issue 9, august 2001 update issue 9.pdfprofessor allan fels, ao, who gives his slant on the...

An interview with Allan Fels

Consumers andmarket reform

Consumer protection

PLUS

ACCC

updateIssue 9, August 2001


Consumers andmarket reform

Consumer protection

PLUS

In this issue

3

5

7


Market forces change

how electricity is supplied

A revolution in gas

Consumers and

market reform

8

9

10

12

14

16

17

18

19

19

Airport deregulation

Major price falls in

telephone market

Advertising and selling

— what you should expect

Debt collection

tested in courts

Post-GST price movements

What does ‘Made in

Australia’ really mean?

The ACCC’s new rural

and regional program

The ACCC and complaints

Commission contacts

New on the bookshelf

Consumer protection

updateACCC

Produced by the ACCC Publishing Unit.

Photographs by Arthur Mostead

© Australian Competition andConsumer Commission 2001

ISSN 1443–0681 Issue 9, August 2001

What does the Trade

Practices Act mean for

consumers?

It's easy to be blinded or bewildered by much of the large

scale work of the ACCC and to think that it couldn't have

the remotest benefit to the ordinary consumer. For

instance, what possible effect could access arrangements

in the gas, electricity and telecommunications markets

have on you?

This issue of looks at the impact of utilities

reform on consumers, but it also looks at what is thought

of as the more traditional aspects of consumer protection

work and brings you up to date with what is currently

occupying the ACCC's energies.

To begin with is an interview with ACCC Chairman,

Professor Allan Fels, AO, who gives his slant on the 'big

picture' for consumers.

ACCC update

2 A C C C u p d a t e 9 — A u g u s t 2 0 0 1•

An interviewwith Allan Fels

A C C C u p d a t e 9 — A u g u s t 2 0 0 1 • 3

The following is an interview with

ACCC Chairman, Professor Allan Fels, AO,

on what he sees as the most important

issues facing the ACCC in protecting

consumers.

Consumer protection is often thought

of — in terms of fair trading and

consumer protection laws — as

misleading and deceptive conduct,

faulty products and so on. But the most

important factor affecting consumers is

the competition itself.

So we see vigorous enforcement of

competition law via active pursuit of

cartels, a firm but sensible approach to

mergers, and actions against

monopolistic exploitation as being the

most important issues in our area for

consumers.

Often, the seemingly technical decisions

the Commission makes about

competition affect consumers to the tune

of millions and millions of dollars.

That's not to say that there aren't

important scams occurring in traditional

areas of consumer protection, particularly

in the new economy with e-commerce

scams, and also with utility deregulation

and other areas of deregulation such as

the health sector.

The Commission is neutral in its attitude

to the issue of public or private

ownership. It is of some concern,

however, that governments have a

conflict of interest as owners of the

utilities and also as the entity responsible

for efficient, competitive behaviour in the

economy.

We find time and again at all levels of

government that there are pressures for

pulling back on the vigorous application

of competition policy because of

government revenue interests.

Once privatisation or even

corporatisation or commercialisation

occurs, in most cases a very high degree

of market power remains in the hands of

the incumbent. And traditionally those

incumbents have not then formally

regulated — ministers and cabinets have

still made the decisions about pricing and

other matters, and there is usually a

regulatory gap.

If the privatised entities have market

power they need to be properly

regulated or otherwise they'll just

become monopolies that exploit

consumers.

On the whole a high level of regulation

is required. Mostly because there is a very

high degree of market power to begin

with and the deregulating utilities are not

like other sectors where there's more

competition — especially where they

control some form of network, whether

it's a telecom network, an airport or a gas

pipeline or an electricity grid.

And not only do we apply traditional

regulation but we usually have to beef it

up; something extra is generally required.

Access remains a fundamental policy

variable in all of the utility areas. Not in

every single activity that utilities do, but

because some of the utilities in the past

had monopolies over areas where there

can be competition, such as generation

in electricity.

There has been quite a lot of criticism of

national competition policy in rural and

regional Australia. Interestingly, when the

ACCC visits those areas the main

complaint is that we aren't doing enough

— and that's been recognised by the

government with additional funding.

