Presentation to Business Centre

Presentation to Business Centre
"Small Business & the Trade Practices Act"
23 February 2001

Radisson Playford, Adelaide
Professor Allan Fels
Chairman
Australian Competition & Consumer Commission

Introduction

The impact of the Trade Practices Act and the Australian Competition and Consumer Commission (the Commission) has increased significantly during the past decade.

In my discussion with you today, I would like to convey the significance of the Trade Practices Act for that most vital group in the business community – small business.

Some matters I would like to cover are:

· Why we have a Trade Practices Act

· Recent developments in Mergers policy

· Small Business and the Trade Practices Act

Why A Trade Practices Act?

Most people are aware of some of the things the Commission does. These are based around the Trade Practices Act.

The object of the Act is to enhance the welfare of Australians with the promotion of competition and consumer protection through fair and informed markets.

The role of the Commission is to apply the Act properly without fear or favour, for the benefits of consumers of all kinds throughout Australian including:

· Household consumers

· Small, medium and big business

· Farmers

· Local State and Federal Governments

All people, especially in rural and regional Australian have an interest in being supplied competitive and efficiently at reasonable prices and where they are selling goods to sell to buyers who have to compete for their product.

The broad objective of the Act is to allow each business to compete on its merits, makings its own decisions and treating consumers fairly. The Act provided two main objectives of achieving this objective:

· Preventing anti-competitive conduct, thereby encouraging competition and efficiency in business, resulting in a greater choice for consumers in price, quality and service

· Prohibits unfair trading practices to safeguard consumers from exploitation through misleading and deceptive conduct and other sharp selling practices, and preventing unethical businesses from gaining an unfair advantage of their rivals.

Rights and Responsibilities under the Trade Practices Act

The Act and its implementation by the Commission is a two edged sword for business.

It offers protection from, but demands avoidance of involvement in:

· Price fixing

· Market sharing

· Boycotts

· Misusing market powers

· Exclusive dealings

· Refusal to supply

· Resale price maintenance

· Misleading or deceptive conduct

· False and misleading representation

· Unconscionable conduct

In addition the Act has provisions covering a role for the Commission in respect of authorising voluntary codes of conduct and the promotion of competition in the area of former public utilities.

The role of the Commission is to apply the Act properly, without fear or favour to anyone, no matter how powerful economically or politically, for the benefit of consumers of all kinds everywhere in Australia, including household consumers; small, medium and big business; farmers; local, state and federal governments; and all people everywhere, in capital cities, country towns and farms. All have an interest in being supplied competitively and efficiently at low prices with good service; and where they sell, to sell to buyers who have to compete for their output.

Small business benefits from the enforcement action taken by the Commission. The Act prohibits anti-competitive mergers, outlaws cartels, markets sharing and price fixing, and the misuse of market power – all of which frequently work to the detriment of small firms.

ACCC Priorities

Given all the functions and given the reach of the Act across all sectors, how does the Commission determine its priorities?

First, the Commission is not involved in debates about the future of statutory marketing boards, Australia Post or the like. It has made no submissions to the inquiries.

Only very occasionally does the Commission enter policy debates most often with the support and encouragement of the government of the day. For example, the Commission’s promotion of the arguments for reforms in the compact disc market has been encouraged by the present government and by the relevant Ministers in the previous government.

Second, the Commission is mainly concerned, so far as competition policy is concerned, with the non-traded goods and services market. Much of the work that it would otherwise need to do in the traded goods and services market is being accomplished by import competition now that tariffs and other forms of import protection have been reduced.

Third, within the non-traded goods and services sector the Commission’s principal focus is on the less competitive parts of that broad sector.

Fourth, the Commission does not favour detailed regulatory processes and outcomes and seeks to minimise them. For example in recent years there has been a drastic cutback in the role of prices surveillance. A few years ago some seventy-five companies had to pre-notify prices under the provisions of the Prices Surveillance Act 1983. Now the number is around two. Deregulation of petrol prices, the most important area of notification, has been recommended to the government.

Finally, The Commission continues to publish its priorities and it follows internal processes to keep it focussed on areas of highest priority.

Competition law and policy took off in the early 1990’s and it was due to the fact that:

· The Act took on more serious dimension in terms of fines increasing from a maximum $250,000 to a maximum of $10 Million per offence per corporation.

· The Commission began to enforce consumer protection provisions more vigorously with a series of more high profile cases and other action in areas such as life assurance and telecommunications.

· There was a strengthening of the merger law with the merger test being changed from one of "dominance" to one of "substantial lessening of competition" bringing it into line with North American practice.

· Since 1995 the Act has been extended to apply to incorporated businesses trading within states and exemptions from the Act by State and Federal law were drastically cut back.

· There was a transfer of responsibility for the Trade Practices Act from the Attorney General’s Department to the more powerful Department of Treasury and,

· Cases and actions taken by the Commission have received publicity which has had a significant effect on awareness of the community, business and policy makers about the nature and importance by the Trade Practices law and competition.

The Commission has a dual role as:

· A provider of education and information for business and consumers in relation to compliance with the Act.

· A national enforcement agency.

It is this latter role that gains most of this ACCC publicity. But it is the information and support role especially to small business that is gaining momentum as the means of securing wider business understanding and acceptance of good Trade Practices compliance.

