ACCC Chairman Rod Sims discusses the Harper Competition Review's recommendations relating to merger reviews and the competition provisions of the Competition and Consumer Act 2010. He also raises some high-level questions about proposals relating to the ACCC's structure and governance.
Check against delivery
Thank you very much for inviting me to speak at this conference, which is a mainstay of the competition calendar.
I can’t think of a better time to be talking about competition, with the draft report from Professor Harper’s competition policy review panel fresh in our minds, at least for those of us who live locally.
For those that have come from further afield, like my fellow speakers this morning, we look forward to hearing your insights as we think about what they might mean for us in the Harper context.
To me, an effective competition policy is about two things:
- first, opening as many sectors as possible up to the disciplines of competition and other market signals; and
- second, getting the settings of the competition law right, so that the playing field is as level as possible.
The Australian Competition and Consumer Commission is delighted that Professor Harper and the panel focussed on both matters in their draft report.
The ACCC particularly appreciates their detailed consideration of microeconomic reform issues. While we often hear that all the low hanging fruit has been picked, and that all the really important reforms have been made, we disagree.
For example, the shipping reforms are low-hanging fruit that can be quickly implemented; and road reform is extremely important in terms of national productivity.
The Harper Panel’s draft report identifies a considerable amount of microeconomic reform. It may be that the biggest challenge for governments, both state and Commonwealth, will be deciding on which ones to expend the political effort. While that will be a matter for them, I would offer one observation.
In a number of markets, the natural dynamics of consumer choice, technological change, and commercial innovation might be making existing legislative or regulatory constraints of less relevance, even without overt reform. In such cases, all governments may need to do is make sure they don’t stand in the way of the emerging technologies and innovative firms who are delivering the goods and services that consumers are making clear they value.
A possible example here could be in relation to taxis, but there are other areas. In today’s environment it could be a vital reform in itself for governments to agree that they will not block the changes that technology can bring.
Enough, however, on the microeconomic reform aspects of the review. For this audience, I want to focus on the recommendations relating to the Competition and Consumer Act 2010, and the related matters of ACCC structure and governance.
Pleasingly, the panel has given the core elements of Australia’s merger laws a stamp of approval. The role of market definition, the way the law allows consideration of both global and local markets, and the flexibility of the merger authorisation provisions to weigh potential efficiencies against adverse effects on competition, were all endorsed in the draft report.
Recognition that the renewed ‘national champions’ arguments need to be very carefully weighed against impacts on Australian consumers was also heartening.
Considering some of the suggestions put to the panel the ACCC was pleased that:
“...the panel considers that it is not sensible to attempt to regulate an informal process”; and
“…attempts to formalise further the informal merger clearance process would reduce its flexibility...”
The panel then went on to say that it:
“...considers that there is scope for further consultation between the ACCC and business representatives with the objective of developing an informal review process that delivers more timely decisions…”
We look forward to doing this.
In line with the ACCC’s recommendations, the panel has suggested the ACCC be the first instance decision-maker for all merger matters, including authorisation, and that the Australian Competition Tribunal remains a review body. The idea of combining the existing formal merger process with merger authorisation appears to have considerable merit, and the ACCC supports further consideration of this proposal.
Of course, the devil is in the detail with such changes and, as the regulator, we will want to ensure that the changes are balanced and do not present unintended gaming opportunities.
For example, we acknowledge the concerns raised in the report regarding upfront information requirements associated with the formal clearance process that are too prescriptive. Despite the onus being on merger parties to make their case for clearance, however, we consider that having no up-front information requirement at all goes too far in the opposite direction and is at odds with overseas practice.
We acknowledge and welcome the Panel’s reference to the need for the ACCC to be empowered to require production of business and market information, but note that the scope for using such powers is limited by the strict time constraints of a formal clearance/merger authorisation.
Therefore we consider that a more balanced approach should be taken to up-front information requirements in any formal merger process.
The ACCC is giving these issues considerable thought as it prepares its submission in response to the draft report. The ACCC welcomes future engagement with the Panel and the business community on these important issues.
The competition provisions of the Act
A feature of the Harper Panel’s assessment of the CCA was the set of principles they applied to the task. In keeping with international approaches, they recognised that the CCA is designed not for particular market participants; rather it should ensure that the behaviour of competitors does not damage the competitive process to the detriment of consumers.
Turning to some specific aspects of the law, I will provide some preliminary reactions to the panel’s report, which the ACCC will of course be considering very carefully.
First, an important recommendation from the draft report is that section 45 of the CCA should extend to cover 'concerted practices' which have the purpose, or have or would be likely to have the effect, of substantially lessening competition.
This recommendation responds to the ACCC’s longstanding concerns that there is a gap in the law relating to collusive or coordinated behaviour between firms that should be competing vigorously.
