Ron Boswell (Queensland, National Party) Share this | Link to this | Hansard source

Before I make this speech, I would like to acknowledge Mr Ken Henrick, who is a retailer of some strength in Western Australia, and Mr John Cummings, who is the Chairman of NARGA, which represents the interests of the grocery industry in Western Australia.

I wanted to take the opportunity today to speak about the path that has led to historic legislation, which has been introduced to the House of Representatives today and will come up to the Senate probably at the next sitting, to amend the Trade Practices Act and particularly to strengthen the misuse of market power provisions of the act, which promote fair competition and protect business from unfair practices undertaken by their more powerful competitors. The legislation represents a big win for small business. For many years I have promoted trade practices reform to strengthen small business in the face of misuse of market power by market dominant firms.

In the late eighties, when Labor was in power, I went to then Minister Duffy and explained to him why he could not get his favourite yoghurt from the supermarket anymore. The retailers were charging such high upfront fees to suppliers that the yoghurt producer could no longer afford to buy the shelf space. I also had a good relationship with then Senator Chris Schacht, who had a soft spot for small business and some favours owed to him from the hierarchy of the previous Labor government. I suggested to him that he needed to call in some of those favours and help small business by strengthening the merger test. The outcome of this conversation contributed to Labor changing its position on trade practices reform and supporting a change to the merger provision to refuse those that substantially lessen competition in the market. The new definition changed the structure of markets in Australia by denying mergers of dominant players that would have decreased competition.

My interest in trade practices issues began with my experience as a manufacturer’s agent before entering parliament. I saw the increasing market domination in retail as a danger to healthy competition in Australia. I believe that a realistic aspiration to own your own business is the best way to maintain an equitable distribution of wealth in our society. This has been at the core of my work as a senator for 24 years. This week is a landmark in trade practices reform in this country. Today I want to explain its significance and importance to small business, whether a newsagent, chemist, car dealer, service station owner, grocer, hotelier, farmer or independent retailer. Yesterday the Treasurer introduced the Trade Practices Legislation Amendment Bill (No. 1) 2007. This will be the legal foundation on which Australia will build defences for its small business against the misuse of market power by dominant firms. The Treasurer deserves accolades for his foresight and determination to get this legislation right and get it through. It is a difficult job to balance the big and small business players and take both into consideration.

Small business has suffered from anticompetitive forces of misused market power. The High Court’s Boral decision in 2003 raised the threshold to the point where a business virtually had to hold a monopoly before it could be deemed to hold the legally required substantial degree of market power to proceed on a case alleging a breach of section 46 misuse of market power provisions. The ACCC has brought no new section 46 cases to court since Boral.

Further significant changes to trade practices were needed to keep Australian markets competitive. Numerous inquiries into supermarket domination have occurred. I brought various matters relating to the actions of large players to the attention of various ministers, Labor and coalition, who acted, but it was a piecemeal effort without legislative change. There were plenty of problems but, it seemed, very few solutions that could gain the necessary cross-political support from big and small businesses.

Small business was more hopeful when the most recent of these inquiries, chaired by Senator Brandis, gave support to recommendations to change section 46 of the TPA. Section 46 is vital to small business, as it sets the rules against the misuse of market power, including the practice of predatory pricing, where a business sells a product below cost to drive a competitor out of the market. Still, there was political inertia as long as the stalemate between big and small business continued.

The real breakthrough came when the Fair Trading Coalition, a small business group, talked with big business about measures advocated by the Dawson report, which the government was proposing to legislate. The government was proposing to legislate a change to section 46 and to collective bargaining, which small business needed. The outcome, after considerable effort, was the historical acceptance between small and big business sectors of a way forward for Dawson and trade practices reform. At this stage, February 2006, I went to the Treasurer armed with a single achievement. Essentially this consisted of three key areas: firstly, clarification in section 46 that a company can hold a substantial degree of market power without actually controlling the market and without complete freedom from the constraints of competition. This included legislative clarification that there can be more than one player in a market who can hold a substantial degree of power. The Boral case virtually took us back to the old monopoly test—where, if there were at least two big players in a market, it virtually meant that a business could not be deemed to hold a substantial degree of market power in a market. This new legislation would make it clear, for instance, that both Coles and Woolworths could be deemed by the court to hold a substantial degree of market power in the Australian grocery market and, hence, could be prosecuted under section 46 if they misused their market power against a small grocery store.

Secondly, there was a broad consensus on a predatory pricing amendment to section 46 to enable a court to consider the operation of a business supplying goods or services below cost and the reasons for this behaviour when deciding if that business holds a substantial degree of power in the market. This means that a court can consider below-cost selling over a significant period of time as an element in determining if a business holds a substantial degree of power in a market for the purposes of a section 46 case. Predatory pricing—where a business sells its product below cost to put a competitor out of business—is an example of the misuse of market power. If it could be shown that a national company was selling 500 gram packs of butter for an average of $1.50 across its stores whilst selling the same product for $1—below cost—in one small town with the purpose of knocking its competitor out of that market, then that would be a case of misuse of market power and predatory pricing.

Finally, the small business parties wanted to address concerns that the current section 46 does not enable adequate consideration of whether a misuse of market power action has resulted through coordination between two or more companies or through leveraging between two different markets. They wanted clarification that two businesses, when acting together, could be deemed to be unfairly competing. The Treasurer, encouraged by this new-found consensus, proceeded with reintroducing the Dawson bill. This would deliver much to big business, including the formal merger clearance process, and valuable collective bargaining provisions for small business. After my earlier personal discussions with the Treasurer, the proposed third-line forcing provision changes were dropped due to their damaging effect on small business. After further negotiations, the ACCC was made a full party to merger authorisation applications in the Australian Competition Tribunal. The bill passed the Senate.

Several discussions were held between the Treasurer’s office and small business groups—groups like NARGA and the Fair Trading Coalition, which includes chemists and newsagents—motor traders associations, hoteliers, HIA, the National Farmers Federation and COSBOA about delivering on the other agreed changes to trade practices. Roundtables were widened to include the Minister for Small Business and Tourism, Fran Bailey, and more lately Senator Fielding. General agreement was reached on the thrust of proposed legislative reforms by this group. The government’s additional changes to section 51AC of the act, dealing with unilateral contract variations, were also discussed.

As part of these discussions on unconscionable conduct, concerns were raised by small business about the problems many businesses were having in negotiating fair retail tenancy leases. I applaud the Treasurer for announcing a Productivity Commission retail lease inquiry yesterday to address this important issue for small business. The bill will come to the Senate in due course, and I am confident that it truly reflects the breakthrough consensus reached between business and government. The outcome which has been negotiated with those most keenly affected, the leaders of respected industry groups, is a mark on the wall of trade practices reform in Australia. It is a credit to all involved and will do much to abate the negative impact of the unfortunate Boral decision, which was a key catalyst for renewed efforts for change. The trade practices amendments are long-awaited stabilisers for market conduct which threatens competition. There will always be more items on the agenda for trade practices, but this item deserves a standing ovation from all business.