HIA Submission to the Senate Economics Legislation Committee
in response to the
Competition and Consumer Amendment (Misuse of Market Power) Bill 2016
9 January 2017
THE COMPETITION AND CONSUMER AMENDMENT (MISUSE OF MARKET
POWER) BILL 2016
HIA welcomes the opportunity to participate in the Economics Legislation Committee’s inquiry into the
Competition and Consumer Amendment (Misuse of Market Power) Bill 2016 (“the Bill”).
The Bill proposes to make some significants amendments to the misuse of market power provisions
of the Competition and Consumer Act 2010 (the Act).
HIA represents some 40,000 residential building businesses throughout Australia. The residential
building industry includes land development, detached home construction, home renovations,
low/medium-density housing, high-rise apartment buildings and building product manufacturing.
HIA does not consider that the changes set out in the Bill would assist the residential construction
(housing) industry.
Residential construction has become a central driver of domestic growth. During the June 2016
quarter, the annualised value of dwelling construction was estimated at $99.32 billion, equivalent to
5.9 per cent of GDP. Apart from its direct effects on economic activity, residential construction also
contributes to long-term economic growth by adding to the stock of physical capital and generating
demand for a range of housing associated goods and services.
The housing industry is highly competitive with high cost inputs and operates under significant
existing regulatory controls. The industry requires sound competition laws that provide businesses
with clarity and certainty.
Under the Bill, Section 46 would be amended to prohibit a corporation with a substantial degree of
market power from engaging in conduct if it would have the purpose, or would have or be likely to
have the effect, of substantially lessening competition (SLC).
When assessing whether conduct has purpose or effect of SLC, a court would be directed to consider
the:
•
•
extent to which conduct has purpose, effect or likely effect of increasing competition in the
market (including by enhancing efficiency, innovation, product quality or price experience) and;
extent to which the conduct has the purpose, effect or likely effect of lessening competition in
the market, including by preventing, restricting or deterring the potential for competitive
conduct in the market or new entry into the market.
HIA acknowledges that the Government has committed to changing section 46 of the Act. HIA also
acknowledges the drafting in the Bill largely reflects the wording recommended by the 2014 Harper
Review’s Final Report.
HIA supported the majority of the recommendations from the Harper Review. However HIA continues
to hold significant concerns about the introduction of such an “effects test” and the removal of the
“take advantage” element.
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These concerns informed our submissions to the Harper Review, our response to Treasury’s
December 2015 Discussion Paper and our comments on the exposure draft legislation released in
September 2016.
In summary, it remains HIA’s position that the competition regulation and oversight under the existing
section 46 is adequate for managing concerns about abuse of market power in the housing industry.
Misuse of market power laws should be aimed to deter conduct that deliberately harms competition.
In this regard, these laws should be targeted at those firms with substantial market power misusing
that power to stifle competition and innovation.
Misuse implies wrongful rather than the accidental or collateral lessening of competition.
Although the current law already allows the court to infer harmful “purpose” from conduct, the
amendments under the Bill will enable the Courts (and ACCC) to now explicitly look at the “effect” of
market conduct rather than its “misuse”. This represents a fundamental change with potentially
adverse consequences for competition and innovation.
If firms were to be required to cease competing in a market at the point where weaker competitors
might possible fail, that market would become moribund and competition would cease to provide
consumers with the benefits it should.
This is inconsistent with competitive, productive and efficient markets.
A copy of HIA’s submission to Treasury in response to the Government’s discussion paper “Options
to strengthen the misuse of market power law” is annexed. These submissions more fully set out the
basis for HIA’s opposition to the introduction of an effects test.
Comments on changes to the Exposure Draft
HIA notes that the Exposure Draft was amended to narrow the scope of the “relevant market”
provision.
HIA retains its substantive opposition to the Bill but considers that this is an improvement.
The provision now only covers situations where a corporation engages in conduct that has the
purpose, or has or is likely to have the effect, of substantially lessening competition in:
•
•
that market in which it has a substantial degree of power; or
any other market in which there is an actual or likely supply or acquisition of goods or services,
by the corporation or another prescribed entity.
The amendment reduces the uncertainty and complexity from the previous definition of market.
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HIA also notes that the ACCC’s draft “ Framework for misuse of market power guidelines” indicate
that they are only concerned with ‘exclusionary’ conduct.
This however is not clear in the current drafting of the Bill which simply defaults to ‘any conduct’ by a
firm with market power.
To improve clarity in the drafting, increase certainty and reduce the risk of ‘over capture’, HIA
recommends that the Bill should similarly be amended to only apply to ‘exclusionary conduct’ .
Other comments
The Government’s current legislative program, as reflected in the Bill, appears to be narrowly
confined to amendments to long debated provisions of the misuse of market power laws.
