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Thursday, 24 June 2004
Page: 31447


Mr COSTELLO (Treasurer) (9:01 AM) —I move:

That this bill be now read a second time.

The Trade Practices Act 1974 forms the central pillar of Australia's competition policy framework.

The act promotes competition and fair trading by prohibiting anticompetitive conduct and by providing the processes and institutions necessary to ensure these laws are enforced and administered to the benefit of all Australians, including big and small business, and consumers.

This government considered that it was appropriate to review the operation and administration of the competition provisions of the act, in light of the significant structural and regulatory changes that have occurred over the last decade and in honouring its election commitment announced in Securing Australia's Prosperity.

The Trade Practices Legislation Amendment Bill 2004 implements the government's response to recommendations arising from the independent review of the act, chaired by Sir Daryl Dawson. The Dawson review is the most comprehensive review of the competition provisions of the act for a decade.

After extensive and comprehensive consultation and consideration, the Dawson review concluded that the competition provisions of the act have served Australians well. The committee made a total of 43 recommendations aimed at improving the operation of competition and authorisation provisions, as well as the administration of the act.

The overall theme of the Dawson review is that the competition provisions should protect the competitive process, rather than particular competitors. The government strongly supports this view of the act, and has accepted the vast majority of the Dawson review recommendations.

The bill will improve existing ACCC processes by providing for greater accountability, transparency, and timeliness in decision making and reducing the regulatory burden on business.

The major initiatives contained in the bill are as follows.

Mergers

New Merger Clearance Process

A voluntary formal clearance system will be created that will operate in parallel with the informal clearance system. The test for considering mergers will remain unchanged—section 50 of the Trade Practices Act will continue to prohibit mergers that would have the effect, or be likely to have the effect, of substantially lessening competition in a market.

The Dawson review found that the ACCC's informal system of merger clearance can be quick, inexpensive and flexible in many circumstances but identified a lack of certainty for business as a clear disadvantage:

there is (necessarily) no statutory time limit on the ACCC;

the absence of a meaningful appeals mechanism may allow the extraction of undertakings that go beyond the competition concerns of a merger;

the lack of a legal requirement for the ACCC to provide reasons for its decisions prevents the development of a body of precedent; and

ultimately, there is no certainty of immunity from legal action.

In response to these concerns, the Dawson review recommended that a voluntary formal clearance system operate in parallel with the existing informal system—thus providing business with options dependent upon their particular circumstances.

The informal system will continue to answer the needs of straightforward mergers. Parties to more difficult mergers will be able to utilise the informal system to address ACCC concerns but, when they are ready to proceed, the formal system will provide the certainty of legislated time limits, require the disclosure of reasons, allow the applicant to appeal to the Australian Competition Tribunal, and provide immunity from legal action should the clearance be granted.

Merger Authorisations

The Dawson review identified that dissatisfaction with the merger authorisation process has been largely attributed to concerns about the time which may be taken to reach a decision and the risk of third party intervention by the way of appeals to the tribunal.

These factors have rendered the authorisation process commercially unrealistic for many merger proposals, especially those involving publicly listed companies.

The bill provides that merger authorisation applications will be considered directly by the tribunal so as to ensure commercially realistic time frames for such applications, and to prevent strategic appeals by third parties. Third party interests will be considered as part of the tribunal's comprehensive assessment.

Non-Merger Authorisation

The bill addresses the concerns of business regarding the sometimes expensive and protracted nature of the non-merger authorisation process by placing time limits on the ACCC for considering applications. Small business in particular is advantaged by providing the ACCC with the discretion to waive, either in whole or part, the filing fee, in appropriate circumstances.

Collective Bargaining

This government acknowledges and supports the important contribution made by small business to the Australian economy.

The bill will reduce the regulatory burden on small business by introducing a notification process for collective bargaining by small business dealing with large business, as an alternative to the authorisation process.

In the absence of objection by the ACCC, the bill provides collective bargaining arrangements will receive immunity at the end of 14 days for a period of three years. The government proposes that the period be initially set at 28 days by regulation, with a further assessment at the end of 12 months.

The onus will be on the ACCC to provide notice that the conduct does not or is unlikely to benefit the public, or the benefit will not outweigh the detriment resulting from the conduct.

