Helen Coonan (NSW, Liberal Party, Minister for Communications, Information Technology and the Arts) Share this | Link to this | Hansard source

I move:

That this bill be now read a second time.

I seek leave to have the second reading speech incorporated in Hansard.

Leave granted.

The speech read as follows—

Introduction and overview

This is a Bill to amend the Trade Practices Act 1974, to improve its ability to foster competition in Australian markets, and protect against anti-competitive and unconscionable conduct.

The stated object of the Trade Practices Act is to enhance the welfare of Australians, through the promotion of competition, fair trading and consumer protection.  The Act contains a range of provisions that promote and maintain competition and consumer protection.

Part IV of the Act promotes competition by prohibiting conduct that may lessen competition.  Section 46 in Part IV prohibits corporations from misusing substantial market power to harm or eliminate competitors or competition generally.  Part IVA of the Act prohibits corporations from engaging in conduct that is, in all the circumstances, unconscionable.

This Bill amends Parts IV and IVA of the Act to implement the Government’s response to the March 2004 Senate Economic References Committee report on ‘The effectiveness of the Trade Practices Act 1974 in protecting small business’.  The Bill also implements elements of the Government’s Committed to Small Business statement decision, announced in July 2004.

The Trade Practices Legislation Amendment Bill (No. 1) 2007 follows the passage of the Trade Practices Legislation Amendment Act (No. 1) 2006, which implemented the Government’s response to the 2003 Review of the Competition provisions of the Trade Practices Act, chaired by Sir Daryl Dawson. 

Outline of measures in the Bill

Today the Government introduces a Bill to improve the operation of the Trade Practices Act in relation to small business.  The Government acknowledges and appreciates the contribution that small business makes to the Australian economy.  There are almost 1.88 million small businesses in Australia.  The small business sector provides more than 3.7 million jobs, and contributes 39 per cent of Australia’s economic production.

The Bill covers three key areas of reform.  Firstly, the Bill will provide for the creation of a second Deputy Chairperson position at the ACCC.

Secondly, the Bill makes a number of amendments to section 46 to improve and clarify the operation of the provisions of the Act relating to the misuse of market power.  It will also make consequential amendments to Part XIB and Part 1 of the Schedule to the Trade Practices Act, to ensure continued consistency between section 46 and the Schedule version of the Act which applies to the States and Territories.

Thirdly, it amends section 51AC to extend and clarify the operation of the unconscionable conduct provisions of the Act.  The Bill also amends the Australian Securities and Investments Commission Act 2001, duplicating the changes made by the Bill to section 51AC in relation to financial products and services.

Schedule 1:  Second Deputy Chairperson for the Australian Competition and Consumer Commission

Schedule 1 of the Bill provides for the creation of a second Deputy Chairperson position for the ACCC, and allows for the effective operation of the ACCC with that additional position.

The creation of the additional position has no impact on existing appointments to the ACCC, and the Bill limits the number of concurrent appointments to the position of Deputy Chairperson to two positions.

The Government intends for the position to be filled by a candidate who is experienced in small business matters.  On implementation, the Government will consult with the States and Territories on its preferred candidate for the position, in accordance with the requirements of the Conduct Code Agreement.

Schedule 2:  Misuse of market power

Schedule 2 of the Bill amends section 46 of the Trade Practices Act, as well as making amendments to related provisions of the Act.

Section 46 prohibits corporations with a substantial degree of market power from using that power for certain purposes proscribed under subsection 46(1).  The ‘market power’ referred to is generally described as the ability of a firm to behave in a manner that is persistently different from the behaviour of other firms in a competitive market.  An example of the existence of market power might be the ability of a firm to raise its prices above the ordinary supply cost, without losing customers to its rivals.

Leveraging market power

At present, section 46 does not explicitly state whether the market in which substantial market power is misused must be the same as the market in which the corporation has substantial market power.  Some submissions to the Senate Committee raised concerns about this lack of clarity, and the Committee recommended that section 46 be amended.

The Government accepted this recommendation.  It is appropriate for section 46 to proscribe the leveraging of substantial market power from one market into another.  Accordingly, the Bill amends section 46 to provide that a corporation must not take advantage of a substantial degree of market power, either in the market in which the power is held or in any other market.

Coordinated market power

The Act recognises that corporations may obtain market power in their own right, or through interactions with other corporations in the market.  For example, subsection 46(2) requires that related subsidiaries or holding companies in the same corporate group be taken into account when assessing market power.

The Committee recommended that section 46 go further, to take account of a firm’s interactions with corporations not in the same corporate group or related to the firm.  The Government agrees that section 46 should be amended.  The Bill provides that, in assessing whether a corporation has ‘a substantial degree of power in a market’, a court may take account of any market power the corporation has that results from agreements with others, or covenants that the corporation is bound by or entitled to the benefit of.

‘Substantial degree of power’ is not a threshold of substantial control

The Senate Committee recommended that section 46 be amended to clarify that the threshold of ‘a substantial degree of power in a market’ is not a threshold of substantial control.  The Government will be making several amendments to clarify the threshold.

Firstly, the Bill clarifies that the threshold of ‘a substantial degree of power in a market’ can be satisfied even though the corporation does not substantially control the market. 

Secondly, the Bill clarifies the threshold to state that a corporation can have ‘a substantial degree of power in a market’ even though it does not have absolute freedom from constraint by the conduct of its competitors or persons to whom or from whom it supplies goods or services.  Finally, the Bill makes it clear that more than one corporation may have a substantial degree of power in a market.  A corporation does not need to be a monopolist or near monopolist to satisfy the threshold for section 46 to apply.  Instead, sections 46 can apply to situations where several corporations operating in the same market each have a substantial degree of power in that market. 

