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Debate reignites over competition policy

Major companies across a range of industries have warned against new laws that could hold them legally responsible for reducing competition and squeezing smaller competitors out of the market.

The government commissioned competition inquiry headed by Ian Harper is reported to be seriously considering the inclusion of an effects test in section 46 of the Competition and Consumer Act.

This could potentially leave more major companies vulnerable to action from the Australian Competition and Consumer Commission and other private entities that believe they have suffered from anti-competitive practices at the hands of major outfits like Coles and Woolworths

According to The Australian Financial Review, the Business Council of Australia has warned the inclusion of an effects test would damage the economy and force major companies to predict the long-term financial outcomes of decisions on competitors.

Other major players like Caltex and Foxtel have condemned the inclusion of an effects test while former Treasurer Peter Costello and former ACCC chairman, Graeme Samuel, have also voiced opposition.

But what difference would the inclusion of an effects test really have? Dr Alexandra Merrett, formerly a senior enforcement lawyer for the competition watchdog, said the insertion of an effects test would not make section 46 more effective.

She told Dynamic Business there were three key tests in section 46 – that a company has substantial market power, that a company took advantage of its market power and, finally, that it took advantage of its market power for an “anti-competitive purpose”.

The argument for the insertion of an effects test has hinged on claims it is too hard to prove that a company has taken advantage of market power for an “anti-competitive purpose”.

Critics argue this amounts to having to prove that a company “intended” to secure an anti-competitive outcome rather than judging the company simply on whether its actions had the “effect” of reducing competition.

Chief executive of Master Grocers Australia, Jos de Bruin, told Dynamic Business the current law meant the ACCC had to “read the minds of Coles and Woolies executives” in order to run a successful case.

But Dr Merrett said that most cases taken under section 46 did not ultimately fail on an inability to prove market power was used to secure an anti-competitive outcome. Instead, most cases are lost on the inability to prove a company had substantial market power or that the company took advantage of its market power.

“If the objective is to achieve a more effective section 46, I really don’t think you’re going to see that,”she said. “There has been an effects test for misuse of market power in telecommunications for about two decades. It’s never been used.

“An effects test versus a purpose test is absolutely not the reason why section 46 is not as effective as people would like… I have never advised a client to pursue a section 46 claim.”

Dr Merrett said the real problem with running a section 46 claim was not with the law itself, but with the cost of the case and how long it took to run its course. She suggested a more effective way to tackle the problem was to simplify the legal process.

“Running a case is diabolically hard and very, very expensive,”she said.“Some of our best cases have been what we call private cases. And we are just not seeing any private cases lately because running this litigation is just so expensive and so risky.”

However, Mr de Bruin who is in meetings in Canberra today to discuss the competition inquiry led by Ian Harper said he would push for more equitable outcomes for smaller operators.

One option was a reversal of the onus of proof in relation to the lessening of competition. “The onus of proof should be on them (Coles and Woolies) that they will not substantially lessen competition. They should prove it. They are massive,”he said.

He also said Coles and Woolworths should be forced to pre-notify the ACCC of any new acquisitions or be forced to divest them as a penalty.