Intergovernmental Agreement (IGA) on Federal Financial Relations

COAG has reaffirmed its commitment to cooperative working arrangements through an historic new IGA that provides an overarching framework for the Commonwealth’s financial relations with the States and Territories (the States). 

More information on this Agreement and National Partnerships is now available.

6. Potential Restrictions on Competition

Page Index

Under the Competition Principles Agreement (CPA) established between the Commonwealth, States and Territories in 1995 (see relevant excerpt in Appendix G), the driving principle of legislation review is that legislation should not restrict competition, subject to the satisfaction of a 'public benefit test' (clause 5(1)).

The CPA states that in reviewing the legislation, and assessing the public benefit of potentially anti-competitive legislation, the terms of reference of a review should clarify the objectives of the legislation, identify the nature of the restriction on competition, analyse the likely effect of the restriction on competition and on the economy generally, assess and balance the costs and benefits of the restriction, and assess alternative means for achieving the objectives of the legislation (clause 5(9)(a)-(e)).

Pursuant to the CPA, the matters which are relevant to a competition policy analysis of mutual recognition legislation include: government legislation and policy on ecologically sustainable development; social welfare and equity; government legislation and policy on occupational health and safety, industrial relations and access and equity; economic development, including employment and investment growth; the public interest; and the competitiveness of Australian businesses (clause 3(a)-(j)).

The mutual recognition legislation is generally speaking 'pro-competitive' legislation. However, the MRA is subject to a number of potentially anti-competitive exemptions, including exemptions made on the grounds of public health and safety, and the protection of the environment, to address market failure.

This part of the Report will use the above methodology to assess the merit of the potentially anti-competitive exemptions and exceptions under the Mutual Recognition Act 1992. Individual jurisdictions are responsible for assessing the potentially anti-competitive legislation which substantiates these exemptions or exceptions under their NCP review program.

The analysis in this part of the Report will examine the exemptions and exceptions under the mutual recognition legislation, analysing the impact of the exemption or exception on competition, and assessing the merits of alternatives to including the exemption or exception in the mutual recognition legislation.

In each instance, an attempt has been made to provide broad comments on the obvious costs and benefits of these exemptions and exceptions. A thorough analysis to quantify the costs and benefits of each restriction was beyond the scope of the Review.

Firearms and other prohibited or offensive weapons

The nature of the restriction on competition

Firearms and other prohibited or offensive weapons are a Permanent Exemption under the Mutual Recognition Act 1992 (Schedule 1(1)).

The impact of the restriction on competition

The regulation of firearms across jurisdictions is now substantially consistent. The regulation of other prohibited or offensive weapons is not as consistent as firearms.

As a consequence of the Port Arthur massacre in 1996, the Commonwealth Government moved to develop nationally consistent gun laws which limited the scope of available weapons. It provided for more and stringent and restrictive licensing, and special procedures associated with the acquisition and sale of weapons. While this new regulatory regime has impacted significantly upon weapons dealers in terms of their scope, it has had no additional effect on competition per se.

Benefits and costs

The benefits of restriction include the following:

  • tighter control over the sale and acquisition of weapons between jurisdictions, because of the need to meet the regulatory requirements of each jurisdiction (even though the regulations may be similar, it provides a double check).

  • reduction in the illicit sale of firearms and other prohibited or offensive weapons through greater regulatory control, resulting in increased community confidence in the management of gun control.

The costs of the restriction include the following:

  • a reduction of the ability of gun dealers to engage in wholesale sale of weapons between jurisdictions.

  • a reduction in the size of the firearms market, resulting in lower sales revenues and employment opportunities among firms involved in the manufacture or importation of firearms.

Alternatives

The one alternative considered is to delete the Permanent Exemption for firearms and other prohibited or offensive weapons.

It could be argued that this option is feasible for firearms now that there is nationally consistent gun legislation. Given that the exemption extends to prohibited or other offensive weapons for which regulation is not consistent between jurisdictions, the alternative is highly undesirable.

Furthermore, jurisdictions have maintained the ability to regulate for all forms of firearms and other weapons, within the context of the national approach to uniform laws. The retention of the exemption will ensure that any future inconsistencies in regulations will not create the potential for using the provisions of the mutual recognition legislation (regarding defences to prosecution for an offence regarding sale of weapons) to circumvent enforcement of jurisdiction-specific regulations.

Conclusion

The Review Group was not able to quantify the costs and benefits of this restriction on competition. It is generally accepted, however, that there are strong community expectations that government will continue to provide effective controls on the sale of all weapons. The review group agreed that the Permanent Exemption relating to the sale of firearms and other prohibited or offensive weapons should be retained.

Recommendation 14
That Participating Parties maintain the reference to firearms and other prohibited or offensive weapons in the Permanent Exemption Schedule of the Mutual Recognition Act 1992 (Schedule 1(1)).

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Fireworks

The nature of the restriction on competition

Fireworks are a Permanent Exemption under the Mutual Recognition (Commonwealth) Act 1992 (Schedule 1(2)).

The impact of the restriction on competition

The regulation of fireworks is variable across jurisdictions. Fireworks were granted a Permanent Exemption from the MRA to enable States and Territories to maintain jurisdiction-specific regulation of the manufacture and sale of fireworks.

