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Introduction
Thank you for the invitation to address you today. The press is the primary vehicle through which we communicate to the Australian people, so I welcome the opportunity to address the National Press Club.
My key messages today are two. First, that given the nature of our law and legal system, the ACCC must be an active enforcer, and be seen to be, so that our market economy works as it should. Second, we need to communicate clearly and constantly what we do, what we are not doing and, most importantly, why.
The “why” is crucial. We will be defined by what we do and, usually more so, by what we do not do. We need to put our action or inaction in context for both consumers and businesses.
In doing so, there can be a fine line between our strict role as a regulator, and straying into policy which, of course, is for governments to determine. Where I draw that line will also be of interest when we get to your questions today.
The key point, however, is that everyone has a view about our role; in this sense all Australians are economic philosophers.
Some think the ACCC should lower the price of petrol, or stop firms charging different prices in different locations for the same product, or prevent a new store opening because it will cause harm to the existing incumbents.
We cannot vacate these debates and leave a void for others to fill. If we do not engage, and people therefore come to see large gaps in our economic laws, then there are at least two unfortunate implications:
- people lose faith that our market economy works for them, and
- there will be calls for more, or misconceived, regulation when, usually, what we have is best suited to enabling our economic prosperity.
To draw out my key messages I want to cover three topics today:
- First, to explain how the Competition and Consumer law and our role defines the boundaries of appropriate commercial behaviour without curtailing the creativity and dynamism that underpins a successful market economy.
- Second, to explain that, with quite limited resources, we achieve a lot both directly and, much more so, indirectly.
- Third, to explain why we need to be a strong advocate, particularly to avoid the trap of being defined by what we are not seen to be doing.
I will now explain each of these points.
The Competition and Consumer law and our role define the boundaries of appropriate commercial behaviour without curtailing the creativity and dynamism that underpins a successful market economy
The very essence of the ACCC’s role is reflected in two famous and familiar Adam Smith quotes. First we have:
'It is not from the benevolence of the butcher, the brewer or the baker that we expect our dinner, but from their regard to their own self interest.
This, the most famous quote, was published in The Wealth of Nations in 1776. It captures the power of the profit motive and the underpinning belief in a market economy.
My first ten years in development economics taught me well the benefits of a market economy and a limited role for government. I saw first-hand what worked, and what did not, as countries were seeking to grow their economies.
Free markets and maximum competition clearly work best.
This leads onto the second quote from the same publication:
'People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.
This quote shows the need for clear boundaries around the pursuit of self interest, and so the importance of the ACCC's role.
But both quotes are equally important. A successful ACCC must understand fully the power of both.
Our law is simple. The 'Bible', Russell Miller's Annotated Competition and Consumer Law, now in its 35th edition, runs to around 2,300 pages, yet you could write the essence of our Act on the back of an envelope.
On competition, do not make or give effect to anti-competitive agreements or cartels; do not misuse your market power for an anti competitive purpose; and do not acquire competitors where this will substantially lessen competition.
In relation to consumers and small business, do not mislead them, sell them unsafe goods, or engage in unconscionable conduct.
Where markets cannot work efficiently as intended, for one reason or another, but fundamentally where there are natural monopolies, more direct regulation will be needed. For example, for competitors to gain access to Telstra’s copper wire, or to wheat ports, or train tracks, or to electricity poles and wires.
In competition and consumer enforcement, we work through the courts. That is, we cannot ourselves determine an enforcement outcome in a contested matter, and must convince a court to rule in our favour on the basis of evidence that we put forward.
This is clearly the preferable position. It provides an important balance to our role as an investigator.
Many overseas competition agencies have administrative powers to investigate and decide to impose substantial fines for contraventions. Though subject to appeal to the courts, these decisions can be difficult to overturn.
At the ACCC we prefer the Australian model, which separates the roles of investigation and prosecution from those of decision making and penalising contraventions.
Some enforcement agencies in Australia and overseas will make public statements during an investigation; sometimes quite early in the investigation. We will do this only in exceptional circumstances, such as when a matter is already the focus of considerable public debate.
Indeed, as an enforcement agency acting in the public interest, we will be judged not only on the outcomes that we achieve, but also appropriately on the way in which we achieve those outcomes. That is why, as a general rule, we are very cautious about announcing that we are investigating a particular business before we are ready to take court action against them.
We are conscious of the negative impact on a firm’s reputation that may flow from such an announcement.
This can be frustrating for those who don’t understand how we work. It takes time and resources to gather sufficient relevant and admissible evidence to support a case theory. People who see an issue of concern often want an immediate solution. They see our processes as involving unnecessary delay.
We must, however, always act on the basis of facts and evidence, not on a hunch or a feeling or even a complaint.
