Harper competition reviewA Draft Report of the Competition Policy Review (referred to as the Harper Review) was released on 22 September 2014. Submissions can be made by 17 November 2014.

The panel’s report is wide-ranging, drawing on more than 300 submissions and nearly 100 consultation meetings with stakeholders across areas as diverse as road pricing, retail trading hours and intellectual property. The panel, led by economist Ian Harper, identified the rise of Asia, an ageing population and emergence of new technologies as the three major forces affecting the Australian economy and competition.

The recommendations stretch over state and federal jurisdictions, which may present problems in cementing the reforms in legislation. Former Labor competition minister Craig Emerson suggested competition reward payments be given to the states in exchange for enacting policy changes in taxi licensing, zoning and liquor licensing.

Form Australian Council for Competition Policy and change ACCC

The Harper-led panel wants the National Competition Council to be scrapped and supplanted by a new independent national body, set up and funded by the states – the Australian Council for Competition Policy. This new body, the ACCP, would encompass the NCC and ACCC’s powers under the National Access Regime, the NCC’s powers under the National Gas Law, also giving the ACCP regulatory and advisory roles under the Water Act 2007 and the Australian Energy Regulator’s functions under the National Electricity Law in addition to telecommunications access and pricing, currently regulated by the ACCC.

The panel seeks to curtail the ACCC’s frequent use of media and decrease its reform advocacy role by calling for a media code of conduct, making it accountable to parliament and instituting an advisory board instead of the current commission. The panel recommends aggregating all the current agencies covering infrastructure access: ACCC; NCC; AER and state regulators; into a single, new access and pricing regulator, the ACCP.

This would involve the significant role of the regulator in relation to ‘declarations’ covering monopoly products in the telco market, such as requiring Telstra to make its copper infrastructure available to competitors in the broadband market, and regulating pricing. Presumably any changes would occur after the release of the ACCC’s current in-depth review of Telstra’s fixed-line services, which may have a substantial impact on the pricing of internet, mobile and phone carriers in Australia.

Deregulate retail trading hours

To combat the increasing erosion of patronage of bricks-and-mortar retailers at the hands of online shopping, the panel advocates deregulating retail trading hours. This has been met with opposition by the Shop, Distributive and Allied Employees Association. The union’s spokesman Bernie Smith said the ‘impact on families will be huge and the impact on the economy will be negligible.’

Remove restrictions on parallel imports

The panel advocates scrapping the remaining restrictions on parallel imports, which it says ‘are effectively an implicit tax on Australian consumers and businesses,’ citing a 2008 study showing books were up to 50 per cent more expensive than those sold in the US. Industry arguments surrounding warranties and counterfeit goods are roundly dismissed and would be solved with regulation and information, the panel argues.

Reframe competition ‘effects test’

Small business and the ACCC have long called for a change to section 46 of the Competition and Consumer Act 2010 setting out the rules against misuse of market power to incorporate an ‘effects test’ prohibiting conduct by a company that would have a negative effect on overall competition, rather than as it currently stands on a competitor.

The provision that currently reads, ‘a corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of eliminating or substantially damaging a competitor’ would be changed under Harper review recommendations to prohibit behaviour ‘by a corporation that has substantial power of engaging in conduct if the proposed conduct has the purpose, or would have or be likely to have the effect, of substantially lessening competition’. The panel hedged its bets ‘to mitigate concerns about over-capture’ by also proposing a defence for companies whose behaviour is pro-competitive or benefits consumers long-term.

Understandably, Wesfarmers, the parent company of Coles, has decried these changes. There are concerns that the onus placed on the company to determine whether their own actions may negatively affect competition will have a chilling effect on innovation in the market and possibly lessen some of the consumer benefits from robust competition between supermarket giants. The debate over the ‘effects test’ goes to the heart of competition regulation in general and the government’s role in markets, and the Harper panel seems to have veered from previous thinking on the subject.

Relax liquor retail licenses

The report calls for a review of state and local liquor licensing regimes to ‘test for any evidence that the more burdensome regimes are producing superior outcomes’, further explaining ‘there is no case to exempt regulations in these areas from ongoing review to ensure that they are meeting their stated objectives at least cost to consumers’. The recommendations take direct aim at recent liquor licensing changes in states like NSW and Victoria aimed at curbing alcohol-related violence.

