Standing Committee on Economics, Finance and Public
(Tabled on 3 March 1998)
This document has been scanned from the original government response.
It may contain some errors.
GOVERNMENT RESPONSE TO HOUSE OF REPRESENTATIVES STANDING COMMITTEE ON
FINANCIAL INSTITUTIONS AND PUBLIC ADMINISTRATION (THE HAWKER COMMITTEE)
REVIEW OF THE ACCC's 1995-96 ANNUAL REPORT
That the ACCC investigate mechanisms whereby the process of accepting
s.87B undertakings in merger cases can be made more transparent and that
the ACCC report on this investigation to the Committee at a public hearing
when the Committee reviews the ACCC's 1996-97 annual report.
The ACCC will review its processes in accepting s.87B undertakings in
merger cases to assess whether it may, in certain circumstances, be able
to make them more transparent. The ACCC will report on this review to
the Committee when the Committee reviews the ACCC's 1996-97 annual report.
Before s. 87B of the Trade Practices Act 1974 (TPA) was enacted,
a process had developed over the years, pursuant to which parties would
offer informal undertakings to the Australian Competition and Consumer
Commission (ACCC) to overcome competition concerns in relation to particular
merger proposals or general enforcement matters. However, this informal
process had the failings of a lack of transparency (given the lack of
formality), problems of enforceability (eg. unless the undertaking was
documented in a deed), and inflexibility (eg. if the undertakings were
entered into as a court order). The enactment of s.87B provided a more
transparent, certain and flexible means to resolve matters (including
mergers) which would otherwise breach the TPA.
The ACCC's Approach to s.87B Undertakings in Merger Cases
In respect of merger proposals, the ACCC accepts undertakings that remove
its competition concerns, so that die mergers are not likely to substantially
While negotiating undertakings with merger parties, the ACCC generally
engages in extensive consultation in respect of the subject matter of
the undertakings. This consultation process typically involves the ACCC
conducting inquiries with a number of participants in the relevant market.
However, in some merger cases, confidentiality constraints may be imposed
by the 'merger parties' to protect commercially sensitive information.
Such constraints may restrict the ACCC's ability to release details of
the proposed undertakings or the fact that undertakings have been offered
during the negotiation process. In these circumstances, the ACCC will
still conduct market inquiries to assess the likely impact of the proposed
merger, but without disclosing any confidential details of undertakings
that may have been offered.
Though confidentiality constraints may, in some cases, limit the ACCC's
ability to consult as widely as it would like, the confidentiality constraints
may result in negotiations and settlements (by undertakings) that would
not otherwise be achieved. This can enable parties to alter their proposals
so that the mergers proceed. Confidential negotiations for s.87B undertakings
provide a very effective way for companies to avoid litigation, and progress
their proposed merger while ensuring that concerns over reduced competition
in the market are addressed,
Apart from consultation in the negotiation stage, the ACCC seeks to
ensure that undertakings include an express mechanism for consultation
and review in the event there are any relevant changes in market circumstances,
after an undertaking: has been accepted.
Publication of s.87B Undertakings
Once accepted, undertakings are placed on a public register kept by
the ACCC. In some cases, undertakings may contain certain information
which the ACCC agrees, at the request of the 'merger parties', needs to
be kept confidential (eg. the timing of any divestiture arrangement) and
which is not placed on the register. The ACCC will follow up those undertakings
which contain confidential information, in order to make them publicly
available once confidentiality requirements can be waived.
Enforcement and Other Alternatives
Section 87B undertakings are simply a mechanism by which the ACCC tries
to ensure that promises given to it by 'merger parties' are enforceable.
The courts retain absolute discretion as to whether to enforce the provisions
in an undertaking and the provision of an undertaking is ultimately a
matter of choice for the 'merger parties'. Other alternatives include
amending the proposal privately, applying for authorisation, proceeding
and risking challenge in cowl, or withdrawing from the merger proposal.
Commitment to More Transparency
The ACCC recognises some 'merger parties' may seek to utilise the s.
87B undertaking process as an effective mechanism to ensure that their
merger proposals proceed and that third parties affected by the merger
proposal may not have an opportunity to intervene in the process of negotiating
undertakings. Hence, the ACCC is committed to exercising as much transparency
as it can in consulting market participants in relation to undertakings
(subject to confidentiality constraints).
That the Treasurer initiate a study of the extent to which the
benefits of competition are flowing to rural and regional Australia.
The Government wishes to ensure that the substantial benefits achieved
from increased competition in the economy (resulting from numerous competitive
reforms introduced by the Commonwealth, State and Territory Governments)
flow to all Australians, including those who live in rural and regional
Australia. The Treasurer intends to request that the Productivity Commission
conduct a general review of the economic impact on and benefits to rural
and regional Australia resulting from competition reforms introduced following
implementation of the Hilmer Report. It is anticipated that this review
will cover competition reforms introduced at all levels of government.
The Government believes that the most appropriate time to initiate this
study would be towards die end of 1997-98. At that time, it should be
possible to make a better assessment of the effects of various reforms
which have been implemented and are now coming to fruition.
That the ACCC give a higher priority to monitoring and evaluation
of the impact of its merger decisions on market competition and that the
ACCC report on its findings on a regular basis.
The ACCC plans to give higher priority to monitoring and evaluating
the impact of its merger decisions on market competition, and to report
on its findings on a regular basis. In this respect, it will undertake
evaluation of some past mergers which it plans to include as retrospective
studies of selected industry sectors in future annual reports.
The ACCC is presently establishing criteria and methodology by which
such evaluation can be make and will then undertake those evaluations.
That the Treasurer consult with business and industry, the community
and the ACCC to ascertain an appropriate means by which the general impact
on competition and benefits to the community, Of the ACCC's merger decisions,
could be reviewed over the medium to long term.
Agreed in Principle.
'The Government has no objection to establishing longer term reviews
of the competitive benefits of merger decisions made by the ACCC. However,
before engaging in wide public consultation as to how medium to long term
reviews of such decisions could be conducted, the Government believes
it would be desirable to assess the scope for such studies with the benefit
of experience from the proposed retrospective studies of past mergers
decisions which are to be conducted by the ACCC.
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