Ted O'Brien (Fairfax, Liberal Party) Share this | Link to this | Hansard source

It is the purpose test that has really been assessed as the key failure of the current regime, due to it being too difficult to prove and too specific in its application. How do you prove one's purpose in doing something? How do you prove what one's intent is? It almost reminds me of the song the nuns in the convent sing in the Sound of Music: 'How do you catch a cloud and pin it down?'. It is just all too hard. How do you prove one's real intent? The application of the purpose test has also proven to be too specific, with cases typically seeking to challenge the purpose of an activity undertaken by one firm against other single entities, whereas the idea behind the act was to protect the process of competition itself.

Essentially, this bill seeks to address these flaws in the existing act by swapping the test of 'intent' or 'purpose' with a test of 'effect'. What is more, it is to relate not so much to an activity by one powerful firm towards another single entity, but rather to the question of whether such activity adversely impacts the competitive process. In other words, what counts is whether the little guy actually gets done over by the big guy, regardless of whether the big guy says he meant it or not. If, when this happens, competition is lessened, or is likely to be lessened, then that is enough for it to be against the law.

Clearly, this bill is to be contested. There is no point in denying that. A number of large corporates and their representative bodies are opposed to what it proposes. Small and medium sized entities, which are the bedrock of our economy, and who are most vulnerable to any misuse of market power, are very much in favour of the bill. Some opposition from the bigger end of town is no doubt based on the fact that the current regime has been in place for a long time; they are familiar with it and they would prefer the certainty it offers, along with simple continuity. I get that. Some have said that it could have a material impact on the speed and nature of business decision making and cause delays or changes in investment decisions. Obviously we want our big corporates to continue to invest, but we want those investments to be in line with community expectations that they will be fair and reasonable, not unfair—especially in regard to small and medium businesses.

The Harper review of competition policy, which in 2014 recommended the changes to section 46 that this bill engages, recognised the arguments that were being put by both sides and concluded that, on balance, these changes should be made. The government undertook its own augmentative investigation and discussion around the proposed changes and agreed, early last year, that the Harper review was right and that the changes should be made. The Senate Economics Legislation Committee came to the same conclusion.

As we know, the Labor Party opposes the bill, but its position is, as ever, full of contradiction and of opposition for the mere sake of being in opposition. The opposition Treasury spokesman, who is almost as big a critic of big business as his leader and deputy leader, is suddenly animatedly pro the big end of town when it comes to section 46. The shadow Treasurer does not see any need for change, arguing that the amendments will 'dull' investment, while at the same time, almost with the same breath, he argues against corporate tax cuts, which would positively impact investment and, subsequently and just as importantly, jobs. In other words, on this issue Labor is simply playing a tactical game of opposition politics—it supports the big end of town and then it attacks the big end of town, never with consistency in debate but simply with a view to acting as an opposition. But Australians are better than that. I am sure the vast majority of Australians want those that possess substantial market power to be held to account.

Some people who oppose this bill argue that it represents a breach of faith with the free market economy in that it meddles with Adam Smith's infamous invisible hand and thus undermines the notion of free trade. With all due respect to some otherwise learned warriors who run that line of argument, they have misread their economic theory and, what is more, they have certainly misunderstood the working of the real market economy. I say this as an unashamed, unabashed disciple of the free market and of free trade. Trade that is not fair is trade that is not free.

Small businesses know this best. In my home state of Queensland, there are 414,000 small businesses—that is 97 per cent of all businesses—each employing less than 20 employees. It is even higher in regional Queensland, including in my neck of the woods, on the Sunshine Coast, where around 32,000 small businesses constitute 98 per cent of the total. Should these companies be ring fenced and protected from competition? No, absolutely not—and nor do they want to be, because people who back themselves in private enterprise are not typically shrinking violets who are scared of competition. They are people who are prepared to invest their own bucks in an opportunity and to fight in the marketplace. They are every bit as talented and every bit as competitive as those who operate in large enterprise, but they have a right to compete on a level playing field, and that is what this bill seeks to support. A level playing field is absolutely consistent with the principles of free trade, because free trade is fair trade. It is on that basis that I support the bill and commend it to the House.

