Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
STANDING COMMITTEE ON ECONOMICS
27/07/2007
Corporations (National Guarantee Fund Levies) Amendment Bill 2007 and related bills

CHAIR —Welcome. I gather you have appeared before other parliamentary committees, and you were here for my opening statement. Do you wish to make an opening statement to the committee?

Prof. Zumbo —Yes. Firstly, I would like to thank the committee for the opportunity to appear today and for the support the committee has provided so that I could attend this hearing; I appreciate that opportunity. The issues and legislation before the committee today in terms of the trade practices amendment bills go to the heart of competition and fair trading law in Australia. Central to this debate is the question of whether or not the Trade Practices Act is effective in preventing anticompetitive conduct. On this question there is growing evidence that key sections of the Trade Practices Act are not operating as intended by the parliament.

One of the key sections not operating effectively is section 46. This section should deal with predatory conduct but, following the High Court’s decision in the Boral case in 2003, section 46 is not operating as intended by parliament. Section 46 is intended to stop firms with substantial market power from taking advantage of that power for an anticompetitive purpose. In order for there to be a breach of section 46, the firm must have substantial market power as defined by the courts or the legislation, if that is appropriate.

As a result of a series of High Court decisions a firm will not have substantial market power unless it has the power to raise prices without losing business to rivals. This test—the ability to raise prices without losing business to rivals—has become the key test for substantial market power. It is highly restrictive, as few, if any, firms would have the ability to raise prices without losing business to rivals. This key test is such an onerous and restrictive test that section 46 cases have become almost impossible to mount, as shown by the fact that the ACCC has not brought any section 46 cases to court since the Boral decision. This means that section 46 is currently not operating as intended by parliament. In particular, because the question of substantial market power is a threshold issue triggering the operation of section 46, a failure to establish that a firm has substantial market power means that the firm’s conduct escapes scrutiny. This means any anticompetitive conduct by the firm will also escape scrutiny, so, unless the firm comes within that threshold, it is not covered by section 46. So, unless the concept of substantial market power is appropriately defined, section 46 will remain ineffective.

There are also other problems with section 46. There is a second threshold issue of whether the firm has taken advantage of its substantial market power. Once again as a result of a series of High Court decisions, that test of ‘take advantage’ is also an onerous and restrictive test which basically comes down to the proposition that if a firm could engage in the same conduct with or without market power then engaging in that conduct is a ‘taking advantage’ for the purposes of section 46. Unfortunately, the bills before the committee do not insert an appropriate definition of ‘substantial market power’. They simply dismiss a number of issues that the court does not need to take into account. With all due respect, the court does not take into account those factors anyway. No court has said under this current section 46 that you need to establish that the firm has substantial control or that the firm is absolutely free from constraints. Those issues were not even been required to be examined by the High Court in the Boral decision. To say that a firm can have substantial market power even though it is does not have the ability to control a market or to be absolutely free from constraint simply dismisses matters that are not taken into account and are not the tests used by the High Court.

In short, the bills do not change the High Court’s highly restrictive interpretation of substantial market power. The bills are silent on the issue of ‘take advantage’. Unless both those issues are defined appropriately in keeping with the parliamentary intention behind those two concepts then section 46 will remain ineffective. The point is that unless you define ‘substantial market power’ the current High Court decisions will apply and section 46 will not be triggered and will remain ineffective in stopping anti-competitive conduct.

Section 46 is not the only problem that needs to be fixed. It is the biggest problem, but there are a number of other problems. For example, there are problems emerging with other provisions of part 4—and I will be very quick in speaking on those. There are issues in relation to cartel behaviour perhaps going undetected. Because of recent decisions, it is clear that the ACCC has insufficient powers to obtain evidence that will stand up in court. There specifically I am talking about the need for the ACCC under judicial supervision to be able to tap phones and covertly record meetings in the same way that the FBI in the United States is able to and to move quickly to make cartel behaviour a criminal offence.

The issue of creeping acquisitions is not dealt with in the bill before the committee. Creeping acquisitions are a series of small-scale acquisitions which in themselves may not substantially lessen competition in breach of section 50 but collectively may substantially lessen competition over time to the detriment of consumers. There are problems with making section 45 cases stick, problems with trying to get section 46 cases even before the court and problems with creeping acquisitions that could be used as a way to get round section 50. Further, there are holes emerging in key sections of part 4, the competition law provisions of the Trade Practices Act.

