Wednesday, 27 July 2016

The fur is flying in Oz - and maybe will here, too

We're in the process of having a rethink about our 'abuse of market power' legislation - s36 of the Commerce Act (if you're new to this you may want to have a quick read of 'The law is an ass' and 'Get your views in on abuse of market power').

It's partly because the Aussies have also got the ball rolling. In fact, they're ahead of us, as the Coalition government over there has decided to change the Aussie law, in line with the recommendation by their 'Harper review' of competition policy, while we're still at the consultation stage. The gist in Australia is that the law will switch from a focus on the purpose a firm with market power may have had when it did something, to a focus on the effects the firm's actions have on the competitive process.

I think it's a sensible move, and I've been arguing for doing the same here. We currently have pretty much the same wording in our law that the Aussies have decided to change in theirs, and we can get a free ride on their (very extensive) process of competition policy development. And if the Aussies change, we don't really have much choice in the matter, as we'd be left high and dry with an ineffective archaism of our own.

In Oz, however, the proposed change has sailed into a new political squall. Reform of important legislation affecting big business always tends to have its tricky moments: what set it off this time was a comment by Australia's Productivity Commission in its recently released draft report on agricultural regulation (if that's your thing, the overview is here and the full report here). Along the way the Commission had said (p431)
Some competition law experts argue that pressure to amend section 46 [the Aussies' version of our s36] is based partly on wanting to shield small businesses from competition. For example:
Section 46 is designed to ensure those with market power don’t use it to insulate themselves from competitive pressure; but s46 shouldn’t be used to insulate small business … (Trindade, Merrett and Smith 2013, p. 6)
The introduction of an ‘effects’ test to section 46 is unlikely to shield farm businesses from intense competition in retail grocery markets. Shielding farm businesses from competition would also not be in the interest of consumers.
What the Commission said, in short, is that even if the effects test was enacted, it wouldn't actually serve as protectionism for farmers, and in any event protecting groups from competition would be a bad idea. All good.

But then up pops a press release from the Opposition competition spokesman Dr Andrew Leigh, quoting that bit from the Commission saying an effects test won't help farmers and adding
An effects test won’t protect producers, but it will raise grocery prices and threaten retailers with court action if they become too competitive...Labor remains opposed to the effects test as it will have a chilling effect on competition and raise prices on everyday groceries such as bread and milk
He also went on, rather incongruously for a Labor politician I thought, to recycle a number of anti-effects-test statements from the big business end of town, and finished by arguing that the effects test was in reality a plot by the National Party component of the Aussie Coalition to protect small businesses against competition from large ones.

The notion that the proposed law change, intended to increase competition by preventing anti-competitive standover tactics from those with market power, was actually A Cunning Plan to decrease competition by protecting small businesses, has predictably sent the proponents for change well-nigh berserk.

Ian Harper, who led the Aussies' 'Harper review' of competition policy that came up with the proposed change, responded by telling The Australian newspaper* that the effects test "has been misinterpreted to an “almost wilful” degree", that "characterising the proposed reforms as protectionism was “to turn reality on its head”", and that "The point of the act is to protect the competitive process, not individual competitors".

Rod Sims, the chair of the ACCC, who supports the change to an effects test (and who has also supported our Commerce Commission in pressing for the same change here), was even blunter. He said, again in The Australian*, that "framing section 46 reform as protectionist policy driven by the National Party is “bullshit”, and has slammed big business for distorting debate around the so-called effects test laws", and "Sure, they’re (the Nationals are) in favour because they like the little guy being able to compete with the big guy. But that’s what we want: we went competition, everybody should want competition. We don’t want large companies preventing competition.”

I wouldn't be in the least bit surprised if something like this bunfight plays out here in New Zealand, too. It might be a step too far for our Labour opposition to rise in the House to champion the rights of the supermarkets and other big firms, but in the opposition for opposition's sake game that both our big political parties play, who really knows. I just hope that, in the end, the Harper and Sims views make it through the political minefield.

*I haven't included direct links to The Australian articles because there's something of a random process around The Australian's paywall - you might get through, but you might not, either. If you google 'Ian Harper slams ‘effects test’ reform critics for distortion' and 'ACCC slams big business for effects test distortion', you can usually find access either to The Australian site or to other sites that have carried the articles.

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