Competition Law

Australian Competition Law and Policy Discussion

Posts Tagged ‘senate’

Milk inquiry interim report released

Posted by Julie Clarke on 20 April 2011

The Senate has released its interim report on the infamous ‘milk wars’.

It recommends as follows

The Committee calls on the Government to table a formal response to the Committee’s report Milking it for all it’s worth—competition and pricing in the Australian dairy industry by 13 May 2011, which will be a year after it was tabled.

Yes, that is it – I kid you not – in this much anticipated report which is a whole two pages long (this is after they asked for and received an extension on the report date).  Pretty exciting stuff.  I’m glad I didn’t hold my breath.  The Senate blames Coles (and the government for not responding to a previous inquiry).  Who is surprised?

A further interim report is promised by 10 May and final report by 1 October.  I can’t wait.

View more information about the inquiry here.

Regards

Julie

(I can’t update my web site because I’m sitting in an airport lounge – but will do so when I return from leave on 2 May 2011)

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Milk, beer and the political hijacking of competition policy in Australia

Posted by Julie Clarke on 3 April 2011

First the milk wars.  Now the beer wars.  Never before have we been so concerned about cheap drinks.  Normally the complaint is quite the reverse.

Over the last few years we have been pestered repeatedly with little reactive and industry-specific inquiries (normally by the Senate) which propose fundamental changes to competition policy for the purpose of satisfying a perceived industry-specific issue.  We have also seen unprecedented political interference in the application of competition policy (not policy on its merits – but its effectiveness in certain isolated cases).  We saw it with the ill-conceived Senate Inquiry into the ACCC’s Metcash decision (something the Senate quickly backed away from when it realised the matter was going to be litigated), the ill-considered proposals presented for the introduction of industry-specific price signalling laws (which, unfortunately, are likely to pass), the multiple inquiries into the milk industry and most recently the media furor over Foster’s decision to withhold supply of beer for fear that it would be sold cheaply.  The discussion has been highly politicised and is far removed from the independent inquiry process we would hope preceded any significant change to competition policy.

Let’s focus on the Senate’s obsession with milk.  In 2010 we had an inquiry into milk – the Senate Economics Reference Committee – Milking it for all it’s worth – competition and pricing in the Australian dairy industry. The Senate Committee made a number of bizarre recommendations which are now being re-“investigated” by the current Senate inquiry desperate to protect the dairy farmers.  And it masquerades as an inquiry into the competition laws.  Some of the terms of reference point directly to competition policy reform – the first is TOR (c) whether such a price reduction is anti-competitive; TOR  (d) the recommendations of the previous milk inquiry and (e) whether there is need for legislative reform.  The rest relate more specifically to aspects of the dairy industry.  Yet most attention seems to have focused on the alleged ‘anti-competitive’ nature of Coles’ discounting, with various accusations being made – typically from Senators Xenophon and Heffernan – about the ACCC’s ‘weakness’ in this area.  Indeed, the ACCC was attacked relentlessly (and unfairly) when it appeared before the Senate – and repeatedly it had to remind the Senators that much of what they were getting upset about had little or nothing to do with competition policy and at the very least didn’t raise any concerns about contraventions of the Act.  Independent experts were also not spared – unless of course they shared the same obvious pre-conceived views about the inquiry as the most vocal Senators (Senator Heffernan felt free – has he has on many occasions – to slander certain witnesses with the benefit of parliamentary ‘privilege’).  View some extracts from the Senate Committee Hansard here.

The biggest buzz term has been “predatory pricing”, a practice which has a unique meaning in Australia because of the embarrassing Birdsville Amendment introduced a few years which makes sustained below cost pricing by anyone with substantial market ‘share’ illegal if it can be established that they had one of three prohibited purposes (harming competitors etc).  It’s not matched by any credible regime around the world – they are more concerned with the economics of predatory pricing and it’s likely impact on competition than prohibiting low cost pricing which is generally what we hope competitive markets can deliver.  Predatory pricing becomes a concern if the company involve succeeds in eliminating all competition with the result that it can subsequently charge much higher prices for those goods to recoup sustained losses.  But it’s unlikely to occur here.  Even if it could be demonstrated Coles was ‘below cost’ pricing – whatever that means (the Act doesn’t care to define it for us),  Woollies will match them.  So will some others.  And not everyone is switching to homebrand or avoiding convenience stores (which are, after all, used for their convenience, rather than their competitive pricing).  Aldi’s not likely to go out of business because of the price of milk.

Ultimately if there is demonstrable evidence that the dairy industry would be harmed as a result (and by this I mean a net loss of farming and output, not the impact on any individual farmer) then it will be for the government to determine if they should interfere rather than let the market sort it out.  It’s unlikely less milk will be produced – given demand will remain high it’s not in the interests of the retailers to reduce supply which will increase their purchase costs, at least in the medium to long term, as well as upset their customers.  But some farmers may be hurt and the milk processors will lose out if demand for branded milk declines.   This is a normal consequence of a free market – even one in which two retailers hold a significant chunk of the market share – and any interference should be targeted and industry specific and should not masquerade as competition policy.  It should be labeled what it is, protection and/or subsidy for the dairy industry.  Then we can have an honest debate about whether or not that is desirable and, perhaps, why the dairy industry is more deserving of protection than many others that have had to survive tough competitive conditions.

