RESTRICTED
WORLD TRADE WT/WGTCP/W/60
4March 1998
ORGANIZATION(98-0851)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
COMMUNICATION FROM AUSTRALIA
Thefollowing communication, dated 12February 1998, hasbeenreceived fromthePermanent
Mission ofAustralia withtherequest thatitbecirculated toMembers.
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Australia 'sCompetition Policy Reforms
Introduction andsummary
1. Thiscommunication describes briefly thestepsbywhich Australia achieved acomprehensive
competition policy covering allbusinesses regardless oftheirownership andapplying toallaspects
ofindustry andcommerce. Some elements ofAustralian competition lawandpolicy havealready been
described inprevious communications byAustralia (WT/WGTCP/W/8 andWT/WGTCP/W/39).
Australia 'sexperience maybeofparticular interest tofederal states where responsibility forcompetition
matters maylieinmore thanonejurisdiction.
2. TheAustralian Constitution doesnotgivetheAustralian Government direct power toenact
competition laws. Rather, thishasbeendonethrough theuseofarange ofheads ofpower, particularly
thecorporations andtrade andcommerce power. TheConstitution alsoseparates quite rigidly
administrative andjudicial powers. Thenarrow interpretation ofthecorporations power impeded for
many years theemergence ofanational competition laweventhough thefirstsuchlawwasenacted
in1906. Following some watershed judgements bytheHigh Court inthe1960s and1970s which
expanded theinterpretation ofthecorporations power, thestagewassetfortheenactment oftheTrade
Practices Act1974,thebasisofAustralia 'scurrent competition regime. However, untiltheenactment
oftheCompetition Policy Reform Act1995,theTrade Practices Actdidnotapply toallsectors of
theeconomy.
3. TheReport bytheIndependent Committee ofInquiry onNational Competition Policy (theHilmer
Report), issued in1993, recommended thecreation ofagenuine national competition policy covering
alltrading entities regardless ofownership. Thiswasachieved through theCompetition Policy Reform
Act1995,accompanied byseparate legislation byallStates andTerritories.
4. Thispaper distinguishes between narrow competition policy (traditional competition orantitrust
laws) andwider competition policy. Narrow competition policy clearly remains theprimary instrument
fordealingwiththebulkofanti-competitivepracticesandtopromotepro-competitiveactions.However,
ithasonlyalimited effect onstructure, mainly through merger policy and,insome countries, through
divestiture. Itmaytherefore notbeenough tobring about athorough change inthecompetitive
environment ofaneconomy. Toachieve thelatter, itwilloften benecessary toaddress alsothe
anti-competitive impact ofdirect government regulation, theregulatory powers delegated toprofessionalWT/WGTCP/W/60
Page2
orindustry organizations, access toessential infrastructure, reform ofgovernment business enterprises,
competitive neutrality, etc.Inother words, acompetition policy inthewider sense mayberequired.
5. Thepaperconcludeswithsomeobservationsonthequestionofregulation.ItnotesthatAustralia
gives preference toageneral regulator rather thanhaving asystem ofindustry-specific regulators.
Theconstitutional andlegislative background
6. Thecompetition lawsandpolicies ofanyeconomy reflect itsspecific conditions. These may
include thecourse ofitsindustrial andcommercial development, itspolitical system anditsgeographical
characteristics.Thishasresultedinmanydifferentcompetitionframeworks.Broadlyspeaking,however,
allofthese frameworks seektofacilitate effective competition topromote efficiency andeconomic
growth. Atthesametime,theymayhavetoaccommodate situations where competition doesnotachieve
efficiency orconflicts withother, mainly social, objectives. These accommodations arereflected in
thecontent andbreadth ofapplication ofpro-competitive policies, aswellasthesanctioning of
anti-competitive arrangements ongrounds ofpublic benefit.