However the Harper Review provided a broad opportunity to improve the operation of Australia’s
competition laws in a number of respects, most particularly, the identified conflict between the
anticompetitive provisions of the Act and content of enterprise agreements approved under the Fair
Work Act 2009 which restrict the engagement of contractors.
These matters require more urgent addressing. HIA would appreciate the opportunity to work with the
Government to address these issues, as part of a package of reforms.
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Submission to Treasury
in response to the
Options to strengthen the misuse of market power law
12 February 2016
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ABOUT THE HOUSING INDUSTRY ASSOCIATION ............................................................................................3
1. EXECUTIVE SUMMARY ....................................................................................................................................4
2. COMPETITION, MARKET POWER AND THE RESIDENTIAL BUILDING INDUSTRY ..................................5
3. THE ARGUMENTS AGAINST AN EFFECTS TEST AND THE HARPER RECOMMENDATIONS .................6
4. CONCLUSION ....................................................................................................................................................9
Housing Industry Association contact:
David Humphrey
Senior Executive Director
Business, Compliance & Contracting
Housing Industry Association
79 Constitution Ave,
CAMPBELL ACT 2612
Phone: 02 6245 1300
Email: [email protected]
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ABOUT THE HOUSING INDUSTRY ASSOCIATION
The Housing Industry Association (HIA) is Australia’s only national industry association representing
the interests of the residential building industry, including new home builders, renovators, trade
contractors, land developers, related building professionals, and suppliers and manufacturers of
building products.
As the voice of the industry, HIA represents some 40,000 member businesses throughout Australia.
The residential building industry includes land development, detached home construction, home
renovations, low/medium-density housing, high-rise apartment buildings and building product
manufacturing.
HIA members comprise a diversity of residential builders, including the Housing 100 volume builders,
small to medium builders and renovators, residential developers, trade contractors, major building
product manufacturers and suppliers and consultants to the industry. HIA members construct over 85
per cent of the nation’s new housing stock.
HIA exists to service the businesses it represents, lobby for the best possible business environment
for the building industry and to encourage a responsible and quality driven, affordable residential
building development industry. HIA’s mission is to:
“promote policies and provide services which enhance our members’ business practices,
products and profitability, consistent with the highest standards of professional and commercial
conduct.”
The residential building industry is one of Australia’s most dynamic, innovative and efficient service
industries and is a key driver of the Australian economy. The residential building industry has a wide
reach into manufacturing, supply, and retail sectors.
The aggregate residential industry contribution to the Australian economy is over $150 billion per
annum, with over one million employees in building and construction, tens of thousands of small
businesses, and over 200,000 sub-contractors reliant on the industry for their livelihood.
HIA develops and advocates policy on behalf of members to further advance new home building and
renovating, enabling members to provide affordable and appropriate housing to the growing
Australian population. New policy is generated through a grassroots process that starts with local and
regional member committees before progressing to the Association’s National Policy Congress by
which time it has passed through almost 1,000 sets of hands.
Policy development is supported by an ongoing process of collecting and analysing data, forecasting,
and providing industry data and insights for members, the general public and on a contract basis.
The Association operates offices in 23 centres around the nation providing a wide range of advocacy
and business support, including services and products to members, technical and compliance advice,
training services, contracts and stationary, industry awards for excellence, and member only
discounts on goods and services.
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1. EXECUTIVE SUMMARY
HIA welcomes the opportunity to respond to the Government’s Discussion Paper ‘Options to
strengthen the misuse of market power law’.
This Discussion Paper is intended to encourage debate on certain proposals made during the recently
completed Harper Competition Policy Review (Harper review). It sets out 6 options.
HIA supports the first option – the status quo. For the reasons elaborated in these submissions,
changes in the form proposed by the Harper Review and in those modified options set out in the
Discussion Paper are not necessary in the residential building industry and are not desirable for the
broader economy.
Background
The relevant market power provisions are set out in Section 46 of the Competition and Consumer Act
2010 (CCA).
Under section 46, corporations that have a substantial degree of power in a market are prohibited
from taking advantage of that power for the purpose of eliminating or substantially damaging a
competitor, preventing entry into, or deterring/preventing competitive conduct in, a market.
The Harper review proposed a substantial change, and recommended a new Section 46 as follows:
…prohibit a corporation that has a substantial degree of power in a market from engaging in conduct
if the proposed conduct has the purpose, or would have or be likely to have the effect, of substantially
lessening competition in that or any other market.
HIA acknowledges that there are significant differences of opinion concerning the effectiveness and
scope of the current laws.
This debate however, is not new. As noted in the Discussion Paper, Section 46 has been subject to
11 independent parliamentary reviews since 1976. Yet prior to the Harper Review, only the 1984
Green paper recommended change in the form of an effects test.