In terms of fair trading, section 51A(c) is intended to deal with unconscionable conduct. But that has been narrowly interpreted by the courts, with a heavy procedural unconscionability focus, which simply looks at the surrounding conduct and does not drill down to potentially unfair contract terms. The question of unfair contract terms is also described as ‘substantive’ unconscionability. That issue has not been dealt with. Simply adding a factor or another 10 factors or more to the non-exhaustive list of factors will, with all due respect, do nothing other than add to the non-exhaustive list. It will not define unconscionable conduct. Simply having that factor does not mean that conduct is unconscionable. Quite simply, the courts can take into regard any matter that they deem relevant and simply adding to that non-exhaustive list will not remove the ability of the courts to look at any factors that they feel are relevant.

Similarly, adding a factor that the courts may have regard to below-cost pricing adds nothing to what the courts already do. In fact, in the Boral High Court decision the court had very close regard to below-cost pricing. Simply saying in the legislation that you may have regard to below-cost pricing does nothing. The courts already have that ability and they would certainly look at that. Overall, therefore, it is respectively submitted that the bills before the committee fail to address a number of major problems with key sections of the Trade Practices Act. Unless those problems are addressed, Australia’s competition and fair trading laws will not be operating effectively to the benefit of Australian consumers.

Senator STEPHENS —Thank you, Professor Zumbo. Welcome back to the committee. You will notice that we have a new chair who does not have the forensic knowledge of the Trade Practices Act that our former colleague did, but nevertheless we will try to engage you at a level that does not shame us!

Prof. Zumbo —I am sure the chair brings other strengths!

Senator STEPHENS —Sure, but we spent many hours engaging in forensic analysis of certain sections of the Trade Practices Act under Senator Brandis. You made some very important statements in your presentation. I want to go to some of them first of all, if I may. Your argument really is that section 46 as it currently stands does not protect small business and that, as the bill proposes, the amendments still do not protect small businesses. Can you elaborate for us on why you say that the concepts of substantial degree of market power and taking advantage are still not well enough defined and therefore still the problem?

Prof. Zumbo —I will start out by saying that the proposition I bring before the committee is that section 46 does not protect competition sufficiently. As a result, that may have an impact on small businesses, but the proposition I put is that an effective section 46 is essential to protecting competition, ensuring that competition is as vigorous as possible and that consumers get the best possible deal. There is obviously a fine line between competitive conduct and anticompetitive conduct. Obviously we do not want to stifle competitive conduct, but similarly we do not want to allow anticompetitive conduct to go undetected or unpursued in some way.

The problem with section 46 and the concern that has galvanised this argument and debate for the last four or five years is that the High Court decision in Boral set a trend whereby the concepts of substantial market power and taking advantage have been interpreted in such a way that one would see that the section effectively would not operate in preventing anticompetitive conduct. The ACCC has not brought cases. The concepts have been defined in a narrow way. We know how the concepts have been defined by the High Court, and they are defined in such an onerous way. As a result, there will be conduct that would ordinarily be a breach of section 46 that is not being looked at.

The concern that one has is obviously that we do not even get to look at whether conduct is unconscionable under section 46. We do not even get into section 46, because section 46 is not triggered unless you have a substantial degree of market power. Unless that is triggered then the firm is not covered by that section, and if the firm is not covered by that section it can engage in any conduct that would otherwise be a breach of section 46 but is not because it is not covered by section 46. There may be breaches of other sections of the Trade Practices Act, of course, but section 46 will not be relevant to that firm’s anticompetitive conduct in seeking to stop that anticompetitive conduct.

Yes, there is a debate about big business versus small business, but this is really a debate about protecting consumers, protecting competition, ensuring that competition is as vigorous as possible, and sometimes a discussion about big business versus small businesses sidelines some of those more fundamental issues about the importance of promoting competition. Section 46 is a very important provision to promote competition, and because it is not working there is always a doubt that conduct that is unconscionable is going undetected.

Senator STEPHENS —In your analysis of the amendment bill, you have made some constructive proposals that you think will address the issues that you believe are the weaknesses of the bill. Perhaps it would be constructive if you were to work your way through the proposals and why you think those proposals would address the shortcomings of the bill.

Prof. Zumbo —My proposals, Senator?

