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Getting in on the Act

Getting in on the Act

Labor’s most recent bid for the small business vote is a raft of proposed reforms to the Trade Practices Act. Francis Wilkins reportsOnly days after attracting business approval for his…

Labors most recent bid for the small business vote is a raft of proposed reforms to the Trade Practices Act. Francis Wilkins reports

Only days after attracting business approval for his industrial relations policies, Opposition Leader Mark Latham last week generated concerns within big business after announcing proposed reforms to the Trade Practices Act 1974. Speaking at a Perth shopping centre on 13 April as part of a WA pre-election campaign, Latham left no doubts about the target of the reforms: “A lot of small businesses know that the power of big business is so much larger,” he said. “There is a problem of abuse of market power and the need to improve the Trade Practices Act to ensure that small business people who work hard are not going to be flooded by the big business sector.”

Latham claims the Howard Government has failed to implement key recommendations of the Dawson review or to act upon the conclusions of the Senate Economics Committee, which called for reforms to s46 of the Act. As a result, Australian competition policy under the Coalition had been set adrift. But the ALP proposal, packaged explicitly as a way to give small businesses a “fairer go”, has got the larger business community worried. Some business leaders now fear that if implemented, the protectionist reforms would damage, not enhance competition.

Latham said he was particularly concerned about the retail grocery sector. Coles Myer and Woolworths hold almost 80 per cent of this market, while just four companies control 96 per cent of the sector. Labor also says pathology services within the health sector — 80 per cent of which are controlled by two companies — are evidence of a “private sector trend back towards duopoly and oligopoly” under the Coalition.

The ALP proposal comprises a seven-point plan to reform the Trade Practices Act.

Under the plan, Labor would amend s46 of the Act to explicitly prohibit predatory pricing in a move which the ALP says will protect small businesses. It would also return the threshold for defining market power to “substantial market power” rather than “market dominance”. Court decisions had diminished parliament’s intention that abuse of market power should not restrict competition, the proposal said, as well as weakening the power of the Australian Competition and Consumer Commission (ACCC) to support small business.

The reforms also include the introduction of cease and desist orders, designed to allow the ACCC to move swiftly to restrain a corporation from engaging in anti-competitive conduct. Similar provisions already exist within the competition laws of NZ and Canada. Any such orders must, however, be framed in a way that is both fair to the parties and does not undermine the ACCC’s investigative powers under s155.

The ALP proposes to introduce a new power of divestiture of assets under s81 of the Act to allow the courts to crack down on corporations that abuse market power or involve themselves in cartel behaviour.

Section 50 of the Act would see new powers to combat “creeping and cumulative acquisitions”. “Where a company with a large market presence proceeds to accumulate smaller enterprises,” the proposal said, “individually, these acquisitions have limited impact but over a concerted period they can have the cumulative effect of lessening competition”. Under the plan, the ACCC would be able to treat a series of acquisitions as a single event (consistent with the Senate Economics Committee recommendations).

Labor claims its reforms will strengthen the powers of franchisees and “restore some balance in the relationship between a franchisee and the parent company [by extending] the powers of the ACCC to bundle up and treat as a single, common complaint disparate franchisee grievances made against the parent company”. Under the reforms, the ALP would amend the Franchising Code to explicitly impose a duty of good faith on franchisors and to ensure complaints made under the Code are resolved within 12 months.

The ACCC would have to report on firms’ compliance with their undertakings in mergers cases in a move said to ensure greater transparency in the mergers authorisation process. Finally, the proposal would build a formal statutory review into the Act as well as ensuring, according to Labor, that all ACCC appointments are made “on independence and expertise”.

Many in small business have welcomed the new proposal, including the Council of Small Business Organisations of Australia (COSBOA), which said Labor clearly understood the issues which small businesses face. COSBOA called the proposed reforms “substantial”.

But Business Council of Australia President Hugh Morgan said consumers would be the main losers if the reforms went ahead. “The changes being proposed strike at the very heart of competition,” Morgan said. “The essential nature of the Trade Practices legislation is to ensure competition in the market place, not the protection of consumers. The end result of these changes would effectively see Australian consumers subsidising less competitive small businesses.”

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