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Monday, 3 March 2003
Page: 8913

Senator BOSWELL (Leader of the National Party of Australia in the Senate and Parliamentary Secretary to the Minister for Transport and Regional Services) (8:26 PM) —We are debating the Trade Practices Amendment (Small Business Protection) Bill 2002 [No. 2]. Along with this important issue for small business I would like to address section 46 and the Boral decision. I hope Senator Murray has the time to listen to this. This bill amends the Trade Practices Act to assist small business by allowing the ACCC to bring representative actions on behalf of people damaged by conduct in breach of secondary boycott. The Baird inquiry recommendation to allow the ACCC to bring representative actions on behalf of small business became law in 2000 so as to help small business immediately, but its application to secondary boycott was shaved off after Labor objected. A secondary boycott occurs when two people act in concert to prevent a further person from supplying or acquiring goods or services from an independent person—the target and fourth person—so as to cause substantial loss or damage to the targeted business. Small business can suffer under these circumstances. That is the bill that we are now addressing.

I would like to turn some of my remarks to last month's High Court decision in its long-awaited judgment on section 46 in the Boral case. This decision clearly stated a new course on the important issue of predatory pricing and the misuse of market power where a company possesses substantial market power. Following the High Court Boral decision, section 46 is as good as dead and gone, not just for small business but for any business that wants to innovate and develop in a market where there is a large player with huge pockets to sell below cost. It leaves a situation where a large company can be more interested in dominating the market rather than building itself up by adopting new technology, through innovation, productivity gains and the like.

I note that big business and its lawyers are saying, following Friday's reports of the Federal Court in the Qantas case, that section 46 is not dead and gone as alleged by small business, but a monopoly like Qantas was always under the scrutiny of section 46, as the High Court distinguished. The disappointing aspect of the Boral decision was that 30 per cent of the market was not held to be a substantial market share.

In the current climate it seems that, if a company cannot merge or acquire because of trade practices provisions, it can now just smash its competitor out of the market. Furthermore, with the large range of related business activities in concentrated vertically integrated businesses, it can send a signal to others in their industry: `Don't take us on or you will also get the same treatment.' Section 46 on predatory pricing was the important third arm of competition. For competition to be the important tool in the economy, an effective trade practices regime needs three important components: effective merger laws, effective laws against cartels on pricing, plus effective laws against predatory pricing and the misuse of market power by large corporations possessing substantial market power. Section 46 was specifically directed against large corporations using their substantial market power to eliminate or substantially damage a competitor, prevent the entry of a competitor into the market or prevent a competitor engaging in competitive conduct in that particular market.

What we need is a nation where we have vigorous competition so we can get products onto the market, with competitive bidding from buyers, from farmers, manufacturers, food processors and suppliers; not one that encourages sticking to the status quo where the person with market power knocks out the others; not one that deters innovation and development of new businesses with new technology; not one, as will now be the case, that encourages an approach of buying your competitor out rather than investing in new equipment, becoming more competitive and taking on your new competitor who has done just that by introducing better productivity, new technology and advances. What is the point of developing a new product if your competitor knocks you out or if you have got no market because it is too small and is controlled by too few players? It is very serious for the future of business if the status quo company is allowed to dominate. What is the ultimate cost to this country?

Competition drives the economy, and without competition the economy stagnates. Any benefit to the consumer from lower prices as a result of predatory pricing is short lived. As the competition is driven out of business, prices may go lower for a short time, but when there is only one player left then the prices go up, so that argument that the staid market dominator uses for its own benefit is just flawed logic. Where does it ultimately get the consumer if there is no new, advanced product? Ultimately, in the environment of no new ideas or products coming onto the market, there is no incentive and it becomes even harder to get a new product on the market.

I campaigned heavily to have the mergers test changed in the early nineties to introduce more competition into the market. I am proud that it has resulted in restricting certain mergers, leading to greater competition. The loss of an effective section 46 remedy, without effective predatory pricing provisions for small business—all business, for that matter—leaves us without the critical balance of the third arm of competition. We have functioning restrictions on cartels. But it seems that, because we have good limitations on mergers and acquisitions, the only approach left if you cannot buy out your competitor or merge is to smash your competitor out of the market. The absence of a good predatory pricing regime makes this possible, even probable. The remedy we need post Boral is a provision that specifically mentions predatory pricing to restore the balance to pro competition. Sadly, following the Boral decision, section 46 is now a dead letter: it is open season on small business and it leaves business with its problems of predatory pricing and the use of excessive market power across many highly concentrated Australian markets.

The ACCC has been a very effective litigator over the years for increased competition, but on section 46 its record is mainly one of losses. This suggests the problem is not with the ACCC but with the act. Firstly, the Boral case took seven years to deal with behaviour from seven years ago. Delays and costs have seen 1995 behaviour being decided on in 2003. Any effect on the business in question is past. Because the small, more efficient block manufacturer survived does not take away the fact that, today, similar use of market power in other areas is similarly destroying other successful businesses. It does not remove the need for a working section 46. Importantly, too, the decision has come out after the Dawson review has been delivered. This reversal on a crucial arm of competition was not there to be considered by the eminent review investigating our entire competition laws.

The important and damaging practice of predatory pricing, of persistent pricing below cost to eliminate competitors, you would have thought would have been a signal to the courts of predatory behaviour, but the concept of market power has been lessened by this decision. It is unfortunate timing when, increasingly, business is more concentrated in our small Australian domestic market. Companies have huge flow-ons into other markets within an industry, whether it is building, retailing or the like. For example, I have been approached on matters where the reduced number of surviving building material manufacturers must also deal with a small number of suppliers of cement—their essential raw material—which are owned by their vertically integrated competitor.