Regional and rural people suffer as much

as, or more than, others from exploitation

by cartels and monopolies, all sorts of

monopolies. More than others often

because in big cities there are often more

competitors. Take petrol. Marketing in

country areas is inherently less competitive

because there are fewer players, and

country people suffer as a result.

What are the ACCC's major

concerns regarding

consumers now and for the

next few years?

In terms of utility

deregulation, many see

privatisation of once

government-owned bodies

as the government

abandoning them, and as

one-off sales being for the

short-term gain of

government. How does the

ACCC feel about it?

What level of regulation is

appropriate for some of

these entities?

And this is where access

arrangements come in?

Leaving utilities aside for

the moment, what special

issues face rural and

regional consumers?

cont...


What we have decided to step up

heavily, are our attempts to be in touch

with regional and rural Australia. Using

satellite TV transmission via Sky we're

now having major seminars two or three

times a year in something like 60 towns

at a time. We do an interview in the

central studio in Sydney that includes

me, other ACCC Commissioners and

various business personalities like ACCI

representatives. Following that we take

questions live from these different

venues. We've found the two-way

education process to be extremely

valuable.

Yes. Fines aren't enough for big business

collusion. Collusion is a calculated

decision for big business people who

factor in the low probability of being

caught, together with the fact that the

fines might be less than the gains they

make from collusion. And there has been

some increase in the amount of cartel

behaviour both locally and globally in

recent times. Also, it's appropriate

because secret collusions that harm

consumers are like a form of fraud, like a

form of theft, and a criminal deterrent

would be far more effective than the

thought of fines.

At the moment we've been floating the

ideas of public discussion and then

we're going to take it to the government

in due course. We're not expecting an

immediate answer. But we think the

case for coming into line with the

United States, Canada, Japan and Korea

is quite strong.

It always has been strong, but when it

was originally discussed in 1974 the big

business lobby was more powerful and

also there was more uncertainty about

what the Act meant. Now it's pretty clear

cut what it says about collusion.

We would like to see a stronger law

regarding the misuse of market power by

big business and the opportunity to

move against it more quickly.

Typically at the moment there are long

delays before we can win cases in court.

There might be a case for some kind of

short-term cease and desist power where

the Commission can order certain

behaviour to stop for, say, 90 days.

On consumer protection, we want to take

nothing away from the law, but we'd like

to add a wider set of options to the

remedies currently available — to almost

the opposite of the competition law where

we need a criminal sanction added.

With consumer protection there's the

opposite gap. They have a criminal

sanction but they don't have some of the

normal civil remedies available under

part V. So in a lot of consumer matters

the Commission faces a rather extreme

choice between criminal action or not

doing anything much at all.

Well, the middle path in both part IV and

part V is to have a full set of possible

remedies. In part IV just add on criminal

and subtract nothing from all the civil

remedies. In part V there's a gap in that

the civil remedies are quite limited; they

don't include the possibility of fines for

example and some other actions. So we'd

like to have pretty much the same set of

remedies across both parts of the Act.

We're getting a fairly sympathetic

hearing. It's hard to say how it will turn

out. At this stage I haven't detected a

kind of hysterical response from anyone,

so I'm hopeful that there will be serious

considered debate by everyone about

the issues.

Yes, I hope it would help. One of the

interesting points is that most businesses

think that the Commission is too strong,

too powerful, too draconian.

Most of the public thinks the opposite. As

the Commission has become better

known and more effective, more people

have heard of it and more people think

that it is rather ineffective.

The reality is quite different. Everything

we do ultimately benefits consumers.

The fact that there's new issues constantly

coming up. There's never a dull moment.

You recently called for

criminal sanctions for price

fixing. Do you think the

Trade Practices Act should

be changed to allow for

that?

Is the government making

any move to take this up?

Are there any other

changes you would like to

see to the Act that would

benefit consumers?

What would that middle

path be?

Are you expecting a

favourable response from

government on that score?

Do you hope it will answer

the complaints that the

ACCC does not have the

power to act?

