Wednesday, 12 February 2014

Demystifying the Root and Branch Review


Introduction
With the announcement of the composition of the Review Panel for the Root and Branch Review of Competition Laws imminent, it is an opportune time to reflect on the role the Review Panel is required to undertake. Indeed, based on the draft terms of reference[1] released by the Minister for Small Business, Mr Bruce Billson, the Review Panel will have an enormous task. 

However, it is not the size of the task which is the main concern. Rather the main concern is whether the Review Panel will be able to identify any substantive changes to the law which will actually have the effect of improving Australia’s competition laws.  While it is relatively easy to identify the main changes to Australian competition law which the Review Panel will be focusing on, it is much more difficult to determine how those changes will work in practice.

In this post, I will outline the terms of reference for the Review Panel and discuss some of the areas where the Review Panel will be focusing it efforts.  I will also identify one significant omission from the scope of the review, namely Australia’s country of origin laws. This is an area which should be included in the terms of reference if the Review Panel is to meet its goals of “achieving long term competitiveness” and “increasing productivity” of the Australian economy. 

Background
The terms of reference commence with the statement that there has not been a thorough review of competition policy in Australia since the Hilmer Review in 1993. This is a puzzling statement given that in 2001 the then Coalition Government commissioned the Dawson Review, whose mandate was to conduct “an independent review of the competition provisions of the Trade Practices Act 1974 and their administration.” 

The terms of reference then state that given significant changes in the Australian economy it is “timely to examine whether these earlier reforms continue to be “fit for purpose” for the current and emerging economy”.  This statement seems to suggest that one task to be performed by the Review Panel is to assess whether any of the earlier reforms introduced by Hilmer should be reversed or modified. 

While this statement may appear at first glance to be quite controversial (particularly in the light of the reverence which tends to be accorded to the Hilmer reforms) it is not surprising that this government appears willing to put the whole Hilmer reform process on the table.  There have been signs that this government believes that the Hilmer review may not have achieved the right balance between the interests of big and small business.

One particular area of the Hilmer reform process which is likely to come under close scrutiny is the repeal section 49 of the then Trade Practices Act 1974 which prohibited price discrimination. This issue will be discussed in more detail below.

The terms of reference go on to state that effective reforms of competition laws should be able to achieve long-term competitiveness, promote investment, increase productivity, support high real wage growth and increase Australian living standards.  Obviously the government has very high expectations of the root and branch review.

Scope of the review
Paragraph 1
The terms of reference outline the scope of the review in paragraph 1 which states:

1. The Review Panel is to inquire into and make recommendations on appropriate reforms to improve the Australian economy and the welfare of Australians, not limited to the legislation governing Australia’s competition policy, in regard to achieving competitive and productive markets throughout the economy, by identifying and removing impediments to competition that are not in the long-term interest of consumers or the public interest, having regard to the following principles:

1.1. no participant in the market should be able to engage in anti-competitive conduct within that market and its broader value chain;

1.2. productivity boosting microeconomic reform should be identified, centred on the realisation of fair, transparent and open competition that drives productivity, stronger real wage growth and higher standards of living;

1.3. government should not be a substitute for the private sector where markets are, or can, function effectively or where contestability can be realised; and

1.4. the need to be mindful of removing wherever possible, the regulatory burden on business when assessing the costs and benefits of competition regulation.

As is clear from the introductory sentence above, the Review Panel is not limited to recommending changes to Australian competition laws. Rather, the Review Panel has been asked to inquire into, and make recommendations about ways of improving the Australian economy and welfare of Australians generally.  This is a very wide mandate which significantly extends the range of issues which the Review Panel will have to consider.

Paragraph 1.1 states that the Review Panel is to identify and remove anticompetitive conduct by participants in markets, while paragraph 1.3 states that government should not be a substitute for the private sector.  These two principles suggest that a major role of the Review Panel will be to look closely at the various government business entities at the Federal, State and Local levels and make recommendations about whether governments should be exiting those businesses.

