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

I am in continuation at present on the Trade Practices Legislation Amendment Bill (No. 1) 2007 and I was explaining to the Senate that, under section 46 as it presently stands before this legislation goes through the House, to secure a section 46 conviction it almost had to be a monopoly taking on a smaller business, and it had to have a substantial degree of market power that was considered a monopoly. Just to explain that, I would like to read the judgement of a member of the full bench of the High Court, and this was his finding. He supported Boral’s appeal. Justice McHugh concluded:

Even though Boral drove down its prices in order to remove competition, this does not mean that it had a substantial degree of market power. That must be proved before there is a breach of section 46. Predatory pricing without a substantial degree of market power cannot result in a breach of section 46.

That, in a nutshell, is why we have to amend section 46 today. There were clear cases—even Justice McHugh recognised that Boral drove down its prices in order to remove competition. And even after it knew that, the High Court could not bring in a breach of section 46.

Since that finding, there have been no more court actions under section 46. The ACCC have just not bothered to take any section 46 cases to the court because they knew that they would be unsuccessful and would have been wasting their hard-to-come-by money. So there was an acknowledgement that Boral may have predatory priced but no way to prosecute because they were deemed not have a substantial degree of power in the market. So the reason we are bringing this legislation in today is to make sure that we do have an effective safeguard for unfair practices of predatory pricing. The Treasurer and the government have now produced this bill and should be congratulated on it.

The major small business groups, NAGA, the NFF, COSBOA and the Fair Trading Coalition, all agree that changes will have significant effect in again making section 46 operational and functional in discouraging and protecting them from a misuse of market power by the large competitors.

Reforms that we are making to section 46 reflect the wishes of small business and really address four major issues. One is threshold, another is predatory pricing, another is cooperative action to misuse market power and the other is recoupment. This legislation addresses those four issues. I just take a minute to thank Hank Spier, because he did a lot of work with the small business organisations and got this legislation to the point where it became part of the government’s program. Senator Joyce will move amendments that support small business.

Can I substantially address the four issues. On the threshold: a successful section 46 prosecution relies on a business being deemed by the court to hold a substantial degree of market power and to have taken advantage of that power in the market by acting in some way to disadvantage a competitor. Legally, this has become a problem since Boral raised the threshold and made it almost impossible for non-monopoly businesses to reach the required level of market power to proceed on a case alleging breach of section 46.

On predatory pricing: we have already discussed this issue in some detail. The bill enables the court to consider the operation of a business in supplying goods or services below cost and the reasons for this behaviour when deciding that a business holds a substantial degree of market power in the market. The government will also move an amendment to the bill today that will leave no doubt that predatory pricing is a practice that will not be tolerated. It introduces a new prohibition specifically for the practice of predatory pricing within the misuse of market power framework, and that will be welcomed by small business.

On cooperative action to misuse market power: through this bill we will also address this by making it clear in the Trade Practices Act that misuse of power can take place when two or more businesses cooperate or are coordinated in misusing market power. Also, the bill makes it clear that misuse of market power can occur across markets so that, for example, if a business holds a substantial degree of market power in a grocery market, it is being made clear that the business cannot leverage and misuse that market power, say, in a fuel market.

One problem that was worrying small business was that of recoupment. We have included reference to recoupment in the explanatory notes. Recoupment was being given too much consideration in the courts when they were considering predatory-pricing cases. The government maintain that this is covered in the legislation, but we have included clarification in the explanatory memorandum that makes it clear that there is not a legal requirement of recoupment or loss to prove that predatory pricing is taking place. It is not a requirement to prove a breach of section 46.

There is also the addition of a new small business commissioner on the ACCC and improvements to section 51AC to raise the transaction threshold from $3 million to $10 million, something that small business continually asked us to address. (Time expired)

Grant Chapman (SA, Liberal Party) Share this | Link to this | Hansard source

The Trade Practices Legislation Amendment Bill (No. 1) 2007 has come about because of a review initiated by the Howard government back in May 2002. At that time Mr Justice Daryl Dawson, a former High Court judge, was asked to conduct a review investigating the misuse of market power as defined in the provisions of section 46 of the Trade Practices Act. The Trade Practices Act has been dealt with by this parliament on many occasions and has been examined by committees and specialised groups over a long period of time. There have been a number of cases in which the section that deals with competition has been brought before the courts. A consistent concern raised by small business is that they are not playing on a level playing field. Many small businesses, when they compare the prices at which they are able to sell, see large corporations as having an unfair advantage. Often small businesses claim that they can purchase products from large corporations at a lower retail price than they are required to pay if they purchase wholesale in the operation of their own business.