Remove pharmacy ownership and location restrictions

Perennial reform on the wish-list of many a report, relaxing the pharmacy ownership and location restrictions again makes an appearance in the Harper review. Panel chief Harper says the current arrangement ‘stops pharmacies from serving their customers where their customers want to be served’. in particular making it ‘difficult for pharmacies to be established in remote and regional locations where you can’t necessarily get an owner [to live]’.

Supermarket giants have long called for the scrapping of this protection, seeking to incorporate pharmacies into their stores as is done in overseas markets. Unsurprisingly, the recommendation has been met with outcry from the Pharmacy Guild, with spokesman David Quilty saying pharmacies need ‘certainty and stability – not a constant push to abolish a system that’s working and replace it with an economic theory’. Health Minister Peter Dutton signaled reluctance to pursue the change even before the report’s release, and independent senator Nick Xenophon has publicly vowed to block any such measures.

Overhaul planning laws

The review calls for competition principles to be included in planning and zoning rules, accepting arguments from German supermarket giant, Aldi, and the Business Council of Australia that current rules allowing existing businesses to object to competitors moving into the area dampened consumer choice. Harper said of the rules, ‘that’s not about competition. Competition is about letting these people come in and have a go at meeting the market demand. If the market won’t support two firms, well, that’s a different matter’.

Deregulate the taxi industry

One of the key examples of the technological forces changing the economic landscape cited in the Harper review is the current upheaval in the taxi industry. Harper says, ‘traditional booking methods are being challenged by the emergence of apps such as goCatch and ingogo, as is the industry itself through ride-share apps like Uber that can connect individuals wanting a lift to drivers willing to take them for a fee’. The report canvasses the controversy surrounding the emergence of the Uber app, where regulatory agencies challenge its legality and fine drivers as ever-increasing take-up indicates sharply escalating demand for the service.

The panel doesn’t mince words, saying ‘this indicates existing regulation is more concerned with protecting a particular business model than being flexible enough to allow innovative transport services to emerge’. The move has been understandably met with consternation from the taxi industry, citing concerns about vehicle standards, safety, insurance, work cover and anti-discrimination provisions. If the international adoption is anything to go by, the taxi industry will be changing soon to incorporate more cab-like services such as Uber, but will fight to preserve the regulatory status quo for as long as possible.

Reject push to create ‘national champions’ like Fonterra

Agriculture Minister Barnaby Joyce has long been pushing for competition laws to be relaxed to create ‘national champions’ like the New Zealand dairy company Fonterra, a move rejected by the Harper review. The panel conceded that the change may benefit the shareholders of the businesses involved, but said it could ‘diminish the welfare of Australian consumers’. The panel argued that the core of competition law is to enhance consumer welfare ‘through ensuring that Australian consumers can access competitively priced goods and services’ and concluded that preparation for competition overseas was ‘not insulation from domestic competition but exposure to intense domestic competition’.

Price roads to be ‘cost-reflective’

Leader of the review panel, Ian Harper, queries why Australia couldn’t adopt a similar direct-charge road use model as Singapore and London because in his words ‘sitting in queues of traffic is as costly … as paying’. The move would see roads previously without tolls now charging a toll and existing toll roads lowering charges in order to create incentives to use roads that decrease traffic congestion. Andrew McKellar, Australian Automobile Association spokesman has agreed, saying it ‘should be on the agenda over the medium term,’ but expressed concerns about the possibility of drivers ultimately paying more.

Scrap price-signalling provisions

The review finds that the current price-signalling provisions do not ‘strike the right balance’ in distinguishing between pro-competitive conduct and behaviours causing harm to the market in that the prohibitions don’t require a link between signalling behaviour and any type of collusion or facilitative practice. That these provisions could capture any number of pro-market behaviours is acknowledged with the banking-specific exceptions added after the 2011 price-signalling prohibitions were brought in.