Our approach is critical to ensure that our interventions are fair, well considered, reflect market and commercial realities, and are likely to achieve a sustainable and sensible outcome.
The ACCC must, before taking any action, first see economic harm in accordance with the philosophy of our Act and, if we do, then assess our prospects in court. Indeed, under the Legal Services Directions from the Attorney General, we need “reasonable grounds” advice before we can commence proceedings.
Our enforcement role, therefore, is not to be a decision maker. This is for the courts which are, of course, the ultimate umpire, as they should be.
The court processes mean that we must meet appropriately high legal and evidentiary requirements.
To take a distant example, in the 2003 High Court case against Boral Masonry Limited, we alleged that Boral misused its market power by engaging in predatory pricing below cost in an attempt to force an efficient competitor out of the market.
While a Full Federal Court found that Boral had misused its market power in the Melbourne concrete masonry products market, the High Court overturned this decision finding that Boral did not breach the misuse of market power provisions as we had not proved to the required standard that Boral had substantial market power.
These outcomes will often be finely balanced; the Full Federal Court went one way, the High Court another.
We will always publicise when we institute court proceedings, as an important stage has been reached in our investigations, and, much more so, our court outcomes. We do this for a number of reasons including:
- to ensure we are accountable for what we do
- to guide the business community and change commercial behaviours more broadly, and
- to inform consumers and the general public so they know their rights and what to expect from the businesses they deal with.
As I have said publicly many times, all does not turn on whether we win or lose in court. While I do understand the media’s desire to report in a “winner takes all” way, this is not how we see it.
Instituting proceedings follows extensive investigation, very careful consideration and, as I have said, legal advice that we have reasonable grounds to institute proceedings. When taking a case, or even if we lose a case, often messages are sent and behaviour can change.
The recent case against Trading Post and a number of Google entities, including Google Inc, is a good example of this. We alleged the companies engaged in misleading and deceptive conduct in relation to the publication of certain advertisements appearing on Google’s search results pages in Australia. The ACCC took these proceedings to clarify the law relating to advertising practices in the internet age. Our case against Google Inc succeeded in the Full Federal Court, then in early 2013 was overturned by the High Court which found that Google did not itself engage in this conduct.
Google has, however, now changed the two types of behaviour that led to our original court action.
Further, and as I have said often, we are being too conservative if we always win enforcement litigation.
We achieve a lot directly and, much more so, indirectly
I could entertain you, or not, with a massive list of what we have achieved. Instead, I will provide a brief snapshot of some of our outcomes and activities from the past year or so.
In the area of anti competitive agreements and cartels we are awaiting judgment in the case against Flight Centre and separately we have proceedings on foot against an alleged forklift LPG cartel. We are also taking court action alleging price fixing in relation to the supply of wire harnesses to Toyota, and our air cargo cartel case continues against two airlines, with another 13 airlines having settled and paid penalties totalling almost $100 million.
We also recently started a major case against Visa alleging misuse of market power.
For this financial year, we've completed around 170 merger assessments, many of which were dealt with quickly and efficiently on the basis that the competition risk was considered low.
Of those that underwent a public merger review, there have been a number that have raised considerable interest, for example, the decision last week to not oppose CBA’s acquisition of the remaining interest in Aussie Home Loans, as well as decisions in relation to Seven Group’s proposed acquisition of Consolidated Media Holdings, and APA’s proposed acquisition of HDUF.
Currently there are a number of merger reviews being considered by the ACCC across a diverse range of industries including airlines (Virgin’s proposed acquisition of 60% of Tiger), communications (Telstra’s proposed acquisition of Adam Internet) and baby food (Heinz’s proposed acquisition of Rafferty’s Garden), just to name a few.
This morning we announced our final decision on an authorisation involving plans by Qantas and Emirates to coordinate their operations. Since 1 July 2012 we have made more than 20 final authorisation decisions, assessed 270 notifications of exclusive dealing conduct and completed our consideration of 9 certification trade marks.
In the area of consumer protection, we've seen a very large mix of outcomes and court action; misleading and deceptive cases involving Apple and Dulux immediately come to mind. We have also commenced proceedings recently against AGL and Energy Australia over their door to door sales practices. We are in court against a number of Harvey Norman franchisees and Hewlett Packard in relation to consumer guarantees.
Our enforcement action extends to product safety, which is a priority area. Most recently Cotton On Kids was penalised one million dollars for selling unsafe nightware following ACCC court action.
In the regulatory field, we have been working to put in place the regulatory foundations that will underpin the NBN. This role will continue as we are, of course, the economic regulator of telecommunications and our fellow regulator, the AER, covers electricity and gas.
