The competitive Allan Fels: Cover story

Monday, 01 July 2002


    ACCC chairman Allan Fels believes he is in the trenches fighting the forces of darkness trying to water down Australia’s competition laws. And trench warfare dictates using whatever weapons are available – including the media. John Arbouw tours the battlefield to check on progress.

    Allan Fels admits he has been in the job a long time. In an era when CEOs rarely last more than five years, Australia's competition regulator has been fighting the bad guys for around 13 years. And he says no one should take for granted that when his term as chairman of the Australian Consumer and Competition Commission ends in two years time that he will re-apply. This will be welcome news for the myriad enemies he has made over that time and lamented by those consumers and small businesses he has helped to protect. It will also be a loss to the Government, as Fels proved a welcome lighting rod for ill-feelings about how GST price increases worked in practice. At the moment Fels and the ACCC are in the spotlight over what some in the business community believe is his overstepping of the mark in the raid for evidence of price collusion at the offices of Caltex and other oil companies. At the same time the Government has ordered a review of the competition provisions of the Trade Practices Act (Dawson Inquiry) to determine how the TPA affects Australian businesses to be internationally competitive, to review how excessive market concentration and power is used and the need for certainty regarding compliance.

    The TPA is a creature of history. When the US industrial revolution was in its infancy more than 100 years ago, the machine age was characterised by businessmen who were collectively called robber barons. Businessmen such as Rockefeller and Carnegie initially convinced governments to give them monopolies to build badly needed railways and factories then used their subsequent immense wealth to bribe politicians (now called political donations) to help them maintain their monopolies by ruthlessly eliminating any potential competitors. Eventually public outrage at this abuse of business power forced politicians to draft the Sherman anti-trust laws and it is upon that legislation that Australia's competition law is based. The TPA was also a child of the protectionist ideals that created the tariff walls around Australia for the bulk of the last century. The rationale behind this was simple and correct. If you have a protected marketplace, then it is wise to have some rules so the players in that market do not abuse their position.

    Yet in every boardroom there are discussions on how to get rid of or neutralise competitors. For small- to medium-sized businesses this discussion is a matter of survival. In large corporations it is a question of fulfilling the obligation to create shareholder wealth. Any company that does a SWOT analysis (strength, weakness, opportunities, threats) inevitably lists competition as a threat. The art of war and business dictates fighting these threats. And even a casual observation of events over the past 10 years or so would confirm that competition rules are necessary. There are any number of instances of price fixing, market collusion and predatory pricing. When governments used to own and operate monopolies, they were the biggest perpetrators of unfair pricing by subsidising consumer prices of electricity and water and asking business to foot the bill. Competition rules are aimed at protecting small companies from big companies and consumers from all companies. It is a laudable aim that no one would have serious objection to.

    So the question for the Dawson Inquiry is that as we move into the 21st century are the competition rules formulated in another century still appropriate now and are those rules too broad and providing the enforcer of those rules too much discretionary power? Certainly Commonwealth Bank CEO David Murray thinks so. He told an American Chamber of Commerce luncheon last month that the ACCC was guilty of "false and misleading behaviour" in regards to the raid by the ACCC on Caltex. (see story below). In the past few weeks, Caltex chairman Dick Warburton, Woolworths CEO Roger Corbett, Harvey Norman's Gerry Harvey and others from the so-called big end of town have taken turns at criticising the ACCC and Allan Fels. The competition regulator may be in the spotlight but it is a position he understands well – and one he uses assiduously to push his views concerning the perceived abuses of business. "I must be doing something right, because both sides of politics have re-appointed me over the past decade," Fels says. "You can be independent and still be sensitive to politicians. They are happy that you are independent but that they are not responsible for decisions.

    "If it goes politically wrong they can blame you. Where they are sensitive is where you recommend changes in the law and they don't know about it and the media arrive at their doorstep asking for an explanation. "I am very careful about any recommendations I make to government. This hasn't always been the case with my predecessors who have not handled this aspect of the job on some occasions very well. "I don't feel any hostility coming from the government and they in fact increased our budget by 28 percent." But while the Government may be happy, the big end of town is less than pleased with the manner in which Fels has interpreted and used the provisions within the TPA to go after anti-competitive behaviour. Their principle beef is that in the absence of any substantiated evidence, Fels uses the media to impugn the reputations of companies before they have had a fair and just hearing in a court. While there have been calls to sue the ACCC over loss of reputation, it profits no one but the legal profession to take a corporate regulator to court.

