ACCC slams big business for effects test distortion

The Australian, 25.7.16:

Australian Competition & Consumer Commission chairman Rod Sims says framing section 46 reform as protectionist policy driven by the National Party is “bullshit”, and has slammed big business for distorting debate around the so-called effects test laws.

Following the federal election, the Nationals are set to gain their strongest influence in the federal cabinet in 60 years with Queensland Senator Matt Canavan taking the resources portfolio.

Mr Canavan has signalled his intention to “relentlessly” pursue the introduction of the contentious effects test in section 46 of the Competition and Consumer Act, which seeks to allow smaller operators to more easily combat anti-competitive conduct by ­larger rivals, as recommended in economist Ian Harper’s review of competition policy last year.

While Treasurer Scott Morrison had stressed the government’s commitment to the reforms, the measure is opposed by Labor and has rattled some of the largest corporations in Australia, who have argued the change is the hobby horse of the National Party and a backward step in Australia.

“This is frankly bullshit that this is about protectionism,” Mr Sims told The Australian. “The only protectionism here is that of large companies not wanting to face competition.

“There’s no doubt the Nationals are strongly in favour, but a lot of the Liberal side of politics is as well. This is rational policy,” Mr Sims said.

The so-called “effects test” amendment will stop big businesses with substantial market power from conduct that had the “purpose, effect or likely effect” of substantially reducing competition without any economic justification.

Mr Sims, who was recently reappointed by the government for another three-year term at the competition watchdog, said the debate on the reforms had been misconstrued by the big end of town.

“It’s quite annoying the way the section 46 debate is portrayed. The protectionism here is large companies wanting to protect their market power by not having an effective section 46. To have the debate portrayed the other way is, frankly irritating,” Mr Sims said.

“I think big business has controlled the debate on this, which is extremely unfortunate,” he said.

The regulator is also stepping up action against cartel behaviour, with Mr Sims warning ­Australia was riddled with oligopolies with pricing power.

Following the regulator’s landmark criminal cartel charge against shipping giant Nippon Yusen ­Kabushiki Kaisha, known as NYK, Mr Sims said the ACCC was working on “10 to 12 detailed investigations” that would set up a stream of criminal cartel cases.

Mr Sims said there were a few sectors where a small number of companies had strong pricing power.

The energy sector was dominated by AGL, Origin Energy and Energy Australia while Woolworths and Coles had “some of the highest margins in the world” in the grocery market.

Telstra had the power in “telco land”, and the gas market was dominated by Esso Australia and BHP Billiton.

“Large companies will engage in all sorts of threats, legal and otherwise, to stop their competition. Do we want that in Australia?” Mr Sims said.

He said portraying the introduction of the section 46 reforms “as giving in to the Nationals is just not right”.

“Sure, they’re (the Nationals are) in favour because they like the little guy being able to compete with the big guy. But that’s what we want: we went competition, everybody should want competition. We don’t want large companies preventing competition.”

Mr Sims said there were benefits of having large companies with sophisticated supply chains and logistics systems that brought efficiencies, but the government and the ACCC needed to ensure there was enough competition to ensure those savings were passed on.

“The current law says a big company can do whatever it likes to damage a competitor, provided the steps it takes are ones a smaller company can take,” he said. “The (proposed) law is basically saying large companies shouldn’t be engaging in conduct that damages the competitive process. This is pro-competition; section 46 is pro-competition. It’s making sure the incumbents can’t stop others challenging their position.”