The effect of the operation of variable legislation across the States and Territories is to restrict the ability of a person to sell fireworks in those jurisdictions in which there is a ban on their sale, and to restrict the ability of that person to sell fireworks during those periods of time in which there is a restriction on their sale. Therefore, there is arguably a reduction in the size of the market for fireworks, potentially impacting negatively on the profitability of people manufacturing and selling fireworks.

Benefits and costs

Due to the fact that restriction on competition is in the form of the majority of jurisdictions banning the manufacture and sale of fireworks, the benefits of the exemption include the following:

  • a reduction in injuries resulting from accidents or misuse of fireworks, and a consequential reduction in medical costs to the community for the treatment of people suffering injuries from fireworks; and

  • a reduction in enforcement costs for government. Even in circumstances in which people can sell fireworks, restrictions apply regarding the use of fireworks - the costs of enforcing these restrictions on use are potentially greater than the costs of enforcing a complete ban.

The costs of the restriction include:

  • a reduction in consumer choice in that there are jurisdictions in which consumers are not able to buy fireworks for a large period of the year; and

  • a reduction in the size of the fireworks market resulting in lower sales revenues and employment opportunities among firms involved in the manufacture or importation of fireworks. The smaller market for fireworks may lead to a loss of economies of scale for fireworks manufacturers or a loss of buying power of importers resulting in higher prices for fireworks than would be the case in an unrestricted market.

Alternatives

One possible alternative would be for jurisdictions to develop uniform requirements relating to the sale of fireworks in which case the Permanent Exemption would become redundant and could be removed. However, given the significantly different regulatory requirements between jurisdictions, national uniformity does not appear to be possible in the short term.

Another alternative would be to remove the Permanent Exemption and rely on restrictions on the use of fireworks to limit their availability. However, there is a reasonable likelihood that this would result in fireworks being sold in jurisdictions during periods in which their use was banned. This would result in the need for a higher enforcement effort to ensure restrictions on use are complied with. For these and other reasons, governments are unlikely to support the creation of a situation in which products that cannot be used can be sold.

Due to the fact that jurisdictions clearly desire to maintain jurisdiction-specific regulations relating to the manufacture and sale of fireworks, there is arguably no workable alternative to maintaining the present Permanent Exemption for fireworks legislation under the MRA (for example, uniform fireworks law would not currently seem feasible).

Conclusion

While the Review Group was not able to quantify the costs and benefits of the restriction on competition, the benefits of lower medical and enforcement costs may outweigh the costs of the restriction in terms of higher prices for fireworks and less consumer choice. In these circumstances, retention of the restriction could be justified on both economic and public interest grounds. Without evidence to this effect, the Review Group is not able to come to this conclusion on the basis of any rigorous analysis. However, on balance, the Review Group agreed, given the desire of jurisdictions to maintain different regulatory requirements relating to the manufacture and sale of fireworks, that such products should continue to be a Permanent Exemption under the MRA.

Recommendation 15
The Participating Parties maintain the reference to fireworks in the Permanent Exemption Schedule of the Mutual Recognition Act 1992 (Schedule 1(2)).

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Gaming Machines

The nature of the restriction on competition

Gaming machines are a Permanent Exemption under the Mutual Recognition (Commonwealth) Act 1992 (Schedule 1(3)).

The impact of the restriction on competition

The States and Territories impose very similar regulatory requirements relating to the manufacture, sale, possession and operation of gaming machines. Under the majority of gaming machine legislation across jurisdictions, there is a comprehensive licensing regime regulating the gaming machine industry.

Generally, a person wishing to possess a gaming machine on his or her premises must hold a gaming machine license. There are generally restrictions on who can hold a gaming machine license.

Secondly, anyone wishing to manufacture gaming machines and to sell or supply gaming machines must hold a gaming machine dealer's license. There are no real restrictions as to who can hold a gaming machine dealer's licence, except that the applicant must satisfy a 'fit and proper person' test. There is, however, a restriction on the people to whom the holder of the license can sell or supply the gaming machines.

Thirdly, legislation usually requires that a person hold a gaming machine supplier's license in order to purchase a gaming machine from a gaming machine dealer, through an agent, and to sell or supply the gaming machine to a holder of a gaming machine license.

There is no question that the variable regulation of the gaming machine industry across the States and Territories has an anti-competitive impact.

The exemption from the MRA has the effect of maintaining the jurisdiction-specific restrictions on the manufacture and sale of gaming machines, potentially limiting the number of gaming machine manufactures and sellers in the regulating jurisdiction.

Benefits and costs

A thorough analysis of the costs and benefits of the restriction was beyond the scope of the Review. A true competition policy assessment of specific requirements under the exemption, is best dealt with in the context of a competition review of the requirements.

Alternatives

There are no obvious alternatives to maintaining the exemption.

For example, the Review Group came to the conclusion that removing the exemption would not cause the mutual recognition principle to apply to the licensing requirements relating to the manufacture, sale or supply of gaming machines under the gaming machine regulatory regime (s14(1)(b)). The reasoning is that the licensing requirements would fall under the 'manner of sale' exception to mutual recognition, excepting laws regulating sellers and buyers of goods, and the manner in which the goods are sold.

Therefore, removing the exemption would not impact on the anti-competitive nature of gaming machine regulation, because of the existence of restrictions which do not fall under the mutual recognition scheme.

The States and Territories prefer to maintain the existing comprehensive regulatory regime, through maintaining the exemption to gaming machines in the Act.

Conclusion

The recommendation of the Review Group, noting that removing the exemption would make no real impact on competition, is to maintain the exemption, to enable the operation of the comprehensive regulatory regime for gaming machines.