This may result in the Review Panel recommending that the government privatize various government businesses in addition to Medibank, such as Australia Post, Australian Government Solicitor, AirServices Australia and Defence Housing Australia.

Paragraph 1.4 refers to the need to remove regulatory burdens on business.  The most obvious target of the Review Panel’s work in this regard is likely to be local planning laws which many believe have been stifling retail competition, particularly in the grocery sector.

Paragraph 2
Paragraph 2 of the terms of reference states:

2. The Review Panel should also consider and make recommendations where appropriate, aimed at ensuring Australia’s competition regulation, policy, and regulatory agencies are effective in protecting and facilitating competition, provide incentives for innovation and creativity in business, and meet world’s best practice.
While it is obvious that the entire purpose of competition law is to protect and facilitate competition, the more interesting question is what model of competition the Review Panel will use as its starting point.

I believe that the Review Panel will be under considerable pressure to adopt a “small business model” of competition, given that the current government appears to strongly support that particular model of competition. As stated by the Minister for Small Business in a speech to the Australian Food and Grocery Council in October 2013[2]:

The Government's 'root and branch' review of Australia's competition laws and policy presents a great opportunity for identifying areas where reforms could deliver more competitive markets and drive productivity in a win for business of all sizes and for consumers.

The review will be an independent examination of how the competition framework is working, whether it is keeping up with emerging trends, and looking beyond the competition framework to identify impediments to competition with the goal of improving the living standards of all Australians.

In a nutshell, the review provides an opportunity to support the growth and prosperity of big and small businesses while ensuring consumers are getting value for money.

We want and aspire to have competition based on merit not on muscle.

The implications of the Minister’s statement above are two fold. First, he makes it clear that competition policy should be delivering benefits for businesses of all sizes – ie both big and small businesses. Second, he makes the fairly pointed remark that competition should be based on “merit rather than muscle”. 

It is apparent that the current government sees small business as an important means of driving growth in our economy, particularly employment growth.  The government also appears to have deep-seated concerns about the power (or muscle) of large businesses in a range of sectors, particularly Coles and Woolworths in the grocery sector. 

It is hard to see the Review Panel not being influenced in its approach to conducting this review by the ideological position of the current government in relation to small business.

Paragraph 3
Paragraph 3 of the terms of reference contains a significant amount of detail. Accordingly, in the following I will be breaking the content into a number of smaller sections:

3. The Review Panel should also consider whether the Competition and Consumer Act 2010 (CCA) and regulatory agencies are operating effectively, having regard to the regulatory balance between the Commonwealth and the States and Territories, increasing globalisation, changing market and social structures, technological change, and the need to minimise business compliance costs, including:

Under paragraph 3, the Review Panel has to consider not only whether competition laws are operating effectively, but also whether the regulator, the ACCC, is operating effectively.  This is an interesting inclusion as it will necessitate a close analysis of the operation of the ACCC and the enforcement outcomes which it is achieving.

This may result in the Review Panel investigating the reasons why the ACCC has lost a number of significant cases over the last couple of years including:

·   the Metcash merger case;
·   the ANZ price fixing; and
·   Google Adwords cases. 

I suspect that a close review of the ACCC’s operations is likely to identify a range of problems in the way it runs major litigation.

Other problem areas will include the inadequate training provided to its staff in terms of conducting investigations, particularly criminal investigations. This is somewhat ironic given that the ACCC is very active in sending its senior officers overseas to train competition agency staff in developing countries about how to conduct investigations, while at the same time providing little or no investigation training to its own investigatory staff.

Paragraph 3.1
This paragraphs states that the Review Panel is to “consider whether Australia’s highly codified competition law is responsive, effective and certain in its support of its economic policy objectives.”

This term of reference appears to be a response to comments made by some commentators about the complexity of Australian competition laws, compared with other jurisdictions, most notably US antitrust laws.  In the US, the legislature took the view that it was preferable to create a range of general antitrust prohibitions, and then give the courts a wide discretion to interpret those laws.

