2 CIRC Conference: Building "Friends of Competition" in India Competition Reforms: The Australian Experience and the Role of Evidence By Professor Allan Fels, AO Dean, Australia and New Zealand School of Government (former Chairman of the Australian Competition and Consumer Commission) 24 th November 2011 New Delhi, India

A COMPREHENSIVE NATIONAL COMPETITION POLICY Traditional narrow concept of competition/antitrust/fair trade law Limitations of traditional concept Elements of a comprehensive competition policy 3

AUSTRALIA’S ADOPTION OF A NATIONAL COMPREHENSIVE COMPETITION POLICY 1960s A highly regulated economy in most respects: –Import protection –Fixed exchange rate –Highly regulated financial and other sectors –Numerous anticompetitive laws –Absence of competition law  numerous cartels and monopolies –Monopoly public utilities (telecommunications, energy, air and rail transport etc.) –Regulated labour market 4

AUSTRALIA’S ADOPTION OF A NATIONAL COMPREHENSIVE COMPETITION POLICY (cont) 1980s Substantial deregulation: –Import protection removed –Exchange rate floated –Financial and some other sectors –Some infrastructure deregulation –Some labour market deregulation –Trade Practices Act 1974 (competition law) 5

FACTORS IN AUSTRALIA’S ADOPTION OF A NATIONAL COMPREHENSIVE COMPETITION POLICY early 1990s –Exposure to more international competition led to emphasis on domestic competition issues. –Lack of competition in sectors not exposed to international competition harmed economic efficiency and sectors exposed to international competition –Limitations of progressing reform on a sector by sector basis, without the benefit of a broader policy framework or process –Recognition of Australia as one national market rather than a set of separate regional markets –Privatisation (and corporatisation and commercialisation) of public utilities caused a focus on competition questions –Greater recognition of value of competition 6

early 1990s –Emerging focus on competition law and policy –Vigorous enforcement of law to: Cartels Anticompetitive mergers Abuse of dominance Misleading and deceptive conduct –Reforms to competition law Higher penalties A stronger merger law with test changed from “dominance” to “substantial lessening of competition” –Merger of Trade Practices Commission (the competition regulator) and the Prices Surveillance Authority (PSA) to give sharper focus by the Australian Competition and Consumer Commission (ACCC) to competition rather than price regulation –Recognition of limitations of competition law –Recognition that competition policy needed to be comprehensive, not just restricted to competition law 7 COMPETITION LAW AND ITS ROLE IN STIMULATING A NATIONAL COMPETITION POLICY

Publicity and culture: the link of competition law enforcement to national competition policy reforms 8

PROCESS OF GENERAL ECONOMIC REFORM Sense of crises in 1970s and 1980s Public education and advocacy by independent institutions (Productivity Commission, the Australian Competition and Consumer Commission) Recognition of need for general microeconomic reform Educated leaders –Political –Bureaucratic –Trade unions –Business –Some newspapers editors Sequencing –Opening up economy preceded competition reforms This process led on to support for competition law and policy 9

COUNCIL OF AUSTRALIAN GOVERNMENTS PRINCIPLES AND THE NATIONAL COMPETITION POLICY INQUIRY (a)No participants in the market should be able to engage in anti-competitive conduct against the public interest; (b)As far as possible, universal and uniformly applied rules of market conduct should apply to all market participants regardless of the form of business ownership; (c)Conduct with anti-competitive potential said to be in the public interest should be assessed by an appropriate transparent assessment process, with provision for review, to demonstrate the nature and incidence of the public costs and benefits claimed; (d)Any changes in the coverage or nature of competition policy should be consistent with, and support, the general thrust of reforms: i.to develop an open, integrated domestic market for goods and services by removing unnecessary barriers to trade and competition; ii.In recognition of the increasingly national operation of markets, to reduce complexity and administrative duplication. 10

COMPETITION REFORM PROCESS General agreement in principle by political leaders Productivity Commission econometric study of potential benefits National Competition Policy review (Hilmer report) set a framework for reform Political leaders negotiated and further developed reform process Agreed principles Transparent, independent reviews Reviews of reviews by National Competition Council Financial penalties for non compliance by state governments Productivity Commission econometric study of achieved outcomes, benefits; also study of impact on rural and regional Australia 11

Key elements: 1.A competition law for business 2.Removal of regulatory restrictions on business 3.Structural reform of public monopolies 4.Access to “essential facilities” 5.Monopoly pricing 6.Competitive neutrality (and state aids) 7.Public procurement 12 NATIONAL COMPETITION POLICY

AUSTRALIA’S NATIONAL COMPETITION POLICY (1) A COMPETITION LAW FOR BUSINESS cartels misuse of market power mergers misleading and deceptive conduct Universal application to all business private and government-owned large and small (eg. professions) all sectors rigorous exemption process Labour (exempt) intellectual property – partly exempt Exports – largely exempt other Independent, well resourced, vigorous, proper enforcement by Australian Competition and Consumer Commission 13

(2) REMOVAL OF REGULATORY RESTRICTIONS ON BUSINESS examples of restrictions Review of all (several thousand) laws and regulations restricting competition Public interest test Independent transparent review process Role of State Competition Policy Units Role of National Competition Council (NCC) Magnitude of review process Any restrictions on competition must be clearly demonstrated to be in the public interest Financial payments/compensation to state governments 14 AUSTRALIA’S NATIONAL COMPETITION POLICY

(3) STRUCTURAL REFORM OF PUBLIC MONOPOLIES Separate regulatory and commercial functions of public monopolies Promote interstate and international competition Separate potentially competitive activities into smaller, independent business units i.e. horizontal and vertical separation Apply competition law Independent, transparent process of review The role of privatisation laws 15 AUSTRALIA’S NATIONAL COMPETITION POLICY

(4) ACCESS TO “ESSENTIAL FACILITIES” Necessary inputs into downstream or upstream production Monopoly facilities Declaration by ACCC or NCC Pricing and other disputes, determined by ACCC Investment and competition issues 16 AUSTRALIA’S NATIONAL COMPETITION POLICY

(5) MONOPOLY PRICING –Price regulation for monopolies only –CPI – x –Cross subsidies. Deal with by transparent subsidy and competitive provision where possible 17 AUSTRALIA’S NATIONAL COMPETITION POLICY

(6) COMPETITIVE NEUTRALITY (AND STATE AIDS) –Government-owned businesses not to have artificial advantage over privately-owned businesses (7) PUBLIC PROCUREMENT –Limited action 18 AUSTRALIA’S NATIONAL COMPETITION POLICY

COMPETITION AND REGULATION Complementary? Conflict? Public Utility Regulation by ACCC 19

COMPETITION AND CONSUMER POLICY Complementary? Conflicting? ACCC performs both functions nationally: note the “political” advantages of linkage 20

THE ROLE OF EVIDENCE Productivity Commission econometric studies were of some value An educated political leadership and an educated, supportive bureaucracy was more important ACCC competition law cases with associated publicity were important Politicians had a limited understanding of what competition was about (which helped initial agreement with policy) Identification of competition policy with anti big business policies 21