Recommendation 16
That the Participating Parties maintain the reference to gaming machines in the Permanent Exemption Schedule to the Mutual Recognition Act 1992 (Schedule 1(3)).

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Pornographic Material

The nature of the restriction on competition

State and Territory legislation relating to the sale of products subject to classification is a Permanent Exemption under the Mutual Recognition (Commonwealth) Act 1992 (Schedule 1(4)).

The impact of the restriction on competition

Australia has a national system of classification for films, videos, magazines etcetera, which is overseen by the Commonwealth Office of Film and Literature Classification. However, States and Territories maintain different regulations in respect of the sale of classified goods. For example, while the classification system includes an X-rated video category, the sale of X-rated videos is banned in all jurisdictions except the Australian Capital Territory.

The impact of the exemption is potentially a reduction in the number of firms in the industry, due to the fact that firms are not free to operate in the majority of jurisdictions.

The effectiveness of the present scheme to prevent the sale of classified material is arguable, in light of the ability of consumers to purchase these products from firms located in the ACT.

Benefits and costs

It is difficult to analyse the benefits and costs of maintaining the current restriction on competition.

Legislation which has the effect of reducing the number of players in a market may reduce the level of competition in the industry, and potentially impact negatively on consumers. However, the legislation in question is not preventing the emergence of a national market for classified products which are the subject of a ban in a jurisdiction or a number of jurisdictions, and consumers are able to import the classified products from overseas.

Alternatives

The States and Territories clearly desire to maintain individual policies on the sale of classified material.

Therefore, there is no obvious alternative to maintaining the Permanent Exemption for classification legislation under the Mutual Recognition Act 1992.

One potential alternative is the creation of uniform national requirements relating to the sale of classified material. The implementation of national standards could ameliorate the anomalous nature of the present system, in which consumers in all jurisdictions can purchase X-rated videos despite the ban on their sale in the majority of jurisdictions.

However, it would appear that jurisdictions wish to maintain their ability to enact their jurisdiction-specific restrictions even if these restrictions are only effective to prohibit the sale, and not the purchase, of classified material.

Conclusion

Due to the desire of jurisdictions to maintain different regulatory requirements relating to the sale of classified material, and the fact that any appreciable restriction on competition is arguably justifiable on public policy grounds, there is no recommendation to change the present position.

Recommendation 17
That the Participating Parties maintain the reference to pornographic material in the Permanent Exemption Schedule to the Mutual Recognition Act 1992 (Schedule 1(4)).

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Quarantine

The nature of the restriction on competition

Quarantine is a Permanent Exemption under the Mutual Recognition (Commonwealth) Act 1992 (Schedule 2(1)).

The impact of the restriction on competition

A quarantine law is a law prohibiting the importation of specific goods into a specified area which is substantially free of a particular disease, insect, variety of a species, or genetic disorder. The good is generally one which is likely to carry or introduce into that area a disease, insect, variety of species, or genetic disorder, and cause long term damage to the ability of producers in the area to continue producing their products free of contamination.

The effect of the restriction on competition is that in order to protect the ecological status of the home jurisdiction, there is a limitation on the freedom of a person to import the 'quarantine' good into that jurisdiction. It is important to note that the effects of a breach of quarantine law are very difficult to reverse, and can violate the ecological integrity of the relevant jurisdiction.

Benefits and costs

Benefits of quarantine include:

  • the protection of the ecological status of the regulating jurisdiction;

  • avoidance of the costs of addressing introduced diseases or pest infestations, including the potential costs to agricultural and other production;

  • avoidance of potential public health risks from introduced disease or pests; and

  • protection of export markets for disease and/or pest-free products.

Costs of quarantine include:

  • reduced consumer choice and increased prices due to restrictions on the movement of goods between jurisdictions;

  • compliance costs for business; and

  • costs to governments of quarantine inspection services.

Alternatives

There is no immediately obvious alternative to maintaining a Permanent Exemption of quarantine legislation under the Mutual Recognition Act 1992.

States and Territories need the freedom to tailor their laws and policies to their historically and geographically unique requirements regarding the regulation of quarantine, in order to protect the ecological integrity of their jurisdiction (uniformity is therefore not a feasible alternative).

Clearly, freer interstate trade which may result in violations of quarantine regulations is not in the national interest.

Conclusion

The maintenance of the quarantine exemption is clearly justifiable in the public interest.

Recommendation 18
That the Participating Parties maintain the reference to a law of a State regarding quarantine in the Permanent Exemption Schedule to the Mutual Recognition Act 1992 (Schedule 2(1)).

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Endangered Species

The nature of the restriction on competition

Laws relating to the protection of endangered species are a Permanent Exemption under the Mutual Recognition (Commonwealth) Act 1992 (Schedule 2(2)).

The impact of the restriction on competition

Species protection legislation is effectively the reverse of quarantine legislation (refer 7.5, above).

The effect of the exemption is that a law of a jurisdiction protecting a species or other class of animal or plant from extinction in that jurisdiction, and prohibiting or restricting the possession, sale, killing or capture of animals or plants of that species in that jurisdiction, prevails over mutual recognition legislation.

Benefits and costs

Benefits of laws relating to endangered species include:

  • the protection of the biodiversity of a given jurisdiction; and

  • potential flow on benefits from the ongoing existence of that biodiversity.