What do you personally

find the most stimulating

part of your job?

An interviewwith Allan Fels

4 • A C C C u p d a t e 9 — A u g u s t 2 0 0 1

The big pictureThe big picture

Consumers may wonder why governments are going

through the long and what probably seems contrived process

of reforming the utilities — that is, the bodies that provide our

electricity, gas and telecommunications, and

manage our airports.

Ultimately, the aim is to make those

areas more competitive. They have

traditionally operated as monopolies

and have enjoyed the benefits that situation brings, with

government intervening to cap pricing. But if they run their

businesses under a more competitive framework, then it can

only benefit consumers with better service and fairer prices.

In this section of , we look at how the ACCC is

regulating this process and what the benefits will eventually

be for consumers.

update

Come 2003 the retail end of the

electricity market in most States

will be completely deregulated.

This is likely to increase the

pressure to make the supply of

electricity more efficient, reducing

the possibility of blackouts and

supply interruptions.

In fact, a reliability survey by the Office

of the Regulator General in Victoria a

couple of years ago concluded that

supply reliability had improved under

private ownership. The consequences

for a private sector supplier getting it

wrong and blacking out its customers

can be quite damaging. Not only do

they face potential political censure and

negative media exposure, they have to

deal with the reaction of shareholders

and, of course, angry customers.

'There's nothing special about

governments owning these things

because they certainly don't manage

them any better than the private sector,'

said Michael Rawstron, head of the

ACCC's electricity group. 'There's no

share price to discipline them. There's no

threat of takeover. If the board of

directors of a government-owned

business makes a mistake, who

disciplines them?'

In a deregulated environment, the

reliability of power stations has improved

markedly since the reforms commenced.

Before the reforms, power stations were

built on the assumption that between

30 and 40 per cent of the time they

would be out of operation because of

technical or other problems.

Now, in a more deregulated

environment, most are running at close

to 90 per cent availability.

'They haven't put any extra dollars in —

we're simply talking about getting the

same assets working harder.’

As in the supply of gas and

telecommunications, deregulation could

also completely change how electricity is

billed to customers, with incentives

offered by various retailers.

Utilities companies may jointly bill,

combining gas, phone and electricity on

the one invoice, thereby saving IT costs

for them and simplifying payment for

customers.

As has happened in overseas markets,

incentives could include frequent flyer

points, discounts, credit cards etc.

The gradual introduction of smart

meters, as needed, will give consumers

much greater information about how

and when they use their power. The

meters may eventually be able to signal

people to reduce consumption at times

of high electricity prices, flagging the

price, the time and the amount of

energy consumed.

Restructuring in the electricity market

has gone through a couple of stages. In

the first stage in the 1980s, most States


cont...

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Market forces changehow electricity is supplied

Consumers and market reform


had an electricity commission that was

then corporatised. During the second

stage, the monopoly parts of the

business — that is, the transmission —

was separated out, and the remaining

generating and retail segments were

broken up into competing businesses

and deregulated.

The transmission of electricity along high

voltage wires, like Telstra's copper

network, is uneconomic to duplicate

and for the process to run smoothly, it

must be easily accessible at both the

production end (the power stations) and

the distribution/retail end (the low

voltage lines to consumers). The ACCC

regulates access to this system by setting

the maximum income that the

transmission network can earn.

Reform of the electricity market has

varied around the States. Until the

process began, each State generated its

own power to sell to its own customers.

There was no national planning.

According to Rawstron, if New South

Wales had surplus capacity this was not

considered important in terms of what a

nearby State might do, even if it was

short of power, and vice versa. This

situation led to governments spending

billions of dollars building power

stations that could have been deferred if

they had imported power from States

that had surplus generation.

The structural reforms broke up the

electricity market by function. In some

States, such as Victoria, it resulted in

competing power stations; in other

States such as New South Wales and

Queensland, separate competing power

companies were the result. At the

distribution and retail end, companies

such as Integral, ActewAGL, Country

Energy, Energy Australia, Ergon and

Energex evolved.