Tim Watts (Gellibrand, Australian Labor Party) Share this | Link to this | Hansard source

I am pleased to be able to speak on the Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 before the House today—despite being disappointed at its contents because, in a previous life, I once practiced as a competition lawyer. They are a funny mob, competition lawyers. They are least legalistic of lawyers, because they are more interested in markets than in statutory interpretation, because the rules of the competitive process are sacrosanct to competition lawyers. It is as much about economics and the operation of a market as the statute books. I was proud to be a competition lawyer, because competition is a Labor value. It stands on the principle that success in the marketplace should be a function of quality and efficiency, not inherited power, and successful strategy, not school ties.

As Paul Keating once said: 'The only thing that can guarantee our future is competition. Competition leads to higher productivity, lower prices and higher living standards. Competition is a Labor word. It is what guarantees working people a growing living standard and ensures that they are not going to be used and abused by businesses trying to lay off substandard products and services on them. Competition provides the spice to the economy.' National Competition Policy was a great gift of the Keating government, but it has always been a hotly contested space. The use of the law to break down entrenched power always is. Those with power tend to resist it being taken away and, in my experience, it is all too easy to say, 'Competition is good for you but not for me.' We are also confronted by the constant special pleading from businesses who want competition law to be used to protect them from competition. Defending the fundamental economic principles underpinning competition law requires strong leadership.

Unfortunately, the bill before the House today reflects a capitulation of the Turnbull government on one of the most fundamental principles of competition law. It is what happens when you let the Deputy Prime Minister run your economic policy. In its present form, section 46 of the Competition and Consumer Act prohibits businesses with a substantial degree of market power from 'taking advantage' of that market power with anticompetitive purpose. The government's proposed changes would amend how to determine whether an organisation is acting anticompetitively. Specifically, the amendment proposes the replacement of the 'take advantage' test with an effects test. The introduction of an effects test into Australian competition law has been something of a Lasseter's Reef for the National Party for the past decade or so. It has been a white whale for snake oil salesmen selling platitudes to small businesses in regional Australia.

I hear those opposite claiming that the Harper review has changed everything and that it is because it has recommended that this change is required that the government is proceeding. What you do not hear about from those opposite are the 10 previous reviews we have had over the past 40 years that have recommended against the introduction of an effects test in Australia. They have recommended against the introduction of an effects test for remarkably similar reasons. The Swanson committee in 1976, the Blunt review in 1979, the Griffiths committee in 1989, the Cooney committee in 1991, the Hilmer committee in 1993, the Baird committee in 1999, the Hawker committee in 2001, another Senate inquiry in 2002, the Dawson review in 2003 and a Senate Economics References Committee review in 2004—all of these inquiries looked at this issue and said that an effects test is just too hard; it introduces far too much uncertainty into this area of law.

According to the Harper review, current legislation is deficient in two ways. The 'take advantage' test does not competently identify the manifestation of anti-competitive practices by a firm; and the 'purpose' test is concerned with conduct that harms competitors rather than conduct that harms competition. As a result, the government's proposed amendment suggests that firms with substantial market power should be prohibited from engaging in conduct that has the 'purpose, effect or likely effect' of substantially lessening competition in the market.

This proposition fundamentally misunderstands competition policy. The 'purpose' element targets the operation of the Competition and Consumer Act towards behaviour that is designed to sabotage the competitive process. By broadening this provision to include its effects, the provision will necessarily cover effective competitive practices. We want our businesses to be competing aggressively. That is how products get better, that is how products get cheaper and that is how what is offered to consumers gets better. What this legislation does is create legal uncertainty about what that competition can look like.

I put to the House the question of whether this provision would prohibit the invention of the iPhone. Let us look at the provision. The law before the House would prohibit a firm with a substantial degree of market power from engaging in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in that market or in any other market in which the corporation operates. 'Substantially lessening competition' is a vague term in case law. It means not merely discernible, but in a material or real sense—a meaningful lessening of competition.