Currently, other than in banking, competing firms may be able to privately provide information or signal to their competitors their future pricing information in a way that reduces competition or facilitates cartel-like market outcomes, yet avoids breaching competition laws. This would not be allowed overseas, and with the Harper recommendations will hopefully not be allowed in the future in Australia either.
A second important recommendation involves section 46, the misuse of market power provision. The Harper Review’s recommendations seek to make this section workable and more focused on the competitive process, rather than the protection of individual competitors. Clearly, given the ACCC’s submissions on this issue, this is an approach we welcome.
These recommendations are not, I repeat not, about protecting small businesses from larger, more efficient competitors. We see them as refining the law so that it focusses squarely on conduct which substantially impedes the competitive process, ultimately to the detriment of consumers.
A significant issue is, to quote the report:
“…whether the ‘take advantage’ limb of section 46 is sufficiently clear and predictable in interpretation and application to distinguish between anti-competitive and pro-competitive conduct.”
We have the view, which seems shared by the Panel, that there are better ways than our current law to filter good conduct from bad.
The final aspect of the CCA I would like to briefly mention is the compulsory information-gathering powers in Section 155. Whilst the Panel acknowledged that such powers are crucial to effective administration of the CCA, it only briefly considered the ACCC’s suggestions regarding amendments to the provisions. This is understandable given the scope of the review and its current stage.
However, given the importance of this provision to the whole operation of the CCA, I would like to emphasise here the key points from the ACCC’s submission. First, we consider the current financial penalties for non-compliance with s155 notices are woefully inadequate at $3,400, as they fail to reflect the seriousness and criminality of such an offence.
Second, there is the time consuming and resource intensive process of instigating a criminal prosecution via the Commonwealth Director of Public Prosecutions (the CDPP) when this does not address the primary issue; namely, non-compliance with the legal requirement to provide information or documents or give truthful evidence relevant to the underlying ACCC investigation. To repeat, even if successful, a prosecution cannot compel provision to the ACCC of the information, documents or evidence it seeks to pursue for its investigation. This seems bizarre!
Section 155 should therefore be amended to allow the ACCC to seek civil court orders compelling compliance with a notice and, when appropriate, civil pecuniary penalties of sufficient quantum to deter non-compliance. We think the case for change here is strong, and we will pursue this with the panel.
Turning to the Harper Panel’s views on institutional issues we were, of course, pleased to see that the panel found that:
“...the ACCC is a well regarded and effective body.”
We note, however, recommendations to split the ACCC into two bodies and, as one way forward, to change its decision making structure. Each of these changes, of course, will see the ACCC very different to what it is today.
Both recommendations have important implications, and we are still considering them, but I would today like to pose some high level questions that we will pursue with the panel.
Splitting the ACCC into two bodies
The Harper Panel recommends a separate access and pricing regulator that would, in essence, undertake the roles currently performed by the AER, as well as the ACCC’s functions in relation to telecommunications access, transport and water.
The panel sees benefit in both our current competition and consumer work, and our energy and infrastructure work, having their own separate focus and culture. We will be discussing further with the panel exactly what problems they are seeking to solve with this split.
The ACCC currently has 6 divisions. Three are clearly focused on competition and consumer work: Enforcement, Merger and Authorisation Review, and Consumer, Small Businesses and Product Safety. A fourth division is focussed on the regulation of infrastructure. And we have two support divisions: Legal and Economic, and People and Corporate Services.
The ACCC Commissioners also have focussed roles via their participation in various ACCC Committees. By way of explanation, these are specialist Committees within the ACCC; each one is chaired by a Commissioner with specific expertise and experience in the area. The work of each Committee is supported by staff purely dedicated to that area with significant experience and understanding of the issues specific to those areas. Much of the specialised detailed work is done in these Committees before the work is progressed to the full Commission.
In terms of the AER, the AER is already a separate organisation sitting alongside the ACCC. It has a single focus - energy matters; it has its own independent decision making Board, AER dedicated staff and work program. It shares resources with the ACCC, in the legal and economic analysis and corporate areas.
Recognising that there are commonalities between the infrastructure regulatory roles of both bodies, one member of the AER Board is an ACCC appointee and one AER Board member sits on the ACCC’s Infrastructure Committee. This helps in applying a consistent approach to aspects of common work done by the ACCC and AER, for example in enforcement or industry regulation, where consistency is considered appropriate.
Accordingly, there are some questions we would like to explore with the Harper Panel, for example as follows:
First, is it really better having more narrowly focussed decision makers?
Second, how would we avoid overlap, or gaps, for example in competition work in telecommunications as both sections XIB (misuse of market power), and XIC (access) seek reasonably similar objectives but the laws would be applied by separate organisations. Similar issues arise in our transport work.
