Antitrust Alert: Australia Rethinks Competition Law and Policy

The Australian Government today released its response to the recommendations of a Committee (the "Harper Review") that examined proposed changes to Australia's antitrust laws to ensure they continue to be appropriate and responsive to the contemporary Australian economy. The Committee was also tasked with investigating broader microeconomic reforms to identify opportunities to remove or amend industry specific regulations that unnecessarily hinder competition. Overall the changes will provide welcome relief against some intrusive per se prohibitions, but beware the new rule on concerted practices.

Amendments to antitrust laws

The government will seek to pass legislation to adopt 18 key reforms to the competition law including:

• Retention of the per se prohibition against resale price maintenance but with the introduction of an ability to notify the ACCC, which if not disallowed will afford statutory immunity from suit.
• Abolition of the per se prohibition against "third line forcing." This is an intrusive prohibition that significantly restricts two or more unrelated companies from engaging in cross-promotions or a broad range of other bundled offers.
• Abolition of the unworkable prohibitions against "price signaling." These provisions had only been applied to the banking sector but the Minister could have extended application to any other party by simple regulation.
• Introduction of a prohibition against European-style "concerted practices" to better address the sharing of confidential information.
• Introduction of UK-style market studies by a new agency called the Australian Council for Competition Policy.
• In an apparent response to the Federal Court decision in the air cargo cartel (see Jones Day client alert of November 2014, a range of provisions will be amended to more clearly assert extra-territorial jurisdiction when Australia is affected.
• The whole legislative framework will be simplified. At present Australia's competition law is extremely complex, 10 times longer than that of any other OECD or APEC member country.

There will be continued debate about what to do with Australia's and New Zealand's unique unilateral conduct prohibition. Australia and New Zealand follow neither the U.S. "monopolization" standard nor the European "abuse of dominance standard." Rather the focus of the current prohibition inquires into whether the company had an anticompetitive purpose, not what is the effect of the conduct. Additionally many prosecutions have previously failed for want of evidence of "taking advantage" of market power as the current law requires.

In relation to mergers, the government has been comforted by the ACCC commitment to improve the timing and transparency of merger processes. The informal voluntary system will remain the primary means by which mergers are investigated and cleared. However, amendments will be made to improve the little-used formal clearance processes which are currently the only practical means to guarantee a timely, definitive assessment of a merger.

Joint ventures are problematic in Australia because under the current regime the venture's arrangements must be contained within a "hard wired" legislative exception to strict criminal cartel prohibitions. Foreign formed joint ventures can easily fall foul of the "bright line" boundary if the Australian regime has not been specifically accommodated in the joint venture structure. The government will significantly broaden the joint venture exception and instead rely on broad civil prohibitions against anticompetitive agreements to prevent undesirable coordination between businesses.

Amendments to reduce the burden of compliance for businesses engaging in efficiency enhancing conduct (such as permitting both resale price maintenance and third line forcing where there is no anticompetitive effect or purpose) are in line with submissions lodged by Jones Day to the Harper Review. However, of concern is that there has been no reform to the exposure of individuals to significant penalties without according them a "right to silence" during ACCC investigations. These amendments are necessary to ensure the fundamental rights of directors and senior managers are properly protected, in line with safeguards that exist in both the US and Europe.

The government now must obtain the support of other political parties to secure passage of the reform legislation through the Senate. While many of the reforms are likely to be supported broadly, there are a number of reforms which are likely to require significant negotiation before being passed.

Competition through micro economic reform

The Harper Review has been referred to as a "once in a generation" opportunity to introduce extensive reforms to Australia's competition framework. One reason that Australia has not suffered a recession for over two decades is its National Competition Policy (NCP), a treaty between the Federal and State Governments to remove wide ranging regulatory barriers to competition. As a consequence, Australia's GDP growth doubled and the country regained its AAA credit rating. The Australian model was studied and adopted in an OECD Council Recommendation which spurned similar programs in crisis ridden economies from Mexico to Greece.

But anticompetitive regulation has crept back into the Australian economy, now widely regarded as suffering from excessive and poor regulation. Navigating this regulation has again become an important challenge for businesses operating in Australia.

Although there were high hopes for the Harper Review to recommend broad reforms to significant sections of the Australian economy and extensively re-energize the competitive culture and performance of government, the end product falls significantly short. Instead of launching a widespread reform program, as occurred in the 1990s, the Committee recommended that an ongoing market study mechanism referred to above be introduced to over time examine industries where unnecessary regulatory impediments to competition exist.

Implications for New Zealand

Interestingly, under an Australia-New Zealand intergovernmental agreement, New Zealand must now consider whether to amend its competition laws in line with the changes to be adopted in Australia. This comes at a time when New Zealand has almost concluded a five year process of finalizing the details of its intended criminal sanctions for cartel conduct. The delay has mainly been due to concerns about how to deal with joint ventures and other legitimate business practices that New Zealand felt the Australian law had failed to accommodate. Changes that Australia proposes in this area may further delay New Zealand's new criminal cartel law.

Jones Day's Sydney antitrust team represents clients in Australia and New Zealand.

The report of the review committee is here. Government's response is here.

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