Costs of laws relating to endangered species include:

  • a reduction in the opportunities to use endangered species as a resource in the market (even where in some circumstances, these could be limited by quota, e.g. red kangaroos); and

  • the potential loss of income associated with these lost market opportunities.

Alternatives

There would appear to be no feasible alternative to maintaining the Permanent Exemption of endangered species legislation under the Mutual Recognition Act 1992.

Again, States and Territories need the freedom to tailor their laws and policies to their unique requirements regarding the protection of their flora and fauna, in order to protect the biological resources of the jurisdiction (uniformity is therefore not a feasible alternative).

It is important to note that the extinction of an endangered species is permanent.

Clearly, freer interstate trade in endangered species is not in the national interest.

Conclusion

The protection of endangered species is clearly in the national interest. Therefore, the recommendation is to maintain the Permanent Exemption of endangered species legislation under the Mutual Recognition Act 1992.

Recommendation 19
That the Participating Parties maintain the reference to a law of a State regarding endangered species in the Permanent Exemption Schedule to the Mutual Recognition Act 1992 (Schedule 2(2)).

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Ozone Protection

The nature of the restriction on competition

Laws relating to Ozone Protection are a Permanent Exemption under the Mutual Recognition (Commonwealth) Act 1992 (Schedule 2(3)).

The impact of the restriction on competition

Ozone protection legislation is variable across the States and Territories.

The legislation was permanently exempt under the Mutual Recognition Act 1992 in recognition of the fact that the success of the national ozone protection strategy to regulate the threat of significant environmental damage is contingent on the operation of variable legislation across Australia.

The impact of the restriction is that business and industry face variable regulatory requirements across Australia.

Benefits and costs

The benefits of the restriction include:

  • maintenance of the integrity of jurisdictions' ozone protection regimes, resulting in:

  • continuing contribution to the protection of the ozone layer; and

  • protection of ongoing efforts to meet Australia's international commitments under the Montreal Protocol and the Kyoto Agreement.

The costs of the restriction include:

  • higher compliance costs to producers in meeting differing ozone protection requirements in different jurisdictions; and

  • limits on consumer choice of products.

Alternatives

Australia has made an international commitment to ozone protection, and due to the fact that the success of the national ozone protection strategy is due in a significant degree to the operation of variable ozone protection regulation across the States and Territories, there would appear to be no feasible alternative to maintaining the Permanent Exemption for ozone protection legislation.

One alternative which could potentially justify deleting the exemption of ozone protection legislation under the mutual recognition legislation is the establishment of uniform national standards for ozone protection.

However, the creation of uniform national standards for ozone protection does not seem likely, due to the fact that jurisdictions face different circumstances in regard to ozone protection (and a range of other environmental protection matters). For example, urban Sydney could never meet the air quality standards achievable in the Northern Territory, and there are a range of measurements required in urban Sydney which would be entirely unnecessary in the Northern Territory.

It is worth noting that there are currently a range of National Environment Protection Measures (NEPMs) being negotiated on a range of environmental indicators, including those relevant to ozone protection. However, these national measures, which are currently in public discussion stage, will not create uniform national standards.

Conclusion

The success of the national ozone protection strategy is in the national interest, and is contingent on the operation of variable laws across jurisdictions. Therefore, the maintenance of the Permanent Exemption under the Mutual Recognition Act 1992 is justifiable.

Recommendation 20
That the Participating Parties maintain the reference to ozone protection legislation in the Permanent Exemption Schedule to the Mutual Recognition Act 1992 (Schedule 2(3)).

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Beverage Container Act 1975 (South Australia)

The nature of the restriction on competition

The Beverage Container Act 1975 of South Australia is a Permanent Exemption under the Mutual Recognition Act 1992 (Schedule 2(8)).

Following the repeal of the Beverage Container Act 1975 in 1995, the relevant provisions of the Act are found in the Environment Protection Act 1993 (Environment Protection Act 1993, Part 8, Division 2 - Beverage Containers).

The beverage container scheme is a litter management scheme, aiming to promote litter management, and the protection of the environment.

Under the scheme, a consumer pays a small deposit on the purchase price of a number of categories of beverage containers, including the following (Environment Protection (Beverage Container) Regulations 1995, Schedule 1(1); 1(2)):

*category A containers 10c per container; and

*category B containers 5c per container

The consumer can return the empty container to either the retailer, in the case of a category A container, or a collection depot, in the case of a category B container, and receive a refund in the amount of the original deposit (manufacturers predominantly choose to use the collection depot system, and consequently, the majority of beverage containers are category B containers).

The effect of the provisions is that beverage sellers in all jurisdictions across Australia who wish to sell their beverage in South Australia are subject to the scheme.

The impact of the restriction on competition

The Review Group does not think that the impact of the Permanent Exemption on competition is significant. This finding is not surprising, given that the original justification for granting the exemption was to protect the environment.

The question of the impact of the beverage container legislation on competition was the subject of a High Court case:

In the case of Castlemaine Tooheys Ltd v South Australia (1990) 169 CLR 436, the High Court of Australia made a ruling on the question of whether the impact of the regulations made under the Beverage Container Act 1975, analogous to the regulations today made under the Environment Protection Act 1993, was contrary to section 92 of the Constitution, guaranteeing freedom of interstate trade and commerce.

The pertinent facts of the case were the following:

The majority of interstate traders were packaging the majority of their beer in non-refillable containers, and the majority of intrastate traders were packaging their beer in refillable containers.

