Trade Practices Seminar Series

Allen Allen & Hemsley

Trade Practices Seminar Series

Sydney

Tuesday 13 October 1998

“Win/Win with the ACCC”

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Mr Allan Asher

Deputy Chairperson

Australian Competition & Consumer Commission

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Good evening. It is a pleasure to be here tonight to hopefully give you an insight into the ACCC’s current actions and plans for the future.

The stated aim of the Trade Practices Act, and the focus of the Commission’s work, is to enhance the welfare of Australians through the promotion of competition and fair trading and consumer protection. It does this, not only through the enforcement of the competition and fair trading provisions of the Act, but also via its regulatory responsibilities in areas such as telecommunications and energy .

Having regard to this diverse range of functions and to the near universal coverage of the market for goods and services of the TPA, the question may be asked how does the ACCC focus its work on key issues?

The ACCC has sought to achieve a clear focus for its work as follows:

• Competition. All parts of the TPA cited above have competition as their key focus and unifying theme. Thus the consumer protection provisions can be seen as a form of competition policy because if consumers are given deceptive or misleading information about goods and services then they will be unable to choose properly between competitors and the competitive process will be damaged. Moreover whilst the access regime could be seen by some to be a purely regulatory activity (in which for example the ACCC must arbitrate when there are disputes about prices, terms and conditions of access), a key policy factor underlying its decisions is the competitive impact of the prices, terms and conditions which it sets. Similar comments apply to other parts of the TPA. The emphasis on competition as the unifying theme is not intended to imply that wider public benefit, public interest and economic efficiency concepts are not to be given priority where the Act so requires.
• Enforcement. The ACCC’s role is to enforce the law. The ACCC is in general not a competition policy advocate. This is the role of other parts of government including the National Competition Council and the Productivity Commission. Occasionally the ACCC enters policy debates most often with the support and encouragement of the government of the day eg the ACCC’s promotion of the arguments for reforms in the compact disc market have been encouraged by the present government and by the relevant Ministers in the previous government.
• The ACCC is mainly concerned, so far as competition policy is concerned, with the non-traded goods and services market. Much of the work which 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.
• Within the non-traded goods and services sector the ACCC’s principal focus is on the less competitive parts of that broad sector.
• The ACCC 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. Now the number is fewer than ten. Deregulation of petrol prices, the most important area of notification, has been recommended to the government.

Unfair prices

The ACCC seeks to break up cartels that cause high prices, high costs, inefficiency and unfairness in all parts of Australia. Examples include the price fixing actions against freight express and concrete companies, and more recently against Pacific Dunlop over foam used widely in Australian furniture; WD & HO Wills for cigarettes in South Australia; Inghams and Steggles in chicken markets in South Australia; McPhees (fined $4m for freight express services in Victoria although the matter is on appeal); North West Frozen Foods and others for fixing prices of frozen foods to restaurants, hotels and convenience food outlets throughout Tasmania, and others.

A case currently before the court concerns Safeways, owned by Woolworths, which is linked to the successful George Weston case. George Weston applied pressure to a small business person selling bread next to Safeways in an attempt to force it to increase its prices to match those of Safeways, harming both a small business competitor and consumers of bread.

Looking ahead the Commission is actively investigating a number of significant anticompetitive agreements, including a matter involving the Real Estate Institute of Western Australia. On 16 June 1998 the Commission instituted proceedings under the Act and the Competition Code Western Australia against the Real Estate Institute of Western Australia Incorporated (REIWA), its Executive Director and various other parties in relation to an alleged price fixing agreement. The Commission also alleges that certain REIWA rules of practice are anti-competitive.

The Commission alleges that in June and July 1997, REIWA distributed an agreement to five colleges of TAFE in Western Australia in relation to a training course known as Certificate Ill in Property Services.

The agreement contained a clause by which the colleges agreed not to provide the training course to students at a fee less than $780. It is alleged that two colleges, South West Regional College of TAFE and West Coast College of TAFE (then known as North Metropolitan College of TAFE), entered into the agreement with REIWA.

The Commission also alleges that certain of the REIWA rules and rules of practice for member real estate agents are anti-competitive in that they have the effect of:

• requiring that, where any member of a franchise group wishes to become a REIWA member, all franchisees of that group also be members;

• preventing members from approaching vendors who are dealing exclusively with another agent; and

• preventing members from offering certain incentives or inducements to consumers.