The Boral case has definitely lowered the threshold of market power, allowing a signal to go out to competitors in other related markets where market power exists that says, `Don't take us on because we've won this one and we'll win another one.' The old test of the `smoking gun', the letter of intent to knock out the competitor, was a test many of us thought was too tough a standard in the first place. But here many smoking-gun letters existed. One even said:

We must knock out the competitor at any cost.

In fact, two other competitors were knocked out by below cost pricing. I understand one person lost his house and another one just closed down. The third one refused to lie down and die, thanks to the sixfold productivity they gained from their new state-of-the-art technology, a new investor coming into play, a housing economy going gang busters and ACCC intervention that changed behaviour.

If we are to be world leaders we do not want industries where companies in the interest of investment costs sit on their old plant and equipment and defend their markets by predatory pricing. There are plenty of examples of that in countries where monopolies or near monopolies exist. We, as Australia, needing to play our role in the hard competitive world of international trade, cannot afford to let our industries fall into a lower level of complacency. It is far better for big players, challenged by the feisty competitor, to be forced to improve and compete, not to resort to selling below cost because they have deep pockets. It is better instead to seek out more productive processes, to look for better labelling and selling techniques, and to seek out innovation, research and development. No-one is done a favour by propping up the status quo because they have long pockets to see out their newer and more financially strapped competitor who is giving them a good competitive ride for their money in the marketplace.

With its small population, Australia, in the wake of mergers and acquisitions over recent years and with companies expanding into new bolt-on businesses, has an economy with great concentration—with oligopolies and duopolies in many important sectors. This has been a recurring focus of mine for 20 years in the Senate. In fact, today is the 20th anniversary of my being in the Senate.

Honourable senators—Hear, hear!

Senator BOSWELL —During this time we have had some significant wins for business. Business now has many more avenues under the Trade Practices Act, other legislation and codes of conduct than it previously had. I am pleased to say that the Howard-Anderson government has kept up with the times for small business. I mention this in the context of the implementation of unconscionable conduct following the Reid report; the benefits from changes to the Trade Practices Act, such as ACCC representative actions for small business; and the lifting of the threshold and the redefining of regional markets that followed on from the Baird report.

Where this large imbalance of market power exists—where big business in practical terms can act by selling below cost because it has such a substantial hold on a substantial market—the removal of section 46 remedies requires great attention because of the importance of small business to all Australia. Now they have one less remedy when struggling to operate in a business environment dominated by a small number of large players. Small business has always held out the hope that section 46 would deliver them some relief. In recent years the trend has been to imply purpose, as the Federal Court upheld in the Boral case decision. Now the High Court has reversed this.

Concentrated market power is a daily encounter for small business in many areas, from panel beaters and insurance companies to newsagents and publishers. For the Dawson review, for the first time small businesses got together very constructively as a coalition representing 18 small business areas all in a similar predicament in needing to deal with enormous market power compared to their relative lack of strength as individuals. In recent years this has been compounded as collective bargaining has been considered to contravene the Trade Practices Act. Newsagents, dairy farmers, rural doctors, cane suppliers to mills, and many others have all had to seek authorisations. As they all told the Dawson review, this process has cost their organisations hundreds of thousands of dollars, has taken years to go through the process and can be appealed— meaning the whole investigation process must start all over again, as happened recently with the dairy farmers. Small business, which by its nature is a collection of individual businesses, is increasingly finding itself up against the wall.

The other remedy available through unconscionable conduct in section 51, introduced by this government, is meant to deal with large businesses unfairly exercising their market power through unfair conduct. Unfortunately, it is difficult to operate under the present legislation. When legislation like section 46 does not work, small businesses become discouraged, large businesses know they can get away with more than the intent of the law allows and a culture that reinforces small business is not there. As we all know, going to court is a costly business. That is why this government's reforms following the Baird review, which I am pleased to have initiated, now allow the ACCC to bring representative action. This is important for small business. This bill completes the picture.

The Prime Minister, before the last election, promised the Dawson review. The Prime Minister stuck to his words and a most comprehensive and complete review has been carried out. I am pleased to say that it was the National Party that played a role with its coalition partners in emphasising the existing imbalance in market power between large and small business and the effect this will have on rural Australia. Rural and regional Australia does not have the diversity of a city economy. Small business is a great mainstay for local business and employment opportunities. John Anderson and I spoke time and time again about having these matters thoroughly examined. I am sure that the Dawson review has kept these important elements of the imbalance of power between small and big business and the effects in rural and regional Australia, within their terms of reference, to the forefront.

Importantly, the Dawson review was held in an environment where there was a different understanding of section 46 when under the current law the section was there as a protection for small business against the excesses of market power exercised by big business, and big business was conscious of these limitations and the restrictions based on previous court decisions. Now, after everyone's submissions to the review, small business has been delivered an enormous and ground-shifting blow through the Boral decision. The removal of section 46 elevates the need for collective negotiations for small business, strengthened unconscionable conduct provisions and greater consideration being given to reinforcing a small business presence in the ACCC. As a consequence of the Boral decision, the plight of all businesses and the overriding need for a third component of competition on the misuse of market power need urgent attention. Business and competition has been left in a lesser position by the Boral decision in the current situation of increasing the concentration of market power. I commend the bill to the Senate.