Getting competition laws out of the way so business can respond most effectively to COVID-19 challenges

The COVID-19 pandemic presents widely divergent economic challenges – some businesses face plummeting demand and an uncertain future, while others face challenges to their productive capacity and supply chains that are unprecedented in peacetime. Meeting those challenges is likely to require extensive Government intervention in markets and cooperation between businesses that is incompatible with Australian competition law. 

So far, the ACCC’s responses have been narrow and reactive to specific applications for immunity. Broader and faster accommodation is required to get competition laws out of the way.

Competition laws are designed to ensure resources are allocated efficiently and maximise economic welfare in market economies. But these are not ordinary times and, without quick action, Australia’s competition laws risk impeding our ability to respond effectively to the current crisis.

Examples of business cooperation to respond to the crisis may include:

• coordinating manufacturing capacity to maximise production of critical equipment, such as PPE and medical equipment;
  
  
• coordinating service delivery to increase capacity in the health system, such as by allowing some providers to focus on COVID-19 related cases and others to focus on non-COVID-19 cases;
  
  
• industry-wide rationing of scarce goods or shortening of opening hours or store access;
  
  
• coordinated capacity reductions to avoid unnecessary financial damage and redundancies;
  
  
• sharing information about production levels and forecasts to allow more effective planning decisions to be made;
  
  
• agreeing price or interest rate outcomes, or payment moratoria, to allow quick and simple relief to small business customers;
  
  
• labour sharing to mitigate health impacts on workforces;
  
  
• integration of logistics operations to meet skyrocketing demand for home deliveries; and
  
  
• joint export marketing to maximise the competitiveness of Australian exports during what is likely to be a prolonged global downturn.

All of the above actions would be likely to contravene strict prohibitions on ‘cartel conduct’ – and/or other prohibitions – under Australian competition law, regardless of the purpose or the market impact of the conduct. In broad terms, cartel conduct encompasses any form of agreement between competitors that fixes prices, limits output, allocates customers or markets or coordinates bids. Breaches of those laws expose companies and executives to substantial penalties and even potential gaol terms.

There are some existing potential solutions to those legal issues. First, certain collaborations may be able to be structured as joint ventures, so as to benefit from legal exceptions. Second, coordinated actions may be able to be structured so as to be the product of a direction from Government, rather than an agreement between competitors. Third, the ACCC has the ability to grant statutory immunities by ‘authorising’ particular conduct. Over the last week the ACCC granted two interim authorisations – to allow Australian banks to agree a 6-month deferral on principal and interest repayments on certain small business loans and to allow major supermarkets to coordinate with each other when working with manufacturers, suppliers, and transport and logistics providers. Pleasingly, the ACCC granted both authorisations very quickly.

However, ACCC authorisation is unlikely to be a feasible or sufficiently timely means of solving competition issues in all cases. Cartel law issues are also not only a problem for large businesses and it is unreasonable to expect small businesses seeking to collaborate to ensure continuity of supply in the midst of a crisis to divert stretched resources to a complex and unfamiliar regulatory process.

Various overseas regulators have identified the absurdity that the threat of serious competition law breaches may hang over managers making good faith collaborative arrangements. In particular, the UK Competition & Markets Authority clarified that “the CMA has no intention of taking competition law enforcement action against cooperation between businesses or rationing of products to the extent that this is necessary to protect consumers”. Over the weekend, the New Zealand Commerce Commission provided a similar reassurance, adding “if you need to work with your competitors to share staff or distribution networks or take other measures to ensure security of supply, you are able to do this”.

Equivalent clarification is urgently needed from the ACCC. Providing assurances about its enforcement intentions is within the ACCC’s power and raises little practical risk – in most cases, the distinction between genuine efforts to maintain supply and profiteering will be clear. An even stronger and more useful step would be for the ACCC to trigger its never used ‘class exemption’ powers, which allow the ACCC to grant legal immunity in respect of whole classes of conduct – and to impose whatever limits it thinks are necessary.

This article is part of our insight series COVID-19: Navigating the implications for business in Australia and beyond. Please subscribe to receive notifications by email when new COVID-19 insights are released.