TRADE PRACTICES ACT: by Patrick J. ByrneNews Weekly
Will Liberals back Labor or small business?
, June 7, 2008
Labor is threatening to emasculate the Trade Practices Act's powers to curb predatory pricing.If the Liberals don't oppose Labor's bid to emasculate the Trade Practices Act (TPA), they risk losing major support from Australian small businesses.
The Coalition passed the Birdsville Amendment, just prior to its defeat in the 2007 federal election. The amendment was designed to give teeth to the TPA to curb predatory pricing, and earned the ire of the major supermarket chains.
Incredibly, nine months later, Labor is already proposing to gut the Birdsville Amendment, while the federal Liberal Party caucus is divided over whether it will support Labor or defend its own legislation.
Predatory pricing is where a large retailer is able to use its pricing power to undercut a competitor to put them out of business or to stop a likely competitor from setting up a business.
Ironically, while public concerns over supermarket pricing practices has led to Labor setting up a major public inquiry into grocery pricing, Labor is at the same time proposing to emasculate the TPA and allow major retailers freedom to practise predatory pricing with impunity.Below-cost pricing
Indeed, Labor's legislative proposals make a complete mockery of the current grocery inquiry. The inquiry has already heard heads of retail firms discuss below-cost selling in such a manner as to raise serious allegations about predatory pricing by supermarkets. Yet Labor's proposed legislation will ensure that such practices will be allowed.
The heads of retail giants Coles and Woolworths have appeared before the grocery inquiry being conducted by the Australian Competition and Consumer Commission (ACCC).
When the ACCC chairman, Graeme Samuel, asked Woolworths chief Michael Luscombe if his stores could price below cost to match a competitor on known value items, Mr Luscombe said, "We will answer that in camera, please," meaning that he would answer the ACCC's question confidentially, not publicly.
Other questions were raised about the practice of the major retailers of using planning laws to raise objections in an attempt to prevent competitors from setting up close to their stores.
At the core of Labor's legislative push is the plan to amend the mechanism to trigger action against predatory pricing.
This section of the TPA had been rendered impotent in 2003 by the High Court's extremely narrow ruling on the issue of how much "market power" a company wielded. The ruling in the 2003 Boral Besser Masonry Limited v. Australian Competition and Consumer Commission
case meant that a company would have to be a monopoly or near monopoly in order to be prosecuted, and retail industries seldom have any monopolies.
The interpretation also ran contrary to the parliamentary intention behind section 46 on the basis that the concept of "a substantial degree of power in a market" was intended to cover major participants in an oligopolistic market, i.e., a market where there were just a few major/dominant players.
As a result of this narrow ruling, the ACCC has been unable to take any section 46 cases to court, so this section of the TPA has fallen into disuse.
To resuscitate section 46, the Coalition in 2007 backed the Birdsville Amendment to give the TPA power over predatory pricing. It changed the trigger for a section 46 action from a company's "market power" to its "market share" and defined what actions constituted predatory pricing.
In essence, the Birdsville Amendment says that a corporation that has a substantial share of a market must not supply, or offer to supply, goods or services for a sustained period at a price that is less than the relevant cost to the corporation of supplying such goods or services, for the purpose of:
(a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market; or
(b) preventing the entry of a person into that or any other market; or
(c) deterring or preventing a person from engaging in competitive conduct in that or any other market.
Since the amendment was passed, big retailers have hysterically complained about the changes, claiming that the new act would stop discounting and shop sales. Yet, there is no evidence that the Birdsville Amendment has stopped legitimate discounting.
Under pressure from the big retailers, the Rudd Labor Government has undertaken a completely cynical exercise, claiming that Labor is going to strengthen the Birdsville part of section 46 by making "market power" the trigger for predatory pricing action.
Yet this is nothing more than returning to same failed formula that made section 46 impotent following the Boral
case of 2003.
If Labor's amendment is successful, section 46 of the TPA will be rendered impotent once again, and the victory the Coalition gained on this issue last year will be lost.— Patrick J. Byrne