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ACCC sectoral inquiries - need for reform?

ACCC sectoral inquiries - need for reform?

Calls for further extensions of the powers of the ACCC need to be closely examined, taking account of international models and foreign experience writes Morag Bond Amidst the discussion and…

Calls for further extensions of the powers of the ACCC need to be closely examined, taking account of international models and foreign experience writes Morag Bond

Amidst the discussion and controversy surrounding the introduction of the so-called Birdsville amendments and criminal cartel legislation, two recent calls by government inquiries to extend the ACCC's powers are at risk of going unnoticed.

The recommendations made have highlighted some formal limitations in the sectoral investigations held under the Trade Practices Act (the Act), as well as some misconceptions. While there may be some merit in addressing these limitations, any law reform proposal will need to take account of international models and foreign experience.

In November 2008 the House of Representatives Economic Committee published a report on competition in the banking and non-banking sectors. The report recommended among other things that "the government review the current adequacy of the Trade Practices Act 1974 to provide the ACCC with the powers to investigate and address issues of concern in markets and regulated sectors".

The Senate Select Committee on Agriculture and Related Industries expressed similar dissatisfaction with the ACCC's powers in December 2008 in its interim report on pricing and supply arrangements in the Australian and global fertiliser market. According to the report"the powers of the ACCC need to be strengthened so that the Commission can more effectively fulfil its role in promoting competition and fair trading and in providing for effective consumer protection."

The recommendations appear to be directed at a perceived need for a more general power allowing the ACCC to conduct market inquiries and publish reports on the state of competition in a market. In the banking inquiry, the ACCC respondent noted that "[Competition] is only of interest if it comes across our desk in terms of a merger, an acquisition, an enforcement issue or compliance issues" and compared the ACCC's limited ability to comment on the state of competition with the position in the UK where the competition authority has the power to conduct competition inquiries and issue reports on the state of competition in a market.

However, the Trade Practices Act currently does provide for the ACCC to carry out inquiries and issue reports. Under Part VIIA of the Act (section 95H(1)), the ACCC may be directed by the minister to hold an inquiry into a specified matter or specified matters. Part VIIA also provides that the minister or the ACCC (with the minister's approval) may "declare" a supplier and "notify" certain goods or services, preventing the supplier from selling the goods or services at a higher price than was in place over the previous year.

The minister may also direct the ACCC to monitor the prices, costs or profits of supplying goods or services in a specified industry or by a specified person. While such a remedy may follow a price inquiry, an inquiry is not a necessary precursor to price monitoring or price restrictions.

Section 95H is not infrequently used - both the 2008 Grocery Inquiry and the 2007 Petrol Inquiry took place under Part VIIA. Such inquiries rarely progress to price control although the ACCC has been directed to formally monitor petrol prices and report to the minister annually for three years.

The ACCC is not, however, able to conduct inquiries except at the direction of the minister - differentiating it from the European Commission and the UK competition authorities. The inquiries to be held under Part VIIA are also "price" inquiries in relation to the supply of goods or services, reflecting the overall scope of Part VIIA - price surveillance. This limitation, however, appears to be more theoretical than substantive with the recommendations of both the grocery and petrol inquiries extending well beyond matters of price competition.

The key limitation however, is the absence of any express remedial powers to be exercised by the ACCC (the price control and monitoring provided for in Part VIIA are to be exercised by the minister or with the minister's consent). This compares with the position in the UK, where the Competition Commission has the power to accept undertakings or impose orders, in addition to Government recommendations.

The orders available to the Competition Commission include the prohibition of discriminatory practices, imposition of price control and - most significantly - the divestment of a company's assets or business. While a decision to order divestment will not be taken lightly, this does occur. In December 2008, the Competition Commission made a (provisional) decision that British Airports Authority Limited, the owner of three of the four London airports: (Heathrow, Gatwick and Stansted) divest both Gatwick and Stansted airports (among others).

ACCC Chairman Graeme Samuel is clearly conscious of the limitation and appears to consider this perceived gap in the ACCC's power as justifying the unpopular proposal to block so-called creeping acquisitions: "in most other jurisdictions you've got a break up power...we don't have that power at all. So if a company becomes dominant, acquires market power, there's nothing we can do about it".

However, the current limitations on the ACCC's remedial powers under Part VIIA are clearly not a bad thing. Enabling the ACCC to order a company to divest certain assets following a sector inquiry - in the absence of an infringement of the Act - is difficult to contemplate and would be almost impossible to justify given, among other things, the absence of such a power under section 50 of the Act.

Nevertheless, there may be some merit in updating the price inquiry provisions under Part VIIA. It could be made clear in the legislation that when the ACCC carries out an inquiry that the inquiry is to extend beyond matters of price competition.

As the reports of the grocery and petrol inquiries show, the ACCC does not consider its review limited to prices. The legitimacy of this approach has not been questioned but the legislation should be updated to match the ACCC's interpretation.

The ACCC's mandate should be to consider all features which have an adverse effect on competition, but should not extend beyond competition concerns. Most importantly, however, any remedial powers conferred on the ACCC itself should be limited; the conferral of a power on an unelected body enabling it to break-up a dominant company will - no matter how well reasoned - be ungratefully received.

It is difficult to predict the extent to which the Government will act on recent recommendations and much will depend on the appetite for yet further reform of the TPA. The groundwork for potential reform of the ACCC's powers in this area have, however, clearly been laid.

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ACCC sectoral inquiries - need for reform?
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