NO.081

JOINT MEDIA STATEMENT

Hon Peter Costello – Treasurer

Hon Warren Truss MP – Minister for Transport and Regional Services

GOVERNMENT RESPONSE TO PRODUCTIVITY COMMISSION REPORT

“REVIEW OF PART X OF THE TRADE PRACTICES ACT 1974

(INTERNATIONAL LINER CARGO SHIPPING)”

The Treasurer, Peter Costello, and the Minister for Transport and Regional Services, Warren Truss, today released the Australian Government response to the recommendations of the Productivity Commission’s Inquiry Report 32 “Review of Part X of the Trade Practices Act 1974: International Liner Cargo Shipping”.

The report was tabled in Parliament on 5October2005. The Minister for Transport and Regional Services, Mr Truss, who is responsible for Part X, said that after careful consideration of the Commission’s analysis and recommendations, the Australian Government has decided to retain Part X but to amend it to promote further competitive reform of the international liner cargo shipping sector in Australia.

Mr Truss noted that the Commission’s preferred option for such reform was for Part X to be repealed and for the sector to be subject to the general provisions of the Trade Practices Act1974. If that option was not adopted the Commission recommended ways to amend and strengthen Part X.

Mr Truss said the Government will make various amendments to Part X, including to:

• clarify its objectives;
• remove discussion agreements from its scope;
• protect individual confidential service contracts between carriers and shippers; and
• introduce a range of penalties for breaches of its procedural provisions.

Mr Truss said the amendments will ensure that Australian exporters and importers in all States and Territories have stable access to high quality liner cargo shipping services of adequate capacity, frequency and reliability, and that a range of ports are served at freight rates that are internationally competitive.

Mr Costello said that Part X will be independently reviewed again after five years in the context of any movements by other jurisdictions towards dismantling specialised regulatory regimes for international liner cargo shipping.

Mr Truss said the Australian Government did not rule out making further changes to Part X and will listen to the views of domestic stakeholders, including shippers, as well as the providers of international liner cargo shipping services, regarding the desirability of further amendments to the regime.

Mr Costello and Mr Truss thanked the Commission for its work in undertaking this inquiry.

MELBOURNE

4 August 2006

Contact:

Renae Stoikos Treasurer’s Office 03 9650 0244

Kylie Butler Mr Truss’ Office 02 6277 7680

PRODUCTIVITY COMMISSION RECOMMENDATIONS AND GOVERNMENT RESPONSE

Productivity Commission Inquiry Report No. 32

“Review of Part X of the Trade Practices Act 1974: International Liner Cargo Shipping”

The Government has decided that, in order to achieve competitive reform of Australia’s liner cargo shipping regulatory regime, Part X of the Trade Practices Act 1974 will be retained and amended in a manner consistent with the Productivity Commission’s recommendations, as detailed below.

The sections of Part X that are relevant to this response are set out in the Annex.

Recommendation 7.1

If Part X is retained, its principal objectives should be to:

• facilitate efficient coordination and joint provision of liner cargo shipping services within a pro-competition framework; and
• assist Australian exporters and importers to have access to liner cargo shipping services of adequate frequency, geographical coverage and reliability at freight rates that are internationally competitive.

Government Response:

The Government supports the recommended amendments to the Objects of Part X.

The amendments will clarify the principal objectives of Part X, emphasising the importance of competition in the provision of liner cargo shipping services while ensuring access to reliable and price-competitive services.

Furthermore, the Government will add the words “in all States and Territories” after “importers”, and the word “stable” before “access”, to the second proposed objective, in recognition of the importance of liner service stability for shippers throughout Australia.

Recommendation 7.2

The regulation of liner shipping agreements should be strengthened by adopting a selective approach aimed at allowing only those carrier agreements which are likely to provide a net public benefit to Australia.

Government response:

The Government agrees in part with this recommendation.

The Government agrees the regulation of liner shipping agreements should be strengthened, but that this should be achieved by amending Part X to exclude discussion agreements from registration, and to revoke the registration of such agreements that currently operate. This amendment recognises that discussion agreements represent the greatest threat to providing a net public benefit to Australia because of their potential to facilitate collusion among carriers generally. In addition, discussion agreements can provide for the collective exertion of market power and the achievement of above-normal freight rates, particularly in times of high demand (see recommendation 9.1).