It should also be noted that the Bill makes it clear that the Court is not limited to taking these matters into account in deciding whether a corporation has a substantial degree of power in a market. 

Below-cost  pricing

The Government will be making amendments to the Trade Practices Act to provide further guidance to courts in relation to predatory pricing.  Predatory pricing refers to a particular type of misuse of market power, whereby a firm deliberately sells at unsustainably low prices in an attempt to drive its competitors out of the market.  The firm may follow this by greatly increasing its prices in an attempt to recoup the losses it suffered from selling at the unsustainable price.

Predatory pricing harms competition and consumers.  However, it should be distinguished from legitimate, pro-competitive conduct, such as vigorous discounting, which clearly benefits consumers.

To this end, the Bill amends section 46 to emphasise that courts may take into consideration a sustained period of below-cost pricing when determining whether a corporation has misused its market power.   The Bill also provides that courts may take into account the corporation’s reasons for engaging in below-cost pricing. The corporation’s reasons for engaging in below-cost pricing may indicate whether the corporation had one of the prohibited purposes in section 46(1). I note that courts have in the past been able to examine below-cost pricing when determining whether a corporation has misused its market power under section 46.  The amendments in the Bill clarify that existing ability.  The amendments do not direct that a Court must have regard to below-cost pricing when considering a breach of section 46.  Nor do they limit the Court to considering below-cost pricing when determining whether a corporation has misused its market power.

Consequential amendments to Part XIB and Part 1 of the Schedule

Schedule 2 of the Bill also makes a series of amendments to Part XIB and Part 1 of the Schedule to the Trade Practices Act as a consequence of the changes to section 46. 

Part XIB of the Act provides a telecommunications-specific prohibition on the misuse of market power.  The Bill ensures continued consistency between section 46 and section 151AJ of Part XIB, in relation to the leveraging of market power, coordinated market power, the threshold of ‘a substantial degree of power in a market’, and predatory pricing.

The Bill also amends the version of section 46 found in Part 1 of the Schedule to the Trade Practices Act.  This is the version that applies throughout the States and Territories by virtue of application legislation passed by the States and Territories, in accordance with the 1995 Competition Code Agreement.

Schedule 3:  Unconscionable conduct

Schedule 3 of the Bill amends section 51AC of Part IVA of the Trade Practices Act.  It also makes amendments to related provisions of the Australian Securities and Investments Commission Act 2001.

Part IVA of the Trade Practices Act prohibits corporations from engaging in unconscionable conduct in their transactions with both consumers (under section 51AB) and business consumers (under section 51AC).  Section 51AC was inserted into the Act by the Trade Practices Amendment (Fair Trading) Act 1998 and was duplicated in the ASIC Act in relation to financial services, as part of the Financial Services Reform (Consequential Provisions) Act 2001.

In its report, the Senate Economics References Committee identified several issues in its consideration of the unconscionable conduct provisions of the Trade Practices Act.  It concluded that section 51AC is a relatively new section, which has not yet had time to develop a significant body of jurisprudence.  However, the Committee did accept that the case had been made for some minor changes to section 51AC.

$3 million threshold

The protection offered to business consumers by section 51AC is subject to two limitations.  Firstly, listed public companies are not protected by section 51AC.  Secondly, the section does not apply where the supply or acquisition of goods is at a price greater than $3 million.

The Government did not accept the Committee’s recommendation that the price limit be repealed.  At the time of its enactment in 1998, the Government intended to limit the protection afforded by section 51AC to small businesses.  This was achieved by limiting access to the protection to prices not exceeding $1 million, later increased to $3 million in 2001.

Complete removal of the price cap would broaden the focus of the provision in a way unintended by the Government.  Instead, the Bill increases the price cap under section 51AC to $10 million, as recommended in the Government Senators’ minority report.

Unilateral variation of contracts

When considering whether a corporation has engaged in unconscionable conduct in business transactions, a court may have regard to a non-exhaustive list of factors under section 51AC.  Subsections 51AC(3) and 51AC(4) provide lists that are tailored for business consumers that either supply or acquire the goods or services in question.

Unilateral variation clauses in a contract permit one party to vary some aspect of the contract without consulting the other party.  In line with the findings of the Senate Committee, the Government agrees that the imposition or utilisation of unilateral variation clauses may be an indication that unconscionable conduct has occurred.  However, the mere existence of a unilateral variation clause does not always indicate that unconscionable conduct has occurred —in some cases these clauses may be indicative of healthy competition.

Accordingly, the Bill amends subsections 51AC(3) and 51AC(4) to explicitly provide that a court may consider unilateral variation contract terms, when determining whether there has been a breach of section 51AC.  It does not direct the court to consider such clauses.

Consequential amendments to the Australian Securities and Investments Commission Act 2001

The ASIC Act applies the unconscionable conduct rules of section 51AC of the Trade Practices Act to the supply and acquisition of financial services.  To ensure continued consistency between the consumer protection provisions of the ASIC Act and the Trade Practices Act, the Bill duplicates the changes made to section 51AC in section 12CC of the ASIC Act.

Conclusion

The Bill implements a number of important Government announcements in relation to the Trade Practices Act and the protection of small business.  It comes about as a result of extensive discussions with key small business groups.  I would like to take the opportunity here today to pay tribute to the work of the Minister for Small Business and Tourism, Fran Bailey and the Leader of the Nationals in the Senate, Senator Ron Boswell for their strong advocacy for small business and their interest in these matters.  This Bill improves the overall effectiveness of the Act in protecting competitive processes in Australian markets.  Importantly, it makes particular enhancements to the Act in relation to the legitimate interests of small business.  I commend the Bill to the House.

Debate (on motion by Senator Coonan) adjourned.