Matthew Canavan (Queensland, Liberal National Party) Share this | Hansard source

She is right, Senator Sterle. The current wording of section 46 is the competition law equivalent proving intent in criminal law—it is a much harder thing to do. The Harper review has recommended that the purpose test should be supplemented by an effects test. This would mean that corporations with substantial market power must not engage in conduct that has the effect of damaging competition.

It is important to note here that there are two changes being proposed. The first is to make large firms with significant market power responsible for the effects of their decisions. Those that seek to oppose such a change must answer the question as to whether big businesses should take into account the effects of their decisions. Do large companies in our retail, financial and utility industries believe they have an obligation to act in ways that promote competition rather than detract from it?

The second change is that corporations will only be liable for the impact of their decisions on the competitive process, not on individual competitors. It is clear that the effect of some perfectly reasonable—indeed, socially beneficial—business decisions will harm competitors. The very act of opening up a business will take custom from one business to another, thus causing harm. What we do not want, however, is damage to the competitive process as a whole. It is one thing to open up a store and compete; it is another thing completely to engage in conduct that is exclusionary, predatory or deters others from opening up a business lest they risk being subject to such behaviour.

The Harper review's changes will also remove the 'take advantage' test. The take advantage test has become too obtuse and hard to interpret. The test that requires that the advantage be taken in respect of the market power a business might have is in effect another quasi-purpose test within section 46. You have to prove that a business acted in a way that gave them an advantage and they did so with the purpose of using that in their market power. The take advantage test has become one of great dispute in for recent competition law cases, including in Melway, Boral, Rural Press and Cement Australia. These cases have involved the courts launching into long, hypothetical deliberations about the conduct of a corporation in a hypothetical world in which it does not enjoy market power. After two of these cases, the parliament made additions to section 46 to clarify the take advantage test. As the Harper review has succinctly summed up, however:

It is doubtful that the amendments assisted.

It is probably clear now that we simply need to remove such a test to remove any such ambiguity that remains, and that is what the Harper review has recommended.

The broader case that the Harper review makes for change is strong and it is supported by both logic and evidence. The first point to make is that the introduction of an effects test would not simply end up protecting inefficient companies to the detriment of consumers. Out-competing your rivals by competing on merit would not amount to conduct that significantly lessens competition under the proposed changes. ACCC Chairman Rod Sims reiterated this in a recent letter to the Harper review, saying that section 46 should protect and promote the competitive process:

… not by protecting the losers, but by preventing conduct by firms in a position of substantial market power that excludes efficient and innovative competition which would otherwise benefit consumers.

I recognise that there are some that disagree with this view but I think we can all agree on one thing: this debate should be informed by evidence, not speculation, and we can use evidence in this case because an effects test exists here in Australia and there are examples of effects tests overseas in other competition law regimes.

Here in Australia, an effects test already exists in regards to the telecommunication sector. Part XIB of the Competition and Consumer Act specifically prohibits a telecommunication company with a substantial degree of market power taking advantage of that power, '… with the effect, or likely effect, of substantially lessening competition ...'.

Overseas an effects test is the predominant way that competition laws are enforced. The law in the United States prohibits conduct that unreasonably restrains competition by creating or maintaining monopoly power. The courts have largely interpreted this prohibition to only capture firms with substantial market power. The Federal Trade Commission stated in their submission to the Harper review:

In recent cases, intent is rarely, if ever, the focus of the analysis … A subjective intent test risks attributing too much weight to hyperbole or unrealistic speculation or too little weight to the harm from objectively anticompetitive acts.

Over the past century, US courts have moved from using intent to an expressly objective effects test.

This view was also summed up recently by the US Court of Appeals for the District of Columbia Circuit in the famous case—the US v Microsoft. They said in that case:

… to be condemned as exclusionary, a monopolist's act must have an "anticompetitive effect"—

and they use the word 'effect'—

That is, it must harm the competitive process and thereby harm consumers.

That is a very nice summary of exactly what the Harper review has recommended.

The US Federal Trade Commission also notes that the US courts apply the effects test pragmatically and that the test permits flexibility of proof based on the context and best available evidence. Similarly, in Europe they have provisions in their competition law relating to an 'abuse of dominance' test. Under the EU competition law—as well as in a number of European countries, including the UK and France—determining whether an arrangement is anticompetitive is assessed on the basis of its objective—like our test, the purpose test—or its effect on competition in the marketplace.

There is a simple effects test right here for the opponents of an effects test. If the effects test is to wreak such havoc on our economy, then people should be able to point to the effect of the effects test in other countries and here in our telecommunications sector. Surely, if the effects test is so detrimental to competition and if it is to have a chilling effect on the marketplace, that would have become apparent in the US and Europe, who have had decades of experience of such laws.

In a recent unpublished paper on New Zealand's competition law, a competition law expert from Howard University, Professor Andrew Gavil, noted that the omission of an effects text is inconsistent with trends in competition law internationally. He was highly critical of what he termed 'the counterfactual test'. That is the test that I described earlier that our courts have applied in trying to work out if corporations have taken advantage of their market power. Professor Gavil noted:

The counterfactual test substitutes a hypothetical inquiry into the conduct’s possible efficiencies for the more important question of its actual effects, both pro- and anti-competitive, when practised by a specific, dominant firm in a market with specific characteristics.

Professor Gavil gets to the heart of the issue when he says that the problem with the counterfactual test is that:

It never asks whether the anticompetitive effects are far more substantial than any realized efficiencies.

That is any efficiency associated with promoting competition or not regulating competition. I will put it in plainer English—mainly because my parents and children are in the gallery today, if they are still awake. The whole point of competition laws is to stop the negative effects of anticompetitive conduct and to promote the positive effects of pro-competitive conduct. We cannot achieve this unless we are actually looking at the effects of that conduct, not just their purpose.

As a legislator I am not interested in the state of mind of a big business and I am not concerned about the intent or purpose of their actions; I am interested in their effects. That is why we should have an effects test. We should have a competition law that is firmly focused on promoting the great benefits of competition, not on whether people are intending to act in a competitive way. If competition is a means to an end, why would we focus on the intent of actions and not their effect? I agree that competition is only a means to an end. It is a process to provide good things. With that in mind, competition laws should be firmly focused on those ends that are actually achieved by businesses, not what their hypothetical objectives or ends might be.

I agree with the ACCC: the proposed effects test is neither novel nor anticompetitive. I know that the recommendations the Harper review has made are now going out to consultation and there will be further submissions made on this. I certainly support the direction of the changes, but I too have some reservations about some of the proposals they have made. The Harper review has provided some defences to an effects test. First, the Harper review has said that a business could defend itself from a successful claim of misuse of market power by arguing that a rational business without market power would have acted in that same way. I am concerned that this would simply put us in the same hypothetical hyperspace that marks current section 46 cases. Although I note that the change that they have proposed would put the onus of proof on the business or on the defendant to prove that hypothetical situation rather than putting the onus of proof on the plaintiff or ACCC.

Second, the Harper review has provided an additional defence that the anticompetitive effect is in the long-term interests of consumers. I worry that that phrase is not well-defined enough in our current laws, although it has been used in the context of access pricing regulation. Even so, more work would have to be done to clarify exactly what that would mean in this context. Overall, however, I applaud the Harper review for suggesting these changes. Clarifying and strengthening our anticompetitive laws will be a shot in the arm for small businesses and farmers that are suffering under the yoke of too much market dominance. We should never put people in the position where they can basically be threatened or blackmailed into providing more and more every time. Business relationships are just like other relationships: they thrive best when there is give and take.