Kim Carr (Victoria, Australian Labor Party, Minister for Innovation, Industry, Science and Research) 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—

TRADE PRACTICES LEGISLATION AMENDMENT BILL 2008

Introduction and overview

This is a Bill to amend the Trade Practices Act 1974, to improve its ability to promote competition and fair trading in Australian markets.

This Bill is a reflection of the importance that the Government places on competition policy.

The Australian Labor Party has a strong legacy of competition reforms, having been responsible for the introduction of the TPA in 1974 to enhance the welfare of Australians, through the promotion of competition, fair trading and consumer protection

Labor again made substantial improvements to the Act in 1986 as well as instigating National Competition Policy in the 1990s.

The NCP put in place many of the policy settings that have resulted in Australia’s strong economic performance over the past decade.

These competition reforms have had a cascading effect throughout the economy. And a strong, competitive economy benefits all Australians.

It is this Government’s fundamental belief that competition policy is at the core of the Government’s economic agenda.

This Government believes that being pro-business and pro-competition delivers the best results for consumers. Those opposite simply do not have the same concern for consumers.

Part IV of the Trade Practices Act promotes competition by prohibiting anticompetitive conduct. Section 46 in Part IV prohibits unilateral anticompetitive conduct, most notably by prohibiting corporations from misusing substantial market power to harm or eliminate competitors or competition generally.

Part IVA of the Trade Practices Act promotes fair trading by prohibiting unconscionable conduct. In particular, section 51AC of Part IVA prohibits unconscionable conduct in connection with the supply of goods or services to, or the acquisition of goods or services from, a corporation.

However, it is the Government’s belief that a series of court decisions have undermined the operation of the Act, Section 46 in particular.

It is not just me who believes this; the ACCC has been making this point for several years. The ACCC has been fighting with one hand behind its back when it comes to anti-competitive conduct.

In opposition we indicated that we would strengthen the TPA to restore it to its original 1986 intention.

Late last year the then Government rushed through amendments to improve the operation of section 46 but it was a clear case of “too little, too late”. At the time, Labor supported those changes, but said more needs to be done.

This Bill strengthens section 46 and section 51AC as part of the Government’s ongoing commitment to improve Australia’s trade practices laws. The amendments constitute the biggest TPA reform in over 20 years.

Outline of measures in the Bill

The Bill covers four key areas of reform.

Firstly, the Bill makes a number of amendments to section 46 to improve and clarify the operation of that section in relation to anticompetitive unilateral conduct.

Secondly, the Bill amends the Trade Practices Act to require that at least one of the Deputy Chairpersons of the ACCC have knowledge of, or experience in, small business matters.

Thirdly, it amends section 51AC to extend the protection it provides against unconscionable conduct in business transactions.

Finally, the Bill clarifies the ACCC’s information gathering powers, to facilitate effective enforcement by the ACCC.

Schedule 1: Misuse of market power by corporations

Schedule 1 of the Bill makes amendments to sections 46 and 86 of the Trade Practices Act.

Section 46 contains two prohibitions against unilateral anticompetitive conduct. Firstly, subsection 46(1) prohibits a corporation with a substantial degree of market power from taking advantage of that power for a prescribed purpose. Secondly, subsection 46(1AA) prohibits a corporation with a substantial share of a market from engaging in sustained below-cost pricing for one of the same prescribed purposes.

Amendments relating to predatory pricing

The Government will be making amendments to section 46 to enhance its ability to address predatory pricing.

Predatory pricing refers to a particular type of unilateral anticompetitive conduct, whereby a firm deliberately sells at unsustainably low prices in an attempt to drive its competitors out of the market.

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

The Bill amends the prohibition on predatory pricing in subsection 46(1AA) to align it with the prohibition on the misuse of market power in subsection 46(1).

Consistent with the findings of the Senate inquiry, a specific prohibition against predatory pricing makes predatory pricing a clear target of section 46. However, the specific prohibition should compliment the long-standing prohibition in subsection 46(1), rather than being inconsistent with it. The present reference to market share has given rise to uncertainty and may reduce pro-competitive price competition in markets. The ACCC has publicly stated that subsection 46(1AA), as currently drafted adds considerable confusion to the law, and should be amended to clarify the protection it provides.

In particular, the Bill amends subsection 46(1AA) to focus it on a corporation’s market power as opposed to its market share. The size of a firm including its market share will, however, remain a relevant factor in establishing a corporation’s market power for the purposes of the revised prohibition.

The Bill also clarifies the role of recoupment in predatory pricing cases under subsection 46(1AA).

Presently section 46 does not expressly provide whether it is necessary to prove recoupment to establish a case based on predatory pricing. Some submissions to the Senate inquiry raised concerns about this lack of clarity and its impact on the effectiveness of section 46. As a consequence, the Senate inquiry recommended that section 46 be amended to clarify that it is not necessary to prove recoupment in order to establish that a corporation has engaged in predatory pricing.

