The competition shake-up that needs to deliver

The sweeping changes proposed by the Harper Review are positive, but the real test will be whether they are enacted and if they end up boosting competition.

With the release of its draft report, the Harper Review has held true to its ‘root and branch’ epitaph.

Many of the suggested reforms are a positive step towards creating a more focussed and effective competition regime. The question for us all is whether this will see competition blossom?

The panel, led by Professor Ian Harper, shows a genuine effort to reinvigorate the promotion of competition by suggesting reform of Australia’s competition institutions and simplifying competition laws and processes. This is a good thing.

Many of the recommendations propose changes that should correct past legislative curiosities that unfortunately pervade our law.

The panel’s recommendations deal with old chestnuts in debates on competition policy and extend the debate into other areas in which it considers that competition policy should have greater influence, including the delivery of human services.

These are very significant areas of future reform. But there will be much public debate and political machinations before we see final developments in these areas.

The panel has decided that a new era requires new institutions.

To replace the all but defunct National Competition Council the panel says we should have a new competition advocate in the Australian Council for Competition Policy. The ACCP is to lead and drive the evolving competition policy agenda. As a special little surprise to many, including the ACCC we suspect, the ACCP is also to be the holder of the new power to conduct market studies.

This area is in need of a refresh and we are hopeful that a new body can breathe life into this important policy area and be a reinvigorated advocate for competition policy.

Equally dramatic is that the ACCC is to be split. That split is not in competition and consumer law – those functions stay together.

But the ACCC’s role in regulating markets with bottleneck infrastructure is to shift to a new Access and Pricing Regulator. While it has been on the agenda of state governments for many years to see the Australian Energy Regulator’s functions go to a new regulator, the panel goes further. The access and pricing regulation of all regulated industries, energy, telecommunications and water, as well as others governed by the general access regime (rail, ports, etc.) are to go to this new regulator.

The ACCC may not be enthusiastic about these institutional reforms. It has long seen itself as an advocate for competition policy and has favoured retaining its current functions.

The suggested reforms are a positive step towards creating a sleeker, more focussed and effective ACCC with a responsibility for competition and consumer law enforcement. The new regulator can then focus on the different (if related) function of overseeing regulated markets.

The panel also has recommended changes to the governance arrangements for the ACCC. This is perhaps surprising when it says that the ACCC is both ‘well regarded’ and an ‘effective body’ – statements to which we agree.

Of course, the law has not escaped the panel’s attention. Many of its recommendations propose changes that should correct past legislative curiosities that unfortunately pervade our law.

Most will simplify and clarify, rather than radically change the law.

A constant critique in respect of the current law is that it is too complex and too prescriptive. The panel has taken these comments on board and made suggestions for simplification across a range of areas. These include a simplification of the provisions dealing with cartels and joint ventures, as well as the elimination of standalone provisions in respect of exclusionary conduct which overlap with the cartel provisions. It is also good to see the panel recommending the repeal of various ineffective amendments which have been added to section 46 in recent years.

Some of the proposals will clearly have the intended effect. For other proposals, particularly where the panel has requested further consultation, the devil may be in the detail.

In the debate that is to come, many will focus again on the proposed changes to section 46 which generally follow what the ACCC has suggested. The panel has tried to reflect the public debate by acknowledging the potential for over-reach. We will need to await the next round of consultation to know where the panel finally lands on the proposal to include a business strategy exception.

We applaud the proposal to consolidate and streamline the formal merger processes that currently sit alongside the largely effective informal clearance process. The existing formal processes are extremely burdensome and are unable to fulfil their intended purpose to provide greater transparency, timeliness and accountability for the few complex mergers that need those features.

The panel proposes to combine the formal processes by allowing the ACCC (and the Australian Competition Tribunal on review) to consider both competition issues and public benefits (including merger efficiencies). While there may be other ways to deal with this, the proposal may work.

Of course, it remains to be seen how calls for a simplified and streamlined Act will make their way into legislation where the notion of simplicity can be lost in the drafting.

We await the final recommendations to make sure the efforts to review the root and branch allow competition to blossom.

Chris Jose and Patrick Gay and partners, Competition Regulation and Trade, at Herbert Smith Freehills