Senator STEPHENS —In your submission, yes.

Prof. Zumbo —I make a number of suggestions. Firstly, and quite obviously, there needs to be some attempt to define ‘substantial degree of market power’. Alternatively, if we have the approach of saying that there can be substantial market power even though something is not proven, saying that even though the corporation does not control the market or acts absolutely free from constraint is not sufficient. You would need a statement to the effect of ‘a corporation can have substantial market power even though it does not have the ability to raise prices without losing business to rivals’. That would knock out that factor as the key, sole overriding factor and would require the courts to have a much more sophisticated analysis as to the level of constraint in the marketplace—the way the firm is operated, the way the terms are dictated, for example, a refusal to supply, how long it sustained a conduct. It is not simply a throwaway line that the firm does not have the ability to raise prices without losing business. The message came through quickly and clearly that the concern in the High Court is that if you do not have the ability to raise prices without losing business rivals, you do not have substantial market power. Justice McHugh’s judgement starts off with the proposition that Boral did not have substantial market power because it did not have the ability to raise prices without losing business. So having the proposition that you can have substantial market power even though you cannot raise prices without losing business would require the courts to look more broadly, and would be in keeping with the parliamentary intention because the intention was to have a broad analysis of the relevant market characteristics and behaviour of the firm.

There would need to be a definition of ‘take advantage’. Suggestions were made in the previous Senate Economics Committee report, which these bills are in response to, that perhaps more needs to be done in that regard than simply those recommendations. One suggestion is to try to move the courts away from a focus of looking at what the firm could have done without the market power. If you can engage in the same conduct with or without market power, that covers anything. You can engage in predatory below-pricing without a market power. You can refuse to deal without market power, but the ultimate difference is you cannot sustain that predatory conduct for too long if you do not have market power because you will lose business to your rivals. People will stop dealing with you, and if you refuse to supply, for example, 50,000 street directories, someone will go elsewhere, because in a competitive market there is a competitor to supply. But if you make a comparison between conduct with and without market power, you have knocked out almost any conduct, and I struggle to think of any conduct that would come within that test, which is evidenced also by the fact that key High Court decisions have been knocked out on an inability by the ACCC to show it taking advantage.

One suggestion would be to provide a definition of ‘unconscionable conduct’, which makes it clear that it is a broader provision than the old common law principles of unconscionable conduct. But clearly there may be time to consider a new framework to deal directly with unfair contract terms. Victoria and the United Kingdom have a framework for dealing with unfair contract terms in consumer transactions. There has been a Law Commission report in the United Kingdom suggesting that that legislation should be extended to a small business context with time to consider not only having that in consumer transactions but certainly in small to big business relationships.

CHAIR —In relation to the point that the senator raised, do you have a definition of ‘substantial market power’?

Prof. Zumbo —No. To use the same model that the government is using when saying, ‘You can have substantial market power even though ...’ I have suggested that you can have substantial market power even though you do not have the ability to raise prices. If that was implemented I believe that would restore the pre-Boral position in a way that unfortunately the government’s attempt does not.

CHAIR —So that would be your only change to a definition, or only addition to a definition, would it?

Prof. Zumbo —At this point that would be my submission.

CHAIR —What do you mean by ‘at this point’? Is that subject to change?

Prof. Zumbo —Well, no. That is what I would be looking for. If that was implemented, I believe that section 46 would be restored to its pre-Boral position. Of course there is the question of recoupment. I do not believe there is a need to show recoupment, so on that point I would say that you need to knock out any requirement to establish recoupment. The problem there is you are requiring a finding as to the future—that is, you need to establish that someone is going to do something in future, recoup it in future. It may be part of economic theory, but we are talking about a law—section 46—that does not mention recoupment in the legislation.

Senator STEPHENS —So on that point, Professor Zumbo, would amending the act to explicitly state that recoupment is not required to prove predatory pricing add significantly to section 46?

