Senator Andrew Murray
Portfolio: Small Business
| Dated: 6 Mar 2003
Location: Parliament House - Canberra
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Senator Andrew Murray speaks on the Adjourment: Small Business |
ADJOURNMENT: Small Business
Senator MURRAY (Western Australia) (6.35 p.m.) —I rise to speak tonight in response to the High Court's recent decision in the Boral case and its implications for small business and for Australian consumers. I am moved to do so by the Democrats, and my longstanding interest in trade practices reform and by recognition of the important social and economic role small business has to play in Australian society. In recent weeks I have been contacted by a number of small business owners and organisations in relation to this decision. In particular, I acknowledge the input of the National Association of Retail Grocers of Australia and the Fair Trading Coalition, for which I am grateful.
Until regulatory law is tested, its force often rests as much on moral suasion and perception as on the black letter. That is why the character and style of the chairman of the ACCC is so important, because threat and posture do help keep companies on the straight and narrow. Once the law is tested, it is a different matter. As it did with the Hughes Wakim and Mabo cases, by exposing serious deficiencies in the law, in the section 46 sense, first in Melway and now in Boral, the High Court has told parliament that a key part of the competition law is ineffective. Academic and small business experts have long complained that section 46 of the Trade Practices Act, which prohibits predatory pricing, is weak. They are right. Far from doing small and medium business a disservice, the High Court has done them a favour. This case will pressure the parliament to tighten up the TPA regime.
The Dawson committee report into the TPA was submitted to the government last month. Its views on section 46 will have to be borne in mind, but the Boral case guarantees that parliament will seek to strengthen section 46 regardless. The difficulty with the Dawson report is that small business and a number of politicians fear that Treasurer Costello is keeping this report secret and away from his backbench because he wants to finesse them with a cabinet decision first. A number of National Party and Liberal Party members and senators want a stronger, not a weaker, Trade Practices Act. Maybe they learned their lesson from the Baird report—some of them talking big for small business but wimping out when faced down by the economic rationalists in the government. My own additional 10 recommendations to the Baird report lacked support, therefore, and the National Party, who are hot on small business concerns, in the end failed to negotiate a sufficient government response to the overall report.
Predatory pricing is a big problem for small and medium businesses, both upstream and downstream. From a public policy point of view the issue is that the destruction of competitors, if taken to its logical conclusion, can result in the destruction of competition. That is why market power has to be regulated and constrained. What the Boral case says is that conduct by a powerful competitor that is predatory in economic terms and anticompetitive in nature may not be caught under section 46 of the act. Despite its powerful market position, Boral was deemed by the High Court to lack the necessary market power—the ability to `give less and charge more'. The court made a distinction between monopolistic power prior to predatory pricing, which would be an abuse, and the monopolistic power that results from successful predatory pricing. The problem is that if you let the latter happen, the regulator has failed. That is why section 46 must be toughened up to prevent companies from achieving such monopolistic power. A business alleging that another business has engaged in anticompetitive conduct must presently show there was an intention to eliminate competition. Proving that intention is notoriously difficult because it is so hard to get behind the big corporate shield and find the smoking gun.
This is not the first time it has become necessary for the Australian parliament to address this issue. Prior to 1986, the provisions of the Trade Practices Act caught only the predatory pricing of a monopolist or near monopolist. Realising that the threshold was very high under that version, the parliament enacted the present section 46 with a view to lowering the threshold to include not only monopolists or near monopolists but also those corporations with a substantial degree of market power. In talking of substantial market power, reference was made to the terms `large', `weighty' or `big'. Accordingly, the ACCC and small business believed that powerful corporations with a large market share and considerable financial strength were on notice that their conduct could be within section 46 and therefore in breach of the Trade Practices Act. The Boral case shattered this belief. The High Court has said that a substantial degree of market power covers only those corporations that are able to set prices unilaterally without fear of losing custom. But which corporations can set prices unilaterally without fear of losing custom? In the absence of collusion, only a monopolist or a corporation that is in a controlling or dominant position in a market can raise prices without fear of losing custom. It is certainly not the case that duopolists and oligopolists would ordinarily have this ability. In a duopoly or oligopoly situation, absent of cartel-like behaviour, no single competitor is able to raise prices unilaterally without fear of losing custom. In short, there is now a considerable hole in the protection afforded under section 46 against abuses of market power by large and powerful corporations.
As section 46 now effectively applies only to the conduct of monopolists and near monopolists, small businesses have no protection against those other large and powerful corporations choosing to throw their weight around. Two possible measures could overcome this problem and still maintain fairness. The first is to remove the requirement to show intention and to instead show that the actions of the alleged perpetrator have had the effect of damaging competition. The second is to get behind the corporate veil by changing the onus of proof where the ACCC pursues the matter. The onus would fall on the defendant, not the applicant, to show that there was no purpose of eliminating competition. A system of protecting and rewarding whistleblowers who provide evidence about collusive and anticompetitive conduct should also be considered.
The ACCC should be given a power to grant cease and desist orders against companies involved in anticompetitive behaviour. Such a power would allow intervention on behalf of small firms who are being harmed by the behaviour of a large competitor. Rather than wait years for a court to determine the legality of a firm's behaviour, a cease and desist power would allow early intervention before the competitor was driven out of business. Further, there is a case for section 46 to have specific prohibitions against predatory pricing. Another route of interest is to also toughen up and broaden section 51AC.
In many respects, Australia's approach to the TPA is similar to that of other OECD countries; in other ways it is not. Missing from the TPA are a number of elements that are successfully implemented in foreign jurisdictions, such as the US antitrust or divestiture laws and the United Kingdom scale or complex monopoly mechanisms. The United Kingdom Fair Trading Act uses a figure of 25 per cent as constituting a fair market power strength measure. Boral, with at least 30 per cent of the market, would have officially been under market watch in the UK—a measure that usefully ensures better market behaviour. The point of the US antitrust laws, as interpreted by the US courts, is to prevent unreasonable and unfair methods from being employed by companies establishing a position of substantial market power or reinforcing a position of substantial market power.
Big business roar approval at the dynamism of the American market but fiercely condemn a major contributor to that dynamism—that is, the effects of antitrust laws. We need them in Australia. A practice should be deemed illegitimate if it restricts competition in a significant way or is likely to harm consumers through increased prices, reduced availability of goods or services, lowered quality or service, reduced diversity or stifled innovation. A stronger TPA will be good for Australia. What is needed is for legislation to be enacted to prevent the High Court's Boral decision from being used by big business to justify open season against their small business competitors. It is time the bullies were put in their place.
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