Issue H: The "Lessening Competition"Jurisdiction Test
The issue
119. In 1987 the Commission took the view that it did not have the jurisdiction to grant an authorisation unless in the first instance, the relevant contract, undertaking, arrangement or provision would or would be likely to result in a substantial lessening of competition. The Commission gave the following reasons:
- Minor wording differences between the Commerce Act and the Australian Trade Practices Act 1974 meant that the law was different in the two countries;
- Granting an authorisation in the absence of a substantial lessening of competition would be tantamount to a clearance procedure; and
- Concern that public resources would be wasted in circumstances where the risk of infringing the Act was low.42
120. The Commission acknowledged that it was for the courts, not the Commission, to decide whether conduct contravenes the Act. However, the Commission did not give a significant weighting to this point. Nor did it attach much importance to the argument that declining an application for this reason had the effect of denying the applicant the certainty that the authorisation process was designed to provide, with a consequent risk that conduct that was of benefit to society would not be implemented.
121. This issue was considered by the Government in the mid-1990s, and Parliament lowered the jurisdictional threshold from "substantial lessening of competition" to "lessening of competition."43 This change has made it easier for parties to meet the test and obtain protection from challenge under the Act.
Option
122. The options are to retain or remove the "lessening of competition" jurisdiction test. The issue needs to be considered from each of the following perspectives:
- If there were to be no trade practice clearance system; and
- If there were to be a trade practice clearance system.
Analysis – Assume no trade practice clearance system
The quality of outcomes
123. The Commission has advised us that for every seven approaches to discuss whether an authorisation is needed only one of these results in an authorisation application. In addition, there is no jurisdiction test in Australia and the ACCC appears to receive applications for authorisation that would not raise significant competition concerns in New Zealand. These factors may suggest that the jurisdiction test serves a useful filtering purpose. On the other hand, it can be argued that cost is the main reason that firms are reluctant to seek authorisations, not the jurisdiction test.44
Predictability
124. There have been two authorisation applications subsequent to the 1996 Amendments inserting section 61(6A) where the Commission concluded that there was no lessening of competition.45 The effect of those decisions was that the applicants did not get the legal immunity that they were seeking.
Analysis – Assume a trade practice clearance system is introduced
Clear and consistent legislation
125. If a trade practice clearance system were to be introduced then it would be important to make sure that the clearance and authorisation systems fitted well together. The way this is done in relation to mergers is as follows:
- The Commission has two choices when a clearance is sought. It grants a clearance if it concludes that the conduct is not anticompetitive. Otherwise, it declines the application; and
- The Commission has three choices when an authorisation is sought. It grants a clearance if it concludes that the conduct is not anticompetitive. The Commission grants an authorisation if it concludes that the conduct is anticompetitive but there is a benefit to the public in all the circumstances. Otherwise the application is declined.
126. This interaction works well for mergers and we can think of no reason for adopting a different approach for trade practices. Therefore, the lessening competition jurisdiction test would become redundant.
Conclusions
127. We have not reached any conclusions on whether the jurisdiction test should be retained or removed in the event that there is no trade practice clearance system. However, if there is to be a trade practice clearance system, the interface between clearance and authorisation should be the same as it is for mergers.
Questions
Q13. Assuming there will continue to be no clearance system for trade practices, should the "lessening of competition" jurisdiction test for restrictive trade practice authorisations be retained or removed?
Q14. If there is to be a clearance system for trade practices, what implications are there for the "lessening of competition" jurisdiction test for the restrictive trade practice authorisation system?