Under the existing beverage container scheme, a greater deposit was payable on the sale of non-refillable containers than on the sale of refillable containers in South Australia (non-refillable containers, 15c per container; refillable containers, 4c per container).

Additionally, the deposit payable on the sale of beer in non-refillable containers was refundable via the retailer; the deposit on the sale of beer in refillable containers was refundable via a collection depot.

The Court held on the facts of the case that the effect of the legislation was to discriminate against interstate suppliers of beer in a protectionist manner. Interstate suppliers were selling beer in non-refillable containers, the sale of which was subject to a comparatively large deposit, and the retailer bore the burden of refunding the deposit. Intrastate suppliers were selling beer in refillable containers, the sale of which was subject to comparatively small deposit, and the deposit was refundable via a collection depot rather than the retailer.

The real effect of the legislation was to prevent interstate suppliers increasing their market share in beer in South Australia.

The argument of the State was that the objective of the legislation was to manage litter, and to protect the environment through promoting the conservation of energy.

The Court, extrapolating the principles and tests which were enunciated in the case of Cole v Whitfield (1988) 165 CLR 360 (see 6.9.2, following), made the following important statements of principle:

First, the Court took account of the fundamental principle that, 'subject to the Constitution, the legislature of a State has power to enact legislation for the well-being of the people of that State'.

Secondly, the Court held that in assessing the legislation, the Court should ask whether the legislation was 'appropriate and adapted to the protection of the environment in South Australia from the litter problem and to the conservation of the State's finite energy resources, and whether the impact of the legislation was 'incidental and not disproportionate to the achievement of those objects'.

Applying the above reasoning to the facts of the case, the Court held that the answer to that question was 'no'.

Immediately following the High Court ruling, the regulations in question were amended to create equality in the operation of the regulations across all jurisdictions in Australia (per advice of the Environment Protection Authority, South Australia).

Today, the regulations made under the Environment Protection Act 1993 regarding the beverage container scheme satisfy the High Court test, and are not discriminatory against interstate trade and commerce.

Benefits and costs

The Report does not attempt to quantify the benefits and costs of the scheme, leaving that exercise to the national competition policy review of the South Australian legislation. However, generally speaking, the benefits of recycling are commonly understood to include greater litter management, and a significant contribution to the protection of the environment. The beverage container legislation is successful in South Australia. Following the introduction of the scheme, the vast majority of glass, aluminium and plastic beverage containers are being recycled. The cost to the State Government of running the scheme is negligible, because industry is responsible for running the scheme. Industry would clearly pass their costs to consumers, who bear an increase in the price of beverages.

Alternatives

The ANZ Environment Conservation Council, and the National Environment Protection Council, which has representation of the Commonwealth, States and Territories, are establishing a National Packaging Taskforce to draft a Packaging Covenant establishing national litter management standards.

However, in the absence of uniform national standards governing litter management, there would appear to be no alternative to maintaining the Permanent Exemption of the beverage container legislation under the Mutual Recognition Act 1992.

Conclusion

The Permanent Exemption of the beverage container legislation in SA does not offend competition policy.

Recommendation 21
That the Participating Parties maintain the Permanent Exemption for the South Australian beverage container deposit scheme, and that the Commonwealth Government amend their mutual recognition legislation to read "Environment Protection Act 1993: Part 8, Division 2 – Beverage Containers".

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Fish in Tasmania

The nature of the restriction on competition

A law of Tasmania regulating the size of abalone, crayfish or scallops which a person may capture, possess, buy or sell in Tasmania is a Permanent Exemption under the Mutual Recognition Act 1992 (Schedule 2(10)).

The relevant law of Tasmania is the Living Marine Resources Management Act 1995, which aims to achieve the sustainable management of living marine resources, to protect the indigenous fish stock of Tasmania, and to promote the viability of the industry.

Under the Living Marine Resources Management Act 1995, the Governor has a head of power to make regulations regarding a number of matters, including a regulation limiting the size of fish which a person may capture, possess, buy or sell in Tasmania (Living Marine Resources Management Act 1995, s295(f)).

The relevant regulations made pursuant to the head of power are the Fisheries (General and Fees) Regulations 1996.

Generally speaking, the regulations proscribe the capture, possession, buying or selling of a range of 'undersize' fish, including undersize scallop, crab, rock lobster and abalone.

A breach of the regulations is punishable via a range of penalties.

The effect of the restriction on competition is that people across all States and Territories who wish to trade in fish through Tasmania can not trade in 'undersize' fish.

The Tasmanian regulations were tougher than the counterpart South Australian regulations, because of the comparatively greater measures necessary to maintain the breeding stocks in the Tasmanian ecosystem.

The impact of the restriction on competition

The Review Group does not think that the impact of the Permanent Exemption on competition is significant. Again, this is not surprising, given that the original justification for granting the exemption was to protect the indigenous fish population of Tasmania.

The question of the impact of laws of Tasmania limiting the size of fish which a person could possess in Tasmania, was the subject of a case in the High Court of Australia in 1988.

In the case of Cole v Whitfield (1988) 165 CLR 360, the question was whether the relevant provisions of the Sea Fisheries Regulations 1962 (Sea Fisheries Regulations 1962, r31(1) made under the Fisheries Act 1959 (s9(1)), limiting the size of crayfish which a person could possess in Tasmania, were contrary to freedom of interstate trade and commerce, impacting in a discriminatory manner on interstate trade in crayfish.

