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S2004/04 - MATTERS OF PUBLIC INTEREST: Small Business: Trade Practices Act

Senator BOSWELL (Queensland—Leader of The Nationals in the Senate) (12.44 p.m.)
—The report released last month by the Senate's Economics References Committee, entitled The effectiveness of the Trade Practices Act 1974 in protecting small business, followed on from the Dawson review, which had been conducted prior to the High Court's decision in the Boral case. Although the Boral decision was considered by the members of the Dawson review just prior to the release of their report, this Senate review is the first to also take into account the views of the public following the High Court's Boral and Rural Press decisions. At the core of the report is section 46, the misuse of market power provision of the Trade Practices Act. The Senate committee has unanimously recommended reform to section 46 to clarify both the Boral and the Rural Press decisions.

This senate report is also important because it confirms, in a unanimous decision, that the Dawson review recommendation on collective negotiations by the means of notification should be implemented. The review received important input from all small business sectors, which are to be congratulated on their positive approach and now on their united response to the outcome of the report. Small business are also to be congratulated for their efforts in combining under several industry groupings to promote their cause. Submissions were received from groupings representing most small business sectors: pharmacies, independent grocers, retailers, panel beaters, the motor trades, liquor retailers, newsagencies and others. I have spoken directly to the pharmacists and the grocers and they are very happy with the recommendations.

This report is of special importance because of the continued significance of small business to the Australian economy, particularly in rural and regional towns and districts, where they are often the mainstay of local communities as an employer and as a contributor to local life. I am pleased to note that small business have come out strongly in support of the recommendations of the government senator's report. Firstly, Senator Brandis's report covers reforms to the misuse of market power provision in section 46. To quote Senator Brandis's recommendation:

.. there is a clear case for legislative reform of s.46 ... Boral, have narrowed the already limited operation of s.46, and ... restricted to an undesirable degree its capacity to deal with anticompetitive conduct, in particular ... `predatory pricing'.

Section 46 needs reform to:

... ensure that the Act achieves its core objective of promoting competition.

The report from all senators pointed out how this section in particular had strayed from the original intention of the legislature when it was introduced in 1986. Support for this point of view and for the need for change to reflect the intentions of the original purpose of the section was agreed to by the Chairman of the ACCC, Graeme Samuel, in the submission from the ACCC. This has resulted in a unanimous agreement that section 46 must be available as a remedy for small business in a form that reflects the intentions of the 1986 test, when the test was changed from `substantial control of a market' to `substantial degree of power in a market'. The then Attorney-General, Lionel Bowen, said:

... an effective provision controlling misuse of market power is most important to ensure that small businesses are given a measure of protection from the predatory actions of powerful competitors. Unfortunately, section 46 as presently drafted has proved of quite limited effectiveness in achieving that result, principally because the section applies only to monopolists or those with overwhelming market dominance.

The amendments are designed to address these problems. The government members' report has suggested there be an amendment to section 46 to deal with predatory pricing to cover situations in which a corporation has a substantial degree of power in a market and has taken advantage of this power for the proscribed purpose in the act against their competition. Under this, the court may have regard to the corporation's capacity to sell below cost. The Boral decision virtually required a monopoly position. In returning to the intent of the 1986 amendment, it is hoped to get through the threshold for small business.

The second area where there has been support from all committee members and endorsement from the small business community in relation to section 46 is to reverse the High Court decision in the Rural Press case, which resulted in a narrowing of section 46. All agreed with the ACCC proposal for reform to cover the situation where a corporation with substantial power in one market takes advantage of that power to engage in proscribed conduct in another market. Another important remedy under consideration is for actions brought by small business under section 51—actions which are a whole new remedy provided by the coalition government.

Following the Reid report, Senator Brandis has recommended a lifting of the statutory limit of the transaction from $3 million to $10 million. Small business and farmers have, for many years, needed a speedy process to allow them to negotiate on a collective basis with their large customers and processors. In the years following the deregulation of their rural and other industries, they have been faced with an increasing concentration of customers—for example, through the consolidation of grocery sales by Coles and Woolworth's and the disappearance of other customers as small businesses have dwindled. This continues through the consolidation of other markets like liquor or insurance companies for the motor trades. Other small business people like newsagents also need these powers when dealing with a small number of publishers. With the increase in large national contracts becoming the norm, legislation allowing this process is needed now.