Following the report by what has become known as the Dawson committee, which was released in April 2003, the relevant Senate committee had a look at the Trade Practices Act and the Dawson recommendations. In 2004 the then Senate Economics References Committee, now the Senate Standing Committee on Economics, of which I am a member, examined the economic benefits of small business, the effect of the Trade Practices Act 1974 on small business and the way in which the act and small business promote competition together with the need for fair trading. At that time, the committee also looked at the competition laws in part IV of the Trade Practices Act, which promote competition by prohibiting conduct that may lessen competition, and further at the provisions of part IVA of the Trade Practices Act, which promote fair trading by prohibiting unconscionable conduct. The Senate committee specifically looked at the Dawson review recommendations and subsequent case law that considered section 46 of the Trade Practices Act, which covers the misuse of market power and unconscionable conduct, and brought down a report. It was the joint recommendation of the then chair of the committee, Senator George Brandis, and I that further action be taken to amend the Trade Practices Act 1974 to strengthen protections for small business against anticompetitive practices. We did so because of widespread dissatisfaction with the validity of the courts’ interpretation of the misuse of market power provisions.

The bill today delivers for small business in a number of important ways in enhancing the effectiveness of section 46 of the Trade Practices Act. It addresses the issue of predatory pricing, allowing the court to consider sustained below-cost pricing when looking at a breach of section 46. It clarifies the threshold for misuse of market power in a number of important ways. For example, it takes into account leveraging power from one market into another. It specifies that more than one corporation may have a substantial degree of power in a market and further provides that a corporation can have market power without substantially controlling that market. This limit assists in protecting small business from unconscionable conduct. On predatory pricing, the bill puts into law the Senate economics committee recommendation to include reference to a company’s capacity to sell below cost. On the issue of unconscionable conduct, the bill implements the Senate economics committee recommendation on the unilateral variation of contracts and Senator Brandis’s and my recommendation to increase the monetary threshold to $10 million.

Additionally, the bill makes amendments to the unconscionable conduct provisions by raising the transaction limit from $3 million to $10 million. The bill also provides that the court should look at whether a party can unilaterally vary a contract term or condition in considering whether there has been unconscionable conduct. In July and August this year, the Senate economics committee examined the provisions of this bill. The committee’s inquiry attracted a large range of submissions from groups interested in trade practices reform. Several submitters to the inquiry noted that the bill provides greater clarity for the courts in section 46 in relation to both the threshold test for the misuse of market power and predatory pricing.

The bill’s amendments on the threshold test were those recommended by Senator Brandis and me in the report and endorsed by the ACCC. The ACCC remains strongly supportive of these amendments. The current committee believes the bill’s amendments are important in order to state expressly the legal principles that have been established by the courts. A majority of the committee also rejected Labor senators’ claims that the bill’s amendments do not strengthen sections 46 and 51 of the act. In fact, sections 46 and 51 will draw courts’ attention to potential areas of contravention. The bill extends courts’ capacity under the terms of section 51AC to protect a greater range of transactions entered into by small businesses, while enabling courts to continue to rule according to the facts and circumstances of the individual case in question.

There has been a great deal of community interest in this bill. In May this year, I was interviewed on South Australian radio in relation to small business concern about predatory pricing. While the finer detail of the bill was not available at that time, there was a groundswell of interest from the small business sector in my home state of South Australia in the Howard government’s stated intentions to strengthen the law and support small business.

In direct contrast to this, the Australian Labor Party, the opposition, have been caught short on policy on small business. They state that this bill is inadequate and offers little protection for small business. Their concern for small business is utterly disingenuous, coming from a party which intends to reimpose draconian unfair dismissal legislation which will bring about a repeat of the thousands and thousands of dollars in costs to the small business sector for ‘go away money’ and the loss of thousands of jobs, as occurred when it was previously in operation.

Where does Labor’s concern for small business sit with their policies which will overturn the rights that small business people currently have to run their businesses free of interference from the trade union movement? Under Labor, non-union collective agreements would be a thing of the past, and that would open up a million small businesses to potential union control. Labor’s workplace relations policy is not a plan to keep the economy strong and instead will mean more power to the union bosses to push industry-wide wage claims, leading to higher inflation and upward pressure on interest rates. Small business have good reason to be very afraid. If Labor were really serious about doing something positive for small business and standing up for small business, they would not propose to reinstate unfair dismissal legislation and they would not get rid of Australian workplace agreements.

I said at the beginning of my remarks that the Trade Practices Act has been dealt with by this parliament on many occasions. It will be so in the future, because the Howard government is committed to improving and clarifying the operation of the provisions of the act relating to the misuse of market power by corporations, including in relation to leveraging market power, coordinated market power and predatory pricing.