The Commission has also witnessed an increase in international cartel behaviour, i.e. firms located in different countries agreeing on prices or on who gets which customers. This rise follows the lowering of trade barriers around the world. The private sector often reacts with agreements designed to offset the pro-competitive effects of trade liberalisation. The US Dept of Justice is currently pursuing some 35 international price fixing cases at present.

Another area of emerging interest is in the health sector. The Commission is currently in Court in Sydney over an alleged price fixing agreement between certain anaesthetists and an alleged associated boycott by some of them of hospitals which did not agree with their pricing demands.

We are also looking at restrictions on entry into medical specialist colleges.

The Federal Trade Commission, our US counterpart, spends 25 per cent of its time on health sector matters. Most of the US matters involve naked use of market power to get higher income rather than higher level questions of ethics, the fiduciary relationship between doctors and patients, or quality of service. If those issues arise in Australia, they can be authorised if there is sufficient benefit to the public, e.g. better quality service.

Price fixing agreements between competitors rarely have social benefits. However it is now possible to seek authorisation for price fixing agreements where the public would benefit. The ACCC is finalising an Australian Medical Association application for authorisation of collective bargaining arrangements between doctors in rural South Australia and the South Australian Health Commission.

The abuse of market power

The ACCC also tries to stop abuses of market power under section 46. From 1973 until 1996 there were no “section 46” cases by the Commission but we have launched several recently. One in Adelaide involves a major scrap metal company, Sims, which the Commission alleges sought to force a small scrap metal collector to make an agreement with it not to compete in acquiring scrap metal. The small competitor did not agree. We allege Sims then paid extremely high prices to acquire the scrap metal which otherwise would have gone to the small player in order to eliminate it from the market, in breach of section 46.

We have launched a case against Boral for predatory pricing well below costs aimed at driving a new entrant out of the concrete products market.

We also litigated against the Bureau of Meteorology, not for any misleading or deceptive conduct, but for monopolisation in trying to keep new competitors out of Australia. These days any government involved in any form of business can expect the law to be applied to it.

The ACCC tries, through merger law, to stop unjustified increases in the concentration of market power. Thus in the Coles/Myer/Foodland case it opposed Coles/Myer’s attempt to acquire 75 per cent of the Western Australian wholesale grocery market and thus (a) to increase its buying power in relation to suppliers; (b) to increase its competitive power versus the small retailers it would have both supplied and competed against in retailing; and (c) to reduce retail competition.

Merger law is especially important given the absence of a divestiture law in Australia that enables existing firms to be broken up. Mergers have a profound effect in shaping the competitive structure of the economy in years ahead. Essentially a balance must be struck between allowing through with as little difficulty as possible good mergers that increase efficiency and do not harm competition and opposing undesirable and unhealthy mergers.

A global merger wave is occurring. The US authorities are dealing with three times as many mergers as normal at present. Australia is not exempt The Asian crisis has probably put somewhat more merger pressure on some Australian firms. Some attempts are being made internationally to get better coordination between countries dealing with mergers occurring in many countries simultaneously.

Merger law is not getting in the way of firms that need to achieve the scale necessary to take part in world markets. The Commission has opposed no mergers where there is significant import competition and this is the area where the claim that large size is necessary to take part in world markets is most relevant. However, even apart from that, the Commission opposes relatively few mergers. Our total rateof opposition to mergers is around five per cent a year, and some of them are eventually overcome by undertakings given to the Commission. In the small Australian economy, unlike the USA, our law permits anticompetitive mergers where, as part of the authorisation process, they can be shown to bring a sufficient benefit to the public, e.g. lower prices. Over half of authorisation applications are successful.

The real agenda for future merger policy is in the deregulating areas where there will be a very high rate of merger activity. Much such activity is justified. It is unlikely that the structure of an industry will be right, fixed and immutable at the beginning of a process of deregulation. However, from time to time, mergers can undo the procompetitive effects of deregulation. For example, if Victoria’s electricity industry which was broken up into many parts was allowed to remerge tomorrow, if for example the five generator companies could remerge tomorrow, or take over the distributors, this could undo many of the procompetitive effects of Victorian deregulation.