Interpreting section 92 of the Constitution, guaranteeing freedom of interstate trade and commerce, the Court held that section 92 of the Constitution was a guarantee of protection against laws which were discriminatory against interstate trade in a protectionist manner.

In assessing whether laws were discriminatory against interstate trade in a protectionist fashion, the court established the following test (the 'discriminatory protectionism' test), enabling the Court to assess the social and economic context in which the legislation in question was operating:

* First, whether the law in question was legally contrary to section 92 of the Constitution; and

* Secondly, whether the law was factually discriminatory against interstate trade in a protectionist manner.

First, applying the 'legal' limb of the test, the Court held that the law did not discriminate between interstate and intrastate traders, and therefore was not legally discriminatory against freedom of interstate trade and commerce.

Secondly, applying the 'social and economic context' limb of the test, and identifying the fact that the legislation was operating in the context of promoting the conservation of a valuable natural resource in Tasmania, the Court held that the effect of the laws in practice was not discriminatory, because the laws did not confer a competitive advantage on interstate trade in crayfish in Tasmania.

Regardless of whether the laws conferred a competitive advantage on the crayfish trade in Tasmania, the Court held that the on the facts of the case, the laws were 'a necessary means of enforcing the prohibition against the catching of undersize crayfish in Tasmanian waters', because the single practicable form of inspecting the size of fish was random inspection, and because of the fact that intrastate and interstate crayfish were practically indistinguishable.

Analogising between the regulations made under the laws under examination in the case of Cole v Whitfield, and the regulations made under the Living Marine Resources Management Act 1995, and applying the reasoning of the Court to the present case, the assessment is the following:

First, legally, the Fisheries (General and Fees) Regulations 1996 do not discriminate between interstate and intrastate traders – the laws apply equally to people across all States and Territories who wish to trade in the relevant fish through Tasmania.

Secondly, the effect of the laws in practice is not discriminatory, because the laws do not confer a competitive advantage on the intrastate trade in fish.

The domestic fish market in Tasmania is not significant in comparison to the national market, and the majority of the fish trade in Tasmania is export trade to other States and Territories, including Queensland, New South Wales and Victoria (per advice of the Department of Primary Industries and Fisheries, Tasmania). Therefore, the movement of fish stock is predominantly one way - out of Tasmania to other States and Territories.

Therefore, the restriction on the size of fish which a person may capture, possess, buy or sell in Tasmania does not impact in a discriminatory manner on interstate trade. Ironically, it is arguable that the laws could disadvantage people operating in the fishing industry in Tasmania, because of the application of the laws to the single largest exporter of fish in Australia.

Finally, applying the reasoning of the Court on the question of enforceability (analogous to the national competition policy test of assessing the feasibility of alternatives to achieving the objectives of the legislation: see following), it is clear that the laws are necessary to achieve the objectives of the legislation, because the single practicable form of inspecting the size of fish is random inspection, and because of the fact that intrastate and interstate fish are practically indistinguishable.

Benefits and costs

The first principle driving national competition policy analysis of legislation is the 'public benefit' principle - the benefits to the community of the restriction on competition should outweigh the costs (Competition Principles Agreement, clause 5(1)(a)). The analysis of the benefits and costs may include weighing the existence of government legislation and policies regarding numerous matters, including ecologically sustainable development (clause 3(d)).

The benefits to the community are the protection of the indigenous fish stock of Tasmania - promoting sustainable resource management and preserving the viability of the industry.

The costs of implementing the exemption are negligible (per advice Department of Treasury and Finance, Tasmania).

Alternatives

The second national competition policy analysis principle is that the objectives of the legislation are not achievable except via imposing the restriction on competition (Competition Principles Agreement, clause 5(1)(b).

The objectives of the legislation are to protect the indigenous fish stock of Tasmania, to preserve the viability of the industry, and to promote sustainable resource management (see above).

The achievement of the objectives is contingent on proscribing the capture of fish which are 'undersize', or not mature and capable of reproducing their species, in the waters of Tasmania.

Because it is not possible to identify the origin of undersize fish which are present in Tasmania, the laws proscribe the capture, possession, buying and selling of undersize fish, to ensure effective implementation (see the reasoning of the High Court of Australia, above).

No immediately obvious alternative to restricting the size of fish in which people can trade in Tasmania is feasible to achieve the objectives of the legislation.

Conclusion

The Permanent Exemption of the laws of Tasmania regulating the possession, sale or capture of fish of a minimum size does not offend competition policy. Note that the independent NCP review of the legislation is due in 1999.

Recommendation 22
That the Participating Parties maintain the reference to a law of Tasmania regarding the possession, sale or capture of fish of a minimum size in the Permanent Exemption Schedule to the Mutual Recognition Act 1992 (Schedule 2(10)).

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Manner of sale

Exception for laws that regulate the manner of sale

The nature of the restriction on competition

Section 11(2) of the Mutual Recognition Act 1992 states that the mutual recognition principle does not affect:

"... the operation of any laws of the second State that regulate the manner of the sale of goods in the second State or the manner in which sellers conduct or are required to conduct their business in the second State (including law set out in the example below), so long as those laws apply equally to goods produced in or imported into the second State.

    Examples - Laws relating to the following:

(a) the contractual aspects of the sale of goods;

(b) the registration of sellers or other persons carrying on occupations;

(c) the requirement for business franchise licences;

(d) the persons to whom goods may or may not be sold;

(e) the circumstances in which goods may or may not be sold."