Unfortunately, the dangers of taking a less codified approach to competition laws is all too apparent from even a cursory review of US Supreme Court cases in the antitrust field over the last few years. These cases show how a conservative Supreme court has been able to adopt interpretations of antitrust laws which effectively strip those laws of most of their substantive content and intellectual coherence. 

I think that it is quite unlikely that the Review Panel will recommend a move away from the codification of competition laws, and towards a more US-style of competition/antitrust laws.

Paragraph 3.2
This paragraphs states that the Review Panel has a role in:

3.2. examining whether the operations and processes of regulatory agencies are transparent, efficient, subject to appropriate external scrutiny and provide reasonable regulatory certainty…

This term of reference places the ACCC’s processes directly in the firing line. I think it is inevitable that the Review Panel will find serious shortcomings in the ACCC’s operations and processes in terms of their transparency and efficiency. 

As discussed in other posts on this blog, the ACCC’s operations and processes lack transparency particularly in relation to its enforcement activities. 

For example, it is all but impossible for complainants to find out whether their complaint is actually being investigated by the ACCC, as it is now the ACCC’s standard practice not to provide substantive written responses to any complaints.

Furthermore, the ACCC shows a general reluctance to provide even the companies it has under investigation with basic information about the course of its investigation or how it has interpreted the relevant law.

Another area where the ACCC lacks transparency is in responding to complaints from business about the ACCC’s own shortcomings. The tendency of the ACCC to sweep complaints about its own conduct under the carpet is quite ironic given that the ACCC is a strong advocate of the importance of businesses implementing comprehensive and responsive complaints handling systems. One would have hoped that the ACCC would practice what it preaches, and implement a proper system for receiving, assessing and responding to complaints from business about its own performance.

I think that it is inevitable that the Review Panel will end up reconsidering two of the recommendations made by the Dawson Committee in relation to ACCC accountability, namely:

·     to establish a Joint Parliamentary Committee to oversee the ACCC’s administration of the TPA (CCA) (Recommendation 11.1); and

·    to appoint an Associate Commissioner to the ACCC to receive and respond to individual complaints about the administration of the Act and to report each year in the ACCC's annual report (Recommendation 11.3).
I think both of these steps would have positive impacts on the ACCC’s administration of the Act.  A specific Joint Parliamentary Committee to oversee the ACCC’s administration of the Act would introduce some proper accountability, particularly in relation to the ACCC’s financial management.

The appointment of an Associate Commissioner to receive and respond to individual complaints about the administration of the Act and to report each year in the ACCC's annual report, would give businesses with concerns about their treatment at the hands of the ACCC some place to turn. 

At the moment complaints about the ACCC’s administration are simply referred back to the relevant ACCC officer to prepare a response. This is not an appropriate way to respond to complaints. There needs to be a system to refer complaints to a more senior person, who is relatively independent, and who has a statutory obligation to investigate and provide a proper response to complaints.

Paragraph 3.3
Paragraph 3.3 states that the Review Panel must report on the following issues:

3.3. ensuring that the CCA appropriately protects the competitive process and facilitates competition, including by (but not limited to):

3.3.1. examining whether current legislative provisions are functioning as intended in light of actual experience and precedent;

3.3.2. considering whether the misuse of market power provisions effectively prohibit anti-competitive conduct and are sufficient to: address the breadth of matters expected of them; capture all behaviours of concern; and support the growth of efficient businesses regardless of their size;

3.3.3. considering whether areas that are currently uncertain or rarely used in Australian law could be framed and administered more effectively;

3.3.4. considering whether the framework for industry codes of conduct (with reference to State and Territory codes where relevant) and protections against unfair and unconscionable conduct, provide an adequate mechanism to encourage reasonable business dealings across the economy - particularly in relation to small business;

3.3.5. whether existing exemptions from competition law and/or historic sector-specific arrangements (e.g. conditional offers between related businesses and immunities for providers of liner shipping services) are still warranted; and

3.3.6. considering whether the National Access Regime contained in Part IIIA of the CCA (taking into account the Productivity Commission’s recent inquiry) is adequate…

It is clear from the above that an area of particular concern for the government is whether the misuse of market power provisions of the CCA are operating effectively.  There appears to be a view amongst members of the government that small businesses are being subjected to unfair and bullying conduct by larger companies, particularly the two major grocers, and that section 46 should be able to be used to prevent such conduct.