Prof. Zumbo —Absolutely. I do believe that not only have you got a high threshold in terms of substantial market power but you have also got this further hurdle that the High Court has imposed of a requirement to show recoupment. If that was removed, that would be in keeping with the parliamentary intention behind section 46. Section 46 is not a prohibition against predatory pricing. It is a prohibition against abuses of market power. To insert by judicial comment the concept of recoupment is not in keeping with the original intention. It is simply an economic concept that has crept into a law. In theory that may be fine, but in practice—in proving a legal point—you are requiring proof of an event in the future. Recoupment may also be very subtle. It may not simply be the ability to raise prices later on. It may be providing a very strong warning to your competitors that if they come after you in one market then you will go after them in another market. So to rely on the concept of recoupment in terms of raising prices at some future point is, with all due respect, unsophisticated, because there are different ways that you can carry out your threat and destroy and foreclose competition at a later stage than simply being able to raise your prices.

Senator STEPHENS —You made another point about creeping acquisitions and how they may be used to get around section 50. Can you elaborate on that for the committee, please?

Prof. Zumbo —The problem with creeping acquisitions is that individually, small-scale acquisitions may not substantially lessen competition and therefore are not a breach of section 50. Section 46 really looks at individual acquisitions. However, if you stand back and look at the effect of these small-scale acquisitions over a period of time—say, five years—they could be significant. For example, if those individual acquisitions had happened at one point in time—that is, they happened all together—then they may have been a breach of section 50. But because they happen, in a sense, by stealth over a period of time, individually they are not substantially lessening competition. Collectively they are, but under section 50 you are not able to consider them together as a group. The suggestion there would be that they should, within a relevant period of time, in that market, by that firm making the acquisitions to have an assessment as to whether that does substantially lessen competition over time. At the end of the day we are concerned about protecting competition and consumers. If that competition has been diminished over a period of five years and those acquisitions happening together could have substantially lessened competition, why can’t they be considered to substantially lessen competition if they happen over a period of time—say, five years?

CHAIR —What is your suggested amendment to address this?

Prof. Zumbo —The suggested amendment would be an ability for the ACCC under section 50 to consider a series of creeping acquisitions in that market by the firm within a relevant period of time, which could be five years—that is my suggestion in that regard.

CHAIR —But do you acknowledge that it is difficult to determine when an acquisition has substantially lessened competition? Is that the extent of the test over five years?

Prof. Zumbo —Any regard to whether conduct substantially lessens competition is a complicated exercise. It is a complicated exercise with large acquisitions, of course. What I am saying is that that would not be any harder if you looked at acquisitions over a period of time, because you are making the same assessment as to the reduction of competition, how that adversely affects consumers and how that adversely affects the level of competition in the market. Looking at something over a period of five years or six months is always going to be a complicated exercise. It is not going to be any more complicated to look at how creeping acquisitions have had an impact on competition over five years. In fact, it might be easier, because over a period of five years you have a better fix on how these creeping acquisitions have impacted on competition. If they have, there is an issue; if they have not then it is not an issue, in the same way that if you had one big acquisition at one point in time it would not be an issue.

CHAIR —So you are you suggesting an arbitrary five-year period?

Prof. Zumbo —In the sense of providing certainty, yes, five years. You get an ability to have a fix over a period of five years. But you could pick four years or six years; at the end of the day, it is no different to having a threshold that has three million or 10 million. Some things are going to be covered; others are not going to be covered.

CHAIR —There is a very substantial difference. One is three and one is 10. Are you suggesting three years, four years, five years, six years?

Prof. Zumbo —I suggest five years.

CHAIR —Is there not a risk, with an arbitrary period like that, that you will potentially impact on small business if, indeed, there is clear evidence of conduct inside that five-year period?

Prof. Zumbo —No, it would not impact on small business in any way. It would be simply a question of whether it has impacted on competition. This is not about protecting small business; this is about protecting competition. If an assessment is made over that five-year period that there has been a substantial lessening of competition then I am sure we would be concerned about that. To say, ‘Five years is arbitrary, therefore we shouldn’t worry about it,’ with all due respect, misses the point about focusing on the reduction in competition rather than seeking to do something about it.

Senator BERNARDI —Wouldn’t it be the case that, where there was an accretive lessening of competition over a period of time, smaller transactions or acquisitions would have an increasingly disproportionate effect on reducing competition?

Prof. Zumbo —Decidedly, yes.

Senator BERNARDI —Isn’t that then a natural regulation in itself—that, over the course of time, if a business had a significant market share, it bought a smaller competitor and it continued to acquire small competitors, each one could be viewed on its own? Is it really necessary to view them in the context of what has happened in the past?