The intent of the participating parties to the scheme, evident in the mutual recognition principle in section 9 and section 10 of the Mutual Recognition Act 1992, was that the scheme would ameliorate the regulatory barriers relating to goods per se, rather than barriers to the manner in which goods were sold, and between whom goods were sold.

Therefore, it would seem that the requirements which are the subject of an exception under the Act were not ever likely to fall under the mutual recognition scheme in the first place.

However, the parties thought that an expansive interpretation of the wording of section 10(e) of the Act could potentially cause ambiguity about the true intention of the parties.

Section 10(e) states that people need not comply with:

"any other requirement relating to sale that would prevent or restrict, or would have the effect of preventing or restricting, the sale of goods in the second State".

Therefore, the parties sought to include section 11(2) of the Act to clarify their intention beyond doubt.

The effect of the restriction on competition is that all people selling goods in Australia need to observe variable requirements relating to the sale of goods across jurisdictions.

Manner of sale requirements falling under the exception

Before discussing competitive issues further, it is worth explaining the categories of manner of sale requirements which fall under the exception.

  • Contractual aspects of saleThe intention of the parties to the scheme was that the scheme would not affect the contractual obligations of parties to a sale of goods, for example, contractual obligations under contracts for the sale of goods between manufacturers, wholesalers and retailers. To the extent that sale of goods contracts include anti-competitive restrictions, these restrictions are best dealt with under the Trade Practices Act 1974 and Fair Trading legislation.

  • Registration of sellers - Registration requirements do not relate to the sale of goods per se but to between whom the goods can be sold, and are generally made in the interests of public health and safety. For example, the majority of jurisdictions impose requirements that the sellers of food for human consumption register to sell those goods in their jurisdiction. The parties to the MRA did not intend that these requirements would fall under the scheme. To the extent that these registration requirements impact on competition, competition issues are best considered in the context of the review of the legislation imposing registration requirements.

  • Business franchise licences -States and Territories were traditionally able to impose business franchise license fees on sellers of a range of products, including petrol, alcohol and tobacco products, through the imposition of franchise licences, which were effectively a State sales tax on those products. However, following a recent High Court decision on the matter, the States and Territories no longer impose franchise fees in the above manner. Nevertheless, States and Territories are able to use franchise licences to regulate the activities of the sellers of these products. The intention of the parties to the mutual recognition scheme was to exclude these franchise licences from the operation of the scheme. To the extent to which franchise licences include anti-competitive restrictions, those restrictions are best dealt with in the context of the specific competition policy review of legislation imposing franchise licences.

  • Persons to whom goods may be sold This exception refers to, for example, restrictions on the sale of alcohol and tobacco to minors, which are generally restrictions made in the public interest. Again, the intention of the parties to the MRA was to exclude these restrictions from the operation of the scheme.

  • Circumstances of sale - This exception refers to, for example, requirements that products be placed above a specific height on shelves to restrict access by young children, which States and Territories generally impose in the public interest. The intention of the parties to the MRA was to exclude these restrictions from the operation of the scheme. To the extent that these requirements are potentially anti-competitive, these requirements are best dealt with under the specific competition policy review of the relevant legislation.

The impact of the restriction on competition

Generally speaking, the impact of the restriction on competition between jurisdictions is negligible, due to the fact that the majority of jurisdictions impose very similar requirements in relation to the manner of sale of goods, and that the exception is only applicable to requirements that apply equally to intrastate and interstate goods. Therefore, these requirements are not likely to operate to restrict competition between jurisdictions.

However, the Review Group has become aware of a significant anomaly arising from the impact of the manner of sale exception on the sale of drugs and poisons.

The Commonwealth, States and Territories develop standards relating to the sale of drugs and poisons through the National Drugs and Poisons Scheduling Committee. The resulting national standards are referred to as the Standard for the Uniform Scheduling of Drugs and Poisons (the 'Standard').

The States and Territories are responsible for regulating the packaging, labelling and availability of a range of 'drugs and poisons' products including therapeutic goods, agricultural and veterinary chemicals and industrial chemicals, and for implementing the Standard, through their drugs and poisons legislation.

However, the implementation of the Standard is variable across jurisdictions.

Anecdotal evidence suggests concerns about the impact of different packaging and labelling requirements between jurisdictions, which arises from the inconsistent implementation of the Standard in the law of the States and Territories.

The intention of the parties to the MRA was specifically to bring the barriers to trade which variable packaging and labelling requirements present, under the mutual recognition scheme.

The Review Group takes the view that the 'exception' of packaging and labelling requirements for drugs and poisons is anomalous, and inconsistent with the intention of the parties to the MRA.

The Review Group recommends that COAG request that CRR examine whether the anomaly is real, and if that is the case, examine ways in which the Mutual Recognition Act 1992 can be amended to bring packaging and labelling requirements for drugs and poisons back under the scheme (see Recommendation 24, following).

Benefits and costs

A thorough analysis of the costs and benefits of the restriction was beyond the scope of the Review.

A true competition policy assessment of specific requirements under the exception is best dealt with in the context of a competition review of the requirements.

Alternatives

The intention of the parties to the MRA was to except the above manner of sale requirements from the operation of the scheme.

Therefore, there would appear no feasible alternative to maintaining the exclusion.

Conclusion

Due to the fact that the majority of jurisdictions impose very similar manner of sale restrictions, removing the restrictions would arguably make a negligible impact on competition between the States and Territories.

