05 September 2016

Part IIIA - Federal Government responds to criticism of the test for third party access declaration

Australia’s Federal Government has responded to criticism of the test for third party access declaration under Part IIIA of the Competition and Consumer Act 2010 (Cth) (CCA).[1] On the whole, the response is welcome. If enacted, it will allow the responsible Minister to make decisions that better take into account economic realities rather than hypothetical possibilities.

The Government’s response favours recommendations made by the Productivity Commission in 2013 over those recommendations made by the Harper Panel.

The main changes are set out below.

Promoting competition in a dependent market (criterion (a))

The new test proposed by the Government will require the Minister responsible for deciding whether to declare services for third party access to compare two future scenarios: one in which access (or increased access) is available, and one in which no additional access is granted. In comparing the two scenarios, the granting of access (or increased access) must promote a material increase in competition in a dependent market.

If the proposed test is enacted as legislation, it will (and rightly so) result in a higher bar for declaration of services for third party access.

The existing test requires the Minister to be satisfied “that access (or increased access) to the service would promote a material increase in competition” in at least one dependent market.

The Federal Court of Australia held in the 2006 Sydney Airport case that the existing test requires a comparison between:

  • the state of competition in a dependant market without a right or ability of access to the service, and
  • the state of competition with such a right or ability of access to the service.

If the comparison indicates that the state of competition with the right or ability to access to the service would materially promote competition in a dependent market when compared with the state of competition in that market without the right or ability to access the service, the test in criterion (a) is satisfied.

The test articulated by the Federal Court has since been interpreted without regard to whether there is an ability to access the services and with a focus only on whether there is a legally enforceable right or access, or perhaps even a right of access under a statutory access regime.

Further, the test has been applied as one that does not require an assessment of reality. This has meant the test has been applied without regard to:

  • whether the service is actually supplied to third parties
  • whether the service provider has actually refused outright or constructively to supply the service to one or more third parties
  • the price and non-price terms on which the service is supplied to third parties, or
  • the actual state of competition in upstream and downstream markets.

The proposed amendment will allow the test to take into account of each of those very real factors because it will require the responsible Minister to consider “the effect of declaration rather than access.”[2]

If enacted, the proposed amendment will ensure that services will not be declared for third party access where there is already effective competition in dependant markets when measured against the likely state of competition in those market with arbitrated terms of access determined by the Australian Competition and Consumer Commission using accepted principles of regulatory economics.

Targeting infrastructure associated with the economic problem (criterion (b))

The Government’s proposed amendment to criterion (b) will ensure that services declared for third party access will be limited to those provided by infrastructure facilities which can meet total foreseeable demand for the service over the period of declaration at lower cost than two or more facilities.

This is designed to better target the economic problem that some believe the third party access regime in Part IIIA was intended to address and create more certainty around the issues that were raised in the Pilbara Rail case.

Improving the assessment of public interest (criterion (d))

The third main change is to amend the old criterion (f), now criterion (d), to ensure that third party access is only required where it is in the public interest, replacing the old test that it not be contrary to the public interest.

This change should assist to ensure that services will be declared for third party access only where it would likely generate overall gains to the community including by reference to the potential chilling effects of declaration on investment and its substantial administrative and compliance costs.

Default declaration decision

Finally, the default declaration decision regime is proposed to change so that if a Minister fails to make and publish their decision with the time required, they will be taken to have accepted the National Competition Council’s recommendation on declaration, be it to declare or not to declare, rather than a default decision against declaration.

[1]The test is contained in section 44H(4)of the CCA.

[2]Page 173 of The Productivity Commission’s Inquiry Report, National Access Regime, No 66, 25 October 2013.

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