The government shortly will be moving to introduce legislation imposing criminal penalties for serious cartel conduct. The government is concerned about the ability of small businesses to be competitive in markets where there is cartel activity, where they are often the direct victims of cartel behaviour. I also welcome the government’s proposed amendment to this legislation regarding predatory pricing, which will provide clarification about recoupment.

I note the government’s positive response to the work of the Senate economics committee. I note that Senator Brandis is now in the chamber. He did so much work on this, as I mentioned earlier, having regard to our earlier joint work on this committee. That positive response by the government certainly highlights the willingness of the Howard government to consult widely with interested parties on issues before the parliament. I believe this legislation reinforces the value of the work of Senate committees. On that basis I wholeheartedly commend this legislation to the chamber.

Steve Fielding (Victoria, Family First Party) Share this | Link to this | Hansard source

Family First are convinced that the Trade Practices Actneeds to be strengthened to restore fair trading and competition to Australian markets. We are passionate about this issue because fair competition delivers the lowest possible prices to families, which are struggling to make ends meet. Sadly, the government’s bill, the Trade Practices Legislation Amendment Bill (No. 1) 2007, only does part of the job.

Family First introduced its Trade Practices Amendment (Predatory Pricing) Bill 2007 because anticompetitive conduct like predatory pricing can drive small businesses out of the market. Small businesses are particularly vulnerable because of their limited resources. Predatory pricing is where powerful businesses use their substantial market or financial power to drop their prices in one area to drive out competitors. Not only are small businesses affected, with some forced to shut up shop because they can no longer compete, but also Australian families suffer from higher prices in the long term.

Small business has been waiting for the government’s trade practices legislation amendment bill for more than three years, since the Senate Economics References Committee recommended action. The Trade Practices Act states:

The object of this Act is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection.

The ‘welfare of Australians’ is central, but to achieve that we need a system to protect consumer welfare, and that system is fair trading and competition. There is a danger that, without appropriate regulation, unfair trading and distorted competition can lead to higher prices and less choice for consumers. There is a great social and economic loss to local communities when small businesses are forced to close.

Family First shares the Business Council of Australia’s concern that ‘heavy-handed responses risk stifling competition’ but believes we need to strike the right balance. A lack of effective regulation to stop anticompetitive behaviour can also stifle competition. The government’s bill has support from most, but not all, small businesses. There is also concern, and reluctant support, from many groups representing big businesses and those involved in trade practices law. The Fair Trading Coalition, which represents 30 small business member groups, states that, while some of its members want section 46 strengthened further, it supports the bill, but it also supports Family First’s moves to address predatory pricing.

The Fair Trading Coalition also wants the government to stop ‘creeping acquisitions’, where markets become highly concentrated not by one-off large purchases but by small purchases, shop by shop, that do not attract the attention of government regulators. The Council of Small Businesses of Australia and the National Association of Retail Grocers of Australia have also indicated they want the government to go further with reforms.

It is worth pointing out that not all groups or individuals representing small businesses support the government’s bill, although the government’s eleventh-hour amendment does have their support. The Southern Sydney Retailers Association declared the amendments ‘meaningless’—that is, the bill itself—while University of New South Wales Associate Professor Frank Zumbo stated that he did not see any merit in the legislation—that is, the existing bill, not the eleventh-hour amendment.

Family First acknowledges that there are significant issues yet to be addressed by the government to ensure fair competition, including creeping acquisitions, defining substantial market power, defining ‘take advantage’, unilateral variation of contracts and ‘take it or leave it’ contracts. The supermarket industry is frequently mentioned as an area of concern. A PricewaterhouseCoopers report commissioned by the National Association of Retail Grocers of Australia, NARGA, found that the two major grocery retailers, Coles and Woolworths, increased their market share from around 35 per cent in the early 1990s to around 80 per cent today. Australia has one of the world’s most concentrated grocery markets.

Family First shares NARGA’s concerns that this enormous market concentration means less choice for families, less competition and higher food prices. It also means small primary producers have less bargaining power with the supermarket giants. The NARGA report found that food prices have consistently grown at a faster rate than inflation for more than 20 years. Last year food inflation in Australia was almost 10 per cent. Continuing rising food prices prove that competition is not working well in the supermarket industry. Families and small businesses are the victims of market power being wielded by some of Australia’s retail giants who dominate key sectors. Family First is certainly not against discount pricing, but, when you undercut for extended periods of time with the purpose or effect of squeezing out a competitor, that is not on. Family First rejects the argument that it wants to protect small business by a method other than by ensuring fair competition.