Recommendation 8.1

Part X be repealed and the liner cargo shipping industry be subject to the general provisions of the Trade Practices Act.

Government response:

The Government does not support this recommendation.

While the Government agrees there is good cause for competitive reform of the international liner cargo shipping sector in Australia, it does not support the repeal of Part X. Rather, the Government considers that amendment of Part X to exclude discussion agreements, protect confidentiality of service contracts, and strengthen review and enforcement processes will achieve useful reform of the sector in the current economic climate by enhancing non-conference competition (see recommendation9.1).

Recommendation 8.2

Transitional arrangements be introduced. Such arrangements should provide deemed authorisation for operational Part X agreements (subject to certain conditions). These arrangements would entail:

• Delay in the repeal of Part X for one year after the promulgation of an Amending Act;
• Authorise only agreements which are operational at the beginning of the transitional period;
• Deemed authorisation to continue for three years; and
• The ACCC to provide advisory assessments of deemed authorised agreements, at the request of members of an agreement, so as to assist applicants in applying for Part VII authorisation at the end of the transitional period.

Government response:

The Government does not support the repeal of Part X and therefore does not support this recommendation (see recommendations 8.1 and 9.1).

Recommendation 9.1

If Part X is retained, either:

agreements that contain the following provisions should be excluded (with appropriate transitional arrangements) from eligibility for registration under Part X:

• for the fixing or other regulation of freight rates;
• for the setting of non-binding guidance on freight rates;
• for freight rates to be discussed between members; or
• that seek to limit the maximum level of capacity on offer.

or

discussion agreements should be excluded from eligibility for registration under Part X, together with measures to protect confidential individual service contracts outlined in recommendation 9.2.

Government response:

The Government supports the second alternative.

The Government considers discussion agreements, which Australian shippers strongly oppose, do little to provide scheduled liner cargo shipping services to and from Australia. Discussion agreements pose significant anti-competitive risks as they facilitate collusion among carriers and their ability to influence freight rates acts to the detriment of Australian shippers. Therefore, the Government agrees that Part X should be amended to exclude discussion agreements from registration and protect confidential individual service contracts (seeRecommendation 9.2).

Recommendation 9.2

If Part X is retained, and neither (or only the second) of the options in recommendation 9.1 are adopted Part X should be modified so that agreements should not be eligible for registration if they contain provisions that:

• prohibit members from engaging in negotiations for individual service contracts; or
• require members to disclose negotiations or make public the terms and conditions of such agreements; or
• adopt rules or requirements affecting the right of members to enter into individual service contracts; or
• allow the discussion or development of non-binding guidelines that relate to the terms and procedures of a member’s individual service contract.

Part X should be amended to prohibit carriers from discussing or disclosing, directly or indirectly, the provisions of individual service contracts to other carriers.

Government response:

The Government supports this recommendation.

The Government agrees that individual service contracts should be protected under Part X as this would promote competition in the sector by encouraging individual commercial negotiations and strengthening the countervailing power of Australian shippers.

Recommendation 10.1

If Part X is retained, the following changes should be made to the review and enforcement process:

• the parties to a registered agreement being reviewed in relation to section 10.45(1)(a)(viii) be required to demonstrate that the conduct under review has resulted, or is likely to result, in a net public benefit;
• Section 10.44(1) be amended such that the Minister ‘must’ rather than ‘may’ direct the Registrar to cancel the registration of an agreement whether in part or in full;
• a range of penalties, including fines, be introduced for breaches of the procedural provisions of Part X; and
• the use of undertakings be limited to situations where deregistration is threatened, and not be available as a means of avoiding fines resulting from procedural breaches of Part X.

Government response:

The Government supports the inclusion of a net public benefit requirementin the review of registered agreements, introduction ofpenalties for procedural breaches and limitations on the use of undertakings.

These amendments will provide useful reform to the review and enforcement processes under Part X, for example, by strengthening the countervailing power of Australian shippers.

However, the Government does not support the Commission’s recommendation regarding the removal of Ministerial discretion under section10.44(1) as it would removethe capacity of the Minister to respond flexibly to circumstancesthat may threaten the stability and continuity of international shipping services supplied to and from Australia.