The Commission is involved currently in 46 cases before the courts. There are a number of international cartels, which are attracting Commission attention and are likely to end up in court. For example over a period of 8 or 9 years, virtually all the multinational major vitamin producers around the world shared markets and fixed prices. Prices rose about 75% during that period most of it attributed to the price fixing. The main impact has been in the animal feed industry. I would emphasise that Australian owned firms were not involved. The multinationals have already been fined around a billion dollars in the US and there is an expectation of penalties to flow on here in Australia.

However the majority of the Commissions actions do not end up in court but result in court enforceable undertakings being provided by the offending party or other forms of mediated settlement.

Interchange Fee Case

The Commission is continuing to pursue its case against the National Australia Bank for price fixing in relation to credit card interchange fees. We have acknowledged that there may be a case to authorise the setting of interchange fees under the Act if they are based on legitimate costs and are set in a transparent and accountable manner. However, if the banks are not prepared to seek authorisation for a regime that meets these requirements, the Commission has no choice but to continue with legal action to enforce the Act.

The Commission has held discussions with the banks to try to find ways to resolve these issues. The Commission also believes there is a need to examine the rules governing access to the credit card schemes. These discussions are continuing, however the Commission will require the banks to adopt reforms that adequately address each of our concerns about interchange fees and access before the Commission can consider ending the litigation.

National has indicated that it will join Visa, MasterCard and 28 other financial institutions to this case as cross-respondents. While the Commission does not believe this is necessary to resolve the issues surrounding interchange fees and membership, National has the right to do this if it wishes. It does not change the Commission's fundamental case against National. The Commission took proceedings only against National because in its dealings with the banks over these issues, it found National the least willing to embrace the need for change, although we are pleased that National has now joined with the other leading banks in examining options for reform.

Visa has also asked to be made a respondent to the Commission's case. Last week the Federal Court decided that Visa's request was premature, since National is going to issue a cross-claim against Visa anyway. The Commission believes that this approach is appropriate. While National has the right to issue a cross-claim against Visa if it so chooses, the Commission has not yet made any allegation or sought any order against Visa. The Commission therefore takes the view that it is inappropriate for Visa to defend the Commission's case against National.

Recent Merger policy developments

The Business Council of Australia is claiming that Australia is becoming a branch office nation and merger policy is to blame. It is wrong to blame the Trade Practices Act for foreign acquisitions. There are other factors causing foreign takeovers. These include the low exchange rate and the extremely limited role that the Foreign Investments Review Board plays.

If an Australian business believes that it cannot buy another Australian business because of the competition provisions of the Act it can seek authorisation on the so-called public grounds ie. the benefit to Australia from Australian rather than foreign ownership exceeds the cost to competition. Big business usually go offshore for other reasons. These include tax incentives offered elsewhere.

Is the Commission really holding back mergers that are necessary if Australia is to be internationally competitive? I don’t think so. It initially opposes relatively few mergers, (about 5 per cent per). Out of these quite a few are later resolved by means of undertakings. If import competition is significant, and certainly where imports exceed ten per cent of the market, the Commission has not opposed any mergers in the past 10 years! Amcor's acquisition of APM is an example; so also was Email’s acquisition of Southcorp and the later acquisition by OneSteel and Smorgons of Email. There are numerous other examples.

The Commission has made it clear that in the authorisation process it is willing to listen to arguments that might justify anti-competitive mergers. However it is also important that such mergers should not be a thinly disguised attempt to dominate domestic markets at the expense of local customers.

Merger law is not a ‘necessary evil’. It makes a highly important contribution to the competitiveness of the Australian economy by preventing monopolies in our economy.

Let me put a misconception to rest. The Commission does not have a firm rule opposing mergers where there are a reduction of industry players. There are many cases where the Commission has not opposed three becoming two or even two becoming one. Where there is import competition, domestic monopoly products have been allowed.

But the Commission is wary when there is a reduction in the number of players from three to two. When there are three key players in an industry it is often the case that the struggle between number two and number three for a place in the sun generates competition.

There is some reason to question the claim that we need global mergers in Australia. First the idea of ‘national champions’ worked unsuccessful in many countries in the 70s and 80s. In any case, the argument seems to be that Australian firms should be allowed to form monopolies thereby, earning higher than normal profits, and that they should use this to subsidise overseas consumers. This is not in Australia’s interests because consumers are being asked to subsidise foreign consumers. Also it is quite wrong to think that merger law is opposed by all business. The vast majority of businesses in Australia are small and they are strongly opposed to merger consolidation amongst big business in general.

Raising the small business effort

Over the past two years the Commission has upgraded the level and style of its dealing with small businesses over their rights and responsibilities under the Act. The ACCC program of outreach to small business resulted from the Government’s decision in 1998 to strengthen the TPA and provide resources to address unconscionable behaviour by larger business dealing with small business.

The activities of the Small Business Unit in the ACCC and the appointment of a Commissioner responsible for small business, have also focussed on demonstrating to small businesses how to avoid or handle TPA related problems well before they require litigation.

The Small Business Unit has developed a considerable network of contacts for getting messages out to small business. The messages emphasise how understanding and compliance in relation to TPA matters reflects good management practice and hence assists business success and profitability. It is a pro-business message and one which has good effect.

Testing the unconscionable conduct provisions