In Victoria and South Australia, the retail

and generation companies are privately

owned, whereas in Queensland and New

South Wales, they are publicly owned.

For most States (except WA and NT),

trade across the borders in each other's

territory has been made possible by

interconnecting their high voltage

networks. Stronger interconnection

meant States could share their reserves,

plan for contingencies, assess the need

for investment in new infrastructure and

have greater security of supply. The

benefit of this was savings in the order

of billions of dollars a year.

Rawstron said that the reforms to the

electricity sector so far had resulted in

about 70 per cent of the market, in

terms of value, being deregulated. This

has largely been the wholesale market

— that is, the buying of power by

retailers from the producers, and its

transmission and distribution.

The prices paid by retailers are usually

set under contracts, or else decided on

the spot market. Prices paid by

consumers are still regulated and will

stay so in most States until 2003.

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Market forces changehow electricity is supplied

Consumers and market reform

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Billing and other services

involved in supplying energy

and telecommunications to

households are likely to undergo

a revolution in the near future.

Full deregulation in the United Kingdom

has transformed the system — now,

rather than receiving separate bills for

electricity, phone and gas they can be

integrated. Different energy and phone

retailers offer different deals, involving

credit cards, frequent flyer points etc.

In Australia, the process of utility market

reform is well under way. While reform

in the gas market is lagging behind

electricity, it has a very different

appearance to that of a few years ago.

Previously State corporations owned a

significant proportion of the

infrastructure, except the wells where

the gas was drilled. Trade between

States was restricted, and the

exploration and processing was carried

out by a few companies operating

under long-term leases granted by State

and Territory Governments.

Usually a single transmission pipeline

connected a single gas basin to the

major population centre and regional

markets.

In 1994 the Council of Australian

Governments (COAG) decided the

industry could do with a series of

reforms. These included opening up

access to gas fields to new explorers and

producers; allowing trade between

States; and restructuring the gas utilities.

State Governments have separated the

various elements — transmission,

distribution and retail — and sold them

to private investors. The most dramatic

restructuring of this kind occurred in

Victoria.

The National Gas Code was also

developed and implemented. It sets out

the procedure the ACCC, and the State

and Territory regulators, must follow

when assessing proposals from pipeline

operators to sell transmission and

distribution services to customers.

So now the chain is clear. The elements

are now largely independent: the

exploration company (such as Santos or

BHP), the transmission company or

pipeline operator (such as Duke, Epic or

EAPL) which owns the huge pipes

linking the wells to the distribution

centres, the distributors (such as AGL or

Envestra) which pipe the gas to

households and businesses, and the

retailers (AGL Retail, Energy 21 or

Kinetic) which actually sell the gas.

It is anticipated that

the most competitive

link in the chain will

be the retailers who

supply the customer

with the product. Because of the huge

costs involved in setting up the

infrastructure, the other elements are

traditionally less competitive, although

this is gradually changing. As more

major pipelines are built between gas

basins and distribution centres, the

whole process will become more

competitive.

In the meantime, the pace of reform

continues, albeit not as quickly as some

would like.

The ACCC is the designated regulator for

gas transmission pipelines in all States

and Territories except WA. This involves

assessing applications by new and

existing companies seeking access to

pipelines, arbitrating disputes between

pipeline owners and other companies

seeking access, and other steps involved

in making sure gas is supplied as

competitively as possible.

The ACCC also regulates the gas

industry through other parts of the

Trade Practices Act, such as the sections

covering mergers, anti-competitive

conduct, fair trading and consumer

protection.

Full retail competition will allow

industrial and commercial customers to

negotiate contracts that suit their needs.

All this is ultimately good news for

consumers. Competition generally leads

to lower prices and

greater choice. It also

leads to greater

transparency of pricing.

Major consumers, like big

manufacturing businesses, will be able

to strike better deals. And even

individual consumers will benefit by

being able to choose between retailers

and the different deals they offer.


A revolution in gas

reform is well

under way

As in other sectors that were once

government owned, a stiff wind

of change has been blowing

through the aviation industry in

the last five years.

