebottom (Braddon, Australian Labor Party) Share this | Link to this | Hansard source

It is nice to have rare times in parliament when you have a bit of rhyme whereby the member for Braddon follows the member for Fadden—which is very good. I notice we have a number of primary schools represented in the galleries. We say hello and welcome them to the parliament; they can see us in our dry activities today—but on very important legislation. I might add that students from Table Cape Primary School, from my electorate, are in the building at the moment. Unfortunately, I was not able to meet with them just now. It is a wonderful school and they come from a beautiful part of the north-west coast of Tassie. They have beautifully rich soil there, and I have always mentioned to you, Madam Deputy Speaker Burke, that you can drop a toenail in the ground on Table Cape and grow a foot. It is a brilliant area and a brilliant school.

Hence to the legislation before us, the Trade Practices Legislation Amendment Bill 2008. This is a bill to amend the Trade Practices Act 1974 to improve its ability to promote competition and fair trading in Australian markets and to crack down on anticompetitive behaviour. The member for Fadden mentioned history, and the parliamentary secretary at the table, the honourable member for Maribyrnong, is very much a student of Australian political history. He well knows that the Australian Labor Party has a strong legacy of competition reforms, having been responsible for the introduction of the Trade Practices Act in 1974 to enhance the welfare of Australians through the promotion of competition, fair trading and consumer protection. Labor made improvements to the act in 1986 and also instigated National Competition Policy and led on into the 1990s with it.

Part IV of the Trade Practices Act promotes competition by prohibiting anticompetitive conduct. Section 46 of part IV prohibits unilateral anticompetitive conduct, most notably by prohibiting corporations from misusing substantial market power to harm or eliminate competitors or competition generally. Part IVA of the Trade Practices Act promotes fair trading by prohibiting unconscionable conduct. In particular, section 51AC of part IVA prohibits unconscionable conduct in connection with the supply of goods or services to, or the acquisition of goods or services from, a corporation. However, it is the government’s belief—and this is mirrored in the legislation—that a series of court decisions have undermined the operation of the act, in particular section 46. You may well remember, Madam Deputy Speaker Burke, that in opposition we indicated that we would strengthen the Trade Practices Act to restore its original 1986 intention.

Schedules 1 and 2 of this legislation promote competition in Australian markets by enhancing the prohibitions against anticompetitive unilateral conduct contained in the Trade Practices Act 1974 and the competition code. Schedule 3 makes additional amendments to the Trade Practices Act and to the Australian Securities and Investments Commission Act 2001. Schedule 1 of the bill amends section 46—misuse of market power—to: address predatory pricing, clarify the role of recoupment in predatory pricing cases, clarify the meaning of the term ‘take advantage’, and confer jurisdiction on the Federal Magistrates Court for section 46 matters. Schedule 2 of the bill makes corresponding amendments to the version of section 46 found in the competition code, which is the version of section 46 that applies to all persons in the states and territories by virtue of application legislation in those jurisdictions.

Schedule 3 of the bill amends the Trade Practices Act and the Australian Securities and Investments Commission Act 2001 to require that one of the Australian Competition and Consumer Commission’s deputy chairpersons have knowledge of or experience in small business matters to repeal the thresholds for unconscionable conduct cases under section 51AC of the Trade Practices Act and section 12CC of the ASIC Act and, finally, to clarify the ACCC’s information gathering powers under section 155.

I would like to concentrate on some sections of those schedule amendments. I mentioned that the bill strengthens sections 46 and 51AC as part of the government’s ongoing commitment to improve Australia’s trade practices laws. As mentioned, it also includes several amendments that improve the ability of the Trade Practices Act to be effectively enforced. By making these amendments, the bill implements the government’s announcements of 28 April 2008 to strengthen the laws to promote fair competition. The measures contained in the bill were foreshadowed as opposition amendments to the Trade Practices Legislation Bill 2007. The amendments, however, were not adopted in the final version of that bill which was passed on 19 September 2007, despite many of them being recommended by the government’s own Senate inquiry into the effectiveness of the Trade Practices Act, particularly in protecting small business. At the time, the government, then in opposition, noted that the amendments would be pursued following a change of government.

