Background and overview
This bill seeks to introduce the controversial 'effects test' into
Australia's consumer law.
The proposal was recommended by the government's Harper Competition
Policy Review. The effects test would be in addition to the current purpose
test that exists in section 46 of the Competition and Consumer Act.
As part of this bill, the government also proposes to repeal the
telecommunications specific anti-competitive conduct provisions in Part XIB of the
Act. The basis of this decision is that the general effects test will apply to
all industry sectors and therefore Part XIB is no longer necessary.
Labor has publicly stated the effects test—including in Shadow Treasurer
Bowen's op-ed—is a particularly dangerous economic policy. By holding companies
accountable for their effect on competition, rather than examining the purpose
of their conduct, competition between businesses could be dulled.
Lower levels of competition leads to higher prices, poorer quality
products and generally lower living standards for the Australian community.
Since 1976, 12 Australian competition reviews have considered implementing
an effects test. Ten of these reviews have recommended against it.
Critics also include Graeme Samuel (former ACCC Chairman), Peter
Costello, the Business Council of Australia, and reportedly Malcolm Turnbull
when the matter was considered (and rejected by) the Abbott cabinet.
Furthermore, the effects test is worded in such a way that makes it
subject to numerous legal challenges.
Public comments on the effects test
Council of Small Business Australia (COSBOA):
With the current legislation before the Senate, we are
concerned that the wording...will create a 'lawyers picnic' as predicted by the
opponents of the effects test. The wording needs to be removed or changed to be
clearer in what is the intent of the legislation and make court challenges less
The Hon Peter Costello, former Treasurer:
When you are looking at competition policy there is one basic
question you have to ask before you can settle anything else: who is
competition policy for?
If you take the view that competition is there for the
consumer, which is what I believe is the fact, everything else will fit into
That's why I'm against the so-called effects test. The
so-called effects test is designed to protect competitors, particularly less
efficient ones, from a competitive challenge.
The Hon Craig Emerson, former Minister for Competition Policy and
But the objective of competition laws should be to protect
the competitive process, not competitors. Indeed, the stated object of the
Competition and Consumer Act 2010 is to enhance the welfare of Australians by
promoting competition. While section 46 of the act refers to protecting
competitors, the courts have interpreted this to mean protecting competition,
consistent with the act's object.
Mr Graeme Samuel, former ACCC Chairman:
Under the Harper amendment, businesses would curb their
competitive behaviour because of the legal risk. This would have drowned the
commercial activity of big business in a sea of uncertainty. Lawyers and
economists would need to sit at the right hand of business CEOs to guide them
on the legality of every significant transaction.
Mr Craig Kelly, Liberal MP for Hughes:
It is not an effects test; its effect is to substantially
lessen competition. It is not what you think it is it; it is a Trojan horse.
Comments from written submissions
Retail Council of Australia:
A key concern of the Retail Council remains that
pro-competitive practices may inadvertently be captured in the new s.46 or,
more likely, that businesses may be deterred from making what would be
pro-competitive decisions that benefit consumers because they fear being
accused of breaching s.46.
In summary, the Retail Council remains concerned about the
changes to s.46 as proposed in Competition and Consumer Amendment (Misuse of
Market Power) Bill 2016 and urges the Government to reconsider its position and
leave s.46 of the CCA unchanged.
Housing Industry Association:
Although the current law already allows the court to infer
harmful 'purpose' from conduct, the amendments under the Bill will enable the
Courts (and ACCC) to now explicitly look at the “effect” of market conduct rather
than its 'misuse'. This represents a fundamental change with potentially
adverse consequences for competition and innovation.
If firms were to be required to cease competing in a market
at the point where weaker competitors might possible fail, that market would
become moribund and competition would cease to provide consumers with the
benefits it should.
This is inconsistent with competitive, productive and
- the purpose of conduct will become determinative of s46 liability for
any firm with market power. That would both amplify the inappropriate forensic
focus of the section on company communications and lead in all likelihood to
over-capture of conduct. Purpose is relevant, but alone ought not be
determinative of liability for companies with market power.
- there is a real risk that removing the 'take advantage' element and so
relying on a competition test as the only filter sorting good from bad conduct
for firms with market power will not give sufficient certainty for businesses
to be able confidently to proceed with normal pro-competitive conduct.
BlueScope is now concerned that its commercially legitimate
and pro-competitive activities directed at these objectives may be impacted
inadvertently by the proposed changes to section 46. This could perversely lead
to higher prices for consumers and threaten BlueScope's continued viability as
a domestic steelmaker.
Business Council of Australia:
Contrary to the government's intentions, the new law will be
costly and disruptive for business and risks harming innovation and price
discounting, thereby working against the interests of consumers. It will
increase regulatory risk at a time of weak business investment and economic
growth. If the provision is to proceed, it should be amended to send a clear
signal to all businesses that competitive behaviour that is good for consumers
will be unambiguously protected under Australian law.
Labor Senators believe that this legislation enacts dangerous economic
policy that risks making businesses afraid to compete which ultimately hurts
This bill will create a legal risk every time a business seeks to lower
prices for their customers. Consumers are the losers here.
Labor Senators are not the only group warning of a 'lawyer's picnic' if
this bill passes. As noted previously, the small business lobby group COSBOA
themselves stated they 'are concerned that the wording...will create a 'lawyers
picnic' as predicted by the opponents of the effects test'.
Furthermore, this bill does not address a prominent problem with the
operation of section 46 which relates to private parties litigating breaches of
the competition law. Namely, the risk of significant adverse cost orders should
an applicant lose as well as the time taken to finalise action in the Courts.
This issue was addressed by the Harper Competition Review that found
small business access to remedies to be wanting, stating:
From submissions and consultations with small business, the
Panel is convinced that there are significant barriers to small business taking
private action to enforce the competition laws
Alternative options, such as allowing judges in the Federal Court to
waive liability of adverse costs to small business private litigants will
empower private litigants under Part IV of the Competition and Consumer Act
to bring litigation without the burden of prohibitive legal fees.
Labor Senators oppose the government's proposed repeal of Part XIB.
Given the concentrated nature of the telecommunications market, it remains
appropriate to preserve Part XIB in order to both retain adequate deterrence
and facilitate speedy action against anti-competitive conduct in the sector if
Labor Senators consider the stronger mechanisms available under Part XIB
are still necessary to deter misuse of market power by Telstra, and potentially
NBN Co in the future.
Labor welcomes strong competition policy but it must be informed and
enforced. The government's package is neither.
These changes will deter job-creating investment in Australia by adding
to the new layers of red tape and barriers to investment which have already
been imposed by the Liberal-National Government.
The Turnbull Government's proposed effects test is a move to satisfy
internal politics. This is not about policy. A level headed analysis of the
effects test shows Malcolm Turnbull is using competition policy as a political
Barnaby Joyce has become the government's chief economic spokesperson.
This bill is detrimental to the Australian consumers and the broader economy.
The proposed repeal of anti-competitive conduct provisions in Part XIB
will weaken important safeguards necessary for the proper functioning of the
That the Senate should not pass the Competition and Consumer Amendment
(Misuse of Market Power) Bill 2016.
Chris Ketter Senator Jenny
Deputy Chair Senator
for New South Wales
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