Some changes have been very

apparent, such as the entrance, and

demise, of new airlines and the

accompanying see-sawing of airfares.

With Virgin Blue now on the scene,

Australians are again being offered

airfares at a fraction of former costs. So

while the competitive pressure among

the airlines has been intense, domestic

travellers have been doing well.

Another change that may be less well

known is that in 1997 and 1998, 17 of

the 22 Commonwealth-owned airports

moved into private hands as part of the

Commonwealth Government's

economic reforms.

Because airports can be monopoly

facilities in their geographic markets the

government brought in a package of

airport-specific regulation — under a new

— to be administered

by the ACCC. This means for instance

owners or operators can't charge more

than they need to; that is, take advantage

of that monopoly market power.

The Airports Act divided the privatised

airports into two broad groups. The

major passenger ones became core

regulated airports that are subject to

economic regulation administered by

the ACCC*. The general aviation

airports are non-core and not subject

to the same regulations.

Under the Airports Act the ACCC

monitors and publishes data on the core

airports' financial and service quality

performance.

Under the

— legislation that the ACCC administers

— some prices charged by airports to

airlines are capped, meaning the

airports can't increase them just because

they want to. At most major airports this

price cap has led to steady reductions

ranging from 1 per cent per annum at

Canberra and Townsville airports to

5.5 per cent at Perth airport.

Another ACCC responsibility is to assess

new investment proposals by airports.

The ACCC will approve some increases

in airport prices to fund the investment,

if airport users by and large agree with

the proposals — giving airports an

incentive to undertake investments that

improve the efficiency of the airport and

the quality of service provided to airlines

and travellers.

So far, good quality of service results have

been recorded, suggesting that even in

the face of price reductions, quality of

service standards haven't been sacrificed

by airport operators to cut costs.

Examples of investment developments

are the international terminal at Sydney

airport before the 2000 Olympics and

the construction of common user

terminals at Sydney, Melbourne and

Brisbane airports. These terminals have

been essential to the operations of Virgin

Blue, and central to the low airfares.

The ACCC also monitors the prices of

some aeronautical-related services, such

as refuelling services, check-in counters

and car parking. The ACCC doesn't have

to be notified of increases in these

prices, but because the reports are

made public the prices are open to

general scrutiny, including by the ACCC.

In relation to some services the ACCC

recently made a submission to the

Productivity Commission's inquiry into

price regulation of airports,

recommending they be subject to

price regulation — the intent being

to ensure that airport operators can't

use their market power to the detriment

of air travellers.

Access to essential airport facilities is also

regulated, through the Airports Act and

part IIIA of the Trade Practices Act. The

purpose is to make sure that businesses

needing access can negotiate with

airport operators on commercial terms

— or, if negotiations fail, to have terms

and conditions arbitrated by the ACCC.

This may be especially important when

new airlines are establishing themselves.

It has also allowed some smaller

businesses to compete with airport

operators in providing services such as

cargo handling.Airports Act 1996

Prices Surveillance Act 1983

*Core regulated airports:

Brisbane, Melbourne, Perth,

Adelaide, Alice Springs,

Canberra, Coolangatta,

Darwin, Hobart,

Launceston and Townsville.

Although Sydney airport has

not yet been privatised it is

regulated by the ACCC.


Airport deregulation

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Deregulation in the

telecommunications market has

resulted in much lower prices for

most telephone services — in the

past five years overall prices have

dropped by 17.5 per cent.

The most startling decreases have been

in international calls (53 per cent fall),

national long-distance calls (23.5 per

cent) and mobile calls (19 per cent).

Even local calls fell substantially in price,

with most of the decrease occurring in

the past two years.

Cheaper prices for consumers in fixed

line calls — that is, calls that at least

partly travel along copper lines — can

be completely attributed to greater

competition in just some parts of the

industry.

'If you think of a simple phone call as a

linear thing with a start and a finish,' said

the ACCC's head of telecommunications,

Michael Cosgrave, 'then a lot of the

competition has occurred in the middle

parts of the call.'