However, removing the exception could see the mutual recognition scheme covering requirements which the parties to the MRA did not originally intend the scheme to cover, due to the potentially broad operation of section 10(e) of the Act.

For example, manner of sale requirements restricting who can buy and sell goods could arguably fall under the section.

Therefore, following the above reasoning, it is recommended that the exception for manner of sale requirements under the Mutual Recognition Act 1992 be retained.

However, noting the anomaly which the potential exclusion of the packaging and labelling requirements for drugs and poisons would present, it is recommended that COAG request that CRR examine the issue and, if appropriate, examine ways in which the Mutual Recognition Act 1992 can be amended to bring packaging and labelling requirements for drugs and poisons back under the scope of the MRA.

One option is to put drugs and poisons legislation to the extent that it regulates packaging and labelling of products in a separate schedule of legislation which is exempt from the manner of sale exception.

Recommendation 23
That the Participating Parties maintain the exception relating to the manner of sale of goods.

Recommendation 24
That the COAG Committee on Regulatory Reform assess the issue of inconsistent packaging and labelling requirements for drugs and poisons, and if appropriate, develop for consideration by Heads of Government, amendments to the Mutual Recognition Act 1992 to ensure that the scheme does cover packaging and labelling requirements for drugs and poisons.

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Transport, storage and handling of goods, and inspection of goods

Exception for laws that regulate transportation, storage or handling of goods, and laws that regulate the inspection of goods

The nature of the restriction on competition

The mutual recognition principle does not affect the operation of the following laws:

  • the laws of a jurisdiction regarding transportation, storage or handling of goods if those laws apply equally to intrastate and interstate goods, and are laws regarding public health and safety or environmental pollution (Mutual Recognition Act 1992: s11(3)); and

  • the laws of a jurisdiction regarding the inspection of goods in that jurisdiction, if the sale of the goods is not contingent on inspection, the laws apply equally to intrastate and interstate goods, and are laws regarding public health and safety or environmental pollution (Mutual Recognition Act 1992: s11(4)).

The impact of the restriction on competition

Generally speaking, the impact of the restriction on competition is negligible. This finding is not surprising, given that laws regarding transport, storage and handling of goods, and inspection of goods, are generally put in place to promote public health and safety, or environmental protection. Furthermore, the exception is only applicable to requirements that apply equally to intrastate and interstate goods. Therefore, these requirements cannot operate to restrict competition between jurisdictions.

However, there is a grey area in relation to circumstances in which there is a conjunction between requirements which fall under the mutual recognition principle (e.g. labelling requirements), and requirements which fall under an exception to the mutual recognition principle (e.g. storage and handling requirements).

For example, a jurisdiction may require a person to label their goods to include information on storage and handling requirements. It is not clear which section of the Act would prevail. This issue was raised in submissions in relation to Material Safety Data Sheets (MSDS) which are used to disseminate information on the transport, storage or handling of hazardous substances and similar products. MSDS requirements vary across jurisdictions, increasing costs on manufacturers. For example, the Commonwealth Department of Workplace Relations and Small Business stated that:

"... manufacturers and suppliers need to develop several MSDSs for each product in order to satisfy different requirements in each jurisdiction."

Benefits and costs

Again, a thorough analysis of the costs and benefits of the restriction was beyond the scope of the Review. A true competition policy assessment of specific requirements under the exception is best dealt with in the context of a competition review of the requirements.

Alternatives

The intention of the parties to the MRA was to except the transport, storage and handling, and inspection requirements from the operation of the scheme. There would appear to be no feasible alternative to maintaining the exclusion.

Harmonising transport, storage and handling requirements across jurisdictions would potentially minimise barriers to trade, and eliminate the need for the exception. However, harmonisation would not ameliorate the anti-competitive nature of the requirements.

Conclusion

The majority of jurisdictions impose very similar transport, storage and handling restrictions, and inspection restrictions, hence, removing the restrictions would arguably make a negligible impact on competition between the States and Territories. The effect of an MRA exception is to maintain the regulatory status quo. There may be competitive effects arising out of these restrictions, however, these are best assessed through a specific competition review of the regulations in question.

In addition, due to the potentially broad operation of section 10(e) of the Act, removing the exception could see the mutual recognition scheme covering requirements which the parties to the MRA did not originally intend the scheme to cover.

Therefore, following the above reasoning, it is recommended that the exception for the transport, storage and handling, and inspection, requirements under the Mutual Recognition Act 1992 be retained.

The Review Group recommends that States and Territories should consider developing national standards for transport, storage and handling requirements. In respect of transport, storage and handling regulations that are implemented through labelling and packaging requirements, the Mutual Recognition Act 1992 should be amended to ensure that such requirements are subject to the mutual recognition principle.

Recommendation 25
That the exception relating to the transport, storage and handling of goods, and inspection of goods, be retained.

Recommendation 26
That the COAG Committee on Regulatory Reform examine the potential for developing national standards for the transport, storage and handling of goods for which there is variable regulation across jurisdictions.

Recommendation 27
That the COAG Committee on Regulatory Reform develop for consideration by Heads of Government, amendments to the Mutual Recognition Act 1992 aimed at ensuring that packaging and labelling requirements relating to transport, storage and handling, in particular, requirements relating to Material Safety Data Sheets are covered by the mutual recognition principle.

Last Updated: 28 July, 2008