Retailers and competition law reform - what the Harper Review could mean for the sector and its suppliers
Competition Law eBulletin - 16 April 2015
Last week the Final Report of the Harper Competition Policy Review was released. It has attracted widespread legal and press comment. The Report makes recommendations for sweeping reforms to Australia's competition policy framework, including substantial revisions to the Competition and Consumer Act 2010 (Cth) (CCA).
The reforms proposed in the Report are aimed at striking the right balance between prohibiting anti-competitive conduct and not interfering with efficiency, innovation and entrepreneurship. Underlying the proposed reforms is the desire to enhance competition and consumer choice.
For the retail sector, the recommendations in the Report are a mixed blessing. The proposed amendments are in many cases likely to make the CCA more user-friendly and bring greater certainty. However, in some instances, the changes would widen the scope of conduct which is deemed to be anti-competitive, particularly for larger retailers.
In this eBulletin, we consider some of the proposals in the Report as they are likely to impact larger retailers and those who supply to them.
- Overview of the Haper Review's Final Report
- Changes to competition law
- Policy recommendations
- Where to from here
- Further information
The Report makes some controversial law reform recommendations, in particular to the provision which prevent misuse of market power.
One of the aims of the Report is to make the law simple, predictable and reliable. The Report proposes to streamline the cartel provisions and ACCC approval processes, including the merger approval process.
The Report makes various policy recommendations, including the deregulation of ride-sharing services, which will have significant consequences for the taxi industry.
Policy recommendations which will have particular impact on retail markets include:
- the abolition of restrictions on parallel importation;
- allowing shops to trade 24/7; and
- removing restrictions on pharmacy location and ownership, which will allow pharmacies to operate in supermarkets.
Recommendations to reform the Competition and Consumer Act 2010
Key recommendations of interest to the retail sector
The changes proposed by the Report to Australian competition law are likely to streamline the application of the CCA and improve enforcement.
Misuse of market power
The most controversial change to the CCA has been to the misuse of market power provision.
The Report recommends that the CCA change the legal test in relation to misuse of market power from one focused solely on the 'purpose' of conduct, to one which considers the 'effect' of conduct.
Under the proposed amendments, the CCA would capture conduct of corporations which have substantial market power that has the purpose, effect or likely effect of substantially lessening competition.
While the existing prohibition (on corporations taking advantage of market power for one of the specifically proscribed purposes) has proved difficult to enforce, it does have the benefit of providing some certainty for large companies. Contravention can be avoided by ensuring that the conduct complained of did not use the firm's market power (that is, it was conduct in which a smaller firm might rationally engage). By contrast, with an effects test, any conduct of a large corporation will be open to scrutiny, simply by virtue of its having market power.
Already, larger retail businesses have criticised the proposed amendments and warned that the changes may increase litigation. Australia's leading supermarkets have expressed concern that the introduction of the 'effects' test could chill competition and increase grocery prices.
Contrary to its draft report, which was released in September 2014, the final report has dropped its recommendation that a defence be introduced. This is to ensure that the law does not inadvertently capture conduct which would actually enhance competition.
Instead, the Report puts the onus on courts to assess whether or not conduct is anti-competitive, which under the 'effects' test will be decided on a case-by-case basis. This will almost certainly encourage more conservative decision making by large corporate retailers.
The Report recommends that the definition of 'competition' in the CCA be amended to include competition from goods imported or capable of being imported, or from services rendered or capable of being rendered, by persons not resident or not carrying on business in Australia.
This is consistent with one of the underlying objectives of the Report, being that businesses are able to respond effectively to globalisation and the rise of Asia and other emerging economies, and the Report's recommendation to remove restrictions on parallel importation.
Cartel provisions and section 45
The Report suggests that the cartel provisions (which are strict liability and potentially carry criminal sanctions) be simplified and that certain conduct be excluded from the cartel provisions, to the extent that conduct is likely to be captured by the existing s 45 of the CCA. That provision contains a general prohibition on contracts, arrangements or understandings between firms that have the purpose or likely effect of substantially lessening competition
The recommendations in relation to the cartel provisions include that:
- the provisions be confined to conduct involving firms that are actual or likely competitors, not firms for whom competition is a mere possibility;
- a broad exemption be applied to joint ventures, recognising that anti-competitive joint ventures will be captured by s 45;
- an exemption be applied to trading restrictions imposed by one firm on another in connection with the supply or acquisition of goods or services, recognising that such conduct will be captured by s 45 of the CCA if it has the purpose, effect or likely effect of substantially lessening competition; and
- the existing prohibition on 'exclusionary provisions' in s 45 be repealed and the definition of cartel conduct be amended to cover such conduct to the extent it is not already captured by the legislation.
