May 10th 2008

  Buy Issue 2779

Articles from this issue:

COVER STORY: Labor abandons small business

EDITORIAL: Overhaul Australia's quarantine system!

HOUSING: How to make the Australian dream come true

CANBERRA OBSERVED: Daunting challenges for Swan's first Budget

AGRICULTURE: Behind the world's food shortage

NATIONAL SECURITY: Is it ever too early to foil a terrorist plot?

STRAWS IN THE WIND: Dial an anti-climax / Carrying a torch for China / Economic gobbledegook / Adolescent roulette... and culture shock / Zimbabwe

CHINA: Beijing spying apparatus gears up for Olympics

HIGHER EDUCATION: The high cost of free love

POPULATION: Russian life expectancy worse than Bangladesh's

MEDIA: ABC program's Castro whitewash

Point overlooked (letter)

Competition policy review (letter)

China's jackboot diplomacy (letter)

No voice for unborn at Rudd summit (letter)

Our next Governor-General (letter)

It's time to help boys (letter)

BOOKS: RISING '44: The Battle for Warsaw, by Norman Davies.

BOOKS: SILENT MOVIES: The Birth of Film and the Triumph of Movie Culture, by Peter Kobel

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COVER STORY: Labor abandons small business

by Patrick J. Byrne

News Weekly, May 10, 2008

The Rudd Government seems set to weaken laws designed to outlaw predatory pricing by large retailers.

If ever a front-page headline got it completely wrong, it was The Australian's "Rudd to rein in business bullies", announcing new changes to the Trade Practices Act.

The Australian article (April 28) claimed that the Rudd Labor Government was ready to introduce legislation to "strengthen" the Birdsville Amendment, which went through parliament just prior to last year's federal election. That amendment, promoted by Queensland Nationals Senator Barnaby Joyce, outlawed predatory pricing by large retailers.

Predatory pricing is where a large company consistently sells products below cost for a sustained period so as to drive a smaller competitor out of business, or deter a smaller competitor from entering the market, or stop a smaller competitor from engaging in competitive conduct.

The Birdsville Amendment had the supermarkets, the oil companies and their lobbyists screaming in the newspapers.

Predatory pricing

Now, the Rudd Government's announced changes to the Trade Practices Act (TPA), far from reigning in big retailers (as claimed by The Australian), will in fact gut the Birdsville Amendment and restore the power of big business. It will make it impossible for small businesses to take action against predatory pricing.

The Birdsville Amendment came about because, for years, Section 46 of the TPA had been powerless to stop predatory pricing. This was shown in the Boral v. ACCC case in 2003. The High Court ruled that the trigger for an action in the courts required a small business to prove that the large retailer had sufficient "market power" to raise prices and not lose market share. This could only be shown for monopolies, which by definition have no small business competitors. Proving that a company had the power to raise prices without losing market share was near impossible to any relevant case of predatory pricing over small business.

Further, S 46 required that a large company had "taken advantage" of its market power. This was another hurdle that the High Court made impossible to jump. In particular, the High Court said that if a company could theoretically behave in the same way, whether or not it had market power, then it was not taking advantage of its market power. For example, if a business could have sold products below cost without market power, the fact that it sells them below cost when it is large and powerful (even if it seeks to destroy a small business) did not constitute a breach of the S 46.

Consequently, the 2007 Birdsville Amendment to S 46 only required that it be shown that the offending company had sufficient "market share", not "market power", as the trigger for an action. Nor would it be required to prove that a large corporation had "taken advantage" of its market power.

Incredibly, the Federal Government now plans to turn back the clock and revert to proving that an offending corporation has the "market power" to engage in predatory pricing and that it has "taken advantage" of that market power.

It will once again mean that S 46 of the TPA will be totally ineffective in preventing predatory pricing.

If passed, the Rudd Government amendment will prove to be a major victory for big business.

Commenting on the proposed changes, Senator Barnaby Joyce said that reverting to the idea of "market power" as the trigger for an action over predatory prices "is the position big business formerly held, and they have been extremely capable in stopping any case ever getting any legs whatsoever. In fact, since [the Boral case in] 2003, under this definition of market power, not one case has been successful."

Curiously, The Australian hailed the new changes as strengthening the TPA predatory pricing arrangements because the Birdsville Amendment had been "ridiculed by business".

Really? Since when would big business support a trade practices bill that would toughen up the law against their predatory pricing practices?

The Australian also said that the Council of Small Business Organisations of Australia (COSBOA) chief executive supported the changes because it would send a clearer message to the courts.

If this is so, COSBOA members have completely missed the point, given that all the old problems with S 46 of the Trade Practices Act will come back. Any benefit from the Birdsville Amendment will be lost, to the great satisfaction of big business.

In a fiery press release, Senator Joyce has asked: "How on earth can Chris Bowen [Minister for Competition Policy] and Craig Emerson [Minister for Small Business] say they're helping small business and keep a straight face after doing this?

"Mr Bowen, Mr Emerson and Prime Minister Rudd have moved the pendulum back towards impossible."

- Patrick J. Byrne

See also: Frank Zumbo, "Predatory pricing: Defending small business and farmers", News Weekly, March 15, 2008.

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