However, what is not clear is how section 46 can be used either in its current form or in a modified form to provide better protection for small business.

One of the main problems facing small business at the retail level is that they struggle to purchase products at the wholesale level as cheaply as much larger competitors, such as Coles and Woolworths.

Many small business advocates believe that the reintroduction of price discrimination provisions to Australian competition laws would provide a positive benefit to small businesses. Their reasoning is that such laws would prevent larger businesses from buying goods from suppliers at significantly lower prices than competing small businesses can acquire the same goods.  The clearest example of this is the buying power of the two large retailers, Coles and Woolworths, compared with the buying power of small independent grocers.

Unfortunately, the view that the reintroduction of price discrimination laws will somehow level the playing field between large and small business is misplaced.  The reintroduction of such laws will simply result in higher wholesale prices across the industry, to the financial benefit of suppliers.  The final consumer will again be the biggest loser when retail prices are pushed upwards.

Having said that, I think there is a strong possibility that the Review Panel may ultimately recommend the reintroduction of a prohibition on price discrimination.

Another significant area in terms of section 46 is whether to introduce an effects test.  There has been a great deal of criticism of the requirement in section 46 that the ACCC must establish that a firm with a substantial degree of market power also had a prohibited purpose.  Critics claim that a competition statute should focus on the effects of conduct and not the purpose of the firm in engaging in that conduct.  The ACCC is also critical of the purpose test because it claims it is difficult to establish.

There are strong arguments to change section 46 to introduce an effects test. Effects tests are clearly the dominant legal test in most other leading jurisdictions, such as the US and European Community, in their monopolisation statutes.  In addition, it makes more sense to try to prohibit conduct which has had a demonstrable effect on competition, rather than punish conduct which, while aimed at lessening competition, may prove to be ultimately unsuccessful in achieving that outcome.

It is also not correct to state that the ACCC has had difficulty establishing the purpose element in the section 46 cases. In fact, the ACCC has never failed to establish the purpose element in any section 46 case which it has run. Rather the ACCC has failed to establish either taking advantage element or that the relevant firm possessed a substantial degree of market power in the relatively few section 46 cases it has lost.

I think it is highly likely that the Review Panel will recommend the introduction of an effects test under section 46. On the other hand, the Review Panel is unlikely to recommend the removal of the existing purpose test. Rather I think the Review Panel will recommend that section 46 be amended to add an effects test to the existing purpose test. This will make section 46 consistent with sections 45 and 47 which both have a purpose and/or effect tests.

No doubt, the Review Panel will be strongly encouraged by various groups, particularly small business lobby groups, to support the introduction of a Groceries Code along the lines of the UK Groceries Supply Code of Practice.  The purpose of the UK Code is to promote fair dealing between major grocery companies and smaller business suppliers by redressing imbalances in bargaining power.

The purpose of the UK Code is explained under Principle 2 which states:

A Retailer must at all times deal with its Suppliers fairly and lawfully. Fair and lawful dealing will be understood as requiring the Retailer to conduct its trading relationships with Suppliers in good faith, without distinction between formal or informal arrangements, without duress and in recognition of the Suppliers’ need for certainty as regards the risks and costs of trading, particularly in relation to production, delivery and payment issues.

It is almost inevitable that the Review Panel will recommend the introduction of a Groceries Code in Australia.

Paragraph 3.3.3 states that the Review Panel is to consider whether there are any areas that are currently uncertain or rarely used in Australian law which could be framed and administered more effectively.