HIA agrees with the Harper Panel’s conclusion that the law should protect competition, not individual
competitors. But their ultimate recommendations to introduce an effects test and remove the “take
advantage” elements run contrary to the findings of the vast majority of previous reviews, including
the well regarded reviewed conducted by Justice Dawson in 2003.
In fact, arguments concerning market power go to the core principles at the heart of Australia’s market
economy; namely that firms will compete aggressively to win the business of consumers and create a
larger share of the market or preserve their market share from being eroded by rivals or new entrants.
Consumers benefit when firms, even those already large firms, strive for increased business by
charging lower prices and/or building a better product/service, even if that has the consequence of
taking business away from smaller rivals. Competition is not painless. A by-product of this aggressive
competitive behaviour is not only lower prices for consumers but invariably that some smaller, weaker
or less agile firms may fail and exit the market. In many cases this facilitates the entry of new
competitors with new products and new competition strategies.
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In HIA’s submission, misuse of market power laws should be targeted at those firms with substantial
market power misusing that power to stifle competition and innovation. And misuse implies wrongful
rather than accidental or collateral lessening of competition.
Whilst HIA acknowledges that governments regularly intervene and regulate markets to pursue
various public policy objectives, to look at the “effect” of market conduct rather than its “misuse”
represents a fundamental change that is inconsistent with competitive, productive and efficient
markets.
Introducing laws that “protects” one business at the expense of another is the antithesis of
competition, is counterproductive and will aggravate the difficulties faced by business. If firms were to
be required to cease competing in a market at the point where weaker competitors might possible fail,
that market would become moribund and competition would cease to provide consumers with the
benefits it should.
HIA refers to the following comments of Justice Kirby in support of market freedom whilst in the NSW
Court of Appeal:
But the law of contract which underpins the economy, does not, even today, operate uniformly on a
principle of fairness. It is the essence of entrepreneurship that parties will sometimes act with
selfishness.
The law may legitimately insist on honesty of dealings. However I doubt that, statute or special cases
apart, it does or should enforce a regime of fairness on the multitude of economic transactions
governed by the law of contract. Well meaning, paternalistic interference by courts in the market
place, unless authorised by statute or clear authority, transfers to the courts the economic decisions
which our law, properly in my view, normally reserves to parties themselves. 1
The basis of HIA’s opposition to an effects test is set out in further detail below together with some
general comments in relation to competition and market power in the residential building industry.
2. COMPETITION, MARKET POWER AND THE RESIDENTIAL BUILDING
INDUSTRY
Builders and contractors in the residential building industry operate in a regulatory environment that
includes extensive licensing controls and consumer protection measures, a planning and building
approval system that is complex and unpredictable, workplace health and safety management
requirements, a hostile industrial relations framework, taxation reporting requirements and many other
rules and regulations that do not apply to other businesses in the economy.
These regulatory measures impose high costs and often impose artificial barriers to entry that impede
competition.
1
Biotechnology Australia Pty Ltd v Pace (1988) 15 NSWLR 130.
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Yet in spite of this, the industry remains extremely competitive. There is a large number of small to
medium sized firms, operating in a marketplace which includes but is not dominated by a handful of
major home builders.
Competition amongst builders and contractors does however differ from market to market and region
to region.
Although, as a general rule, the market is not concentrated, issues relating to market power and firm
size do still occur from time to time. Like all markets, the housing industry is imperfect.
There are natural and competitive advantages for larger firms who have established economies of
scale in managing the planning, land acquisition, market and finance risks associated with large scale
developments.
In this regard, there is a perception that the rise in recent decades of large multi-staged, “masterplanned” residential developments has had the effect of excluding smaller firms lacking the scale or
capital necessary to compete with larger developers who can buy up land well ahead of time.
In HIA’s view, this practice is not a case of use (or misuse) of market power but is principally caused
by government land-use regulations such as urban growth boundaries, restrictive zoning, planning
controls and other policies and regulations that artificially restrict the supply of land and impose rules
that create considerable barriers to market entry.
Solving the underlying land supply shortage, in part, caused by a drip feeding of developable
residential land by state governments and anticompetitive planning controls would diversify the range
of subdivisions available to the market, which would ultimately lower prices, improve competition and
improve affordability. This would be far more beneficial to consumers than any possible changes to
section 46.
HIA considers that the housing industry does not provide persuasive evidence of any need to change
section 46.
3. THE ARGUMENTS AGAINST AN EFFECTS TEST AND THE HARPER
RECOMMENDATIONS
HIA notes that whilst there is a perception that the current section 46 threshold is too high, over the
past decade there have been relatively few misuse of market power cases brought to trial.
In HIA’s view, whilst supporting the Panel’s view that section 46 should be about protecting
competition rather than individual competitors, there is a real risk that the introduction of an effects
test into section 46 would have the effect of becoming a de facto prohibition on firms with substantial
market power using their market power to improve quality and drive down prices, rather than only
preventing them from misusing that power.
