Last Call for Liner Exemptions in Australia

By MarEx 2014-09-26 18:50:00

by Richard Arrage and Murray Deakin of legal firm K&L Gates

The Australian Competition Policy Review Panel (the Panel) has recommended the repeal of the current statutory exemptions for the liner shipping industry, potentially exposing conference agreements to the full rigour of Australia's competition laws.

Members of the shipping industry who may be adversely impacted by this proposed legal reform have until 17 November 2014 to make submissions to the Panel.

Background

The Prime Minister and the Minister for Small Business announced the Competition Policy Review on 4 December 2013: the first comprehensive review of Australia’s competition laws and policy in over 20 years. An issues paper was released and on 22 September 2014, the Panel released its draft report.

The draft report is wide-ranging and contains many recommendations across the entire economy. It includes a number of specific recommendations in respect of the liner shipping exemptions of the Competition and Consumer Act 2010 (Cth) (the CCA).

The publication of the draft report will be followed by a series of public forums in various Australian states and territories to discuss the recommendations made in the draft report. Submissions are invited to be made by 17 November 2014, before the panel prepares its final report which is expected to be provided to the Australian Government by March 2015. 

The Current Exemptions

Part X of the CCA allows liner shipping operators to enter into agreements among themselves in relation to matters such as freight rates, the pooling of revenues, the identification of trade routes and the quantity and kinds of cargo to be carried.

While such conduct might otherwise fall foul of the cartel conduct prohibitions under the CCA, the registration of such agreements with the Registrar of Liner Shipping confers upon the liner operators exemptions from those prohibitions, provided the registrar is satisfied that there is an overall benefit to Australian exporters or importers.

The historical justifications for such exemptions included the need to secure stability of trade and to deliver an efficient supply of liner services to Australia, as well as avoiding destructive competition.

Recommendations

The panel has formed the view that while the current system requires the demonstration of an 'overall benefit' to Australia before an agreement can be registered under Part X, there is no requirement for an assessment of the competitive effects of that agreement.

Further, under the current system, the registration process completely bypasses the primary competition regulator (the Australian Competition and Consumer Commission (ACCC)) in favour of the Registrar of Liner Shipping, an office specifically created under Part X of the CCA.

On these and other bases, and subject to a two year transition period, the panel recommended in its Draft Report:

•    the repeal of Part X of the CCA in its entirety
•    subjecting the liner shipping industry to the normal operation of the CCA, including the cartel conduct prohibitions
•    the granting of a new power to the ACCC to grant 'block exemptions' for conference agreements which contain a minimum standard of pro-competitive features (but, in the example given by the Panel, not involving a common conference tariff or the pooling of revenues and losses) 
•    subjecting those conference agreements, which do not have such pro-competitive features, to individual authorisations through the ACCC but alternatively, if the general block exemption power recommendation is not taken, requiring parties to conference agreements to seek authorisation from the ACCC on the basis of the 'net public benefits' test employed in other industries.

Comments

The exemption system, in various guises, has been employed successfully in Australia since at least 1966, and provides a degree of certainty for shippers and importers (in respect of service levels) and liner operators alike (in respect of investment levels on Australian routes).

The recommendations of the panel appear to accord with the general concerns expressed by the ACCC in respect of the exemptions granted to the liner shipping industry. However, if adopted, the recommendations have the potential to add an unnecessary level of complexity and bureaucracy to a system which is well understood and certain in its application.

Industry participants have until 17 November 2014 to consider the recommendations and make submissions in respect of them. Our team has a breadth of experience in assisting clients with drafting submissions to the government and lobbying for legislative and policy change. Please contact us if you have any questions or would like assistance with drafting submissions.

Source: K&L Gates