Small business can't afford to overlook the little things in the Harper Review

Another day, another article about why an effects test will change the world, for better or for worse (depending on who’s writing). Regardless of who’s right, an effects test is unlikely to change much in the day-to-day operations of most Australian businesses, large or small.

But while the controversy over just one section of the Competition and Consumer Act sucks up all available airtime, there are several other changes recommended by the Harper Review into competition policy that are receiving almost no attention at all.

There seems to be two basic reasons for this. First, competition law specialists are virtually unanimous in agreeing that the recommended changes are necessary. On the other hand, however, the business community doesn’t appear to recognise the potential impact of these much less sexy proposals.

Both viewpoints reflect the extreme complexity of the current legal framework: this complexity creates compliance costs that even the lawyers agree are unnecessary, but leaves business unable to appreciate how some apparently minor tinkering could be extremely useful.

What else did Harper recommend?

An effects test was just one of 56 recommendations made by the Harper Panel, spanning institutional arrangements, deregulation, specific industries, intellectual property and Australia’s competition laws. Some were very high level recommendations, but a number were extremely detailed. If one looks at only those recommendations relating to Australia’s “competition laws”, there were around a dozen suggestions.

Some background first

Australia’s main competition laws are contained in Part IV of the Competition and Consumer Act, and fine-tuned via Part VII. Part IV contains a series of prohibitions which all thematically relate to market power (“competition”) problems, while Part VII allows for individual exemptions from these prohibitions via various types of “statutory immunity”.

Our prohibitions tend to be drafted quite broadly, because there are many ways to get out of them: anti-overlap provisions, exemptions, defences and, where applicable, statutory immunity. The detailed architecture of the legislation is in fact extremely impressive.

But the interrelationship between the prohibitions and these various exceptions is ridiculously complicated, and can take years to master. Thus, we have a regime so complex there are very few who can ably navigate it.

This creates enormous systemic inequity: those who can afford expert advice have a broad range of competitive strategies available to them; but, for those who can’t afford such advice, their best compliance strategy is to operate within very tight confines.

The recommendations

Simplify

You know a law is way too complex when even the lawyers agree it should be simplified. To the general approval (relief?) of competition lawyers around Australia, Harper has a strong focus on simplification. There is a general recommendation that the competition laws be reviewed as a whole, as well as some specific suggestions (such as redrafting our labyrinthine cartel provisions).

Reduce over-reach

Within our prohibitions, we distinguish conduct that is “per se illegal” (that is, regardless of the size and strength of the parties involved) from conduct which is “competition-tested” (only illegal if it has an adverse effect on competition).

Our per se prohibitions are quite broadly drafted and, for years, there has been debate over their scope - particularly whether third line forcing and resale price maintenance should be deemed per se illegal.

The law against third line forcing essentially limits a business’s capacity to make joint offerings with other businesses, while the law against resale price maintenance limits the restrictions that can be placed on a retailer’s pricing strategies.

It’s nigh impossible to explain these laws succinctly (for instance, a whole Part of the legislation is devoted to defining resale price maintenance). But third line forcing in particular is a triumph of form over substance: it is very easy to “draft around” or to use an exception to render the specified conduct legal.

This in turn means that the only businesses likely to engage in illegal third line forcing are those who cannot afford expert advice: in other words, small business. Fortunately, the Australian Competition and Consumer Commission (ACCC) rarely prosecutes this sort of conduct, effectively rendering the prohibition a dead letter. Unsurprisingly Harper recommends it be changed to a “competition-tested” provision.

Harper is not as bold in relation to resale price maintenance. Retaining its status as per se conduct, resale price maintenance would however be allowed upon notification (a pretty straightforward immunity process). This would make it more accessible than the current system which requires authorisation (long-winded, complex and expensive).

Improve immunity processes

Harper wants to reduce complexity in the various statutory immunity processes: authorisation, notification and collective bargaining. The panel also suggests tidying up the merger processes.

Most significantly, it calls for “block exemptions”, an idea borrowed from Europe. This would enable the ACCC to determine that certain types of conduct are generally okay, meaning that individuals would no longer have to initiate their own specific immunity process. The potential impact of block exemptions for small and even medium-sized businesses is enormous.

Clean up the dead wood

The report also calls for some less-than-stellar laws to be removed, including the unused price signalling laws, the confusing “Birdsville” amendment, and the now redundant prohibition on exclusionary provisions.

We can’t afford to overlook the little things

Looking at Harper’s proposed changes to Australia’s competition laws, the vast majority are essential and, in some cases, well overdue. Competition law experts aren’t talking about these recommendations because - fundamentally - they do not excite debate (and you know how lawyers love to argue). And, I fear, business does not understand just how useful the recommended changes may be.

All Australian businesses will benefit from the amendments outlined above. But those who suffer the most from the systemic disadvantage caused by the law’s current complexity - that is, small business - will absolutely benefit the most from these recommendations.

Let’s hope they are not forgotten in all the excitement that surrounds the effects test. There’s certainly no need to wait while we sort out that debate to fix these little, but oh so important, things.

Alexandra Merrett does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.