We are also promoting the efficient use of and investment in infrastructure in other areas, through activities including monitoring the container stevedoring industry and regulating freight rail. The ACCC also has a role aimed at ensuring competition in the market for the export of bulk wheat, and we also have a job to do regulating the rural water industry in the Murray Darling Basin.
But what you do not see is what we achieve out of the public eye.
We can and do achieve real change in commercial behaviours, in some cases simply by announcing our enforcement priorities. Only recently, the General Counsel of a major company said they reviewed their conduct after seeing our revised Compliance and Enforcement Policy.
We also engage in extensive compliance and education activities. Our short film, The Marker, which highlights our cartel immunity policy, is one innovative example.
In addition, simply by contacting companies we may change behaviour without the need for any enforcement action.
Annually on average we deal with:
- over 160,000 complaints and queries
- We have a deeper look at over 3,000 of those
- We commence about 550 investigations
- Around 140 of these progress to in-depth investigations.
- We accept about 40 undertakings, issue around 30 infringement notices, and commence around 35-40 court proceedings
- Most important, we also make contact with numerous companies and provide them with information about the law.
All this has a profound compliance effect.
Even more important than this, however, and drawing on my key messages today, because companies know we will enforce the law, the vast majority will not contemplate cartel or other anti-competitive activity. They have active compliance programs to ensure they do not mislead consumers, and a range of, no doubt, commercially attractive mergers are not taken forward.
This year will be an exciting one with around 30 in depth competition investigations currently under way, 70 in depth consumer investigations, the Virgin/Tiger and other important merger investigations, NBN regulation, the coming Telstra Fixed Services Review, moving to a mandatory code to regulate wheat ports, and improving the role of consumers in our energy network decision making, among many other things.
We must be a strong advocate, particularly to avoid the trap of being defined by what we are not seen to be doing
I am always fascinated by attending, say, a boardroom lunch and hearing the diversity of opinion amongst senior commercial people. Some think we are too intrusive, many think we should be doing more.
I then turn on the radio and hear a complaint that petrol is 140cl at one outlet, and 150cl at another, and the question is, what is the ACCC doing about this? I hear the same question attached to a complaint that petrol is 145cl at two near outlets. Then it will be said that petrol would be $1 if only we were doing our job.
Another common complaint is that a major supermarket is being built in a town, where that supermarket chain currently has no presence, and we are called on to prevent it happening. Don’t we realise it will destroy many local businesses?
Everyone, of course, has a view on these matters. They affect people’s daily lives and people have relevant and direct experiences to bring to bear. Everyone has a view about what should amount to a breach of our Act and what we should be doing.
Indeed, the most common complaint we face is that we are not doing enough on some front.
Where we do not take action, logically our inaction can be due to one of four reasons:
- The complained about action is not actually against the law, and in our view nor should it be
- this is by far the most common situation
- The complained about action is not against the law, but we think it should be
- this can happen, and when it does we push hard to see if the current law can accommodate the problem or, if the behaviour is widespread, seek potential law reform
- We have insufficient resources to pursue the matter
- this can also happen, but if we make the right judgements about our priorities the matter will not be of the highest importance, but it will still matter a lot to some people
- We make an error in our view of the law, or our assessment of priorities
- You will forgive my bias if I say I think this happens only very rarely.
In my view we must be an active advocate when complaints are made about behaviour that we believe should not be against the law. That is, we should explain what the Competition and Consumer law does and does not cover, and why.
For example, when faced with calls for us to block the entry of supermarkets into a market where they have no current presence, because their entry would see an oversupply of groceries, I have explained that while such entry may involve important planning issues, it is not against competition law, and nor should it be.
The supposed harm is the potential damage to many local shops. I explain that this is competition working. Our role is to protect competition, not individual competitors. Competition is not always pretty, but it is clearly in our national interest.
It would be helpful if the companies involved also contributed to these debates, but generally they do not. I accept that this is often the role of the ACCC, as the competition and consumer expert, and so the body best placed to explain the theoretical underpinnings of our market economy.
Some may see it as ironic that the regulator is at the more free market end of the spectrum. There is no irony. We believe strongly in the benefits of competition, and as a regulator we see its inadequacies and see regulation as a last resort.
Put another way, competition regulators must believe in the power of both Adam Smith quotes, whereas I think many in the community are inclined to focus more on the second quote and see how businesses are out to take advantage of them.
This all turns on your economic philosophy, which will differ a lot even among the people in this room. Those who mainly focus on the second Adam Smith quote will often see us as a “toothless tiger” as, by their economic philosophy, we are doing too little.
As best we can we will not dismiss such views, but instead respect and engage with them to explain our law and its logic. There are no absolutes here, and all views should be respected, even if we hold as strongly to our world view as others do to theirs.
