Senator Leyonhjelm says effects test “irredeemably flawed” but farmers disagree

But NSW Liberal Democratic Senator David Leyonhjelm says the policy aim underpinning long argued changes to Section 46 of the Competition Act is “irredeemably flawed” and “simply wrong”.

“Many in this place have complained about retail market dominance by two players, about the dominance of banking in Australia by just four major banks and about the fact that we still have only two airlines dominating domestic air travel,” Senator Leyonhjelm said during a Senate speech this week as the laws were passed.,

“However, the big retailers, banks and airlines are simply the ones with enough cunning to survive in the heavily regulated, taxed and controlled market created by government policy.

“The key premise behind this bill is simply wrong.

“Simply put, the entire approach of this legislation is irredeemably flawed.”

But the National Farmers' Federation (NFF) said the ‘effects test’ introduced by the legislative changes would bring Section 46 into line with the rest of the Act and ensure the Australian Competition and Consumer Commission (ACCC) had the additional provisions it needs to help level the playing field for small business.

NFF CEO Tony Mahar said the bill’s passage this week was a watershed moment for Australian competition policy.

Mr Mahar said his lobby group had been calling for the introduction of an ‘effects test’ since the concept was flagged in the Harper competition review process of 2014.

“The government, in particular the National Party, should be credited for bringing this reform to fruition,” he said.

“The government consulted widely and showed a willingness to listen to industry to get the settings right."

NFF said the bill also earned the support of the Greens, the Nick Xenophon Team, One Nation and several independents, to pass the Upper House.

Mr Mahar said the wide spectrum of support across the parliament “shows this is not an ideological issue but one of fairness and pragmatism”.

AUSVEG said the changes would give the ACCC greater “agility” to take action against serious misuses of market power where they are uncovered and ensure an open and transparent business environment in the fresh produce industry.

AUSVEG National Manager of Public Affairs Jordan Brooke-Barnett said “Australian farmers are better off when there are multiple retailers and wholesale buyers competing to buy their produce”.

“While there has been substantial consolidation in the retail sector over the years, there have also been promising signs with a number of independent and international retailers establishing in Australia,” he said.

AUSVEG also acknowledged the government’s efforts to address competition issues in the agriculture sectors including funding a dedicated Agricultural Commissioner and team within the ACCC and recent reforms to the Horticulture Code of Conduct.

NSW Riverina Nationals MP and Small Business Minister Michael McCormack reflected the statements by NFF and AUSVEG about the ‘effects test’ coming into play.

“Protecting small business from anti-competitive conduct was a key recommendation of the Harper Review,” he said.

“The new section 46, delivered by the government, empowers the consumer watchdog to look at the actual or likely impact of conduct on a market.

“It also further strengthens laws to prevent firms with substantial market power engaging in conduct which harms competition in Australian markets.

“From farmers to small supermarkets, from consumers to suppliers, many Australians tell me how these changes will stop firms with substantial market power from engaging in conduct which reduces competition.

“This is good news for small businesses which want to compete and good news for consumers who want competition in the market.”

But Mr McCormack said Labor had voted against a fairer deal for small business.

“I invited Labor to work with the government in backing small business, to level the playing field, so more can compete,” he said.

“Instead, Labor continued with its feigned support seeking nothing more than a headline, showing yet again its complete lack of understanding and care for small business.”

Treasurer Scott Morrison said the Harper Review found that the misuse of market power law was not reliably enforceable and did not effectively target and deter anti-competitive conduct.

He said the reforms represented a “pivotal step” towards ensuring Australia’s competition laws were “fit for purpose and support competition in a dynamic economy.

“The new section 46 is robust law that will prevent firms with substantial market power engaging in conduct that harms competition in Australian markets,” he said.

“This is particularly important for Australia’s 3.2 million small businesses which make up more than 97 per cent of all businesses.

“The reformed section 46 will prohibit a corporation from engaging in conduct with the purpose, effect or likely effect of substantially lessening competition in a market in which it directly or indirectly participates.

“The new provision will more effectively address anti-competitive conduct, protecting the process of competition rather than individual competitors.”

Australian Small Business and Family Enterprise Ombudsman Kate Carnell said the legislation would stop large businesses with significant market power from using that power to impact broadly upon a market with adverse consequences for competitors.