When Apple introduced the iPhone in Australia in 2008, it certainly had market power in the MP3 player market through the iPod. It leveraged this market—the lock-in of consumers using its MP3 player—in the new smartphone market, a market that it entered with a zero per cent market share. Within five years, Apple's smartphone market share in Australia was almost 50 per cent—an effect that substantially damaged competitors like Nokia and Research in Motion—the manufacturer of the BlackBerry, a device that is now lost to time, and their market share plummeted as a result. That is a good thing—I love my iPhone; it is much better than the BlackBerry that I had back in 2003. But it adds the uncertainty: would Apple have had to call the competition lawyers? I used to be a competition lawyer, and this law will be very good for competition lawyers, because it will mean Australian businesses will not be able to walk two steps without calling their competition lawyer and asking them—at a very hefty price, billed at $6 increments—'Can I do this? Can I invent an iPhone? Can I reduce the price of this product? Can I enter a new market?' If you think that is a good way of running an economy, you could have got a job in the Soviet Union. This is directly involving government in the strategy and decision-making of business in an utterly absurd way. The example that I give is a deliberately silly one, and I want to stress that I do not think that argument would get up in the courts, but it is an example of the kinds of arguments that we are opening the door to with the uncertainty inherent in this provision.

I should emphasise to those National Party members across the chamber that it is not just large multinationals corporations that will be caught up by this. A market is defined under the Competition and Consumer Act as having dimensions of a product and a geographic space in which rivalry and competition take place. The reality is that there are many fairly small businesses in Australia who have market power within regional markets. They will be caught by this provision. Decisions to open new stores in regional areas will be caught by this provision. If there are competitors who do not like the effects of that competition and if there are other businesses who do not want to try and seek the business of their customers by providing better products but instead by calling up the ACCC and asking if they will intervene, they will do that. It will impose a significant cost on small business in regional areas.

Indeed, the Treasury has already conceded that the introduction of the effects test would increase uncertainty for Australian businesses. This will be a boon for competition lawyers. This provision will force major Australian businesses to pick up their phone to their competition lawyer before every new product launch and every new pricing strategy. They will need to ask whether the 'effect' of these actions could contravene the law—and all too often, the response from their highly paid legal counsel will be, 'Maybe' or, 'It's impossible to say' or, 'You could try.' It will impose completely unjustifiable costs and uncertainty on Australian business management. The government's proposal to replace the 'take advantage' test with an effects test means that Australian competition law will enter a new period of risk and uncertainty. In fact, it will be the most significant upheaval since the introduction of the Competition and Consumer Act. The fallout from the introduction of an effects test would ultimately be handed down to consumers, which means that hardworking Australian families will be the ones that lose out.

The government's intention to introduce the effects test has the potential to fundamentally stifle innovation and dull competition rather than invigorate it—unless you think getting lawyers involved in everything is likely to produce better products. Stifling innovation and dulling competition is not a plan for jobs and growth. The function of competition law should not be creating jobs for competition lawyers. We do not want to increase risk for businesses when they engage in robust competitive conduct. And we certainly do not want to make businesses less inclined to engage in competitive behaviour. Reluctance from businesses to lower their prices in fear of legal risk will slow economic growth. Submissions to the Harper review described the effects test as a 'legally unworkable' mechanism that will inevitably increase consumer prices. Indeed, the Council of Small Business Owners Australia, COSBOA, has criticised the potential to create a 'lawyers picnic' of litigation for small business owners. This is why Labor will oppose these changes.

Labor's alternative is comprehensive, fully costed and robust, and can serve as the cornerstone for a new phase in Australian competition policy. In order to preserve the integrity of Australia's national competition policy, Labor is proposing an access to justice policy. Derived from the successful European competition policy frameworks, the access to justice policy is designed to facilitate—

Debate interrupted.