Posted in Competition Policy | Tagged: , , | 1 Comment »

Criminal cartel bill passes Senate

Posted by Julie Clarke on 16 June 2009

The Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 passed the Senate last night with amendments relating to the Joint Venture exemption.  For discussion of the quality of these amendments see Fisse, ‘The Contract Requirement for the Joint Venture Exceptions Under Sections 44ZZRO and 44ZZRP of the Cartel Bill’ (Draft, 6 June 2009) (PDF)

There was little debate of any substance in the Senate leading to the passage of the bill, the Senate accepting the Senate Economic Committee Report and Recommendations, without reference to the Reports many inadequacies!  View Senate Hansard (from pp 108-116)

See also press release by the new competition minister, Dr Craig Emerson (incidently, today the Treasury Ministers Portal finally added Dr Emerson to the their list of Treasury Ministers; but the web site it directs you to – Emerson’s Ministerial Home Page – still makes no mention of the fact that he is now Minister for Competition and Consumer Affairs).

UPDATE: Amendments have been agreed to by House.  Final bill as agreed to both houses can be viewed here.  I will produce a separate post regarding the final passage of the bill which now waits assent – the criminal provisions will become operative 28 days thereafter.

Posted in Cartels, Criminal Penalties, Legislation | Tagged: , , | Leave a Comment »

Senate to resume debate on Criminal Cartel Bill (postponed)

Posted by Julie Clarke on 13 May 2009

The Senate is due to continue second reading debate on the Criminal Cartel Bill today (of course they do seem to be running behind schedule)  – see Senate Dynamic Red for Progress.

See also Bill Home Page.

UPDATE: As predicted, the Senate adjourned before debate resumed on the cartel bill – it has been re-listed for debate today (Thursday 14 May)

ANOTHER UPDATE: Although it appeared on the Senate Order of Business until about 1.30pm, the Cartel Bill debate has now been removed from the Senate Order of Business for today.  The Senate next sits on 15 June.

Posted in Cartels, Criminal Penalties | Tagged: , | Leave a Comment »

Senate Cartel Report Released

Posted by Julie Clarke on 26 February 2009

The Senate has just released its Report into the Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008.

The Committee expressed its views on three key areas of contention (unfortunately they were addressed briefly and other issues of concern – including other aspects of the drafting of the provisions – were not addressed):

1. Distinguishing criminal from civil cartel conduct

The Committee supported the decision to omit a ‘dishonesty’ requirement from the original exposure draft bill.  They also believed that ANY attempt to legislate what constitutes a ‘criminal cartel offence’ ‘risks restricting the judgment of the regulator’ (at 4.8)  and (at 4.9) recommended against ‘an attempt to delineate between civil and criminal cartel offences’.  Case by case judgments of the ACCC are important, they continue (at 4.8), because ‘they are contextual and weigh various factors, one against others.’  Instead of legislative change the Committee favoured ‘the release of detailed guidelines by the ACCC on passing of the legislation providing a non-exhaustive list of factors so that businesses could have an understanding of the kind of behaviour that would have the potential for prosecution.’ (para 4.9)

2. Joint Venture Exemptions

This has been one of the hottest issues of contention.  The Committee was not, however, convinced by any arguments presented in relation to the exemptions: ‘Chapter 3 noted the bill’s joint venture exceptions have attracted criticism from those who claim they are too narrow, while others fear that they are too generous and potentially often sanctuary for cartelists. The committee believes that the bill strikes an appropriate balance.’ (para 4.12)

3. ACCC Powers

While acknowledging that it would be important for the ACCC to produce Guidelines to assist business in determining what conduct is likely to be pursued criminally, they did not “agree with the concerns of many witnesses that the bill would allow the ACCC to pursue innocuous (and previously legal) activities” considering that the “claim that the bill would give the ACCC too much discretion in determining the pursuit of criminal cartel cases” was “overstated”. (para 4.18)

Finally, the Committee simply recommended that the Senate pass the bill. (para 4.19)

In his ‘additional comments’, Senator Xenophon also noted that the comprehensibility of the bill could be improved by inserting  the new provisions in “a way that avoided the need to refer to complicated sub-sub-sub-sections such as ‘subsection 44ZZRF’ and so on. …’ .  He also claimed there was a ‘need for a comprehensive, independent, review of the Act … to produce a simple act which promotes fair markets that operate in the interests of the whole community.’  Unfortunately, neither the numbering system nor the complicated drafting of the provisions themselves (s 45A was nice and simple) were discussed in the majority report.

It is a pity this review was so limited.  There were only 12 submissions, no doubt in part because less then a year earlier there had been a similar call for submissions into the Exposure Draft bill (30 submissions were received) ; no report on the Government’s consideration of those submissions was ever released and no substantive explanations for legislative changes (like the removal of the dishonesty element and increased prison terms) was given (save that it brought it into line with US penalties).

