Trade Practices Legislation Amendment Bill 2008: Second Reading

I have to tell those school groups that this is not one of the most exciting debates that they will see in parliament today-that comes a little later, at 2 o’clock-but it is one of the most important, because the Trade Practices Act 1974 is one of the most important pieces of legislation that this parliament has ever considered, and the amending legislation that we are considering today, the Trade Practices Legislation Amendment Bill 2008, is perhaps the most significant reform to that act in the last two decades. What it does is as follows. It strengthens predatory pricing to ensure that big companies cannot persistently sell goods at a loss to run their smaller competitors out of business, it abolishes the monetary thresholds for unconscionable conduct claims and it also helps small business by allowing them to litigate claims in the Federal Magistrates Court, meaning quicker and hopefully cheaper resolution of competition disputes. The bill also gives small business a guaranteed voice on the ACCC, requiring at least one ACCC deputy chairperson to have a small business background, and it clarifies the ACCC’s investigative powers.
It is worth pointing out, and I acknowledge that the member for Pearce has done this, that small business has welcomed this legislation. Richard Evans, the Executive Director of the Australian Retailers Association, says it is:

… very good news for smaller retailers.

Tony Steven, the CEO of the Council of Small Business Organisations Australia, said the legislation would:

… only help in the area of anticompetitive conduct.

Michael Delaney of the Motor Traders Association said the bill offers:

… retail motor traders and other small business operators long denied access to justice against unfair and anti-competitive behaviour.

Small business is crucial to our economy. It employs more than 3½ million Australians and generates about 40 per cent of our GDP. To survive, it needs a fair and competitive environment, and that is what this bill is all about.

So where does it fit in the history of competition policy in Australia? For the better part of the last century, Australian competition laws were well intentioned but frustrated by judicial interpretation. At the turn of the century, the Sherman act fostered a strong culture of competition in the United States. The 1906 attempt by this parliament to replicate it with the Australian Industries Preservation Act fell victim to constitutional challenge. The High Court’s decision in the Huddart Parker case in 1913 effectively gutted the act.

The story of the revival of Australian competition law is the story of two Attorneys-General, two men who served that office with distinction and were both later appointed to the High Court. The first was Sir Garfield Barwick. While I think his advice to John Kerr in 1975 was pretty lousy, I think his advice to Robert Menzies in 1960 was spot on. He convinced the then Prime Minister that restricting the behaviour of monopolies was necessary, and that culminated in the Restrictive Trade Practices Act of 1965. In the ‘Concrete Pipes’ case, the High Court judged that that was unconstitutional, but importantly it did overturn the majority opinion in Huddart Parker, opening the door for the Commonwealth to make a third attempt at competition policy.

Enter Lionel Murphy. After the election of the Whitlam government in 1972, Murphy developed a new competition bill: the Trade Practices Act. As legal academic Russell Miller says, the:

Impact on Australian business was enormous.

In a few short, broadly expressed clauses, the Act prohibited contracts, arrangements or understanding in restraint of trade, monopolisation, resale price maintenance, price discrimination, and mergers likely to have an effect on competition.

The Trade Practices Act was an integral part of the Keating government’s national competition policy, which in turn was part of the enormous structural reforms of the 1980s and the 1990s-reforms that set up the last decade of economic growth. The COAG process enabled the Keating government to drive its reform agenda. COAG proved a very effective vehicle for competition reform, and that is why this government is using COAG again as a vehicle for more reform, not just in competition but in water, health, housing and education, and in an area that is of specific concern to me-and, I know, to the member for Lindsay-the regulation of financial services and credit.

In all of these areas, national leadership is necessary to drive real reform. There is still a lot of work to do to improve competition between big businesses and small businesses. Nowhere is this more obvious than in the supermarket. I will say more about the ACCC’s inquiry into grocery prices in a minute, but first I want to take a look at the predatory price changes that are in this bill. The bill beefs up protections against predatory pricing. In simple terms, predatory pricing is when a company consistently sells goods at a loss to force smaller competitors out of the market. Section 46 of the Trade Practices Act says that that is illegal. Applying this section, however, has proved more difficult. A number of recent court decisions have undermined its operation and you can almost feel the frustration of the ACCC when you read its 2003 annual report. In that report the commission said it had:

… concerns about the application and effectiveness of the misuse of market power provision. The ACCC has reviewed a number of its investigations following the-


judgement and discontinued some of these.

In other words, the court’s decision in Boral made it impossible for the ACCC to act. I recognise that there have been a number of attempts to correct this since then.
This bill amends subsection 46(1AA) to direct the court’s attention to a corporation’s market power rather than just their market share. I know there are differing opinions on this in the chamber but I think this the better approach because it recognises that the reality of a corporation’s power in a given market is not necessarily reflected by their market share. Professor Stephen Corones made this point in the Financial Review last week:

… having a substantial market share tells us nothing, or very little, about whether there is a problem that warrants regulation. In a sense, market share is meaningless: the key question is whether a firm, acting on its own, has discretionary power – whether it has to take into account the competitive reaction from other firms.

In other words, it is market power that is the antithesis of competition.

The bill also makes a number of other changes to section 46. It ensures that victims of predatory pricing do not need to prove that the predator has the ability to recoup their losses-one of the problems that was created in the High Court’s decision in Boral. It also implements the recommendation of the 2004 Senate inquiry into the trade practices legislation clarifying the meaning of ‘take advantage’ in section 46 to allow courts to widen the scope of this test in response to the High Court’s decision in Rural Press.