History explains how. In Australia over

the past 100 years, the Postmaster

General's Department and its

descendants, built up a huge

infrastructure called the customer access

network, running a copper network all

around the country.

The customer access network directly

connects customers via 10 million lines

to the nearest local Telstra telephone

exchange. It's an infrastructure that is

uneconomic to duplicate — and it's that

network where competition is, as yet,

unfeasible.

But not so the switches. A call that starts

in the home travels along the copper

line to a Telstra switch, and from there it

is taken to a point of interconnection. At

that point the call can then be directed

off to another switch, which can be

owned and operated by another carrier

such as Optus, AAPT, Primus or the now-

defunct One.Tel. That is where

competition has occurred in the market,

and where price gains have been made.

The call is only delivered back to a Telstra

switch at the other end for delivery.

In 1997 the Trade Practices Act was

amended to ensure that other providers

could get access to services (such as

Telstra's customer access network) on

reasonable commercial terms. If the

business seeking access believes that the

conditions imposed are not reasonable,

it can ask the ACCC to intervene.

Other carriers have to pay Telstra for

providing access to its network which,

at the moment, is about 1.5 cents a

minute.

The current flaw in this compensation

arrangement is the fact that it is based

on timed amounts.

'If you think about it, it doesn't make

much sense,' said Cosgrave. 'As you

move into an Internet world where calls

can last for 40 or 50 minutes, a service

provider will end up paying more in

compensation than it can make out of

the call, given Internet calls are costed at

local rates through a local switch.'

He said the ACCC would continue to

review the nature of such

interconnection payments between

carriers, particularly given the

technological advances that continue to

occur — such as DSL (digital subscriber

line) technology that offers transfer of

high speed data over the copper

network.

The rolling out of fibre optic cable,

especially in metropolitan areas, is also

affecting the current debate surrounding

access regulation. While the total

network would certainly be

uneconomic to duplicate, the laying of

cable in the cities will have a major

impact on how the Telstra network and

services are regulated.

As the industry opens up to greater

competition, further industry

rationalisation is also a possibility,

according to Cosgrave. During the early

days of competition, many new

companies enter the market — some

successfully, others less so as was seen

recently with One.Tel.

'From a competition perspective, you'd

find plenty of people who'd say that's

healthy — that's inefficient entry going

out. They were just priced too low and

they couldn't sustain it.'

Despite such industry consolidation over

the next few years, the converging of

technologies, such as telephony and

video/information

platforms, and new

market entrants

should see

competition thrive.

This rigorous

competition will

keep prices down

and efficiency up,

leading to better

services at lower

prices for

customers.


Major price falls in telephone market

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1 0 A C C C u p d a t e 9 — A u g u s t 2 0 0 1•

The objective of consumer protection law is to strengthen

the position of consumers in their everyday dealings with

suppliers of goods and services who often have stronger

bargaining positions.

The Trade Practices Act prohibits unfair practices such as:

misleading and deceptive conduct; false representations;

misleading statements; harassment and coercion; bait

advertising; referral selling; and pyramid selling.

Consumer (and many business) transactions are automatically

given warranty protection by the law, whether or not

suppliers give their own warranties or guarantees. This

protection includes the right to refund if goods are defective.

All States and Territories have their own fair trading laws

which mirror or partly mirror these parts of the law. So many

issues or concerns that consumers have in dealing with

suppliers can be successfully taken up by State departments of

fair trading or consumer affairs.

On the other hand, the ACCC focuses on industry-wide

conduct and conduct that affects large numbers of

consumers.

Some of the areas which especially concern the ACCC are

outlined below.

Sometimes it's hard to believe

some of the advertising you see.

Sometimes it's difficult to believe

what you're told by a salesperson.

Difficult to believe or not, you should be

able to rely on it — because part V of

the Trade Practices Act has some basic

rules that advertisers, marketers and

salespeople should adhere to.

Businesses are supposed to act fairly by

giving consumers accurate information

about products and services. Consumers

rely on the information they're given

because they expect the business to be

knowledgeable about their own

products and services.