There’s nothing much to excite anyone in this report and there are some frightening inaccuracies.

Errors, inconsistencies and other oddities

1. Error: Summary of Part IV: in para 1.2, designed to give ‘background’ to the discussion in the report, ‘third line forcing’ and ‘resale price maintenance’ (RPM) are listed as two of “four prohibitions on anti-competitive behaviour considered to be anti-competitive in the context of a ‘contract, arrangement or understanding’ between competitors.’  This is certainly news to me.  Both of these forms of conduct are prohibited per se in Part IV, do not require a contract, arrangement or understanding (at least not of the kind being referred to by the Committee) and are generally not (and certainly not required to be) between competitors.

2. Oddity: In para 1.2 again, the other two forms of prohibitions referred to are exclusionary provisions and price fixing (leaving aside that  price fixing is not a separately prohibited but prohibited as a form of anti-competitive agreement and is aided by a deeming provision in s 45A), exclusionary provisions (which are per se prohibited) are lumped in together with s 45(2)’s general prohibition on contracts, arrangements or understandings which substantially lessen competition.  There is a very important distinction between the two for purposes of the proposed cartel offence.

3. Error: para – 1.3 – the Committee states that authorisation can be granted for RPM, third line forcing and exclusionary conduct based on a ‘test as to whether it has substantially lessened competition in a market’.  This is simply wrong.  There is no reference to SLC in the authorisation provisions (presumably because these forms of conduct are effectively deemed to SLC) – instead a pure public benefit test applies – would the conduct result in such a benefit to the public that it should be allowed to take place?  The Committee refers to the correct provision (s 90(8)), but apparently has not bothered to read it.

3. Inconsistency: para 1.6 states ‘The twin purpose of the bill is to deter and detect criminal cartel conduct’.  Skip along a few pages and para 2.1 states taht teh ‘principal purpose of this bill is to establish a definition of and a basis for penalising criminal cartel activity.’

4. Error: para 2.18 states that the ‘”anti-overlap provisions” are excpetions to the TPA’s “per se” provisions’.  No, they are not.  An anti-overlap provision preventing RPM being caught both by s 48 (per se) and 45(2) (even if we’re kind and assume s 45A would also apply and therefore effectively capture it per se under s 45) is not an exemption to the per se prohibition (the conduct is still per se prohibited under s 48), it simply favours the specific over the general prohibition to avoid duplication of penalty for the same conduct.  This is quite a simple concept; either the Committee couldn’t grasp it or didn’t try.

5. Oddity: para 3.6 – not really an error or even an oddity, but Committtee compares US system with ‘parallel civil and criminal prohibitions’ where it is up to regulators ‘to determine which way the case will go foarward’ and how successful that has been but do not discuss at all or acknowledge the extemely different administrative structure existing there that facilitate that.

6. Oddity/insoncistency: para’s 3.9 discuss prices and seem to confuse price fixing with supply restrictions.  The complaint they refer to focusses on the prohibition in the bill on ‘preventing, restricting or limiting … the supply … of goods or services …’ – but this seems to be discussed in the context of price fixing, the Committee (at para 3.11) referring to Assoc Prof Zumbo’s proposed definition of a price fixing offence – and then quoting from him discussing conduct involving output restrictions’.  It was certianly difficult to follow …

7. Para 3.39 states ‘As the bill is currently drafted, any businesses that enter into a contract, arrangement or unerstanding that restricts supply – even if the activity is innocent and regardless of its impact on price – will be subject to the criminal cartel offences’ and (at para 3.49) ‘Ordinary commercial activities, which inadvertently restrict the supply of goods or services, may attract a criminal penalty’.  First, the first statement is inaccurate as conduct must be between businesses in competition (or likely to be so etc).  Second, it is not clear what the Committee means by ‘even if the activity is innocent’ as, although there is now no dishonesty requirement, the Committee points out in para 3.16, quoting from Scott Rogers, that it will be necessary ‘for the prosecution to prove that the corporation knew or believed that the contract contained the cartel provision’ – thus, while the conduct need not necessarily be ‘dishonest’ in that it intended to rip off consumers or others, genuinely innocent conduct should not be caught.

8. para 3.39 – While the Committee believed that ‘innocent’ and harmless conduct could be caught by the criminal provisions, they were not terribly concerned by this, expressing confidence that the ACCC would exercise appropriate judgment in determining which cases it would refer to the DPP for criminal prosecution.

The analysis that followed all of this was very limited and did not address all of the concerns the Committee itself identified earlier in its report.  It is difficult not to form the view that the Committee Review was merely ticking a box and nothing would have convinced them to alter the legislation and possibly delay its passage through Parliament.

The bill passed through the lower house on 11 February – the Senate next sits on 10 March.  View bill progress.

Posted in Cartels, Criminal Penalties, Legislation | Tagged: , , | 1 Comment »

 
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