Such overlap issues arise overseas and are why there seems to be an international trend going in the opposite direction to what the panel is recommending.
Third, how would we avoid overlap in the consumer and small business work? Energy and telecommunications consumer and small business issues arise, of course, under the Australian Consumer Law (the ACL), but also under the sector specific laws (e.g. the National Energy Retail Rules).
Fourth, is it a problem that there is a single “making markets work” philosophy across all ACCC work? Is it such a problem, for example, that our telecommunications work is pro competition as well as focused on efficient investment in infrastructure?
Finally, how large are the loss of synergies and scale economies? For example, the common use of legal, economic and corporate skills? Also the use of industry experience in our merger and enforcement work; and the use of dedicated enforcement skills when needed by our infrastructure and access areas?
There are many more detailed issues to explore as well, such as the disruption to some immediate priorities such as NBN regulation.
Changing decision making
The panel made a number of governance recommendations. We welcome, for example, the recommended additional proposed accountability to Parliament through regular appearances before a broadly based Parliamentary Committee. This would be in addition to our appearance before the Senate Economics Committee Estimates hearings three times a year.
We also have no issues with the recommended media code of conduct.
The panel floats two ideas for the ACCC gaining a wider range of business, consumer and academic viewpoints, in addition to that provided by the current seven Commissioners who are themselves from very different backgrounds. One idea is for an Advisory Board, either in addition to or to replace our current many advisory structures; the other idea has wider implications and it is what I will focus on today.
The second idea is to replace the current Commission with a Board comprising executive members and non-executive members with business, consumer and academic expertise.
In support of this idea:
“...the panel has had particular regard to the Reserve Bank of Australia given that it is a body that is independent and has a reputation for using its independence.”
The panel says the RBA Board:
“...brings business and academic experience...so can provide a check against ‘group think’.”
There are at least two immediate points to make with this comparison. First, the RBA Board, apart from the non-executives on its Board, is made up of career RBA insiders. The ACCC, however, already has a Board, or Commission, of people appointed from outside the ACCC and who act as separate decision makers.
In recent years members of the Commission have had diverse backgrounds including from business, consumer and academia.
Within the ACCC there is a clear divide between Commissioners and staff; Commissioners do not have line roles. In this sense the Commissioners are not ACCC executives; instead they are decision makers. In addition, there are strict protocols that Commissioners cannot direct staff recommendations in papers put to the Commission. The difference is that these separate decision makers at the ACCC are full time people, appointed for five year terms. This indicates the second difference to the RBA.
While the Commission meets monthly to make decisions on budget and organisational governance matters, as the RBA does to consider interest rates, in the competition and consumer areas alone the Commission and its committees meet 4-5 times each week to make 10-20 case or project decisions based on detailed staff papers.
The papers presented are prepared by ACCC staff, with expert advice from legal, economic and other parties as required. These papers include staff recommendations to the committees/Commission for formal decision by Commissioners and, as I have said, there are strict protocols that Commissioners do not direct staff recommendations.
These decisions can be to continue an enforcement investigation or to seek an administrative or court based resolution of a matter; to authorise particular behaviour on an interim basis or via a draft or final decision; not to oppose a merger, look more closely at it, or oppose a merger; or to take particular product safety action. For example, in relation to the latter, the Commission was closely involved in decision making on an important product safety matter, the recall of Infinity cables.
I should add that, unlike regulators which are administrative decision-makers in some other jurisdictions, the ACCC is not the initial decision maker in competition and consumer enforcement matters. Consequently, a decision by the ACCC to institute proceedings for a breach of the CCA is itself just the start of a subsequent court process to determine the merits of the ACCC’s case.
If the Board is to make these sorts of decisions some obvious questions arise.
First, to properly participate in the ACCC’s decision making processes the non-executives would need to be involved on a weekly basis, and quite heavily; is this intended? If not, which decisions will they be involved in, and which not, and why?
Second, is it intended that some decisions, currently made by the Commission, be made by staff without reference to the Board? As an example, I (or one of the Commissioners) sign off all section 155 notices; is it intended to amend the Act so that these notices can be signed by a staff member, or would a board member be required to sign them?
Third, can we find people sufficiently engaged in their business, academic or consumer roles that can afford to devote, say, half their time to the Commission?
Fourth, if we can, how will we manage the conflicts of interest? On becoming Chairman of the ACCC I gave up my three board roles and all my other interests and positions.
To conclude, the Harper Review panel has taken an excellent approach. After just six months they have provided a large number of well considered initial recommendations, and they have invited comment. They have said they will listen carefully to feedback, and may change their views on some issues if different perspectives are provided.
We shall make another detailed submission, as will many others.
It is an exciting time ahead.
Thank you for your time today.