In a move that will please small business but infuriate big business, the Turnbull Government has given in to the National’s demands and will now introduce an effects test to limit the mis-use of market power by big business. From The AFR:
The decision to embrace the effects test, which was rejected by cabinet when Tony Abbott was prime minister, will put the Turnbull government on a collision course with big business but it has been praised by small and medium business groups.
“The Government’s decision to strengthen protections against anti-competitive conduct is a win for proper process and evidence based policy,” said Tim Hicks, the Australian Chamber of Commerce and Industry’s acting director of economics and industry policy:.
“The reforms will not stop vigorous competition between businesses of all sizes; they will simply ensure competition must be merit based by bringing Australian competition law into line with international standards.”
The Business Council of Australia bitterly fought the proposal last year when it was taken to cabinet by then small business minister Bruce Billson and is angry.
The “effects test” relates to section 46 of the Competition and Consumer Act, which is the provision of Australia’s competition laws and regulates market conduct. As explained in The Conversation:
Section 46 has had several formulations. But for most of the last three decades, it has had the same basic structure. One must prove that the relevant party had substantial market power, that it took advantage of that power, and that it did so for a “proscribed purpose” (generally described as an anti-competitive purpose).
Section 46 as currently drafted is notoriously difficult to establish. The threshold of substantial market power is very high (more than half of the cases fail on this point alone). It is also extremely difficult to prove “taking advantage” – while the courts have said this means no more than to “use” market power, this element accounts for most of the other court failures.
The Harper review was established under the former Abbott Government to investigate Australia’s competition law and make recommendations about how it could be improved. It reported last year and recommended the following [h/t The Guardian for pointing this out]:
- The panel finds that section 46 [of the competition law], dealing with the misuse of market power, is deficient in its current form.
- It does not usefully distinguish pro-competitive from anti-competitive conduct. Its sole focus on ‘purpose’ is misdirected as a matter of policy and out of step with international approaches.
- Section 46 should instead prohibit conduct by firms with substantial market power that has the purpose, effect or likely effect of substantially lessening competition, consistent with other prohibitions in the competition law.
- It should direct the court to weigh the pro-competitive and anti-competitive impact of the conduct.
- The panel recommends a number of changes to simplify and clarify the operation of the law, to bring to the forefront the competition policy objectives of the law and to reduce business compliance costs.
- The cartel provisions should be simplified. The price signalling provisions should be removed and replaced, by extending section 45 governing contracts, arrangements and understandings that affect competition to also cover concerted practices that have the purpose, effect or likely effect of substantially lessening competition.
So, the Harper Review inserted an effects test that removed the burden to prove that someone intentionally mis-used their market power, replacing it with a lower threshold of whether the conduct has the purpose or likely effect of substantially lessening of competition.
Whether the effects test is unequivocally good, frankly I don’t know. But the fact that big business is crying foul probably means that it is positive for competition and consumers.