The ACCC already authorises collective bargaining arrangements, including those by chicken growers, dairy farmers, sugarcane growers and small private hospitals. However, the process of obtaining authorisation may be expensive, time consuming and impose an unnecessary burden on small business—in many cases notification will be an appropriate, effective and speedy alternative.

To ensure the collective bargaining process benefits small business dealing with large business, there is a transaction limit of $3 million in any 12-month period. However, it is recognised in the bill that there are businesses with high turnover and small profit margins which should have a higher transaction limit, and the bill provides that a higher limit can be set by regulation.

The government considers there would be a range of businesses suitable for a higher limit. These could include motor vehicle dealers, petrol station owners and some agricultural businesses. The Minister for Small Business and Tourism will develop proposals for the government's consideration in respect of these regulations.

Exclusionary Provisions, Price Fixing and Joint Ventures

The act prohibits exclusionary and price-fixing provisions outright; that is, not subject to a substantial lessening of competition test. The government considers that outright prohibition should continue for such serious cartel conduct.

However, the Dawson review found that the existing joint venture exemption contained in the act is too narrow to encompass many newer forms of joint ventures, such as those found in e-commerce.

The bill provides a joint venture defence to the prohibitions on exclusionary provisions and price-fixing provisions. Clear cartel behaviour will continue to be prohibited outright but genuine joint ventures will be considered on the basis of a competition test. Authorisation on public benefit grounds will still be available for other joint ventures where appropriate.

Dual Listed Companies

The modern phenomenon of dual listed companies is recognised in this bill by allowing intraparty transactions in a dual listed entity to be treated on the same basis as related party transactions within a group of companies, and for the aggregate market power of the dual listed company to be assessable for the purpose of considering market power.

The formation of a dual listed company will be prohibited where it would substantially lessen competition in a market, with authorisation available in appropriate cases.

Third Line Forcing

Most exclusive dealing arrangements are only prohibited by the act if they substantially lessen competition. Third line forcing, which involves selling only on condition that goods are acquired from a third party, is however prohibited outright.

The Dawson review considered that third line forcing is often beneficial and procompetitive. The ACCC presently opposes very few of the hundreds of third line forcing notifications received annually and has also found that these arrangements can encourage competition, such as the grocery shopper docket arrangements for cheaper petrol.

The bill amends the act to subject third line forcing to a substantial lessening of competition test, consistent with other forms of exclusive dealing.

Enforcement

The ACCC is a vigorous and effective regulator. In recognition of the ACCC's extensive investigative powers and its potential to significantly disrupt business if not used appropriately, the Dawson review recommended greater transparency and accountability in the ACCC's enforcement mechanisms, and greater safeguards on the use of its extensive powers.

The current provisions in the act provide the ACCC with the power to enter premises and inspect documents without a warrant. This bill will provide the ACCC with the ability to search premises and seize evidence; however, these powers are matched with appropriate accountability by requiring the ACCC to obtain a warrant from a magistrate.

These amendments both enhance the effectiveness of the ACCC's investigative powers and also ensure accountability and transparency. The relevant rights and responsibilities of the ACCC in carrying out its enforcement duties are clearly specified.

Penalties

The bill provides for higher penalties for contraventions of the act, as a means of better deterring corporations or individuals from engaging in anticompetitive behaviour.

The government has adopted recommendations made by the Dawson review which provide that the maximum pecuniary penalty for corporations be raised to be the greater of $10 million or three times the gain from the contravention or, where gain cannot be readily ascertained, 10 per cent of the turnover of the body corporate and all of its interconnected bodies corporate, if any.

The bill also gives the court the option to disqualify an individual implicated in a contravention of part IV of the act from being a director of a corporation or being involved in its management.

Corporations are also to be prohibited from indemnifying, directly or indirectly, officers, employees or agents against the imposition of a pecuniary penalty.

Other Measures in the Bill

In addition to implementing the major recommendations of the Dawson review, the act is amended to apply to local government consistently with other levels of government—that is, to the extent it carries on a business. The bill also implements measures to help ensure the constitutional validity of the act's national application, addressing uncertainties raised by the High Court in the Hughes case.

Conclusion

The Trade Practices Act is an essential component of Australia's regulatory framework, and the bill enhances existing measures in the act to provide greater accountability, transparency, timeliness and efficiency.

I present the explanatory memorandum to this bill.

Debate (on motion by Mr Fitzgibbon) adjourned.