Prof. Zumbo —It is, for this reason. Take the example of a retail grocery. You have Coles and Woolies with significant market shares, and that has been through natural growth and acquisitions of competitors. In that context, if Woolworths or Coles buy one additional independent retailer then that is a very small-scale acquisition. With regard to your point, they may have gone from X to Y, and Y is a greater market share—some people are suggesting upwards of 80 per cent. The fact that they still acquire one small retailer does not work within the example that you have provided, because that small independent retailer would be such a small part of the market that it would not be caught under section 50, even though Coles and Woolies have a significant market share. But, over a period of five years, there may have been 100 independent retailers acquired and there perhaps has been a reduction in competition. We do not know, because that question is not looked at under section 50 of the Trade Practices Act.

Senator BERNARDI —If, in that circumstance, Coles and Woolworths had 80 per cent market share and they decided to buy another small chain that had one per cent of the remaining market, it would be effectively a five per cent reduction in competition. It would be quite significant.

Prof. Zumbo —It could be more. We do not know the figures. One individual retailer is not going to trigger section 50, but over a period of five years, as I said, there may have been 100, which may amount to eight per cent, 10 per cent or three per cent—it depends on the individual market. You do not look simply at the national market; you look at the regional market. Within a particular area there may be concern that Coles and Woolies effectively have become the only two competitors in that regional market because over a period of five years they have taken out all those independents. Perhaps it would be over a much longer period, but for the purposes of this exercise we would group them together for five years to see how the competition has been reduced. Your point that as they get bigger there is a snowballing effect is true. I completely agree. That is why we need to group them together and consider the more recent acquisitions over that five-year period to see whether they are having a disproportionately negative impact on competition.

Senator BERNARDI —I understand what you are saying; I am trying to reconcile it in my own mind. Going back to your regional example, over the course of time, if you examined it in isolation, it would prove my point that if there were three retailers and Coles and Woolworths, and Coles decided to buy the other two retailers, each one would be a significant reduction in competition itself. It is almost like a natural regulation, because one would have 60 per cent or 66 per cent of the market if he bought one of the additional retailers, and to go for the third one would be a significant reduction in competition again.

Prof. Zumbo —Then you have a bigger problem, because, in theory, you could end up allowing, under the current section 50, acquisitions to occur to a point where you have a duopoly. There is some support for the view that a merger will not substantially lessen competition unless the merged entity does have substantial market power—that is, the ability to raise prices without losing business. We are getting a highly concentrated market and maybe we need to carefully look at how section 50 operates. I am looking at one issue—that is, creeping acquisitions—but if you want to look at the dangers of growing market concentration, that is a very legitimate issue and one I would be very happy to explore, because there is a growing concern about growing market concentration. It is not just about creeping acquisitions. The fact is section 50 is allowing some very big mergers to go through that perhaps one would have looked at more carefully than has been the case.

Senator BERNARDI —I would rather confine it to creeping acquisitions at this point.

Prof. Zumbo —Absolutely, but I just wanted to put it into context.

Senator BERNARDI —Thank you for explaining your position to me with regard to that and I thank you for allowing me to ask the question.

Senator STEPHENS —Given that conversation and the answer to the previous question, it might be helpful if you could explain to the committee the kinds of problems that a small business would currently face in trying to recover damages once the ACCC has successfully prosecuted a large business.

Prof. Zumbo —That is a very real concern. Let us assume you can get a successful section 46 finding, and we have discussed that: if there were a successful section 46 finding, in that context, if a small business person or anyone else has suffered damage, they would have to start proceedings in the Federal Court. The suggestion I make in my submission—and it is a suggestion made by the majority report in the Senate inquiry—is that there should be the ability for small business, where there has been a finding of fact in relation to section 83 from a prosecution by the ACCC, to take that section 83 finding of fact to the Federal Court to merely prove their damages. There would be enormous advantages there from an access to justice point in being able to recover your damages in a timely manner.

Senator CHAPMAN —You probably recall the original Senate inquiry on this issue—

Prof. Zumbo —Very well.

Senator CHAPMAN —and the fact that the then chairman, Senator George Brandis, who has considerable technical expertise in this area, and I, who may lack the technical expertise but who has certainly had a long interest in this area, gave considerable attention to these issues and dealt with the majority of recommendations and made recommendations in a minority report. As I examine the legislation, the only area of inconsistency that I can find between what Senator Brandis and I recommended and the legislation is the failure to extend to the Magistrate’s Court the power to deal with breaches of competition provisions of the Trade Practices Act, which is a matter which you draw attention to. Can you identify any other areas where the legislation is inconsistent with, for want of a better term, the Brandis-Chapman recommendations?

