Submission to the The Treasury, Market and Competition Policy Division Competition Law Amendments: Exposure Draft Consultation

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1 Submission to the The Treasury, Market and Competition Policy Division Competition Law Amendments: Exposure Draft Consultation 30 September 2016

2 Competition Law Amendments: Exposure Draft Consultation HIA welcomes the opportunity to provide comments on the Exposure Draft - Competition and Consumer Amendment (Competition Policy Review) Bill 2016 (Exposure Draft). HIA notes that the Exposure Draft is designed to implement many of the recommendations of the Competition Policy Review conducted by Professor Harper and his panel throughout 2014 and 2015 (Harper Review). HIA supports many of the recommendations of the Harper Review, and in turn, much of the Exposure Draft. HIA specifically supports the increased penalties in the Exposure Draft for secondary boycotts. As stated in the final report of the Harper Review, there is no reason why the maximum pecuniary penalties for breaches of secondary boycott provisions should be lower than those for other breaches of the competition law". There are however elements of the Exposure Draft that HIA is concerned with, being: The amendments to the misuse of market power provisions in section 46; and The failure to include amendments to sections 45E and 45EA of the Act. Amendments to Section 46 HIA notes that the Exposure Draft introduces an amendment to the effects test into section 46. Under the Exposure Draft section 46 is amended to prohibit a corporation with a substantial degree of market power from engaging in conduct if it would have the purpose, or would have or be likely to have the effect, of substantially lessening competition (SLC). When assessing whether conduct has purpose or effect of SLC, a court is directed to consider the: extent to which conduct has purpose, effect or likely effect of increasing competition in the market (including by enhancing efficiency, innovation, product quality or price experience) and; extent to which the conduct has the purpose, effect or likely effect of lessening competition in the market, including by preventing, restricting or deterring the potential for competitive conduct in the market or new entry into the market Page 3 of 5 Competition Law Amendments: Exposure Draft

3 It remains HIA s position that the competition regulation and oversight under the existing section 46 is adequate for managing concerns about abuse of market power in the residential construction industry. HIA refers to its previous submissions on the issue, most recently its February 2016 submission to Treasury in response to the Options to strengthen the misuse of market power law discussion paper. It is acknowledged that the Government has announced a policy to support an effects test. The drafting of the amendment is substantively the same as the model law suggested by the Harper Review. Nonetheless in HIA s view, the drafting of the amendment goes beyond the mere introduction of an effects test and therefore should be changed. Specifically, the removal of the "take advantage" element is flawed as it is that element that is significant and distinguishes legitimate commercial conduct from conduct which is essentially anti-competitive and must be penalised. A stated objective of the Competition and Consumer legislation is protection of the competitive process, not individual competitors. Under the amendments a breach of the provision no longer requires fault or misuse of market power, but rather that the offending market behaviour simply has the effect of, substantially lessening competition. Having this as the sole element is likely to result in over-capture of legitimate competitive conduct. Ordinary commercial behaviour used every day by businesses to compete such as bundling of services, offering new innovative products (that competitors cannot offer) or in a construction industry example, offering tender prices that competitors cannot compete with, will now potentially be susceptible to scrutiny. HIA disagrees with this approach as misuse of market power laws should be targeted at those firms with substantial market power misusing that power to stifle competition and innovation. Further there need be no correlation between market power and the commercial conduct engaged in. In HIA s view, the deletion of the take advantage element goes well beyond the Government s policy intent. Page 4 of 5 Competition Law Amendments: Exposure Draft

4 Additionally, under the amended section 46 a business would also need to take into account whether their behaviour enhances efficiency, innovation, and product quality or price competitiveness in the market. Whilst such provisions may make sense for mergers, for everyday business decisions they present an unworkable and intrusive constraint. HIA notes that there is an option to apply for an authorisation in advance but does not consider this is practical or workable. HIA commends the drafting previously suggested by former ACCC Chairperson Graeme Samuel and Professor Stephen King as a preferable adoption of the effects test : 46(1) a corporation that has a substantial degree of power in a market shall not misuse that power in that or any other market if to do so has the purpose or would have or be likely to have the effect of substantially lessening competition in that market or any other market. (2) For the purposes of sub-section (1) a corporation shall be deemed to have misused its power in a market if the conduct alleged to constitute the misuse of its power in that market would be inconsistent with conduct that would be engaged in by a corporation that does not have a substantial degree of power in that market. 1 Failure to include amendments to sections 45E and 45EA The Exposure Draft also fails to include provisions to reform sections 45E and 45EA of the Act so that the anticompetitive prohibitions within those sections apply to industrial behaviour. This was a key recommendation of the Harper Review Panel. Section 45E of the CCA prohibits a person (an employer) from making a contract, arrangement or understanding with an organisation of employees that contains a provision restricting the freedom of the employer to supply goods or services to, or acquire goods or services from, another person. Section 45EA prohibits a person from giving effect to such a contract, arrangement or understanding. 1 Article by Professors Stephen King and Graeme Samuel published in Australian Financial Review on 14 January Lodged as a submission in response to the Treasury Discussion Paper 'Options to strengthen the misuse of market power law'. Page 5 of 5 Competition Law Amendments: Exposure Draft

5 As the Harper Review found, there is a conflict between the objective of sections 45E and 45EA and the regulation of awards and industrial agreements under the Fair Work Act, with many unions pursuing 'contractor clauses' in their pattern enterprise bargaining agreements. These anticompetitive clauses have the effect of requiring that employers bound to these agreements only use union labour or only engage firms that are bound by equivalent conditions in their own union enterprise bargaining agreements. Such clauses are not only inefficient, they strike at the heart of the principles of freedom of association, free enterprise and open competition. As the Harper report states: 'businesses should generally be free to supply and acquire goods and services, including contract labour if they choose. The Harper Review recommended that sections 45E and 45EA be amended so that they "expressly apply to awards and industrial agreements, except to the extent they deal with the remuneration, conditions of employment, hours of work or working conditions of employees". Further, in policing anti-competitive enterprise agreements, the ACCC would have the right to intervene in Fair Work Commission cases. Both the Productivity Commission in its final report into Australia s workplace relations system and Commission Heydon in the Final Report of the Trade Union Royal Commission similarly recommended that 'contractor clauses' be outlawed. Whilst HIA notes that the Government is still to release a response to the Productivity Commission s report, there is no reason these matters cannot be addressed in this Bill and without further delay. Housing Industry Association contact: David Humphrey, Senior Executive Director - Business Contracting and Compliance 79 Constitution Ave, Campbell ACT 2600 Phone: d.humphrey@hia.com.au Page 6 of 5 Competition Law Amendments: Exposure Draft