The violation of consumer rights

The Commission continues to be active in consumer protection. It obtained refunds of over $50m to consumers of AMP’s 80/20 Life Insurance policies; and of $45m from Telstra for its misleading wiring repair plain. We are currently concerned about advertising of mobile phones. We are involved in numerous cases involving scams against small business, eg telemarketing fraud.

Austcomm Tele Services

The Australian Competition and Consumer Commission has instituted proceedings in the Federal Court Perth, against a Western Australian telephone services reseller, two senior executives, and four marketing agents.

The ACCC alleges the unauthorised transfer of customers from one telephone company to another, or ‘slamming’ as it is known in the industry.

The proceedings are against Austcomm Tele Services Pty Ltd, a company director, a company manager and four of its marketing agents.

The ACCC alleges that in the course of reselling telephone services to householders Austcomm claimed:

• it was offering an auditing or bill checking service;
• its services provided savings in circumstances where savings were not available; and
• it was part of, a branch of, subsidiary or an authorised agent of Telstra

when this was not the case.

This action follows a warning on 13 August 1998 by the ACCC that it would act quickly against telephone companies who transfer customers from other companies without proper authorisation.

The Commission has also obtained injunctions against CDRC’s Financial Network. This matter involves the advertising of a personal loans facility aimed at pensioners, bankrupts and people with bad credit. The Commission alleges that CDRC and its directors represented to the public, in various newspaper advertisements around the country, that personal loans were available to callers from the operator of the 1902 number. The Commission alleges that customers were misled into making expensive 1902 phone calls for a personal loan, when all that was being offered is advice on how to secure a loan.

Following the Wallis report, ASIC is the main agency responsible for consumer protection in financial services and we have an agreement to cooperate closely with them, as we do with State fair trading and consumer agencies.

Looking ahead, an important new area of consumer protection concerns relates to electronic commerce. This is the fastest growing area of complaints and we are already involved in half a dozen cases with more to come. As we buy on the Internet, for example, often from abroad, we need protection of our personal credit details, and we seek guarantees that if the products are defective that we can have appropriate remedies. This whole area has significant international dimensions and we need enhanced cooperation between agencies. The ACCC is sponsoring an international conference on this on 9-11 November in Sydney.

The ACCC has also recently become responsible for enforcing product safety standards. We have been very active in this area compared with anything in the past, with recent actions concerning dangerous children’s swimming vests and dangerous caustic soda causing permanent injury to a consumer.

We believe the penalties under the consumer protection part of the Act should be increased from their present levels of $200,000 maximum for corporations and $40,000 for individuals. They contrast with penalties of $10 million for corporations, and $500,000 for individuals under the competition provisions of the Act. The effects of breaches of Part V of the Act are equally as detrimental, if not more so, to consumer welfare, than those dealing with Part IV.

Small business

The ACCC always had an important role in relation to small business. Many of its decisions bring benefits to small business eg very often the customer most damaged by a price fixing agreement or abusive market power or anticompetitive merger is a small business.

However, the Coalition has strengthened the provisions of the Act regarding the interrelationship between big business and small business. It has strengthened the unconscionable conduct provisions. It has also legislated to enable codes of conduct to be enforceable under the TPA. Indeed it will be possible for the government to mandate that an industry has a code of conduct. With voluntary codes of conduct it will also be possible to make them enforceable under the TPA.

The ACCC has had much to do over the years with disputes between big business and small business. It takes the view that very often the best approach to resolving the disputes appropriately is not through legislation but through appropriate codes which address the real issues. The most important issue typically is inadequate disclosure or inadequate understanding of the position of the small business once it becomes involved in a leasing relationship. A disclosure code is a valuable way of reducing these problems. Another chronic problem occurs when there are disputes during the life of a tenancy. The ACCC believes that there is a strong case for having low cost, effective dispute resolution mechanisms that avoid the need for expensive litigation. This is another element in many codes

To highlight the importance of its role in small business the next full-time Commissioner at the ACCC will have special responsibilities for matters affecting small business and in the meantime at least one “small business” Associate Member is to be appointed. The ACCC’s staffing has been strengthened in the Small Business area and Small Business officers have been appointed in each regional office. The reason for the appointment of the “Small Business” Commissioner is not to ensure that there is special protection for small business but to ensure that adequate account is taken of small business considerations that are relevant to the TPA when the Commission is deliberating in any field that it is involved in.