Prof. Zumbo —I can. A lot of good work was done by you and Senator Brandis and I remember that previous inquiry very well. Recommendation 1, substantial market power, picked up a number of principles that the ACCC had recommended should be adopted to clarify substantial market power. Some of those have been picked up, not all of them have been picked up. From memory, in one point—I do not think they were numbered—there was a suggestion that you could have substantial market power even though you cannot control the market.

Senator CHAPMAN —The ACCC did provide numbers, I think.

Prof. Zumbo —Have you got the report in front of you, Senator?

Senator CHAPMAN —Yes.

Prof. Zumbo —It is on page 14.

Senator CHAPMAN —Page 11.

Prof. Zumbo —It actually appears a number of times. In the majority recommendation there was a further point about it being sufficient if the firm exercises significant control. In looking at the recommendation made by Senator Brandis and you, and then looking back to the majority in terms of what was accepted, there are some nuances there that have not been picked up. That is one point. It comes down to a word-by-word analysis.

Senator CHAPMAN —In relation to recommendation 1, regarding the four principles, we said that the first was not really a test at all and we doubted its appropriateness or utility; and that the second, third and fourth principles would not, in our view, change the scope of section 46 although they may be of use in clarifying the meaning. We did not really have a strong view on recommendation 1, in that sense.

Prof. Zumbo —But the government has adopted elements of recommendation 1 and in doing so has not picked up all the points. That is the point I am making.

Senator CHAPMAN —They probably picked it up to the extent that we regarded it as being irrelevant.

Prof. Zumbo —That may be so, Senator, but it is not clear from the statements that I have read.

Senator FIELDING —Thank you for your comprehensive submission. I note your support for the concept of substantial financial power as an alternative to the concept of a substantial degree of power in a market. Would you mind telling us why substantial financial power is a useful concept?

Prof. Zumbo —Substantial financial power is a useful concept because financial strength is ultimately what allows the anticompetitive conduct to be sustained for a period way beyond what it would have been in a context where the firm had no market power or substantial power. So the ‘deep pockets’ aspect is very important to fund the anticompetitive conduct—or the allegedly anticompetitive conduct. The High Court has said that financial power is not a factor that should be taken into account. I respectfully disagree because, if we are trying to assess whether conduct is procompetitive or anticompetitive and if what the firm actually does when it has substantial market power has an adverse effect on competition, we should be looking very carefully as to how that financial power has been used.

Senator FIELDING —I note that you also support the idea that predatory pricing can be proved, even if there is no intention to recoup costs. Could you tell us why? Do you think such an amendment—such as section 46AA(iv) of the Family First bill—would pose a danger to the importance of the possibility of recouping the losses being overlooked?

Prof. Zumbo —Sorry, is your question whether we should have a provision that says we do not require proof of recoupment?

Senator FIELDING —Yes.

Prof. Zumbo —Okay. If that is the question then we do not need proof of recoupment, because recoupment is not mentioned in section 46. You have substantial market power and you take the advantage of that market power for an anticompetitive purpose. That is conduct at a point in time. If at a point in time you have substantial market power and substantial financial power and you use that power in an anticompetitive way—that is, you behave at that point in time to destroy competition, to deter competition or to prevent competitive conduct—then that should be the only issue that is relevant under section 46, because that is how section 46 is worded. To introduce new concepts is to add new hurdles by judicial law making.

Senator FIELDING —So you think it makes it more difficult to even come close to—

Prof. Zumbo —If you have a recoupment element, it becomes almost impossible because you are asking for proof about the future. And if you are asking for a dead body—that is, that the small business or the smaller player has been driven out of business—as an element of proving a breach of section 46 then section 46 is not working effectively to protect competition because the competition is gone; it is once you have proven that.

Senator FIELDING —Do you think there is any merit in the government’s bill?

Prof. Zumbo —Any merit? No.

CHAIR —In your submission you said that there was now quite a restrictive interpretation given to the definitions of substantial market power et cetera and that that did not align in any way with the key concepts of section 46.Why would you oppose these amendments when indeed they outline areas that the court could take into account when establishing the degree of power that a company has in the market? Why would you oppose those?

