Where To Now on Section 46?

21 March 2016

This opinion article by Catherine Livingstone, President of the Business Council of Australia was published in The Australian Financial Review on 21 March 2016.

The Federal government has decided to amend Section 46 of our competition laws and introduce changes that will penalise businesses with market power if the ‘effect’, or ‘likely effect’, of their actions is, or would be, to substantially lessen competition.

These changes pose a major problem for the growth of our economy. They would take us from a law which penalises a business which has misused its market power with the ‘purpose’ or ‘intent’ of restricting competition, to a law under which a business can potentially be prosecuted if its actions have the ‘effect’ of lessening competition, even if that were not the intent, and had no nexus with market power.

These changes run counter to the principle of competition. This is because innovation through new products, better products, and lower prices enabled by lower costs, can often result in less efficient and innovative businesses becoming uncompetitive in the market: provided the consumer is benefitting, and there is not a purposeful misuse of market power, then competition should be found to be working.

Companies cannot predict whether their innovative and pro-competitive actions may result in a less efficient competitor closing down. But that’s what will now have to be tested in court for years to come under these changes.

Innovation is already a risky venture for business. When companies make decisions to innovate by expanding their business and developing new products they take on a significant commercial risk. Doing something new or different does not always succeed. These changes add a major new regulatory risk that will make the decision to innovate less attractive.

Companies will have to weigh up whether innovating is worth the risk of being taken to court by the ACCC or a third party. Many will decide it is not.

Australian companies need the freedom to invest in innovation to grow and create jobs, respond to global competition, and provide real value for the consumers they serve.

The proposed changes will lead to risk averse businesses, which is the antithesis of an innovation-led economy;and they are completely at odds with the challenge set at the AFR Business Summit for business to take more risk.

Our overriding concern therefore is the potential for detrimental economy-wide consequences. Companies may decide not to invest in new products or technology - at exactly the time when we need our economy to be growing faster - because they are uncertain about the effect on competitors and the risk of prosecution.

This risk will be present for both large and small businesses. The history of Section 46 cases includes companies that many would regard as small or medium sized – island ferry services, taxi cooperatives, health care providers, even the Bureau of Meteorology. The proposed new Section 46 could also capture businesses in the regions, where markets are typically defined more narrowly.

Overall, the proposed changes will create more red tape, confusion and uncertainty. The losers will be consumers, and the winners will be lawyers, and those inefficient businesses that receive protection from competition.

What’s important now is that there is a transparent and robust process of consultation, which includes the release of exposure draft legislation for comment, and a full regulatory impact statement before implementation.

It will also be vital that there are safeguards included in the final legislation, because of the risk that these changes will have unintended consequences.

Former ACCC Chair Graeme Samuel has identified a major flaw in the government’s new policy, which is that it could capture ‘any’ conduct by a business with market power: any changes to Section 46 should make it absolutely clear that the section will continue to apply only to the ‘misuse’ of market power. This is, after all, the title of the section in the Act.

Further, once the changes are introduced, information should be collected and published on the impacts on business, changes in business behaviour and prosecutions, enforcement actions and undertakings required by the ACCC. This information should form the basis of a formal review process after two years.

The Business Council remains committed to policies which provide support for the growth of the economy, for jobs, for consumers and for businesses large and small.

Businesses of all sizes are grappling with the same challenge – how to remain competitive in a globalised economy and in a country which is transitioning from a mining boom to a services and technology driven nation, where innovation, agility and risk taking are more important than ever.

Making it harder for businesses to take on the risk of innovating will not be in anyone’s interests.



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