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The Federal Government has finally responded formally to the very important recommendations of the Harper Review on competition law and policy. 

By Bob Baxt, Herbert Smith Freehills Emeritus Partner and Matthew Bull, Herbert Smith Freehills Partner.

It should come as no surprise to readers of this article that the government, however, has decided to undertake further consultation in relation to the Harper Review’s proposal that section 46 of the Competition & Consumer Act (the Act) be amended to introduce what is largely described as an ‘effects test’ (with certain safeguards).

The government is acting wisely in responding cautiously to an amendment that had its foundations in the belief that somehow or other amending the Act would improve the prospects of small business. As the High Court of Australia has commented, competition is ruthless; small business, large business and others will get hurt by efficient behaviour and artificial amendments to the legislation are likely to lead to greater expense, delay and frustration.

The response contains significant approval of the wide ranging recommendations of the Harper Review on questions of competition policy. The Harper Review adopted a sensible and constructive approach and we support fully the wish of the current government to ensure that there is a sensible approach to removing artificial barriers to competition based on State interests and ‘prejudices’ and that competition policy should apply uniformly across the whole country.

The government does recognise that it must work together with the States (and Territories) and it should prioritise the way in which regulation review in relevant areas such as taxis and ride sharing, mandatory product standards and other areas of business need to be addressed in moving forward. Similarly, the government has sensibly recognised that regulation of trading hours is a matter that again requires the Federal Government to work closely with the States and Territories. Finally, the government has given high priority to the recognition of a process to ensure that there is an independent public review of matters relating to the pharmaceutical industry sector.

The government is to be commended for proposals that the law be simplified, that where appropriate the laws should apply to government bodies, definitions such as the definition of ‘market’ should be reconsidered to make them more appropriate to the Australian economy and not clutter the ability of Australian businesses to operate effectively.

The Harper Review made it clear that the current cartel conduct provisions in the Act were not conducive to appropriate enforcement by the ACCC and that a number of changes should be made to the legislation. The government has accepted this recommendation, noted that the provisions are far too complex, and that it will develop model legislation to move forward. The government has embraced the recommendations of the Harper Review to change the laws dealing with exclusive dealing (the government wants to simplify it), to introduce an appropriate price signalling regime based on the European concept of ‘concerted practices’, to make authorisation available for resale price maintenance and to make third line forcing illegal only where it substantially lessens competition.

We do not agree with the recommendation of the Harper Review nor with the government response that the authorisation process for dealing with mergers which currently allows parties to choose to seek authorisation from the Australian Competition Tribunal rather than the ACCC, should be amended so that parties can only go directly to the ACCC. The ability to go directly to the Australian Competition Tribunal was a wise inclusion in the legislation and although only used on a very few occasions it has worked, not only directly but indirectly in persuading the ACCC to take a more reasonable attitude towards mergers. The government should introduce one minor change and give parties a choice of going to the ACCC instead of the Tribunal in certain circumstances. Parties which may fear that mergers will be delayed if they have to be considered first by the ACCC will wisely opt to go before the Tribunal rather than seek the slow road to success by going through both bodies.

In relation to access to infrastructure, the government has largely ignored the recommendations of the Harper Review and instead adopted the recommendations of the Productivity Commission. The most controversial recommendation is that the government proposes to re-introduce a natural monopoly test (instead of the current privately profitable test), which is likely to make it easier for parties to obtain regulated access to significant infrastructure.

All in all, whilst there is a considerable amount of work that still has to be undertaken in drafting appropriate amendments to legislation and dealing with such areas as misuse of market power, and the role of the ACCC in dealing with broad policy areas such as market studies, we support swift implementation of the government’s response.

This article was first published in The Age and Sydney Morning Herald, 25 November 2015.