Hits and misses in competition policy response

By Leith van Onselen

The Turnbull Government has released its response to the Competition Policy Review (‘the Harper Review’), accepting in full or in principle 39 of the 56 recommendations and partly accepting a further five, while pushing the controversial recommendations to change the law on companies abusing their market power and on liberalising pharmacy ownership rules to further reviews, and expressing reservations about a number of other recommendations.

Highlights from the report are as follows, some of which are good and some bad.

Road Transport:

Harper Recommended:

Governments should introduce cost reflective road pricing with the aid of new technologies, with pricing subject to independent oversight and revenues used for road construction, maintenance and safety.

To avoid imposing higher overall charges on road users, governments should take a cross jurisdictional approach to road pricing. Indirect charges and taxes on road users should be reduced as direct pricing is introduced. Revenue implications for different levels of government should be managed by adjusting Australian Government grants to the states and territories.

Government’s Response:

The Government supports this recommendation as a long term reform option, further to its response to the Productivity Commission’s Public Infrastructure inquiry report. The Government will seek to accelerate work with states and territories on heavy vehicle road reform and investigate the benefits, costs and potential next steps of options to introduce cost reflective road pricing for all vehicles.

Intellectual Property:

Harper Recommended:

The Australian Government should task the Productivity Commission to undertake an overarching review of intellectual property. The Review should be a 12 month inquiry.
The review should focus on: competition policy issues in intellectual property arising from new developments in technology and markets; and the principles underpinning the inclusion of intellectual property provisions in international trade agreements.

A separate independent review should assess the Australian Government processes for establishing negotiating mandates to incorporate intellectual property provisions in international trade agreements.

Trade negotiations should be informed by an independent and transparent analysis of the costs and benefits to Australia of any proposed intellectual property provisions. Such an analysis should be undertaken and published before negotiations are concluded.

Government’s Response:

The Government supports in part this recommendation.

The Government supports the recommendation for the Productivity Commission to undertake an overarching review of intellectual property. An inquiry into Australia’s intellectual property arrangements was commissioned by the Treasurer on 18 August 2015…

The Government does not support a separate independent review of the Australian Government processes for establishing negotiating mandates to incorporate intellectual property (IP) provisions in international trade agreements. The Government already has robust arrangements in place to ensure appropriate levels of transparency of our negotiating mandate while protecting Australia’s negotiating position…

The Government does not support an independent cost benefit analysis being undertaken and published before negotiations are concluded. Such an analysis would reflect incomplete or inaccurate outcomes, signal Australia’s position to our negotiating partners and potentially compromise our capacity to achieve Australia’s national interest. It would also duplicate the processes outlined above.

Planning and zoning:

Harper Recommended:

state and territory governments should subject restrictions on competition in planning and zoning rules to the public interest test, such that the rules should not restrict competition unless it can be demonstrated that the benefits of the restriction to the community as a whole outweigh the costs, and the objectives of the rules can only be achieved by restricting competition…

Government’s Response:

The Government supports this recommendation, noting this is an area of state responsibility.

The Final Report’s findings focus on the impact of planning and zoning regulations on competition between commercial entities by creating unnecessary barriers to entry. There have been other reviews that have focused on the effect planning and zoning regulations can have by restricting the supply of residential land, which can place upward pressure on house prices.

…the Government encourages the states and territories to review planning and zoning regulations and include competition principles in the objectives of planning and zoning rules so that they are given due weight in decision making…

The Government is willing to consider payments to states and territories for reforms that improve productivity and lead to economic growth, including for significant regulatory reviews that are followed by reforms..

Taxi services and ride-sharing:

Harper Recommended:

Taxis and ride sharing: in particular, regulations that restrict numbers of taxi licences and competition in the taxi industry, including from ride sharing and other passenger transport services that compete with taxis… should be priority areas for review.

Government’s Response:

The Government supports this recommendation. [But] the Government notes that regulation of taxis and ride sharing is an area of state responsibility…

The Government is willing to consider payments to states and territories for regulatory reviews where they result in reforms that improve productivity and lead to economic growth…

Retail trading hours:

Harper Recommended:

Remaining restrictions on retail trading hours should be removed. To the extent that jurisdictions choose to retain restrictions, these should be strictly limited to Christmas Day, Good Friday and the morning of ANZAC Day, and should be applied broadly to avoid discriminating among different types of retailers.

Government’s Response:

The Government supports this recommendation, noting this is an area of state responsibility.

…, the Government encourages state and territory governments with remaining restrictions on retail trading hours to consider whether these restrictions are impeding competition and the ability of retailers to meet customer demand for flexibility and choice, and whether they can be removed without imposing undue pressure on retailers to remain open when it is uneconomical to do so…

The Government is willing to consider payments to states and territories for reforms that improve productivity and lead to economic growth.

Parallel imports:

Harper Recommended:

Restrictions on parallel imports should be removed unless it can be shown that:

  • the benefits of the restrictions to the community as a whole outweigh the costs; and
    the objectives of the restrictions can only be achieved by restricting competition.

Consistent with the recommendations of recent Productivity Commission reviews, parallel import restrictions on books and second hand cars should be removed, subject to transitional arrangements as recommended by the Productivity Commission.

Remaining provisions of the Copyright Act 1968 that restrict parallel imports, and the parallel importation defence under the Trade Marks Act 1995, should be reviewed by an independent body, such as the Productivity Commission.

Government’s Response:

The Government supports in part this recommendation.

The Government supports the removal of parallel import restrictions on books… [But] the Government has decided not to proceed with reducing parallel import restrictions on second hand cars at this time.

Pharmacies:

Harper Recommended:

The Panel considers that current restrictions on ownership and location of pharmacies are not needed to ensure the quality of advice and care provided to patients. Such restrictions limit the ability of consumers to choose where to obtain pharmacy products and services, and the ability of providers to meet consumers’ preferences.

The Panel considers that the pharmacy ownership and location rules should be removed in the long term interests of consumers. They should be replaced with regulations to ensure access to medicines and quality of advice regarding their use that do not unduly restrict competition.

Government’s Response:

The Government notes this recommendation…

While the location rules have been extended for another five years under the Sixth Community Pharmacy Agreement, the Government and the Pharmacy Guild have agreed that an independent public review of pharmacy remuneration and regulation will also be conducted. The review will examine whether the location rules should remain in their current form or be updated in the future, with a final report by 1 March 2017…

The Government is willing to consider payments to states and territories for reforms that improve productivity and lead to economic growth…

MB’s Assessment:

Our assessment of the Government’s response is mixed.

While the responses to the recommendations on road transport, planning and zoning, taxis and ride-sharing, and retail trading hours are sound, the Government has been far too timid with regards to intellectual policy, parallel imports, and pharmacies.

Regarding intellectual property, the Government has essentially endorsed the current processes for negotiating free trade agreements (FTAs), which is far too politicised, lacks transparency and oversight, and has generally led to sub-optimal outcomes (e.g. the US FTA and the TPP).

Overall, we view the Government’s response as another missed opportunity.

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Leith van Onselen
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