Small business and consumers demand nothing less than an effective trade practices regime. Reforming the Trade Practices Act to bring it into the 21st century has been an article of faith for this government. The package which I mentioned and on which I would like to elaborate will ensure genuine competition for the benefit of consumers and small businesses. Predatory pricing hurts small businesses with the consumer paying the ultimate price. The previous government’s changes to the Trade Practices Act—to which the previous speaker, the member for Fadden, certainly alluded—most notably the Birdsville amendment, were a rushed job, put through without consultation in September 2007. Those changes have introduced confusion into the act. The government’s reforms will clarify this section of the act and, contrary to comments by members opposite, particularly the member for Pearce, strengthen its powers to identify anticompetitive behaviour.

On advice from the ACCC, we have replaced the share of market test with the market power test because market power is a broader term which will capture anticompetitive behaviour from powerful businesses, whether that power comes from a high market share or any other source. The coalition have indicated they will be voting to keep the Birdsville amendment. The Birdsville amendment is not supported by the ACCC, Professor Allan Fels, the former ACCC chair, or Mr Bob Baxt, who is a former chairman of the Trade Practices Commission. I would like to refer to some comments made by Bob Baxt in the Australian Financial Review on Wednesday, 19 September 2007. His opening comments were:

It is a great pity that the government—

the then Howard government—

has chosen to ‘ride on the tail of political opportunism’ in agreeing to the self-styled ‘Birdsville amendment’ to section 46 of the Trade Practices Act.

After a fairly lengthy discussion about what he believed were the flaws in the Birdsville amendment, and I think it is well worth noting and perhaps contemplating his closing comments, he said:

Far from protecting small business, this amendment is likely to prove unwelcome to them as well as to others, as increased complexity will lead to litigation and lengthy appeals. Not only will the small-business sector not enjoy any real success as a result of these amendments—

most notably, the Birdsville amendment—

but most importantly, consumers will suffer significantly as companies abandon any attempt to discount in situations where they have any degree of market share.

This legislation, introduced in haste and apparently as a result (among other things) of the criticisms made on a certain radio station, will not serve the Australian business community well (business, but most particularly consumers).

I would like to look at this Birdsville amendment, which was part of the former government’s legislation, and section 46(1AA). The present reference to market share has given rise to uncertainty and may reduce pro-competitive price competition in markets. The ACCC has publicly stated that section 46(1AA), as currently drafted, adds considerable confusion to the law and should be amended to clarify the protection it provides.

The bill achieves this by aligning the Birdsville amendment with a longstanding prohibition in section 46(1). In particular, the bill amends section 46(1AA) to focus it on a corporation’s market power as opposed to its market share. The size of a firm including its market share will, however, remain a relevant factor in establishing a corporation’s market power for the purposes of the revised prohibition. Section 46(1AA) presently operates in relation to firms with ‘a substantial share of a market’. This is inconsistent with a longstanding prohibition in section 46(1), which operates in relation to firms with a substantial degree of market power. The bill amends section 46(1AA) to align its operation with the longstanding prohibition in section 46(1). This includes focusing its operation on market power as opposed to market share.

The concept of market power allows the court to consider all the relevant characteristics of a market in determining whether a firm has acted anticompetitively. Such factors would include the size of a firm including its market share, as well as the size and number of its competitors. The concept of market power has been effective in targeting unilateral anticompetitive conduct. For example, in 2006 the Federal Court imposed penalties totalling $8.9 million on Safeway with respect to four breaches of section 46(1) and other anticompetitive conduct. This was despite Safeway having only around a 16 to 20 per cent share of the relevant market.

