ABA opposes Harper's effects test proposal

The Australian Bankers Association has indicated it will oppose the adoption of an "effects test" in competition law, as outlined in the draft report of the Competition Policy Review.

ABA chief executive Steven Munchenberg said an effects test raised the prospect that legitimate competitive activity could be ruled anti-competitive.

Munchenberg said he was also concerned that the defence included in the Review panel's proposal reversed the usual onus of proof.

Section 46 of the Competition and Consumer Act prohibits corporations that have a substantial degree of power in a market from taking advantage of that power for the purpose of eliminating or substantially damaging a competitor, preventing the entry of a rival into the market or deterring a rival from engaging in competitive conduct.

A misuse of market power has occurred if a company has taken advantage of its market power and if the conduct was undertaken for the purpose of eliminating or substantially damaging a competitor.

The Review panel, which is headed by Deloitte partner Ian Harper, said many submissions argued that section 46 was not an effective deterrent and asked for an "effects test", in which a company with substantial market power would be prohibited from taking advantage of that power if the effect was to cause anti-competitive harm.

The argument in favour of this change is that competition law should be directed at the effect of commercial conduct on competition, not the purpose of the conduct. On a practical level, it can be difficult to prove the purpose of commercial conduct, whereas demonstrating the effect is easier.

The panel said the international trend had been for competition law to examine the effects on competition of commercial conduct, as well as the purpose of the conduct.

It said: "The challenge is to frame a law that captures anti-competitive behaviour but does not constrain vigorous competitive conduct."

The panel proposed that section 46 be revised to prohibit a corporation that has substantial degree of power in a market from engaging in conduct if the proposed conduct has the purpose, or would have or be likely to have the effect, of substantially lessening compensation in the market.

The revision would remove the "take advantage" element from the current provision and change "purpose" to "purpose, effect or likely effect".

To minimise the risk of inadvertently capturing pro-competitive conduct, the panel has also proposed a defence so that the prohibition would not apply if the conduct "would be a rational business decision by a corporation that did not have a substantial degree of power in the market" and "if the conduct would be likely to have the effect of advancing the long-term interests of consumers."

The onus of proving a defence would fall on the company engaging in the conduct.

Munchenberg said he was concerned that any large company entering a market where there were a lot of small operators and offering innovation or better pricing could be seen to be lessening competition

"There are legitimate competitive things you can do, such as new services or technology, that are going to have an effect on your competitors," he said.

"The effects test makes it easier for the regulator because purpose it harder to determine. But it runs the risk of capturing legitimate behaviour."

"We are also concerned that the defence that has been proposed reverses the onus of proof," he said.