7. TheCommonwealthofAustraliaisafederationconsistingofStatesandTerritories.Thestructure
oftheStates andTerritories influenced strongly theemergence ofdistinct regional markets, particularly
inthefirsthalfofthetwentieth century. TheAustralian Constitution, which became effective on
1January 1901, gives theAustralian Government, among other powers, legislative power inrelation
totrade among theStates (s.51(i)) andconcerning trading andfinancial corporations (s.51(xx)). The
Constitution doesnotconfer specific legislative power totheAustralian Government forthepurposes
ofenacting competition laws.
8. TheAustralian Constitution separates judicial andexecutive powers relatively rigidly. General
administrativebodiesareconstitutionallyprohibitedfrommakingjudicialdecisions.Theexactboundary
between judicial andadministrative decisions remains uncertain, butthebroad effect ofthedistinction
hasbeenthatmuch ofthekeydecision-making under theTrade Practices Acthasbeenentrusted to
courts oflaw. Thisisanother reason fortheemergence inAustralia ofarange ofseparate bodies
eachwitharoleintheadministration ofnational competition policy.
9. Formany years, theseconstitutional realities impeded theemergence ofanational competition
lawinAustralia. Anearlyattempt, theAustralian Industries Preservation Act1906,usedtheSherman
Actasamodel. Itprohibited combinations inrestraint oftrade byforeign corporations ortrading
orfinancial corporations formed within Australia (Sections 5and8)andtheformation oftrade
monopolies (Sections 4and7).ThisActremained largely unenforced untilitsrepeal in1965because
theHigh Court heldin1919 thatSections 5and8were constitutionally beyond thepower ofthe
Australian Government.
10. Anewattempt, theTrade Practices Act1965,modelled ontheUnited Kingdom Restrictive
Trade Practices Act1956,wassimilarly found invalid bytheHigh Court in1971. Itdidnotcontain
absolute prohibitions apartfromthose oncollusive tendering andbidding, and,from1971, resale price
maintenance. However, theHigh Court decision hadalsolaidthebaseforamore coherent approach
toantitrust lawbymaking abroader interpretation ofthecorporations power. TheRestrictive Trade
Practices Act1971-1972 wasafirststeptowards thisaim,anditwasseenlargely asaninterim measure
pending theintroduction ofappropriate strengthening legislation.WT/WGTCP/W/60
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Narrow competition policy: theTrade Practices Act1974
11. Thebasis ofAustralia 'scurrent competition lawsistheTrade Practices Act1974.Atits
adoption, itrelied primarily foritsconstitutional validity onthecorporations power ins.51(xx) ofthe
Constitution. TheTrade Practices Acthassince beenamended andsupplemented many times, but
itstwomainobjectivesremainunchanged.Thefirstisthepreventionofanti-competitiveconductthrough
classical competition lawaimed atimplementing competition policy inthenarrow sense. Thesecond
objective istheassurance offairtrading practices, including consumer protection. Thiswasinfact
thefirsttimethatconsumer protection became available through anational law.Thispolicy isreflected
intheobject section oftheTrade Practices Actwhich is"toenhance thewelfare ofAustralians through
thepromotion ofcompetition andfairtrading andprovision ofconsumer protection".
12. Thetwoprinciples underlying theprevention ofanti-competitive conduct are:(a)thatbehaviour
which hasthepurpose oreffect ofsubstantially lessening competition inamarket should beprohibited;
and(b)thatsuchbehaviour should beabletobeauthorized when itsanti-competitive effects are
outweighed byaresulting benefit tothepublic. Themain types ofrules governing anti-competitive
behaviour are:
- Anti-competitive agreements areprohibited. These include price-fixing agreements
between competitors (aperseban), exclusionary provisions, including primary and
secondaryboycotts,exclusivedealingwhichsubstantiallylessenscompetitionandresale
price maintenance. Third-line forcing isprohibited perse.
- Misuse ofsubstantial market power isprohibited. Misuse requires thepurpose of
eliminating ordamaging acompetitor, preventing entry ordeterring orpreventing
competitive conduct.