I refer, as mentioned earlier, to a couple of other sections of our amendment. The bill amends the Trade Practices Act to require that at least one of the ACCC’s deputy chairpersons have knowledge of, or experience in, small business matters. Why the requirement for small business experience? There are a number of trade practices issues that tend to confront small businesses in particular. These include issues relating to collective bargaining, retail tenancy, franchising, unconscionable conduct and the misuse of market power. The Trade Practices Legislation Amendment Bill (No. 1) 2007 amended the act to create a second deputy chairperson for the ACCC.

As noted in the second reading speech to the Trade Practices Legislation Amendment Bill (No. 1) 2007, it was intended that this position be filled by a candidate with experience in small business matters. However, the Trade Practices Legislation Amendment Bill (No. 1) 2007 strangely did not include any legislative requirement to that effect. The government’s amendments now include a legislative requirement that a deputy chair of the ACCC have small business experience. The amendment ensures that small business has a prominent and permanent voice at the ACCC.

The ability of parties to effectively pursue rightful claims is as important as having well-drafted laws. Concerns have been expressed about the costs and delays associated with bringing section 46 matters. If the costs associated with privately pursuing section 46 claims are prohibitively high, it will not be as effective in addressing anticompetitive conduct. This bill addresses these concerns by conferring jurisdiction over private matters arising under section 46 on the Federal Magistrates Court. By doing so, the bill improves access to justice for businesses in cases arising in appropriate circumstances under this important provision.

In the little time remaining to me I would like to look at the argument that we present regarding whether the Federal Magistrates Court is an appropriate court to hear section 46 matters. We believe it is. The 2003 Senate inquiry into the effectiveness of the Trade Practices Act in protecting small businesses considered that the Federal Magistrates Court had developed expertise in resolving issues without requiring the expense of a fully contested court case. It concluded that this expertise could resolve a substantial number of section 46 matters with cost savings to all sides. The Federal Magistrates Act 1999 permits the Federal Magistrates Court to transfer proceedings to the Federal Court when appropriate. Such a transfer may occur in complex and resource-demanding cases or where the amount being claimed is beyond the $750,000 jurisdictional limit of the Federal Magistrates Court.

The 2003 Senate inquiry recommended that the jurisdiction of the Federal Magistrates Court be extended to enable it to deal with misuse of market powers, which relies on section 83 of the act. Section 83 allows parties to rely on findings of certain previous proceedings as prima facie evidence in an action for loss or damage. While a section 46 matter relying on section 83 of the act may be an example of an appropriate matter to be heard by the Federal Magistrates Court, there is no justification for so limiting its jurisdiction.

In conclusion, the bill brought by the government to this House fulfils our commitments made in 2007, when this legislation was brought forward by the Howard government. The amendments we put forward strengthen the Trade Practices Act in its intentions to stop anticompetitive behaviour, to have fair trading and to have conscionable conduct. I recommend the government’s bill to the House.

Kay Hull (Riverina, National Party) Share this | Link to this | Hansard source

I rise today to oppose the changes that the Labor government has proposed in the Trade Practices Legislation Amendment Bill 2008 in relation to the Birdsville amendment in section 46 of the Trade Practices Act 1999. The Birdsville amendment was introduced by the coalition government less than a year ago—after a long period of lobbying by a number of us on Capital Hill, in both this place and the other. It was introduced to ensure that small businesses had a fair go when major supermarkets and the like set up shop and made it very difficult for these small businesses to be as productive. Since the introduction of the Birdsville amendment, it has been no secret that it needs time to work and needs to be tested in the judicial system. We have to make sure that small businesses are not pushed out of the market by unfair, anticompetitive practices by much larger companies.

I refer to a particular incident that took place in my electorate not so long ago. It has been the subject of some discussion by the ACCC and also NARGA, which is the body representing this particular small business. The situation, which was brought to the attention of the ACCC Chairman, two inquiry commissioners and a number of senior staff of the ACCC, was an example of what was believed to be an act of predatory pricing by Woolworths against a Supa IGA supermarket in Cootamundra, in my electorate, in the Riverina. There was a list of products that Woolworths Cootamundra was selling each week at prices considerably below Woolworths’ published statewide specials for those weeks—that is, Woolworths in Cootamundra were undercutting their own specials, which applied across their network in all other Woolworths stores in New South Wales.