    It is why the Dawson Inquiry takes on added meaning and raises expectations that this will become the stick with which to beat the ACCC down to size. Not surprisingly Fels has a different view. "I see the inquiry as a means to air some of the views on how the Act works and that will not be harmful to the Act or the ACCC," he says. "Importantly, it is a chance to bring our law into line with best international practice. "My own belief is that it is basically a sound piece of law including the procedures and processes. There were a few concessions made to the big business lobby in 1974 during the deliberations over the present Act. Justice Lionel Murphy wanted criminal sanctions put in place but he couldn't get them. "The US, Canada, Japan and the UK have criminal sanctions in place for hard core collusion by big business, so why not align ourselves with world best practice." And this is the battlefield at the moment. Fels believes that the inquiry will accede to his wishes to impose criminal sanctions on company officers found guilty of hard core collusion in fixing the market.

    Fels says claims that the inadequacies of the TPA legislation has given him with too much discretionary power – and that he has abused this power is merely a distraction by big business to avoid the prospect of jail sentences. "The fact is that the ACCC is more accountable than most regulators," he says. "We can't affect anyone's legal rights against their will without a court order. We can't get an injunction or a fine without going to court. "We are currently involved with 70 cases in the Federal Court in the face of steep resistance from businesses which hire the best consultants and councils to argue their case. We happen to win around 90 percent of the cases. "We are not particularly radical in the cases we take to court and we are accountable to the courts. For instance if a company has anti-competitive form of conduct that you believe is in the public interest it can apply for authorisation. Those decisions are frequently appealed to the Australian Competition Tribunal which is headed by a judge. One of the reasons the TPA has survived over the years is that there is always a right to challenge our decisions.

    "I have been here for around 13 years and I can tell you that we are heroes one day and enemies the next. In 1991, I was the hero for Santos because we deregulated LPG prices. A little later we were the villains because we opposed the Santos merger. Similarly the banks applauded us for deregulating credit cards in 1992 but now that we are looking at credit cards and the issue of retailers we are castigated. "With the oil companies we have spent immense amounts of time trying to convince a sceptical public that oil price rises were due to the Gulf War. We deregulated petrol in 1998 but now we are the enemy of the oil companies."

    If the ACCC is spending a huge amount of time and effort on competition matters should the consumer protection functions be hived off into a separate entity? Fels says no. He says competition and consumer protection are inter-related. Consumer protection involve issues of market failure and a competition regulator is more likely to have such an outlook than a separate consumer protection regulator whose daily work does not involve markets. He is also dismissive of the view that there should be a separate mergers panel in the same way that a Takeovers Panel has been constituted. "There are already a number of entities looking at mergers including the courts," says Fels. "Who would be on such a panel? Would it be representatives of business groups? Who would appoint them? What would this body do? Is it an appeals process? "The main question in the public's mind is whether this is a crude attempt to nobble an effective regulator or a genuine attempt to improve the TPA. If the latter then let's discuss the issues. "Mergers always create tensions with the regulator but the fact is that we are not giving business a bad deal on mergers. Most mergers go through. There were 216 mergers last year of which we opposed 13 – and 10 of them were resolved through undertakings." Without doubt Fels has fought the good fight against anti-competitive behaviour. The struggle however has taken its toll. For Fels the enemy is the big business interests which he feels have only one aim and that is to weaken the competition rules.

    Every action and every statement by big business regarding the ACCC is filtered through this prism of suspicion. It inevitably creates a siege mentality. It is why he is conducting a media blitzkrieg decrying the motives of big business in not wanting to have jail penalties for cases of hard core price collusion. The question for the Dawson Inquiry will be to determine whether the Trade Practices Act as it is presently constituted still serves the needs of the 21st century. In the process, it will also judge whether Fels is an effective guardian of the competition gate, or an obstacle to better co-operation between a regulator and those being regulated.

    The AICD is preparing a submission to the Dawson Inquiry.


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