“The introduction of an effects test that lowers the threshold for establishing misuse of market power enhances fairness and effective competition,” she said.

“Shockingly bad” or fair legislation

But Senator Leyonhjelm said “For a supposedly liberal government, this is a shockingly bad piece of legislation”.

“In a breathless rush to claim to be protecting consumers from wicked corporations, this bill seems to reflect a profound misunderstanding of both competition and the operation of the marketplace,” he said.

“The new provisions continue to see so-called substantial market power as a problem but change the focus of concern away from eliminating or damaging a competitor to any action which supposedly substantially lessens competition.

“To add insult to injury, the bill is estimated to generate additional compliance costs of $2.5 million per year over the first 10 years as businesses are expected to seek legal advice on the new law.

“This cost will, of course, be ultimately passed on to consumers.

“Not only do we get more interference in the marketplace but consumers also end up having to pay for the privilege.”

However, NSW Nationals Senator John Williams said when a small business started to become successful, one of two things happened.

“Big business, the big end of town, are either going to buy you out or they are going to squash you out,” he said.

“Make no mistake about that: if you're a threat to big business they will squash you out.

“If I were part of a big multinational company, say we had 300 stores, and we started up a branch in a country town that had a successful small business just poking along, employing seven, eight or 10 people, we could sell at cost - we could sell at a ridiculously low price.

“Under the purpose test, if I were a small business and I or the ACCC had to take them to court to prove that the purpose for that big business selling at half price was to send me broke, that was a very difficult case to prove.

“Now, with the effects test, I can simply go to the ACCC and say, 'The effect of this big business charging $10 for some product in all their stores around Australia but charging $5 in the store opposite me in the street is sending me broke’.”

Senator Williams said the legislation was about maintaining competition.

“The Institute of Public Accountants highlighted the effect that Australia's concentrated market structure has on competition, noting that small or medium-sized businesses are vulnerable to exploitation or exclusion by firms with substantial market power,” he said.

“The current situation is simply David and Goliath and, as the biblical story says, it is not often that David wins.

“I think this is a very fair piece of legislation - it will encourage competition.”

There’s a long history here say Greens

Greens leader Richard Di Natale said the bill “ushers in a landmark reform to competition law in Australia”.

He said the bill that lowers the burden of proof so the ACCC can more easily take action against companies that misuse their market power.

“It is the culmination of a long campaign by many people, including my predecessor, Senator Christine Milne, former Leader of the Australian Greens, who worked tirelessly to see this change come into effect,” he said.

“She worked with people who have been done over by big businesses that have used their sheer size to squash competition and squeeze out their supply chains.

“It is a bill that brings into effect a policy that the Greens took to the 2013 election and the 2016 election.

“We are very pleased to have been a champion for this reform in this parliament.”

Senator Di Natale said on the same day, Malcolm Turnbull actually challenged former Prime Minister Tony Abbott for the Liberal leadership and the Nationals crossed the floor to support a Greens motion on introducing an effects test.

“I'm sure it was at the front of their mind when they negotiated their secret wish list to support a Turnbull government in a formal Coalition,” he said.

“Of course, we are seeing the repercussions of that wish list play out with the marriage equality debate right now.”

SA Senator and NXT leader Nick Xenophon said his party was “broadly supportive of this bill”.

“It's been a long time coming and we do actually need to have strong competition laws in place to prevent abuses of market power,” he said.

“Otherwise, it becomes a free-for-all.

“Otherwise, dominant players can squash the smaller players, and we've seen evidence of that where a small business that is trying to break into a market can be squashed as a result of predatory pricing practices of bigger operators, because they can afford to do that.

“That is something that this bill goes some way in addressing.”

But Senator Xenophon said the legislation needs to go further, because the ‘effects test’ essentially cannot be triggered unless there has been a substantial lessening of competition.

“Those words 'substantial lessening of competition', I believe, are inherently too restrictive,” he said.

“I think we need to look at what the Europeans have been doing for a number of years in the way they look at competition law.

“They look at the impact of competition in the marketplace, which looks at it from a broader perspective rather than a very narrow test - a hurdle that I feel would be quite difficult to get over in many circumstances.”