The reaction from the ACCC at the time was to reject the suggestion of predatory pricing, abuse of market power or whatever you would like to call it. The chairman suggested that it might have been in the interests of Metcash Ltd to give the independent some price support through this cycle, thereby subsidising the independent. And there were comments made that the chairman was cynical about suggestions the ACCC should act to stop such behaviour by Woolworths taking place. Some of the comments were that, if taken by the ACCC, this action would surely be to the advantage of the IGA independent.

NARGA, in defence of their chain and the IGA in Cootamundra, pointed out that it could not be certain that Woolworths was selling below cost but they did know that Woolworths was selling below their own statewide specials and at an extremely low cost, and they indicated that the ACCC rightly had the necessary powers to investigate whether it was in fact below-cost pricing and therefore potentially predatory. Contact was made with the Cootamundra Supa IGA by the ACCC, but the ACCC basically said it would be really difficult to prove predatory pricing. There was no conversation in detail in relation to the allegation or the concerns that were being expressed by not only the owner of the Supa IGA but other people as well, and there was no great attempt to collect any information on the products or the period of time involved in this low pricing. I repeat: the pricing was below what was advertised right across New South Wales in every other Woolworths store. It did rate a mention, though, on page 538 of the grocery inquiry report. The ACCC said in relation to the Cootamundra allegation:

The ACCC sought information from Woolworths about the pricing policies of its Cootamundra store and the costs of supplying the discounted products over the period of the promotion. Although the information provided suggests—

everything always ‘suggests’ to the ACCC!—

that Woolworths sold some of the relevant goods at below its cost of supply, the ACCC notes that this only occurred for a limited period, the purpose of which was to vigorously compete with a refurbished store reopening. The information did not suggest that the conduct was directed at or could have resulted in eliminating, or substantially damaging, the newly refurbished competitor.

When the parliament passed the Birdsville amendment on predatory pricing, it was welcomed by many people—by me, Senator Ron Boswell, Senator Barnaby Joyce and those of us who had been trying to have this looked at and seen to since the integrity of the process had been undermined by the Boral case. It was a very important statement of principle. The parliament had really stated that the type of conduct that I have just referred to by Woolworths in Cootamundra was simply not acceptable. But it was also recognised that the courts would need to define some of the elements, including ‘substantial share of a market’ and ‘sustained period of time’; that a complainant would still require the ACCC to establish where there had been below-cost selling, because a complainant would have no access to the internal company information of an alleged predator; and, finally, that the courts would need to decide on ‘purpose’ in relation to injury or elimination of a competitor.

The ACCC Chairman himself said in a news release on 12 October 2007:

Inevitably, we will prosecute appropriate cases to test some of these questions before the court. However, it should be remembered that businesses which have suffered as the result of anti-competitive conduct of larger rivals can bring their own legal actions under the Act.

It should not necessarily be assumed that the ACCC will be the first to bring forward such a case. It is equally conceivable that a private party could be the first mover in this area. In fact, historically, the majority of actions under section 46 have been taken by private litigants.

Regardless, clarification from the courts on these issues will be welcome when it arrives.

The news release went on to say:

Mr Samuel said that the full implications of the changes would not be known until they had been properly tested by the courts …

But now Mr Samuel is acting as the court.

Is this a vote of no confidence from the member for Riverina in Mr Samuel? Sadly, sorrily, so it is. I for one have always stood up for the integrity of the Chairman of the ACCC, but I am sad to say that I can no longer stand up for that integrity. I have come up with every conceivable reason why the ACCC can do nothing about anything anymore. Here we have now—rather than an increase of rigour over those businesses to ensure their behaviour is not predatory and an abuse—a watering down of this section, and it is a crime to say the least.