- Mergers andacquisitions areprohibited iftheyhavetheeffect ofsubstantially lessening
competition inasubstantial market.
13. Thesecond partoftheTrade Practices Actprohibits unfair practices. These include
unconscionable conduct, misleading ordeceptive conduct, specific prohibitions offalseormisleading
representations, conditions andwarranties inconsumer transactions andmeasures relating toproduct
safety. These rules aredesigned topromote faircompetition andprovide animportant safety netin
markets where vigorous competition might tempt some businesses tocutcorners togainacompetitive
advantage.
TheHilmer Report
14. In1991theAustralian Government, theStateandtheTerritory Governments agreed toexamine
anational approach tocompetition policy. Thefirststepwastheestablishment in1992oftheNational
Competition Policy Review byacommittee chaired byProfessor FredHilmer. Therecommendations
oftheHilmer Report ,asitbecame known, became thebasisofAustralia 'scurrent competition policy.
15. Theterms ofreference forthereview stipulated thatnational competition policy andlawshould
giveeffect tothefollowing principles:
(a) noparticipant inthemarket should beabletoengage inanti-competitive conduct against
thepublic interest;
(b) asfaraspossible, universal anduniformly applied rulesofmarket conduct should apply
toallmarket participants regardless oftheform ofbusiness ownership;WT/WGTCP/W/60
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(c) conductwithanti-competitivepotentialsaidtobeinthepublicinterestshouldbeassessed
byanappropriate transparent assessment process, with provision forreview, to
demonstrate thenature andincidence ofthepublic costs andbenefits claimed;
(d) anychanges tothecoverage ornature ofcompetition policy should beconsistent with,
andsupport, thegeneral thrust ofreforms:
(i) todevelop anopen, integrated domestic market forgoods andservices by
removing unnecessary barriers totrade andcompetition; and
(ii) inrecognition oftheincreasingly national operation ofmarkets, toreduce
complexity andeliminate administrative duplication.
16. Initsreport, issued inAugust 1993, theReview Committee argued strongly thattheimperative
fordeveloping anational competition policy rested onthree main factors:
(a) Australia wasforallpractical purposes asingle integrated market. Theeconomic
significance ofState andTerritory boundaries wasdiminishing rapidly asadvances
intransport andcommunications permitted eventhesmallest firms totrade around
thenation. Theincreasing national orientation ofcommercial lifehadbeenrecognized
bycooperative ventures byAustralian Governments, andbusiness andthecommunity
generally wereimpatient formuch more rapid progress bygovernments inreforming
infrastructure andregulatory systems;
(b) tradepolicy reforms hadmarkedly increased thecompetitiveness oftheinternationally
traded sector, butmany goods andservices provided bypublic utilities, professions
andsome areas ofagriculture weresheltered frominternational andindeed domestic
competition. Recent micro-economic reforms hadhighlighted thatanimportant part
ofAustralian competition policy -theTrade Practices Act-remained limited inits
application tothese sectors, withcoverage depending onownership orcorporate form
rather thanconsiderations ofcommunity welfare;
(c) domestic pro-competitive reforms hadallbeencarried outonasector-by-sector basis,
without thebenefit ofabroader policy framework orprocess. Anational competition
policy would present opportunities toimplement reforms more broadly, topromote
nationally consistent approaches andtoavoid thecosts ofestablishing diverse
industry-specific andsub-national regulatory arrangements.
TheCompetition Policy Reform Act1995
17. Following extensive negotiations withStateandTerritory Governments andequally extensive
public consultations, theprocesses initiated in1991 resulted inJune1995 intheCompetition Policy
ReformAct1995.AmongthemainelementsofthisAct,someofwhichwereimplementedprogressively,
are:
- TheTrade Practices Act1974wasamended sothattheprohibitions ofanti-competitive
conduct inPartIVcanbeapplied toallbusinesses inAustralia, regardless oftheir
ownership. Thisrequired theconcurrent passing oflegislation byStateandTerritory
Parliaments.WT/WGTCP/W/60
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- The"Shield-of-the-Crown" immunity forStateandTerritory Government businesses
wasremoved. Thishadtheeffect thatallbusinesses owned oroperated bygovernments
became subject totheprovisions oftheTrade Practices Act.