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HIA’s opposition to the Panel’s recommendations are elaborated on below:
1.
An effects test as proposed risks judicial and government intervention into matters of commercial
judgement, risk taking and decision making
The majority of firms operating in the residential construction industry are small businesses.
These firms must operate in an environment that is not only highly susceptible to external
economic shocks but is highly input costed, highly taxed and heavily regulated. The costs of
complying with complex overlapping state, local and Commonwealth laws and regulations have a
considerable impact on business operations, profitability and viability of these small businesses.
HIA does not support further regulatory interference in the residential building industry.
Many of the proponents for change to section 46 appear to be somewhat motivated by a
paternalistic desire to protect small business and to guarantee them an economic niche.
HIA opposed the recent amendments to the CCA that extended unfair contract laws to business
to business transactions on the basis it is an unnecessary and unwelcome intrusion into
commercial relationships beyond the laws that were already in place. Similarly, changes to the
misuse of market power laws, driven primarily by an agenda to “level the playing field”, risks
eroding the “independent” status of small business.
A large problem with using competition laws to shift the balance of power in arrangements
between big and small parties is that it further encourages businesses to seek regulators (and
then the courts) to intervene and arbitrate in the distribution of gains in bargaining arrangements
on matters of fairness and equity, rather than efficiency.
Increased regulatory intervention is likely to lead to less proactive and dynamic commercial
activity from business- too easily wielded a regulation, such as that proposed by an effects test
invites ACCC intrusion into almost any commercial arrangement.
The existing unconscionable conduct provisions of the CCA already provide significant avenues
for the ACCC. For instance, HIA notes that the ACCC has recently commenced proceedings
against Woolworths for an alleged abuse of their market power in trying to force more than 820
suppliers to pay over $60 million in extra payments. 2
2.
The current laws whilst perhaps imperfect, are well understood and provide certainty
There is over 30 years of case law on the current provision.
2
See
http://www.smh.com.au/business/woolworths-unconscionable-conduct-case-kicks-off-in-federal-court-20160130gmhtoe.html#ixzz3zGXV0UNz
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Section 46 as it is currently interpreted by the Courts is intended to protect competition rather
than protect individual competitors or small business per se.
According to the American Bar Association inserting a separate effects test into Section 46 has
the potential to raise significant uncertainty as to how such a test ought to be applied by the
Australian courts. Although Section 46’s apparent focus on “purpose” appears at odds with
international norms, the Australian courts have developed and applied Section 46 using sound
economic principles and a careful consideration of competitive effects and potential harm to
consumers. 3
Further, whilst the effects test currently enjoys some support amongst certain small business
groups, it should be noted that a number of organisation in support of an effects test, appear to
be driven by concerns specific to their sector. The impact, intended and unintended, of the
contemplated changes are likely to be broader than those specific industries.
3.
An effects test on the other hand is impractical, uncommercial and impede the proper working of
the market
An effects test will also essentially require a business to weigh up the (adverse) impact of their
conduct on their competitors before making a commercial decision.
However the 'effect' of conduct will depends often on internal factors relating to the other parties
in the marketplace, of which the competitor will have very imperfect knowledge.
HIA is concerned that it will be impracticable and often impossible for boards and managers of
those businesses with a substantial degree of market power to know in advance what the price
effect of their price reductions, new services, better quality offerings will have on rivals and hence
be sure that their conduct does not break the law. It will set their legal advisers an impossible
task, with erring on the side of abundant caution the only sensible option.
4.
An effects test is flawed as it is no longer directed to a misuse of power
The proposal to capture any conduct that has the purpose of substantially lessening competition
– without requiring any consideration of misuse or taking advantage of market power -- is much
broader than what was originally contemplated.
HIA understands it goes beyond the equivalent laws in other countries.
HIA does not support the removal of the “take advantage” element.
It is the "take advantage" element in section 46 that is significant and distinguishes legitimate
commercial conduct from conduct which is essentially anti-competitive and must be penalised.
3
Joint Comments of the American Bar Association Section of Antitrust Law and Section of International Law on The
Australian Competition Policy Review Issues Paper.
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By way of a hypothetical example, a national building product supplier may achieve efficiencies in
its logistics and inventory management and seeks to pass on cost savings to its customers at
lower prices, with such prices uniformly set across the country. Suppose these price reductions
have the effect of driving one or more smaller but less efficient rivals out of a regional market.
This behaviour could be said to have substantially lessened competition in that market.
4. CONCLUSION
HIA considers that the dangers of any change to section 46, in terms of the chilling effect it would
have on competition, significantly outweigh any social benefits that might arise through an
enhanced ability of small business to survive with a protected status in an otherwise competitive
Australian marketplace. In particular, HIA does not consider that any change would assist the
housing industry or the participants in that industry.