COSBOA is the Council of Small Business of Australia and represents those small businesses. I did note that someone from the government side of the House last week—I cannot recall who—indicated that COSBOA actually supports the removal of this principle. It does not. It clearly says in its press release of 27 August 2008:

COSBOA believes that it should be the birth right of every Australian to have the opportunity to start their own business, and to succeed or fail on merit, without fear of being crushed by predatory tactics used by large corporations taking advantage of their greater market share or greater financial resources.

Effective laws to prohibit Predatory Pricing are essential in fostering an entrepreneurial culture, which is vital to the future economic prosperity of the nation.

It is a fact that those small businesses that make up rural and regional Australia in particular are always at the mercy of many issues and it is very difficult for them to represent their own needs. It is through COSBOA and many others that they can have some sense of justice. Basically, COSBOA is saying that the government’s proposed changes to the Trade Practices Act reinstate both the market power test and the take advantage test. In the past, these tests operated as an escape clause, not as a clause to sort out predatory pricing but as an escape clause for large corporations to hide behind to destroy competition with predatory pricing practices.

Big business wants these terms reinstated into the Birdsville amendment because they know that their predatory pricing will not be captured under these tests as the High Court has very narrowly interpreted such concepts. This is the reason for the insertion of the Birdsville amendment to section 4: to give small businesses the opportunity to be able to function. COSBOA also supported the changes made by the former government to introduce a new test of market share for predatory prices cases to overcome the High Court’s narrow interpretation of the concepts of ‘market power’ and ‘take advantage’. COSBOA says that small business prefers the market share test as the market power test and take advantage test are just too difficult, and the federal government is not making these tests any simpler.

COSBOA is not convinced that government’s proposed changes to reinstate these tests will strengthen the act in any way and is concerned that these changes would in fact weaken the act. So it is an absolute issue for that organisation that represents small businesses. We continue to go along in significant terms about the issues that are currently being faced and are related in many instances. There is no doubt that more competition brings down the prices for the consumer, whereas market centralisation allows the dominant players to exploit the consumer, the grower and the farmer. Less competition means higher fuel and grocery prices for consumers, and this all adds to inflation. Less competition means that farmers get less and less for their meat and their products, which would have dire consequences for the livelihoods of many.

Our small businesses are an integral part of any economy, especially in rural and regional areas. In Australia in 2006, small businesses accounted for 58 per cent of the private sector jobs growth and generated an estimated 30 per cent of the nation’s economic production. In Australia small businesses employ around four million people, which represents over 45 per cent of the workforce, much of this workforce in rural and regional Australia. Our small businesses are the backbone of our local communities. They are always the first port of call to support our charities, especially when they are having fund-raising ventures and the like, and small businesses are always there to support other local clubs with sponsorship and donations. The small businesses in our rural communities are already doing it tough because they have often been set up solely as a support for those rural communities and they have come to depend on these consumers to purchase their products. It is a very courageous effort to set up a business. You often risk your family, your home and your possessions in order to provide your service and goods to the community and also to provide employment opportunities.

What we have seen and what I have demonstrated here today is the fact that Mr Samuel has publicly said on many occasions that the ACCC’s role is to protect competition, not competitors. But I say to you, Mr Speaker, there is one issue here that cannot be denied: the ACCC’s protection of competition has been a resounding failure, more so in the last nine to 10 months than it ever has been before. It has been a resounding failure and an entirely new strategy is required. As I said, the ACCC report into our GroceryWatch was an absolute indictment on the fair go for the Australian person, on the fair go for the Australian business. I stand here in this House today to say I have no confidence in the ACCC; I have no confidence in the ACCC chairman; and I suspect that future businesses in Australia will be severely impacted upon as a result of what takes place in this House over the next few weeks in respect of this piece of legislation.

Harry Jenkins (Speaker) Share this | Link to this | Hansard source

Order! It being 2 pm, the debate is interrupted in accordance with standing order 97. The debate may be resumed at a later hour and the member will have leave to continue speaking when the debate is resumed.