Unfortunately, there many areas of law in the competition area which could be classified as uncertain, including the misuse of market power prohibition, the operation of the criminal cartel provisions and even what constitutes an understanding for the purposes of section 45.

It will be a significant task for the Review Panel to explore these various areas of uncertainty and to come to sensible recommendations for improvement.
However, of more interest will be the Review Panel’s consideration of areas of law which:

·     have not been enforced at all, such as criminal cartels, the Birdsville amendment and price signalling laws; or
·     enforced only intermittently such as secondary boycott laws and misuse of market power provisions.

The reality about section 46 is that the ACCC takes very few cases. Since the introduction of the provision in 1974, the ACCC has only commenced 20 cases.[3] In other words, the ACCC has only taken 20 section 46 cases in 40 years or one case every two years.

Furthermore, the ACCC will be very uncomfortable having to explain to the Review Panel why it has not taken a secondary boycott case against any union for the last nine years.

Paragraph 3.4
Paragraphs states that the Review Panel is to examine:

3.4. whether competition regulations, enforcement arrangements and appeal mechanisms are in line with international best practice and:

3.4.1. foster a productive and cost-minimising interface between the Australian Competition and Consumer Commission (ACCC) and industry (for instance, through applications for immunity or merger clearances) that is simple, effective and well designed;

3.4.2. provide appropriate mechanisms for enforcement and seeking redress including;

·       whether administration and enforcement of competition laws is being carried out in an effective, transparent and consistent way;

·       whether enforcement and redress mechanisms can be effectively used by people to enforce their rights - by small businesses in particular; and

·       the extent to which new enforcement powers, remedies or enhanced penalties might be necessary and appropriate to prohibit anti-competitive conduct, and

3.4.3. can adequately address competition issues in emerging markets and across new technologies, particularly e-commerce environments, to promote entrepreneurship and innovation.

These paragraphs tend to repeat a number of the same issues identified earlier in the terms of reference. For example, there is a further reference to whether the administration and enforcement of competition laws is being carried out by the ACCC in an effective, transparent and consistent way. 

The reference to the Review Panel exploring the need for new enforcement powers, remedies or enhanced penalties is likely to raise the issue of whether to introduce a divestiture remedy. In other words, whether courts should be given the power to order that a firm, which has been found to have breached competition laws, be required to divest particular assets to reduce their market power.

In the United States, divestiture has long been recognised as one of the remedies which can be sought in relation to monopolisation cases under antitrust laws.  The power of US courts to order divestiture in monopolization cases does not arise from a specific statutory provision but rather from the court’s equitable jurisdiction.

Whilst this remedy has only been sought on rare occasions in the US, there are two notable examples.

The first divestiture in US antitrust history in relation to a monopolisation case occurred in 1911 when the US Supreme Court ordered the dissolution of the Standard Oil Trust into 34 separate companies after the company had gained almost monopoly power in the US fuel industry.[4]

The other significant divestiture case occurred in 1982 when AT&T consented to being broken up into seven regional service companies or “Baby bells” after becoming a virtual monopoly in the provision of telephony services.[5]

These cases show that a divestiture remedy is both feasible and appropriate in situations where a company has amassed a substantial degree of market power and has used that market power to damage competition.

I think it is possible that the Review Panel will recommend the introduction of a divestiture remedy in relation to proven breaches of section 46 of the CCA.