The report found no sound reason for outlawing public price disclosures, even going so far as to remark upon the potential for announcements such as those about interest rate rises to better inform consumer choice. Supporting Telstra and Vodafone Hutchinson Australia’s calls for the provisions to be scrapped, Harper said ‘public disclosure of prices is common business practice by which businesses communicate with a broad customer base and help consumers make informed choices’.

Debate secondary boycott provisions

Among the 300-strong submissions to the review, environmental and consumer groups called for an expansion of their existing exemption to secondary boycott legislation, pitting them against business groups who united in calling for it to be removed completely. The panel suggested that perhaps environmental and consumer campaigns need to be brought within the law’s ambit where the law only currently applies to a person ‘engaged in trade or commerce’.

The report noted that campaigns relying on false or misleading information could have a significant detrimental effect on companies and should therefore fall under those provisions preventing misleading and deceptive conduct. There have been a number of instances of late where inflated environmental claims caused companies grief, such as the ‘black rain’ (later found to be a common eucalyptus-dwelling insect) that plagued Origin Energy. However, any changes in legislation would have to be careful of the power and resource imbalance between these two groups in fighting these claims, as it would be all too easy for companies to effectively shut down debate around a project due to the dubious claims of some protestors.

Review Australia’s intellectual property framework

The Harper panel calls for a simplification of intellectual property law by requiring all ‘commercial transactions involving IP rights, including the transfer and licensing of such rights’ be covered by the Competition and Consumer Act 2010 as well as an overarching Productivity Commission review with a ‘focus on competition policy issues in intellectual property arising from new developments in technology and markets’.The review states, ‘as a net importer of IP, and likely to remain so, our ability to access IP protected by rights granted in other countries will be important to ensure that Australia can reap the benefits of the digital economy’.

The panel sternly calls for review and publication costs and benefits of trade agreements on intellectual property before any agreement is negotiated or finalised. Recent trade agreements such as the Korea-Australia Free Trade Agreement and the Trans-Pacific Partnership Agreement have incited debate among IP reform advocates due to the possibility of giving ‘super powers’ to intellectual property owners, tightening Australia’s existing IP regime. These trade agreements also formed the basis of the recent Federal Government proposals to make the online copyright infringement regime much more stringent. Communications Minister Malcolm Turnbull has conceded those reforms proposed in July, largely in reaction to the Roadshow Films v iiNet High Court decision, have been met with ‘unanimous disapproval’ and are unlikely to go ahead. Major players such as Google and Foxtel argued the proposals went too far toward protecting intellectual property owners and could signal a shift to more draconian enforcement worldwide.

The panel calls for the complete repeal of Section 51(3) of the Competition and Consumer Act, the section currently allows intellectual property owners to adopt specific license conditions for Australia, essentially price-gouging Australian consumers. The approach differs from the one recently adopted in Canada, where legislation is being drafted to outlaw IP-based price discrimination in that the panel recommends amending the Copyright Act and educating consumers about their rights to bypass geoblocks. In that respect the panel agreed with the House of Representatives Standing Committee on Infrastructure and Communications into IT pricing in Australia report of mid last year and is good news for the hundreds of thousands of Australian consumers currently bypassing region restrictions to watch international content through US Domain Name System (DNS) or Virtual Private Networks (VPN).

The reason this is in some ways revolutionary, is now all the major competition regulators in Australia have tacitly recommended some form of copyright infringement through bypassing geoblocks or streaming pirated content to pressure content distributors to change their pricing and distribution models. There is evidence that this approach is already working to free up the market for content in Australia. Speaking at a recent panel in Sydney, one of the most prominent anti-piracy advocates and the losing party in the iiNet decision, Village Roadshow co-chairman Graham Burke admitted, ‘we made one hell of a mistake with The Lego Movie. It was an Australian film, we financed it together with Warner Brothers, it was made here in King’s Cross. Because it was so important we held it for a holiday period. It was a disaster. No more.’

That ‘disaster’ was the widespread streaming of the movie by Australians, drastically cutting into Australian release profits. What is clear from the vociferous objections to the Coalition’s copyright proposals in July is that mere adoption of rights-holders’ wish-lists into legislation will be rejected by those key industry players. Australia is seen as a test market for IP reforms and even rights holders are reluctant to adopt a regime that may have unforeseen consequences worldwide.