- AnewPartIIIAestablishing alegislative regime tofacilitate access totheservices
ofcertain essential infrastructure facilities wasadded totheTrade Practices Act. It
enables thirdparties toobtain access toservices provided byafacility either inprivate
orpublic ownership aslongascertain criteria aremet.
- TheTrade Practices Commission andthePrices Surveillance Authority (which had
administered thePrices Surveillance Act1983)were abolished asseparate entities.
Their functions were thenmerged inthenewly formed Australian Competition and
Consumer Commission (ACCC). TheACCC isanindependent statutory authority.
Itadministers theTrade Practices Act1974,StateandTerritory Application Actsand
thePrices Surveillance Act1983.
- Anewadvisory body, theNational Competition Council (NCC), wasestablished.
TheNCCisanindependentadvisorybodyforallgovernmentsinvolvedinimplementing
thenational competition reforms. Itstasks include bringing about major change in
suchareas asthereform ofpublic utility structures, theremoval ofanti-competitive
regulation, thepromotion ofgreater competition through interstate trade andthe
achievement ofcompetitive neutrality between government andprivate businesses.
TheNCC alsoplays asubstantial roleinrelation totheapplication ofaccess
arrangements toessential facilities.
- TheTrade Practices Tribunal wasrenamed theAustralian Competition Tribunal. Its
functions aretodealwithapplications forreviews ofdecisions made bytheACCC
onauthorizations andnotifications. Itmayalsomake declarations relating tooffshore
mergers. Ithears appeals from decisions onaccess matters.
- PartIVoftheTrade Practices Actwasamended insignificant ways, including an
extension oftheprohibition ofresale price maintenance tocover services.
Intergovernmental agreements
18. Thereformprocesswascomplementedbythreeintergovernmentalagreements.TheCompetition
Principles Agreement setsouttheprinciples governments willfollow inrelation toprices oversight,
structural reform ofgovernment monopolies, review ofanti-competitive legislation andregulations,
accesstoservicesprovidedbyessentialfacilitiesandtheeliminationofnetcompetitiveadvantageenjoyed
bygovernment businesses when theycompete withtheprivate sector. Italsosetsoutthework
programme oftheNational Competition Council.
19. TheConduct Code Agreement setsouttheprocesses foramendments tothecompetition laws
oftheGovernments ofAustralia, theStates andtheTerritories andforappointments totheACCC.
20. TheAgreement toImplement theNational Competition Policy andRelated Reforms setsout
theimplementation arrangements agreed bytheAustralian Government, theStates andtheTerritories.WT/WGTCP/W/60
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Theelements ofawider competition policy
21. Thiscommunication hasbeenlargely concerned withtheprocess bywhich Australia arrived
atacomprehensive national competition policy. Thissection summarizes briefly themain elements
ofsuchapolicy.
22. Traditional competition policy, i.e.competition policy inthenarrow sense, onlyoperates on
some ofthevariables ofconcern toacomprehensive competition policy. Broadly speaking, traditional
antitrust policy mainly affects conduct. Acomprehensive pro-competition policy must, however, also
address those factors thataffect thestructural variables. Acompetition policy "inthewider sense"
therefore involves:
- competition lawprohibiting anti-competitive conduct bybusinesses (competition policy
inthenarrow sense);
- theremoval ofgovernment regulation thatlimits competition andwhere regulation
cannot bejustified inthepublic interest, including import restrictions, entry barriers
ofallkinds, professional licences, minimum price laws, restrictions onadvertising,
etc.;
- thereform ofmonopoly structures created bygovernments;
- theachievement ofcompetitive neutrality. Ifgovernment businesses compete with
theprivate sector, theyshould nothaveanyspecial netadvantages, e.g.intheform
oftaxexemptions. Similarly, private sector businesses should notreceive any
advantages, such asgovernment subsidies, which might givethem anartificial
competitive advantage;
- access toessential facilities, e.g.thetelecommunications network, thatareessential
forcompetition;
- freemovement ofgoods, services, persons andcapital across internal borders and,
ideally, external ones;
- separation ofindustry regulation fromindustry operations. Forexample, thedominant
telecommunications provider, often theformer monopoly provider, should haveno
roleinthesetting ofstandards fornewentrants; and
- totheextent required, regulatory powers tocurbmisuse ofmarket power.