Introducing a notification process rather than a very protracted authorisation process will help to rebalance the market power and bargaining power between big businesses and small individual businesses and producers. The National Party has always been at the forefront of reform to the area of collective negotiations, which are presently only permitted following an authorisation by the ACCC. It is pleasing to see that all committee members agree with implementing the Dawson recommendation for collective negotiations, including collective boycotts. That is very important. It is no good having collective bargaining if there is no end point to it. There has to be a point where there is some muscle. I am glad that everyone has agreed with that recommendation.

In the report government members stated that they noted that collective bargaining by small businesses was one of the key recommendations of the Dawson report and that the government has already announced its intention to legislate for it, adding that government members support this recommendation. I, too, am very supportive of this recommendation, which has now been a unanimous decision of several inquiries, the latest being the Senate committee, and was previously endorsed by the Dawson review.

The government has also been very supportive of this change to collective negotiations. Treasurer Peter Costello, in his response to collective negotiations in the Dawson review, said:

Rural and regional stakeholders ... will welcome the introduction of a notification process to facilitate collective bargaining by small businesses dealing with large businesses. This would apply to businesses that supply or acquire goods in transactions valued at less than $3 million per year, or a larger sum if varied by regulation.

I welcome this move but the limit must reflect the real terms of transactions. I give the example of dairy contracts, where some of the bigger farmers would probably have over $1 million worth of milk going to processors.

Collective negotiations are an important tool, an essential tool for small business in the present climate of commercial dealings with increasingly concentrated customers and suppliers, so granting the right to collectively negotiate must never form the basis of discrimination against a group that has chosen to get together to collectively negotiate. This right, agreed to not only by the government but by the main competition enforcer, the ACCC, must be respected by the strong party on the other side. I think Senator George Campbell would see the relevance in that. Big business must know that this right to collectively negotiate is a right granted by law which is a legitimate part of the bargaining process, that it is here to stay and that they must always operate within its framework. The government has made many gains in support of small business. This includes the reforms that came out of the fair trading review, such as representative actions being brought by the ACCC on behalf of small business and the recognition of regional economies.

A hugely important reform that came out of this review was the introduction of the Retail Grocery Industry Ombudsman. The grocery industry ombudsman and the grocery industry code of conduct are currently being reviewed after three years of operation. Both the ombudsman and the code have operated as a most worthwhile support for small business and farmers, and were introduced by this coalition government. I congratulate the ombudsman in his efforts in mediating disputes. His presence and the presence of the code and its industry committee have been of great assistance in normalising relations. I look forward to the continuation of the ombudsman and the system that has been established following the review.

Other important developments from this reform have been the increasing adoption of codes of practice, and I give an example of a code of practice being worked on with the assistance of the ACCC that will have great application for the horticultural industry through all its stages from the farm to the retailer. All parties need transparency in their dealings all the way along the line, such as growers knowing whether they are dealing with an agent or with a wholesaler.

Governments have acted to assist the small against the big in our deregulated marketplace. The next welcome move will be the easier notification process for collective bargaining. As the premium dairy farmers will tell you, getting an authorisation can involve tremendous costs and take years, and then it can be subject to appeal with the need to go right back to the beginning and start again. The new recommended process will be simple, speedy, cheap and efficient and will be a process for all small business people and farmers to collectively negotiate. The notification process will assist any small business group, newsagents, the motor trades industry and farmers. It was a Nationals initiative announced by John Anderson prior to the last election, and now after examination by the Dawson review it has been accepted with bipartisan support in the Senate committee.

I am pleased that the recommendation for the reintroduction of an effective section 46 for small business has been welcomed by all small business groups. The Boral and Rural Press decisions acted to limit the remedy for small business. Now, as recommended in this report, small business should soon once again have an available and meaningful remedy for predatory pricing under reformed section 46.

For a long time the balance has been seesawing, with the seesaw getting higher and going more and more to big business. At the same time the market power has been getting more and more restricted, with power going to big business, depowering small business, through consolidations. This piece of legislation is a genuine attempt by the government to balance that market power.