The government’s bill does not explicitly ban predatory pricing. In fact, it does not even mention predatory pricing. That is why Family First will move an amendment to outlaw predatory pricing. Family First’s amendment applies to all markets and addresses the concerns of small businesses who asked for their industries to be included in Family First’s earlier predatory pricing bill. The amendment adds an effects test, which means those corporations that do have financial or market power need to be careful in how they use that power so they do not substantially lessen competition in a market.

Some big businesses have claimed our action will reduce competition and restrict discounting. But the same criticism could be made of the current section 46 of the Trade Practices Act 1974 or of the eleventh-hour amendment from the government. Family First’s amendment also makes it clear that it is not necessary to prove actual or potential recoupment in order to prove predatory pricing. The government’s amendment still does not make it clear with regard to recoupment, though it is claimed within their explanatory memorandum that it does. Family First, therefore, will still move its amendments.

George Brandis (Queensland, Liberal Party, Minister for the Arts and Sport) Share this | Link to this | Hansard source

I want to take this opportunity to thank honourable senators for their contributions to the debate on the Trade Practices Legislation Amendment Bill (No. 1) 2007. This has had, as honourable senators have pointed out, a long history. It gives me much satisfaction that in this, perhaps final, week of this parliament these reforms which had their provenance in the report of the then Senate Economics References Committee of March 2004 will come into effect.

The bill delivers for small business in a number of important ways, by enhancing, in accordance with the recommendations of the Senate committee, the effectiveness of section 46. The bill addresses the issue of predatory pricing. As a result of the bill, sustained below-cost pricing can be considered when looking to determine whether there has been a breach of section 46, without going too far by attacking legitimate discounting. It clarifies, in accordance with the Senate committee’s recommendations, the threshold for misuse of market power, in a number of important ways. For example, in relation to the leveraging of power from one market into another, it clarifies that more than one corporation may have a substantial degree of power in a single market, and that a corporation may have market power for the purposes of the act without substantially controlling that market.

Further, the bill makes amendments to the unconscionable conduct provisions of the act, by raising the transaction limit from $3 million to $10 million. It provides that a court should consider whether a party can unilaterally vary a contract term or condition when determining whether there has been unconscionable conduct.

The bill also creates a new position, Second Deputy Chairperson of the Australian Competition and Consumer Commission, which—it is the government’s intention—will be held by a person experienced in small business matters. The government amendments which I will move shortly include a new provision in part 4 specifically targeting anticompetitive low-cost pricing by corporations with substantial market share. Consequential changes are also made to the bill.

It should be noted that the amendment is constrained by the conduct of the corporation that has a substantial share of the market. For example, the corporation must have the purpose of damaging a competitor or preventing the entry of a potential competitor in order to be in breach of this section. The conduct must also be carried out for a sustained period. We the government believe that we have the balance right: the balance of promoting competition, consumers and small business. The government will continue to monitor the changes to the act to ensure that there are no unintended consequences for genuine competition. As the supplementary explanatory memorandum to the government’s amendments makes it clear, the below-cost pricing amendments in the bill make no reference to the need for or desirability of finding recoupment or an intention to recoup losses. Whilst a reasonable prospect or expectation of recoupment can provide evidence that below-cost pricing is being carried out in breach of the prohibition in section 46, recoupment alone is not legally required under the below-cost pricing amendments in the bill, nor is it alone a prerequisite for a breach of subsection 46(1).

The government has consulted extensively with small business groups in developing the bill. Following the passage of the government’s Trade Practices Legislation Amendment Act (No. 1) 2006—that is, the legislation which gave effect to the recommendations of the Dawson review—the government met with a number of groups to discuss section 46 and in particular to address the concerns of small business. Those consultations had the close involvement of the Minister for Small Business and Tourism, the Hon. Fran Bailey, as well as Senator Boswell and Senator Barnett, to whom I pay tribute for their substantial contribution to getting the legislation into the shape it now takes. That consultative process has been long and involved and one that the government has worked very hard to get right.

The government would also like me to record my thanks to the Senate Standing Committee on Economics for its report into the provisions of the bill. I would like to thank the committee, under the very able chairmanship of Senator Michael Ronaldson, for its timely consideration of the bill and for its report. The committee’s inquiry attracted a broad range of submissions from groups interested in trade practices reform and recommended, as honourable senators will know, that the bill be passed.

This bill implements a number of important government announcements in relation to the Trade Practices Act and for the protection of competition. It comes about, as I have said, as a result of extensive discussions with key stakeholder groups. It is a bill that has been developed over a period of years, and I am confident that the shape it now takes reflects, as I said before, the right balance and takes into account all of the appropriate and needful amendments which have been recommended to the government by those groups without going so far as to constrain the operation of free enterprise and competition in Australian markets. I commend the bill to the Senate.

Question put:

That the amendment (Senator Stephens’s) be agreed to.