Paragraph 4
Paragraph 4 states the following:

4. The Review Panel should inquire into and advise on appropriate changes to legislation, institutional arrangements and other measures in relation to the matters below, having regard to the impact on long-term consumer benefits in relation to value, innovation, choice and access to goods and services, and the capacity of Australian business to compete both domestically and internationally. In particular, the Review Panel should:

4.1. examine the structure and behaviour of markets with natural monopoly characteristics with a view to determining whether the existing regulatory frameworks are leading to efficient outcomes and whether there are opportunities to increase competition;

4.2. examine whether key markets - including, but not limited to, groceries, utilities and automotive fuel - are competitive and whether changes to the scope of the CCA and related laws are necessary to enhance consumer, producer, supplier and retailer opportunities in those markets and their broader value chains;

4.3. consider alternative means for addressing anti-competitive market structure, composition and behaviour currently outside the scope of the CCA;

4.4. consider the impact of concentration and vertical integration in key Australian markets on the welfare of Australians ensuring that any changes to the coverage and nature of competition policy is consistent with national economic policy objectives; and

4.5. identify opportunities for removing unnecessary and inefficient barriers to entry and competition, reducing complexity and eliminating administrative duplication.

4.6. consider ways to ensure Australians can access goods and services at internationally competitive prices, including examining any remaining parallel import restrictions and international price discrimination.

This term of reference empowers the Review Panel to consider the effectiveness of the access regime established under Part IIA.  It is somewhat surprising that this has been included in the terms of reference, given that the Productivity Commission has only recently conducted an extensive review of Part IIIA and concluded that the access regime is working effectively and should be retained.

Having said that, the government’s response to the recent release of the Productivity Commission Report has been equivocal, to say the least. As stated by the Minister:[6]

The Government will respond to the Productivity Commission’s report following the outcomes of the root and branch review.

Therefore, it seems that the government will be placing a great deal more weight on any conclusions reached by the root and brand Review Panel about the future of Part IIIA, than on the findings reached by the Productivity Commission.

This term of reference is also notable to the extent that it singles out three industries for specific attention - namely, groceries, utilities and automotive fuel. While it is not surprising that the government has decided to single out these three industries, it is very difficult to speculate about the type of changes which the Review Panel may end up recommending, with the exception of the grocery industry, which is likely to see the introduction of Groceries Code.

This term of reference also identifies two specific practices which the Review Panel must examine – ie parallel import restrictions and international price discrimination. The inclusion of these issues in the terms of reference will greatly increase the Review Panel's work in terms of both volume and complexity.
Paragraph 5
Paragraph 5 states that:

5. The Review Panel should also examine whether government business activities and services providers serve the public interest and promote competition and productivity, including consideration of separating government funding of services from service provision, privatisation, corporatisation, price regulation that improves price signals in non-competitive segments, and competitive neutrality policy.

Again, this term of reference appears to duplicate a number of the earlier terms of reference.

Paragraph 6
Finally paragraph 6 states:

6. The Review Panel should consider and make recommendations on the most appropriate ways to enhance competition, by removing regulation and by working with stakeholders to put in place economic devices that ensure a fair balance between regulatory expectations of the community and self-regulation, free markets and the promotion of competition.

This appears to be a catchall provision.

Further directions
At the end of the terms of reference is some further guidance for the Review Panel on how they are to approach their task.

The Review Panel should consider overseas experience insofar as it may be useful for the review.

The Review Panel may, where appropriate, draw on (but should not duplicate or re-visit) the work of other recent or current comprehensive reviews, such as the Commission of Audit and the Cost-Benefit Analysis and Regulatory Review for the National Broadband Network.

The Review Panel should only consider the Australian Consumer Law (Schedule 2 of the CCA) and corresponding provisions in Part 2, Division 2 of the Australian Securities and Investments Commission Act 2001, to the extent they relate to protections (such as from unfair and unconscionable conduct) for small businesses.

These paragraphs make it clear that the Review Panel:

·      is permitted to consider overseas experience

·       is not to duplicate work which has already been assigned to the Commission of Audit and the Cost-Benefit Analysis and Regulatory Review for the National Broadband Network. 

However, the paragraph of most significance is the prohibition on the Review Panel considering any provisions of the Australian Consumer Law except for the unfair contract terms and unconscionable conduct provisions. 

While it is appropriate for the Review Panel to consider these areas, given their relevance to small business, it seems somewhat shortsighted not to have included Australian’s country of origin laws as part of the review.

