Australian commission calls for end to carriers’ pricing immunity
The Productivity Commission, an advisory body to the Australian government on economic reform, said Friday the automatic antitrust immunity of carrier agreements, known as Part X of the Trade Practices Act 1974, should be repealed.
The recommendation forms part of a draft report by the commission, which has been working on a review of the country’s antitrust shipping law since June.
“Agreements between ocean carriers to provide shipping services to Australian exporters and importers should be approved selectively,” the Productivity Commission said. “At present, Part X of the Trade Practices Act 1974 gives immunity from anticompetitive provisions to ocean carriers to form such agreements, irrespective of the balance of the benefits and costs they provide.”
The immunities provided by Part X “are now more permissive than those available under United States and European regulations which, in recent years, have been narrowed in scope as part of a move to more pro-competition arrangements,” the commission said.
The Australian commission's recommendation to withdraw the immunity in the Australian liner trades also follows the European Commission’s Oct. 13 “white paper,” or proposal, to consider the removal of the antitrust pricing immunity of liner shipping conferences in European trades.
Australia’s draft report, “Review of Part X of the Trade Practices Act 1974: International Liner Cargo Shipping,” presents the Productivity Commission’s preliminary assessment of the regulation of liner shipping in Australia, and possible alternative regulatory arrangements.
The commission said the draft report is published to encourage further discussion and input from participants and should be viewed as a work in progress.
Public hearings on the draft report will be held in early December.
However, the Productivity Commission report closely mirrors the radical recommendation made by the country’s influential competition watchdog, the Australian Competition and Consumer Commission, that automatic exemption of carrier agreements be replaced by a system of individual authorizations under which carriers would bear the burden of justifying the need for an exemption.
“There now needs to be a process for evaluating the net public benefit of agreements between ocean carriers who provide liner cargo shipping services to Australian exporters and importers,” said Judith Sloan, presiding commissioner. “The countervailing power that Part X seeks to give to Australian shippers is no longer effective. Exporters and importers will be better served by greater competition in the shipping market.”
If this system is adopted in Australia, it is not known whether carriers will be able to provide sufficient evidence to convince regulators to grant them ad hoc immunity for conferences and discussion agreements.
The Productivity Commission considers there are two ways in which the current arrangements could be amended to improve outcomes:
* Repeal Part X and, as occurs for other industries, rely on authorization under Part VII of the Trade Practices Act, under which agreements are assessed individually on the basis of their net public benefit. This is the commission’s “preferred option.'
* Modify Part X to promote and protect confidential individual service contracts between carriers and shippers and either (i) register only agreements that do not contain provisions to discuss or set prices and/or limit capacity offered on a trade route, or (ii) exclude discussion agreements from eligibility under Part X. Agreements not eligible for registration under Part X would remain eligible for authorization under Part VII.
“With appropriate transitional arrangements in place, repeal of Part X should not disrupt the provision of liner cargo shipping services to or from Australia,” the commission said. It believes overseas experience has shown the industry is capable of adapting effectively to new rules.
Discussion agreements have come under heavy criticism in industry and government submissions to the Productivity Commission.
The commission said it considered the option of withdrawing the immunity of all discussion agreements and of “those agreements with the most anticompetitive characteristics,” such as those that discuss or set prices and/or limit capacity offered on a trade route.
“Discussion agreements give rise to the potential for anticompetitive detriment by providing a forum for the exchange of firm-specific information and for the limiting of market supply,” the Productivity Commission said in its draft report. It cited conclusions made by the Organization for Economic Cooperation and Development in 2002 that conferences have declined in relevance “because tariffs have become more difficult to enforce.” But the number of discussion agreements and their market shares have increased, the report noted.
The report also cited two investigations into discussion agreements made by the Australian Competition and Consumer Commission. It quoted the competition commission as saying, “in periods of significant demand growth, parties to discussion agreements cease price competition between each other, discounts to all but the larger shippers are withdrawn and contract terms tend to shorten as they expire.”
By contrast, the Productivity Commission report said operational cooperation agreements, such as consortia and vessel-sharing agreements, have less negative impact on competition if they don’t involve rate agreements.
Discussion agreements are illegal in the European Union, but they are allowed in Australia and in the United States.
At present, Part X of the Australian legislation and the U.S. Shipping Act “make no distinction between different types of agreements,” the Productivity Commission said in its report.