The changes to the provisions prohibiting unconscionable conduct contained in section 51AC of the Trade Practices Act should also help small business. Unconscionability is a legal principle developed in the law of equity. One of the innovations of the original Trades Practices Act was to inject this equitable principle into statute. While the credit for this innovation rests with Lionel Murphy, the Howard government did extend its operation to small business through the addition of section 51AC in 1998. For that, they should be commended. This bill takes it one step further. It abolishes arbitrary monetary thresholds for actions brought under section 51AC, drawing the law’s attention to the wrongdoing rather than the regularly disputed question of whether monetary thresholds have been reached. I think that is a good thing. It will help to discourage unconscionable conduct between corporations and between businesses and their customers.

As I mentioned earlier, the bill also assists small business by making it easier to litigate section 46 matters. Currently these matters must be heard in the Federal Court. This process is thorough, but it can also be pretty costly and slow. It is an unattractive legal avenue for small business. The bill extends the jurisdiction of the Federal Magistrates Court to section 46 matters, making it easier and cheaper for small businesses to pursue legal protection from anticompetitive behaviour.

Taken together, these three reforms-changing the definition of market power, abolishing monetary thresholds for section 51AC matters and allowing easier access to legal remedies-represent a significant extension of the protection for small business under the Trade Practices Act. They do not protect small business from competition; they help ensure markets operate in a fair and more competitive way.

As I said earlier, a lot of work is needed to improve competition in our supermarkets. The ACCC’s grocery inquiry identifies several areas where competition is not working as well as it should be. I note that the government has already acted on some of these fronts. Easing restrictions on foreign investment in the grocery industry is one of them, and this morning I noticed that the minister has foreshadowed changes to creeping acquisition laws; but today I want to focus on two other barriers to competition mentioned in that report. The first is restrictive covenants. These are agreements in commercial leases that restrict shopping centre landlords from bringing new tenants that might compete for business, usually other supermarkets or independent grocers. The effect of these restrictive covenants is obvious. If a supermarket can act in a virtual local monopoly, then customers will have no choice and will end up paying more for the shopping that they want to do. But the problem is deeper than that. The ACCC report says this:

As well as acting as an impediment to entry into local areas, restrictive provisions in leases also act as a broader barrier to entry, particularly for independent chains, as access to prime sites across a range of locations is restricted, which serves to entrench the dominance of the MSCs both in localised areas and more broadly.

These sorts of provisions are already prohibited under part IV of the Trade Practices Act if they have the purpose or effect of substantially reducing competition. I know Aldi complained bitterly about these in their evidence to the inquiry. The Shopping Centre Council have also said that they would like to see the back of them. The ACCC, I think, should be using section 47(4) and section 46 to challenge these covenants in leases. They are bad for shoppers, they are bad for small and independent grocers and, in the long run, they are bad for our economy. The ACCC’s report suggests that they are going to be looking at this in the future. In my view, if their attempts to crack down on these types of restrictive covenants fail in the court, we need to come back here and have a look at what changes are needed to strengthen their hand.

The other issue raised in the ACCC’s report is planning and zoning laws. These laws play an important role in protecting local communities from overdevelopment and congestion and in ensuring the delivery of local communities. Their purpose is to protect the community interest. This is a good thing, but the system is often abused. Large commercial retailers like Woolworths and Coles ‘game’ the system to protect their own commercial interests. In evidence to the grocery inquiry, Woolworths admitted lodging 22 development objections since 2005. Often, they have little to do with planning issues that affect Woolworths; they are about protecting their market position. For example, the ACCC report describes the case of objections raised by Woolworths to an independent supermarket opening in the Appin area in New South Wales. The report states:

Woolworths acknowledged that the grounds on which it had lodged the appeal-traffic and access, heritage, noise impact and overshading-had no impact on Woolworths. Rather, Woolworths acknowledged, the objection was lodged for the purpose of pursuing a commercial opportunity.

What is clear is that a system that has been set up to protect the community interest is being abused by big companies like Woolworths to advance their own commercial interests. I think governments should respond with structural reform that stops these abuses of process from occurring and builds a more competitive market environment. Uniform planning laws are already on the COAG agenda and I understand the Assistant Treasurer has written to the Prime Minister to request COAG consider this in light of the ACCC report. This is important. Beating the abuses of the planning system is essential if we are going to make the grocery industry more competitive, and it requires national leadership.

There are a few other amendments in this bill that are worthy of note. The bill ensures that at least one of the ACCC commissioners needs to have a background in small business. This is a good thing and it gives clear legislative purpose to the intention of the previous government. The bill also strengthens the ACCC’s powers, making it easier to obtain information, documents and evidence under section 155 of the act. This is another common-sense amendment and I think it is long overdue. There are many critics of the ACCC in this parliament, but I think we should all agree that we need to give the ACCC the powers to do their job, and these amendments do that.

Thirty-four years old and Lionel Murphy’s Trade Practices Act is still a work in progress. There is always more work to do, but this bill represents a major step forward in the continual improvement of competition policy in this country. I hope it attracts the support that it deserves, both in the Senate and in the courts. If not, I guess we will be back here again, because small business and consumers deserve the support that the Trade Practices Act is designed to give them. I commend the bill to the House.’