The Australian Government, on 5 September 2016, released the Exposure Draft and Explanatory Materials for the Competition and Consumer Amendment (Competition Policy Review) Bill 2016, which notably features the introduction of an ‘effects test’ to the Competition and Consumer Act 2010 (CCA).
The Exposure Draft comes in response to the more than 140 submissions to the Australian Competition Policy Review (Harper Review) Final Report released on 31 March 2015. AADA provided a submission to this review, which can be viewed on the AADA website at http://aada.asn.au/submissions. The Government response to the Harper Review was released on 24 November 2015 and supported in full or in principle 39 of the Harper Review’s 56 recommendations and a further five recommendations in part.
The Government also remains open to the remaining 12 recommendations pending further review and consultation including with the States and Territories.
Recommendation 30 of the Harper Review stated the primary prohibition in section 46 of the CCA should be reframed to prohibit a corporation with a substantial degree of power in a market from engaging in conduct if the proposed conduct has the purpose or would have or be likely to have the effect of substantially lessening competition in that or any other market. This is commonly referred to as an ‘effects test’.
The Exposure Draft legislation intends to introduce an ‘effects test’ and change the emphasis from “damaging a competitor” to “substantially lessening competition”.
It also amends the definition of “competition” in section 4 of the CCA, to ensure that competition includes competition from goods and services that are or are capable of being imported into Australia in addition to goods and services that are imported.
Australia operates in a global economy and assessment of competition within Australian markets must take into account the competitive pressures exerted by both actual and potential imports of goods and services.
Importation of goods and services
The Harper Review noted that while it is appropriate that the term ‘market’ is defined as a market in Australia, the Act should not ignore forces of competition that arise overseas and affect markets in Australia.
Where a credible threat of importation exists, the potential for transactions can exert competitive pressure within the relevant market in Australia.
With automotive manufacturing in Australian coming to an end in 2017, this recommendation from the Harper Review becomes increasingly important to Dealers and the automotive value chains whose competition may include goods and services that are capable of being imported, in addition to goods and services that are imported.
The Harper Review found that although the current definition of ‘market’ appropriately focuses on Australian markets, the definition of ‘competition’ causes a narrow focus and does not give proper consideration to global sources of competition.
The proposed amendment to section 4 addresses this concern.
Third line forcing changes
Another recommendation from the Harper Review is to prohibit third line forcing only where the purpose, effect or likely effect is substantially lessening competition. The Exposure Draft supports this recommendation, which will shift prohibition of third line forcing from a per se basis.
Harper noted that third line forcing is similar to second line forcing, in which a corporation supplies a product on the condition that the purchaser acquires another product from the same corporation or related corporation. This known as ‘bundling’ or ‘tying’ and will be prohibited where the purpose, effect or likely effect of the conduct is a substantial lessening of competition.
AADA draws Dealers’ attention to the proposed amendments and suggests they seek professional advice if there are any concerns.
Date of commencement
The amendments outlined in the Exposure Draft will commence on a day or days to be fixed by Proclamation. However, if any of the provisions do not commence within the period of six months beginning on the day the Act receives the Royal Assent, they commence on the day after the end of that period.
For the consumer
The National Party has been pushing for the effects test in the belief it would protect the interests of small business and farmers, while the Labor Party, the Business Council of Australia and supermarket giants Coles, Woolworths and others have opposed it. Treasurer Scott Morrison said the legislation was not designed to serve small or big business, but to protect the consumer.
What it means for Dealers
HWL Ebsworth Lawyers have indicated that introduction of an ‘effects test’ may be relevant to Dealers in dealings with financiers. Proving a likely effect on competition in court is going to be a hugely complex and expensive exercise and in practice, which will likely be litigated mostly by the ACCC.
In an article on their website, Price Waterhouse Coopers advise their clients with a substantial degree of power in a market to carefully review their decision-making processes to ensure that relevant decisions are captured and evaluated in terms of their competitive impact. This review should extend to internal controls and delegations within corporations such that key decision points are flagged for a more rigorous competition analysis before they are made or implemented.1
The amendments outlined in the Exposure Draft will commence on a day or days to be fixed by Proclamation. However, if any of the provisions do not commence within the period of 6 months beginning on the day the Act receives the Royal Assent, they commence on the day after the end of that period.
AADA supports amendments relevant to the automotive value chain against the background of cessation of motor vehicle manufacturing in Australia and technological changes including hybrid, electric and automated vehicles. The retail vehicle distribution network business model will also undergo change and it is important Australia has a robust competition and regulatory framework.
1 O’Malley, Deakin, Chora & Ng 2016, What the effects test for section 46 means for you, viewed 22/04/2016, <http://www.pwc.com.au/legal/assets/legaltalk/legaltalk-alert-s46-effects-test-16mar16.pdf>.