23. Theimplementation ofacomprehensive competition policy requires thereassessment ofawide
range ofpolicy instruments going beyond thetraditional legislative provisions. They include policies
ontrade, intellectual property, foreign investment, taxation, small business, thelegalsystem, public
andprivate ownership, licensing, bidding formonopoly franchises, andsoon.Some ofthese policies
haveadirect effect oncompetition andconsumer laws. Others affect thegeneral economic environment
andultimately theextent ofcompetition intheentire economy.
24. TheActhassince beenamended further togivetheACCC specific power withregard to
competition andaccess toessential services inthetelecommunications sector.WT/WGTCP/W/60
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General orindustry-specific regulation
25. Anissue thatisemerging intheWorking Group ontheInteraction between Trade and
Competition Policy inapreliminary wayisthatofindustry regulation andwhoshould beincharge
ofit.
26. Australia, likemany othercountries, hasexperienced avigorous debate about therelative merits
ofgeneral regulation andindustry-specific regulation. Australia initially established AUSTEL, an
industry-specifictelecommunicationsregulator,basedonsimilarlinestoOFTELoftheUnitedKingdom.
However, asplans forderegulation ofother sectors, suchaselectricity, gas,water, ports, airports,
etc., became more concrete, there wasincreasing concern about theprospect ofaplethora of
industry-specific regulators being established ineachoftheeight States andTerritories.
27. The1993 Hilmer Report advocated theestablishment ofasingle regulator. Thereasons for
thispreference included adesire forconsistency, likely savings inresources, andaconcern that
industry-specificregulatorswouldbemorelikelytobecapturedbysectoralintereststhanwouldageneral
regulator. Another factor wasthethought thatindustry-specific regulators would bemore likely to
make decisions building theirownempires thangeneral regulators withwider preoccupations.
28. Amongtheobjectionstoageneralregulatorwerethatitwouldnotacquirethenecessarytechnical
expertise, andthattherewasinanyevent alargeamount ofpurely technical regulation tobeundertaken.
Ifresponsibilities fortechnical regulation wereintegrated intothegeneral regulator, itwould become
quiteunwieldy. Ontheother hand, iftechnical responsibility werekeptseparate, theregulator would
becutofffrom thebenefit ofexpert technical knowledge.
29. Thequestion oftherelationship between industry regulators andcompetition regulators also
emerged. Some argue thatindustry regulation, whether industry-specific orgeneral, should bekept
away fromcompetition regulation. They claimed thatthecompetition regulator hadaclearly defined
pro-competitive role,andthatitshould notbecome embroiled incomplex regulatory details suchas
setting prices, determining terms andconditions ofaccess andoverseeing technical regulation.
30. Thecounter-argument prevailed inAustralia. Thisistheviewthat,given thatregulation is
needed incertain areaswhere competition isweak, non-existent ornotlikely tooccur because ofexisting
monopolies orother reasons, itwould bebestifthisregulatory activity werelinked withtheactivities
ofthenational competition authority. Regulation hassignificant effects oncompetition. Leftonits
own, itoften pursues ahighly anti-competitive course. Abetter approach therefore would betobring
itwithin theframework ofanational competition policy.
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