Turf wars loom over new competition policy body

The Federal Government has agreed to the Harper Review’s recommendation to establish a new competition body in charge of policy development.

The new institution - for now known as the Australian Council for Competition Policy (ACCP) - will implement Australia’s competition policy agenda, including reforms arising from the Harper Review. But it also has a broader role, driving policy issues over the longer-term.

The ACCP would be the successor in spirit and fact to the National Competition Council (NCC). The role of the NCC - initially extremely important following the Hilmer review - has become very narrow over recent years. With last year’s budget, it was effectively declared a dead duck when it was stripped of its staff.

The states and territories also have a say

The ACCP would be yet another example of “co-operative federalism”, with the body created under the law of one state and then extended to other states, the territories and the Commonwealth via additional legislation.

This model has proven extremely effective in a range of areas (for example, energy regulation), but means that the Federal Government cannot resolve the nitty gritty by itself.

Accordingly, the government’s response to the details of Harper’s various recommendations concerning the new body is to declare that its “design, role and mandate” would be discussed with the states and territories. While perfectly understandable, this approach means the new body has all the appearances of a drum: we have an idea of how the outer shell looks but, for now, it is quite hollow.

Ambivalence reigns

In the meantime, the government seems quite ambivalent about some of the substantive recommendations which Harper makes in respect of this body.

Key recommendations include empowering the ACCP to undertake “market studies”, whether on its own initiative or in response to requests by governments and even market participants. The ACCP, according to Harper, should also have the power to make recommendations to governments regarding regulation, and even to the Australian Competition and Consumer Commission (ACCC) on its investigations.

While this last power would be quite novel, the others are eminently sensible. Indeed, Australia’s competition regime is clearly the poorer for a lack of regular market studies, and particularly the occasional review of ACCC merger decisions. Without such studies, we are never in a position to learn from history.

The government responds, however, that the ACCC currently has scope to conduct market studies, including under ministerial direction (as occurred, for example, with the 2008 Grocery Report). It also notes that the Productivity Commission has the power to undertake studies of this nature.

Thus, declining to outline its own position on this recommendation, the government formally shelves it for discussion with the states and territories. The government adopts a very similar approach on the recommendation that the ACCP undertake regular analyses of developments in the competition policy environment. While it remains “open” to this recommendation and promises to discuss it with the others, it points out that the ACCC already does this work.

Reality bites

It is indeed true that other bodies can undertake market studies and general competition policy analysis, including sometimes at their own direction. The ACCC and its predecessor, the Trade Practices Commission, has in its time produced extremely thorough, informative and useful reports into particular industries and issues - the TPC’s report into the collapse of Compass Airlines in 1992 is a prime example.

But the ACCC has extremely limited resources, and is simply not in a position to initiate such processes itself. Furthermore, it is hardly the best organisation to consider whether its handling of specific issues (such as market power investigations or merger clearances) represents best practice. Likewise, the Productivity Commission - which is essentially made up of economists - is not always well-placed to undertake assessments of issues so clearly rooted in the law.

In any case, it seems odd to create a policy body and then not endow it with these powers.

The ACCC’s position

The government’s ambivalence as to the new body’s precise role may reflect the ACCC’s general opposition to Harper’s institutional recommendations.

The ACCC has been broadly supportive of the Harper proposals and yesterday released a short bland statement of general support for the government’s response. But it is fiercely protective of current institutional arrangements.

The ACCC’s opposition to Harper’s proposed changes largely relates to suggestions that its regulatory functions be rolled into a separate body, with the ACCC’s role being limited to general enforcement of the law. (The government has been non-committal on this point.)

But the ACCC also strongly objects to Harper’s view that its advocacy, education and market review functions be limited. It did however concede - a touch grudgingly - that other bodies could also be charged with such tasks.

The ACCC defended its ground, not by pointing to its track record on market studies but by essentially pitching for new funding to undertake these studies. In doing so, it cited various overseas regulatory bodies with combined enforcement, regulatory and policy roles.

But in the same way we like media diversity, institutional diversity and even competition has clear benefits.

The ACCC’s role in relation to mergers, in particular, occurs almost entirely behind closed doors. If only in this area, objective third-party reviews of ACCC assessments - comparing the ACCC’s predictions with actual market developments - could only enhance its decision-making. Such transparency is also likely to result in improved court outcomes for the ACCC, as the robustness of its analysis becomes more broadly appreciated.

In any case, the argument has been postponed for now. The government agrees there should be a new policy body: it just doesn’t have a clear view what that body should do.