Country of origin laws are in desperate need of review, due to the uncertainty which surrounds the application of these laws.  What should also be remembered is that these laws are potentially a major driver of economic growth, particular export growth, for Australian businesses. 

Many small businesses wish to manufacture in Australia and export their goods as Australian Made. However, they fear engaging in such activities for the risk of falling foul of the ACCC’s and the Australian Made Campaign’s interpretation of relevant laws.  Unfortunately, both the ACCC and the Australian Made Campaign have adopted highly questionable interpretations of the relevant legal tests contained in Part 5-3 of the Australian Consumer Law, which have stymied small business activity. These interpretations (which in appear in various official publications) have had the effect of preventing many Australian businesses from being able to claim that their products are Australian Made and, in some cases, have resulted in Australian manufacturers losing lucrative export contracts.

I recall one case where a client was able to legitimately claim that over 95% of his production costs were attributable to processes in Australia. Unfortunately, both the ACCC and Australian Made Campaign formed the view that despite virtually all of this client’s costs of manufacture being incurred in Australia, he did not satisfy the substantial transformation test. As a result, this small business was unable to continue marketing his products as Australian Made in various export markets, including to customers in China.

In this case, the Australian Made Campaign expressed the view that footwear can only be classified as the Australian Made, if the materials for the footwear were “cut and sewn” in Australia.  When queried about this issue, the Australian Made Campaign advised that their view was based an ACCC publication which made this statement. I fail to see how the mere act of cutting leather into particular shapes is a necessary step in demonstrating that a good has been substantially transformed in Australia.

While much of the recent media focus has been on the closure of large scale manufacturing operations, such as the car manufacturers and canning operations, the business group which has been largely forgotten by government are small Australian manufacturing businesses.  The reality is that these small manufacturing businesses would be able to generate much greater levels of sales, including greater export sales, if there was a more flexible country of origin test.

The solution to the problem of our restrictive country of origin laws is quite simple - we should raise the cost of production threshold to 60% of the cost of manufacture, while at the same time completely removing the substantial transformation test.  If an Australian business can prove that 60% of the cost of manufacturing its goods is attributable to Australia, it should be able to claim that these goods are Made in Australia. Businesses should not also have to prove that these goods have been substantially transformed in Australia.

Not only is the substantial transformation test a very vague standard, which is almost impossible to define, but both the ACCC and the Australian Made Campaign have demonstrated that they all but incapable of properly interpreting this standard in real world situations.

If the government truly wishes the root and branch review to achieve such lofty goals as achieving competitive and productive markets and the removal of impediments to competition that are not in the long-term interest of consumers or the public interest, it should amend the terms of reference to include a thorough review of Australia’s country of origin laws.  A number of small but significant changes to our country of origin laws will provide a major boost to Australian small business manufacturing, which in turn could open up many new export opportunities.

While governments often tend to focus on large reforms which they see as having the potential to transform the entire economy, such as the introduction of an access regime or the privatization of large government owned businesses, it is often the smaller market reforms which end up creating more far-reaching and long-lasting benefits to the Australian economy.  If this government is serious about trying to unlock the full potential of small business manufacturing in Australia, it should ask the Review Panel to review the operation of Australia’s country of origin laws. Hopefully such a review would result in country of origin laws which are supportive, rather than obstructive, of small business entrepreneurship in Australia.




[1] http://www.apha.org.au/wp-content/uploads/2013/12/Terms-of-reference.pdf
[4] ( Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911) - http://supreme.justia.com/cases/federal/us/221/1/case.html)
[5] (United States v. American Tel. and Tel. Co., 552 F. Supp. 131 - Dist. Court, Dist. of Columbia 1982 - http://scholar.google.com/scholar_case?case=12093892347857939076&q=552+F.+Supp.+131&hl=en&as_sdt=2002) 
[6] Productivity Commission’s final report on National Access Regime released, 11 February 2014 – at http://bfb.ministers.treasury.gov.au/media-release/003-2014/

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