The High Court’s decision in the Boral case meant the ability to recoup losses incurred from below cost pricing is a necessary precondition in establishing a breach of section 46. As said by prominent commentators, the Boral case set up a ‘cogent case for reform.’

The Bill gives effect to this recommendation for reform. It is appropriate for section 46 to clearly provide that recoupment is not legally necessary in order to establish a breach relying on predatory pricing conduct. Recoupment may be an indicator of predatory pricing, but it should not be an essential precondition.

Clarification of the meaning of ‘take advantage’

To contravene section 46 a corporation must ‘take advantage’ of its substantial market power for a prescribed purpose. This requires a causal connection between the relevant conduct of the corporation and its substantial market power.

Presently section 46 does not provide any guidance as to the meaning of ‘take advantage’.

The Senate inquiry considered that the present judicial interpretation of ‘take advantage’ was too narrow, focusing on the physical capacity of a corporation to engage in the relevant conduct rather than its intent or rational for doing so. Consequently, the inquiry recommended that section 46 be amended to clarify the terms meaning.

The Bill implements the Senate inquiry’s recommendation. It incorporates four non-exclusive factors into section 46 which may be considered by the court in determining whether a corporation has taken advantage of its substantial market power. Importantly, the amendment ensures that, in addition to considering whether a corporation could have engaged in the relevant conduct in a competitive market, the court may also consider whether that corporation would have been likely to do so.

Jurisdiction of the Federal Magistrates Court

The ability of parties to effectively pursue rightful claims is as important as having well-drafted laws.

Concerns have been expressed about the costs and delays associated with bringing section 46 matters. If the costs associated with privately pursuing section 46 claims are prohibitively high, then it will not be as effective in addressing anticompetitive conduct.

The Bill addresses these concerns by conferring jurisdiction on Federal Magistrates Court to hear private matters arising under section 46. By doing so, the Bill improves access to justice for businesses in cases arising under this important provision, in appropriate circumstances.

The Federal Court, will appropriately, continue to hear cases brought by the ACCC.

Schedule 2: Misuse of market power by persons

Schedule 2 of the Bill makes equivalent amendments to the version of section 46 in the competition code. That provision applies to all persons in the states and territories, by virtue of application legislation enacted in those jurisdictions. The amendments are made in accordance with the 1995 intergovernmental Conduct Code Agreement to maintain consistent and complementary competition laws throughout Australia.

Schedule 3: Other amendments

Schedule 3 of the Bill makes three other amendments to the Trade Practices Act to promote competition, fair-trading and consumer protection.

Firstly, Schedule 3 ensures that small business has a prominent and permanent voice at the ACCC by requiring that a Deputy Chairperson of the ACCC have experience in, or knowledge of, small business matters.

Secondly, Schedule 3 repeals the price thresholds that currently limit the protection afforded by section 51AC of the Trade Practices Act against unconscionable conduct in business transactions. By doing so, the Bill implements a recommendation of the Senate inquiry. It enhances the protection afforded by section 51AC by focusing the prohibition on the wrongdoing involved, rather than arbitrary monetary thresholds.

The Australian Securities and Investments Commission Act 2001 applies the same rules as those dealing with unconscionable conduct in section 51AC of the Trade Practices Act to the supply and acquisition of financial services. To ensure continued consistency between the unconscionable conduct 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. As required under the Corporations Agreement, the Ministerial Council for Corporations was consulted in relation to the amendments to the laws in the national corporate regulation scheme.

Thirdly, Schedule 3 of the Bill clarifies the ACCC’s information gathering powers. The ACCC has expressed concerns that its ability to enforce the law has been adversely affected by its inability to use its section 155 powers after seeking an interim injunction. Uncertainty also exists as to when those powers cease. By addressing these concerns, the Bill enables the ACCC to fully investigate suspected breaches of the law to the benefit of consumers without interfering with the court’s role in supervising litigation.

Conclusion

This Bill improves the overall effectiveness of the Trade Practices Act in protecting competitive processes in Australian markets. Importantly, it makes particular enhancements to the Act in relation to the legitimate interests of business, particularly small business.

It provides the ACCC with the tools it needs to vigorously protect competition, fair trading and consumers.

In particular, by identifying and addressing the real impediments that have prevented the law from functioning properly the amendments will clear major blockages that have prevented more cases under section 46. In this regard, it is telling that the ACCC’s Chairman, Mr Graeme Samuel, stated on 11 June 2008 that as a result of the amendments contained in the Bill small businesses will soon enjoy the greatest protection in 30 years against predatory pricing and the misuse of market power.

As noted by Mr Samuel, the result of more cases now being able to proceed will be a win for all those who look to the Trade Practices Act to protect the competitive process.

This Bill represents the most significant reform of the TPA in 22 years

This bill is important to our economic reforms: in the tradition of Labor Governments, making markets work, driving efficiency and putting consumers at the forefront of government policy.

Debate (on motion by Senator Carr) adjourned.