RESTRICTED
WORLD TRADE WT/WGTCP/W/39
1October 1997
ORGANIZATION(97-4062)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
COMMUNICATION FROM AUSTRALIA
Thefollowing communication hasbeenreceived fromthePermanent Mission ofAustralia with
therequest thatitbecirculated toMembers.
_______________
TheAustralian framework forcompetition policy
Anyexamination oftheprinciples andobjectives ofcompetition policy hastotakeplace to
aconsiderable extent inthecontext ofthenational institutions available topromote competition and
toenforce competition laws. InthecaseofAustralia, three national agencies arerelevant forthis.
TheAustralian competition agencies
Australian Competition andConsumer Commission (ACCC)
TheACCC isanindependent statutory authority which seeks toimprove competition and
efficiency inmarkets, foster adherence tofairtrading practices inwell-informed markets, promote
competitive pricing wherever possible andrestrain price risesinmarkets where competition isless
thaneffective. Itadministers theTrade Practices Act1974,StateandTerritory Application Actsand
thePrices Surveillance Act1983.Apart fromincorporated bodies andAustralian Government-owned
enterprises, theTrade Practices Act,inconjunction withtheState andTerritories Application Acts,
nowcoversunincorporatedbusinessesandStateandTerritoryGovernmentBusinessEnterprises(GBEs).
National Competition Council (NCC)
TheNCC isanindependent advisory bodyforallgovernments (i.e.Federal, StateandTerritory
Governments) involved inimplementing thenational competition reforms resulting from the1993
National Competition Policy (Hilmer) Review. Among itstasks aretobring about major change in
suchareas asthereform ofpublic utility structures, theremoval ofanti-competitive regulation, the
promotion ofgreater competition through interstate tradeandtheachievement ofcompetitive neutrality
between government andprivate businesses. TheNCC alsoplays asubstantial roleinrelation tothe
application ofaccess arrangements toessential facilities.
Australian Competition Tribunal
This Tribunal deals with applications forreview ofdecisions made bytheACCC on
authorizations andnotifications (exemptions fromthecompetition provisions oftheAct)anddecisions
bytherelevant Ministers concerning access toessential facilities. Itmayalsomake declarations relating
tooffshore mergers andundertake enquiries under theinternational linercargo shipping provisions
oftheTrade Practices Actattherequest oftherelevant Minister.WT/WGTCP/W/39
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Aspects ofcompetition policy relevant todevelopment andeconomic growth
Atthefirstmeeting oftheWorking Group onTrade andCompetition Policy many delegations
drew attention totherolecompetition policy plays inachieving development andeconomic growth.
Theanalytical evidence would infactsuggest thatawell-defined andadequately enforced competition
policy isequally beneficial toeconomies regardless oftheirstage ofdevelopment, andthatthesame
basic principles canbeapplied inallcases. What maydiffer between economies andtheirsizesor
theirdevelopmental stage istheextent towhich some aspects ofcompetition policy mayhavetobe
refined oradapted inorder todealwiththeactual conditions inthemarketplace.
Aparticular challenge small ordeveloping economies mayfaceisthatofensuring thatfirms
cangrow sufficiently large inthedomestic market place tohavethemuscle andcapital reserves to
succeed intheinternational markets. Markets maybefragmented andinthiswayform anobstacle
tothegrowth offirms. Sometimes governments seektoalterthissituation through thepromotion of
national champions ordevelopment oflargefirms through some formofadministrative encouragement.
Insome circumstances, targeted rationalization ofthenumber offirms inanindustry canmake
auseful contribution towards theremoval ofloss-making capacity. Itdoesnot,however, automatically
leadtofirms abletowithstand market forces. Ultimately, onlytherigours ofthemarket itself can
achieve that. Inother words, competition isthecrucial factor.
Anational competition policy therefore hastobeabletoaccommodate thegrowth offirms,
regardlessofwhetherthisoccursthroughorganicgrowthorthroughmergersandacquisitions.However,
ithastobeablealsotodealwithanti-competitive mergers andacquisitions aswellasabuses ofmarket
power byindividual firms without limiting theambit ofcompetition policy itself.
Thefollowing paragraphs briefly describe Australia 'sapproach tomergers andacquisitions
andthemisuse ofmarket power.