Prof. Zumbo —They can already do that. If they can already do that, why do you have to say it?

CHAIR —Why would you not put that in by way of definition?

Prof. Zumbo —Because it adds nothing. It adds nothing to what the courts are already saying. It is creating a false expectation that these changes will resuscitate section 46. These changes, with all due respect, will not resuscitate section 46. As to section 46, the government’s changes will not resuscitate section 46. In that case, they add nothing—and if they add nothing then why are we doing it? They do not address the key problems that need to be addressed—the key problems that I have outlined this morning.

CHAIR —‘Key problems’ on your submission.

Prof. Zumbo —I come to this committee to provide evidence about my opinion. You can accept or reject that opinion. My opinion is based on many, many years of research, and that is the point I am making.

CHAIR —Sorry, Professor; I am just clarifying that they were your views about the legislative interpretation now of section 46.

Prof. Zumbo —Is that a question as to whether they are only my views or whether other people share those views?

CHAIR —They are—

Prof. Zumbo —There are other people that share my views.

CHAIR —Excuse me, but that was put in the context of your views that these court interpretations have had this effect on section 46. If indeed that is not right, do these amendments add value to the courts’ interpretation of substantial market power?

Prof. Zumbo —No.

CHAIR —We will have a very quick question, Senator Webber, because I am mindful that we are well over time.

Senator WEBBER —Indeed, Chair, and it is my one and only question to this witness. Thank you for making yourself available to the committee, Professor. I was part of the committee’s previous work as well. I note that the committee initially reported in March 2004 and we are now in July 2007. Is it your view that the government’s proposed amendments to the TPA are that complex that it would taken three years to draft them?

CHAIR —You are asking this witness to make—

Senator WEBBER —I am asking for his advice on the complexity of the amendments.

CHAIR —With the greatest of respect, this witness has had a lot of time to think about things and has not even put interpretations, definitions or proposed changes to definitions. This witness cannot comment.

Prof. Zumbo —That is not true.

CHAIR —This witness cannot comment on what motivated or drove this, or did not drive it at all.

Senator WEBBER —No, and I have not asked—

CHAIR —If you want to make a comment about that, that is fine. But this witness cannot, because it is a political comment and not a comment that—

Senator WEBBER —With all due respect, Chair, I do not have the legal experience in drafting changes to the Trade Practices Act and I was not aware that you did. I am asking his advice on the complexity of the government’s proposed changes and whether in his view they are so complex that they would have taken this long.

CHAIR —That is not a relevant question to ask this witness at all. If you want to make a political point about it taking X amount of time, that is fine. I am quite comfortable with that; that is entirely your right. But this witness is not, in my view, in a position to answer that sort of question. You have made your political point and this witness is not in a position to answer that.

Senator FIELDING —Following on from Senator Chapman’s reference to the Senate Economics References Committee recommendations, did you have a look at the Fair Trading Coalition’s submission at all?

Prof. Zumbo —Yes, I have read it closely.

Senator FIELDING —There is a table on page 10 of their submission that has an attachment that has the recommendations. It goes through all the recommendations in quite a good summary, and I thank Senator Chapman for mentioning them. Quite a few have been accepted in the bill and quite a few of the components have not been accepted. Have you any comments about those generally?

Prof. Zumbo —A number of those were not accepted. A number of points that even the majority made could be strengthened. In coming here today I am concerned about strengthening the Trade Practices Act to ensure that it is effective. In one way you can look at a blank sheet and say that we have got a problem and how do we identify that—and to a large extent I have done that. In terms of addressing the report, things have moved on from that report. Other cases have added to my concerns. They were not expressed in that report because of subsequent court cases. So the debate has moved on a little bit. At that point in time the report was an accurate reflection of events then but further cases, further research and further thinking suggest that the problems are getting bigger and bigger. The issues have been known for a while, and there are relatively straightforward amendments that could be made to effectively deal with the problems. So if the question is: are we drafting laws to change a mistake in the judicial interpretation or to change an incorrect interpretation or to change a judicial interpretation that is not in keeping with the parliamentary intention, those amendments can be drafted fairly simply and quickly in order to address those problems.

CHAIR —Thank you for attending, Professor.

[10.13 am]