There are, of course, additional difficulties. As one example, some points of the Competition and Consumer law, by their title, are easily misunderstood.
I suspect most Australians do not understand what constitutes a misuse of market power. It is not against this law, and in our view nor should it be, to use market power in certain circumstances, such as negotiating lower prices on supply contracts, provided this is not done for an anti competitive purpose. It is only where there is an anti competitive purpose that using market power can be classified as a misuse of market power under Section 46 of our Act.
However, even where there is no anti competitive purpose, if behaviour goes too far, and involves bullying and, say, random deductions from supplier payments, this could amount to unconscionable conduct. While everyone understands that this concept involves acting without conscience, people will have their own subjective views of when the line is crossed. It is necessarily a high hurdle.
This was a controversial provision when it was included in our Act, which deals with competition and consumer issues. Many still would prefer it not be there.
Others would go further, and include in our Act provisions relating to fairness in commercial dealings.
I prefer the status quo. I believe we should be able to take action when we have evidence of potential unconscionable conduct; it is a high hurdle, and rightly so. With “fairness” the hurdle is too low, and interpretations of this term could see us involved when we should not be.
There are more difficult debates. These are where we are blamed for the results of government decisions.
An excellent example is rising electricity prices. As many of you will know I and others have spent considerable time pointing out that the rules under which the AER had to regulate the network businesses were flawed, as was the Limited Merits Review System, and that in some States the reliability standards had been set without a focus on their cost.
These factors, plus the then ridiculously high Renewable Energy Target subsidies, were in essence what drove the inappropriate electricity price increases in most States prior to mid 2012. As a consequence , Australia’s overall competitiveness has suffered.
Likewise we have had complaints about NSW consumers being forced to buy expensive premium fuel if they do not want E10, as non premium unleaded petrol is often now not available. It was, of course, a government decision to mandate a certain level of ethanol in fuels, which they have a right to do.
I accept that sometimes our advocacy takes us to strange places. I have argued, for example, for the privatisation of all State-owned electricity businesses as being in the best interests of consumers.
Finally, and consistent with my theme today, let me add that we have recently been accused by some of advocating more regulation of supermarket behaviour before we have completed our current investigations and confirmed that there is a problem that justifies such an intervention. This is not a correct reading of the chain of events.
As I explained in my recent statement to the Senate Estimates Committee we began an investigation into allegations of unconscionable conduct and misuse of market power by the major supermarket chains over a year ago. This necessarily became public due to very vocal complaints by the supermarket supplier organisations, and our need to encourage individual suppliers to come forward.
Then in September 2012 the major supermarket chains themselves, unprompted by us, pushed for and led the drafting of a code of conduct that would be prescribed under our Act.
We then made a judgement call. We could have said nothing, and kept our head down and focussed on our investigation.
Instead, we said that, on balance, we supported a prescribed code. We said that while what we had seen in our investigations has not yet been tested to a standard of proof where we could claim a breach of the Act, and that more work would be required to get to this point, we had seen enough, on balance, to see merit in a prescribed code.
We then said, and this was the complete reason for our intervention, that any code must be workable and be able to address the behaviours of concern.
We said this because we do not want a code prescribed under the Act, which we must enforce, that is ineffective. It is our reputation that suffers when we have laws or regulations that greatly over promise what they are capable of delivering.
I would rather no code at all in preference to one that is ineffective.
Many will see this as an unwanted intervention in a public debate, but I think it fits within my theme of today’s address.
I would also like to point out that the ACCC, over the years, has often supported prescribed industry codes to address market failure within an industry, particularly where the industry has attempted self regulation and this has not succeeded.
One such code is the Franchising Code which requires franchisors to provide prospective franchisees with certain information before they buy a franchise, and contains rules preventing the unfair termination of a franchise agreement.
In our experience this code has worked well.
We do, however, have other codes which illustrate the concerns I have just mentioned regarding ineffective codes. The horticulture code is designed to protect relevant farmers in their dealings with the buyers of their product. Due to a number of reasons, for example the grand fathering of pre existing contracts, it does not do this effectively, with adverse impacts on many farmers. The ACCC has suggested changes to this code, including in our grocery inquiry report of 2008.
Conclusion
My key messages today are that, given the nature of the Competition and Consumer Act and our regulatory system, that the ACCC needs to be an active regulator, taking strong enforcement action, and to be seen as such. This has a crucial multiplier effect.
We also need to explain our role, and the logic underpinning our Act, so that Australians have faith that a market economy works for them.
At the end of my term at the ACCC I hope people will say two things.
First, that our market economy is working better.
Second, that people generally have more faith that our market economy is working for them.
Thank you for your time today.