Merger policy
Section 50oftheTrade Practices Actprohibits mergers oracquisitions which would havethe
effect orlikely effect ofsubstantially lessening competition inasubstantial market forgoods orservices.
Section 50Aprohibits acquisitions outside Australia ofcontrolling interests incorporations where these
would havetheeffect orlikely effect ofsubstantially lessening competition inanAustralian market.
Thepotential benefits ofmergers arewellunderstood. They canpromote economies ofscale
andasset rationalization, produce savings inpreviously duplicated output, andtheycangenerate
reductions intransaction costs associated withfinancial operations. They alsohavethepotential to
leadtosuperiormanagementtechniques,riskreductionthroughdiversificationofoperationsandimproved
capital formation.
Twoimportant principles underlying Australian merger policy are(a)noparticipant inthe
market should beabletoengage inanti-competitive conduct thatdoesnotresult inoutweighing public
benefits, and(b)conduct withanti-competitive potential saidtohaveoutweighing public benefits should
beassessed byanappropriate transparent assessment process, withprovision forreview todemonstrate
thenature andevidence ofthepublic costs andbenefits claimed. Thisprocess isalsoknown as
authorization.
Inadiscussion oftrade andcompetition policy, national approaches toconsider theactual or
potential levelofimport competition inthemarket canbeassumed tobeofspecial interest.WT/WGTCP/W/39
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TheMerger Guidelines revised bytheACCC inJuly1996 recognize theincreased exposure
ofAustralian business toglobal markets. TheACCC nowisunlikely tooppose anymerger where
asustained andcompetitive levelofimports exceeds 10%ofthemarket. TheACCC instead focuses
onmergers inhighly concentrated markets notsubject tosubstantial import competition.
Theassessment ofactual andpotential import competition, however, needs tobeundertaken
withcare.Insomemarkets,marketsharesmayunderstatethecompetitiveconstraintprovidedbyimports
because ofthepotential toexpand thesupply ofimports rapidly inresponse tohigher prices. This
canoftenbetrueofcommodities. Inother cases, market shares willoverstate thelikely roleofimports
inconstraining theconduct ofthemerged firm. Thefactthatimports haveestablished asmall market
share doesnotnecessarily imply thattheycould expand inresponse totheexercise ofmarket power
bythemerged firm.
Misuse ofmarket power
InAustralia, misuse ofmarket power isdealtwithbySections 46and46AoftheTrade Practices
Act. Section 46states thatabusiness thathasasubstantial degree ofpower inamarket isprohibited
from taking advantage ofthatpower forthepurpose of:
- eliminating orsubstantially damaging acompetitor;
- preventing theentry ofaperson intoanymarket; or
- deterring orpreventing aperson fromengaging incompetitive conduct inanymarket.
Section 46isnotaimed atstopping competitive conduct bypowerful corporations. Itstates
thatacorporation thathasasubstantial degree ofpower inamarket shallnottakeadvantage ofthat
power forthepurpose of:
(a) eliminating orsubstantially damaging acompetitor orofabodycorporate thatisrelated
tothecorporation inthatoranyother market;
(b) preventing theentry ofaperson intothatoranyother market; or
(c) deterring orpreventing aperson fromengaging incompetitive conduct inthatorany
other market.
Section 46Aisconcerned withmisuse ofmarket power intrans-Tasman markets. Under
legislation passed inbothAustralia andNewZealand, provisions against misuse ofpower extend to
companies involved intrans-Tasman trade, whether based inAustralia orNewZealand andirrespective
ofwhere theconduct takes place. TheFederal Court ofAustralia maysitinNewZealand, andthe
equivalent NewZealand Court maysitinAustralia todealwithanyaction under these provisions.
IntheviewoftheAustralian Competition andConsumer Commission, inmany instances where
smaller businesses aredamaged bylarger corporations withwhom theydeal(e.g.indisputes between
commercial lessors andtenants, orbetween suppliers anddealers), theconduct willnotbecaught by
Section 46because noneoftheanti-competitive purposes exist.WT/WGTCP/W/39
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Final comments
Themandate forthisWorking Group agreed attheSingapore Ministerial Conference requires
ittotakethedevelopment dimension fullyintoaccount. Ourviewisthatanappropriate andtransparent
mergers andacquisitions policy canmake amajor contribution tothedomestic development ofan
economy andinthiswaytostrengthen itsability tocompete internationally.