Senator Andrew Murray
Portfolio: Taxation, Finance & Corporate Affairs
| Dated: 13 Aug 2003
Location: Parliament House - Canberra
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Senator Andrew Murray speaks on the Adjournment: Business: Trade Practices Act |
Senator MURRAY (Western Australia) (7.15 p.m.) —Workplace, tax, corporations, finance and trade practices laws are the main laws affecting the functioning of the market and the regulation of the behaviour of corporations. In matters of competition and consumer interest, all over the world the law restrains great commercial power because of the known abuse of power that often accompanies it. When it comes to the size and behaviour of corporations, the Trade Practices Act 1974 is Australia's prime protective device. Yet the act is weaker and deficient in its protective capabilities in comparison to countries like the United Kingdom and the United States.
The Democrats, Labor and the coalition have been of one mind in key areas of tax reform, such as the consolidation measures, and Corporations Law reform, such as the merger and takeover provisions. They have recognised that a dynamic, modern market economy means that the efficiency and competitiveness of the market should be facilitated and that mergers, acquisitions and takeovers should be made easier. The flip side of easing the market for mergers, takeovers and acquisitions is a need to ensure that the overmighty and abusive are properly constrained. I have said before that big business roars approval at the dynamism of the American market but fiercely condemns a major contributor to that dynamism—that is, the effects of antitrust or divestiture laws. We need those regulatory tools in Australia. Balanced divestiture laws are the corollary of balanced merger laws. We do not have effective divestiture laws. It is a strange and illogical policy that can prevent mergers to maintain effective competition but cannot require divestiture also to maintain effective competition.
Section 50 of the Trade Practices Act currently prohibits corporations from making acquisitions that would have the effect of substantially lessening competition. Divestiture can be ordered to remedy a breach of section 50. However, this provision is limited in scope. One limitation is the difficulty of applying it to creeping acquisitions. It is difficult to establish that a smaller, more recent acquisition finally tips the balance to create a substantial lessening of competition. Creeping acquisitions can allow large corporations to achieve a market size that might have been prohibited by the ACCC if those acquisitions had been aggregated into one purchase, which could therefore have fallen foul of the existing merger provisions in the Trade Practices Act.
In Australia, many markets are experiencing oligopolisation—a concentration of power in the hands of a small number of competitors. This is partly a natural result of economies of scale: the big get bigger and as they do they develop the ability to operate more cheaply and efficiently. Over time, the smaller players are forced out of the market. That is the way of the market, and it is valuable while it promotes efficiency, innovation and competition—but only up to a point. Eventually, the destruction of competitors results in the destruction of competition, or the predatory intimidation of competitors reduces effective competition. Where that has occurred or will occur, the state must intervene to save the market from eating itself. By its very nature, the power to order divestiture should be regarded as largely a reserve power. As international precedents indicate, it would be seldom employed. It should be used rarely and used responsibly. Its great virtue is as a cautionary power, making oligopolies careful of abusing their market power. It would be used only where necessary to maintain or restore competition.
The United States Federal Trade Commission's 1999 study of the divestiture process found that about three-quarters of divestitures appear to have created viable competitors in the relevant market. It further found that divestitures of ongoing businesses tended to succeed more frequently compared to asset divestiture. The ACCC has indicated that it is not supportive of an open-ended divestiture power, but it has supported consideration of a divestiture power where there is a breach of the section 46 prohibition on the abuse of market power. Examining divestiture in the context of section 46 would certainly be worth while. However, given recent setbacks concerning section 46—in particular, the Boral decision in the High Court— the debate about divestiture must be broader in scope.
Where a corporation is of sufficient size or market power, it must include a consideration of pre-merger notification requirements and specific provisions relating directly to size of ownership. In relation to pre-merger notification requirements, the 1976 United States Hart-Scott-Rodino legislation serves as a useful example. In the United States, parties to mergers who exceed stated market size thresholds must announce to the regulator their intention and hold the merger in abeyance until the regulator grants clearance to proceed. The policy behind the pre-merger notification law was to address the difficulties and disruption caused when United States antitrust agencies had to deal with corporate mergers that had already occurred. Post-merger litigation may produce a successful result for the antitrust regulator, but the victory is illusory if the market is harmed by a failed action or failed divestiture or if it takes a number of years for the divestiture to become fully effective.
In relation to the size of ownership issue, the ACCC has argued that a divestiture power aimed at size of ownership alone would be inconsistent with the focus on conduct in the other provisions of the Trade Practices Act. A dominant overmighty share in a market could be innocently obtained because of the exit of a major competitor. Creeping acquisitions could deliver a similar dominant overmighty share of market. That our competition law has no regulatory means to deal with such circumstances offers little solace to smaller competitors in highly concentrated markets, nor does it offer any solution to the consumers who ultimately bear the cost of an uncompetitive market. At the very least, I believe that concentrated industry sectors need a trigger market share percentage at which the ACCC takes formal and public note of potential danger, similar to that used in Europe.
Such thresholds recognise market power but do not constitute an automatic declaration of market dominance, nor are they an automatic signal as to the existence of anticompetitive prices or an abuse of power. They act instead as a trigger to the regulator to maintain a watching brief on the company concerned. I consider the figure of 25 per cent used under the United Kingdom Fair Trading Act as constituting a fair market power measure. If such a measure were adopted in Australia, the ACCC would thereafter notify a company so identified that it needed to keep the ACCC advised on all market acquisition activity, with a specific requirement to report to the ACCC annually on the concentration of market power in the markets it operates in. The ACCC could then, of its own volition, review the company or the industry concerned. I have previously moved amendments to allow the ACCC to order divestiture where an ownership situation has the effect of substantially lessening competition. This is necessary to ensure that the ACCC can effectively break up monopolies that substantially inhibit competition and can reduce monopolies' market power, particularly in regional markets, by requiring limited and selective divestiture. The government turned down those amendments.
Now the government plans further modest change to the Trade Practices Act. That is not enough. It simply cannot avoid the challenge facing it of excessive concentration and oligopolisation in certain industry sectors. Nor can it avoid facing up to the probability of major sector changes being demanded after the next election or thereafter. There are great dangers in contemplating media ownership reform, the sale of Telstra or an end to the four pillars banking policy without a divestiture power as a necessary safeguard. We know from experience that market forces will not guarantee competition in highly concentrated industry sectors. Regulatory powers are necessary safeguards for efficient, effective and diverse competition. Current divestiture provisions in the Trade Practices Act are very limited and should be expanded. We must look to the success of divestiture laws in other dynamic and productive markets such as the United States. Without them, changing current policy in key market areas such as telecommunications, media and banking raises immense difficulties.
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