The Report further recommends that the 'price signalling' provisions in Part IV, Division 1A of the CCA be repealed and that s 45 be extended to prohibit a person engaging in a concerted practice with one or more other persons that has the purpose, effect or likely effect of substantially lessening competition.
These amendments are likely to be welcomed by the retail sector, as they will restrict the cartel provisions to serious cartel conduct and potentially reduce the significant overreach of the current cartel regime.
The Report recommends that s 47 of the CCA, which prohibits anti-competitive exclusive dealing (conditions imposed in the supply chain, including third-line forcing), be repealed and instead, be addressed by widening the scope of ss 45 and 46.
Again, this recommendation is likely to be welcomed by the retail sector, particularly to the extent that simplification of the law on exclusive dealing could reduce compliance costs and the frequent need for detailed legal advice about often commonplace commercial arrangements. Suppliers to large retailers who are concerned about the conditions being imposed on them will continue to be protected under the general prohibition on anti-competitive arrangements in s 45, as well as the prohibition against unconscionable conduct in s 21 of the Australian Consumer Law.
The Report calls for tougher enforcement of the secondary boycott prohibitions in ss 45D-45DE of the CCA.
The Report suggests that the ACCC pursue secondary boycott cases with increased vigour and should publish the number of complaints made in respect of secondary boycotts, as well as the number of matters investigated and resolved, each year.
It also recommends that the maximum penalty level for secondary boycotts be increased to the same level as other breaches of the CCA.
Trading restrictions in industrial agreements
The Report proposes amendments to ss 45E and 45EA of the CCA to increase competition in the industrial relations space, particularly when it comes to contract labour.
The Report suggests that businesses should generally be free to supply and acquire goods and services, including contract labour, if they choose.
Various amendments are proposed to ss 45EE and 45EA, including that the provisions should apply to awards and industrial agreements, except to the extent that they relate to the remuneration, conditions of employment, hours of work or working conditions of employees.
These changes are generally considered to be business-friendly and will be welcomed by retailers and their suppliers.
The ACCC's approval processes should be streamlined, according to the Report.
The ACCC merger approval process should be undertaken in a timelier manner and elements removed which may deter people from using the process.
The Report suggests that amendments be made to Part VII of the CCA, to ensure that only a single authorisation application is required for a single business transaction or arrangement. Further, that the ACCC should be empowered to grant an exemption from ss 45, 46, 47 (if retained) and 50 if it is satisfied that a single test is met: that the conduct would not be likely to substantially lessen competition or that the conduct would result, or would be likely to result, in a benefit to the public that would outweigh any detriment.
The Report also recommends that:
- there be greater flexibility in the notification process for collective bargaining by small business; and
- a 'block exemption power' be introduced, which would allow the ACCC to grant categories of conduct a 'safe harbour' exemption from competition law. It is envisaged that the power would operate alongside the authorisation and notification frameworks in the CCA.
The Report made a broad range of policy recommendations of interest to the retail sector. Areas of particular focus include retail trading hours, parallel imports and regulation of pharmacies.
Retail trading hours
The Report recommends that remaining restrictions on retail trading hours should be removed and strictly limited Christmas Day, Good Friday and the morning of ANZAC Day.
Although the Report says that this should not prevent specific restrictions on trading times for alcohol retailing or gambling services.
The Report comments that with the rise of internet shopping, restrictions on retail hours have disadvantaged 'bricks and mortar' retailers. This is consistent with observations in other sections of the Report, that new technologies are 'digitally disrupting' the way in which many markets operate.
The Report recommends that parallel import restrictions on books and second-hand cars should be removed, consistent with recommendations of recent Productivity Commission reviews.
Other restrictions on parallel imports should be removed unless it can be shown that:
- the benefits of the restrictions to the community as a whole outweigh the costs; and
- the objectives of the restrictions can only be achieved by restricting competition.
It otherwise recommends that restrictions to parallel imports in the Copyright Act 1968 and the Trade Marks Act 1995 be reviewed by an independent body.
The Report recommends that pharmacy ownership and location rules be reformed to improve the ability of providers to meet consumer preferences.
The Report argues that these restrictions should be replaced with regulations that ensure access to medicines and quality of advice regarding their use.
It remains to be seen which recommendations governments seek to implement, and to what extent they adopt Harper's 'agenda for reinvigorated microeconomic reform'.
Whether or not governments decide to legislate in respect of the recommendations will be a matter for careful consideration, hopefully in further consultation with those in relevant industries. This is particularly in relation to the more controversial aspects of the proposed reforms, such as to the misuse of market power provisions of the CCA and the suggested changes to the ride-sharing industry.
All information on this site is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific legal professional advice. No responsibility for the loss occasioned to any person acting on or refraining from action as a result of any material published can be accepted.