What falls into the scope of advertising

and selling? The following are some

examples:

Broadly put, part V of the Act tells

businesses not to engage in activities

that actually mislead or deceive; or are

likely to mislead or deceive. Take the

example below.

�

�

�

�

�

�

�

�

�

�

information provided by call

centres;

promises and negotiations;

terms of leases, contracts and

agreements;

predictions about risk, profitability or

value;

statements in labelling and

packaging;

descriptions of goods or services;

silence or omissions which 'mean

something' in a given context;

claims of association with other

products or persons;

mimicking of products or names;

and

distribution of financial, mortgage

or insurance documentation.

A perennial problem area to watch out

for is disclaimers and fine print in

advertising. These are designed to limit

expectations that might be created by

the first impression. However, all

conditions should be easy to see. You

shouldn't have to look in obscure

locations, be able to speed read or

search exhaustively for these

This is a form of advertising that

highlights the differences between

products. It can be very appealing

because it may show that one product is

better than another. But businesses

Disclaimers and fine print

Comparative advertising

details.

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Consumer protection

exampleA student wants a computer that can

be used for high resolution graphic

design. The computer salesperson

recommends a particular model but

fails to explain that it doesn't have the

processing capacity needed to run

certain graphics applications.

The student buys the computer and

finds it doesn't do the job. Therefore,

the student was misled because the

information provided by the

salesperson gave the impression that

it was the right product for the job.

Advertising and selling — what you should expect

A C C C u p d a t e 9 — A u g u s t 2 0 0 1 • 1 1

need to be extra careful with it because

comparisons should only be made when

the products or services are reasonably

similar. They also need to consider how

soon their competitors are likely to

respond because if a competitor moves

quickly to change its own prices the

original comparative campaign could

become misleading.

Many complaints about misleading

conduct are explained by businesses as

an error or an oversight, e.g. a computer

error that leads to overcharging or an

inexperienced sales person. Either way

consumers may still be misled and suffer

as a result. The Trade Practices Act

protects consumers regardless of intent,

and places responsibility on the business

to avoid such conduct.

Marketers may have very specific

target audiences in mind, but can't

always control who receives the

message and who is likely to be

influenced by it. They must consider

the likely audience, how they could

be influenced, and what impression

they could take away with them.

Businesses should always step back from

their marketing and advertising to look

at the overall impression that has been

created. They need to ask: How is a

consumer likely to look at it? Is the

emphasis correct? Have any important

details been left out? Can there be

more than one meaning?

Most businesses that provide goods or

services directly to consumers would

know about their obligations. But

marketers also need to know about the

law so they can help clients to avoid

bending the truth. Similarly, if the media

adopts, advises or endorses a misleading

message that it has been asked to carry, it

may be breaching the Trade Practices Act.

Presently the penalties for offences are

up to $40 000 per offence for individuals

and $200 000 per offence for

companies.

On 18 June 2001 the Australian Senate

agreed to increase them to about

$1 million for corporations and

$200 000 for individuals. The new

penalties will only apply to future

conduct.

To avoid misleading consumers,

businesses need to consider these

principles:

Your intent is not important.

Is the target audience the only audience

that will receive your message ?

The overall impression you create.

Marketers and the media

Penalties

If you would like to know more,

look up the ACCC's publication

at

<http://www.accc.gov.au>.

At the moment it is only available on

the website but an updated print

version will be published later this year.

Advertising and Selling

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Until last year section 60 of the Trade

Practices Act remained untested in

the courts, leaving the community

unsure to what extent harassing or

coercive conduct adopted by some

debt collectors was against the law.

But in August 2000 the Perth Federal Court found that Cash

Return Mercantile Pty Ltd, a debt collection agency, and its

former agent, Ms Sharyn McCaskey, had breached the Act.

They had engaged in undue harassment, undue coercion

and misleading conduct while collecting debts from

consumers, the court found. They had made an excessive

number of phone calls to debtors; they had adopted a

threatening, aggressive and abusive manner; and they had

misled debtors and others about recovery procedures and the

consequences of not paying the debts.

This case has clarified the ACCC's guidelines (see below)

describing conduct that would be likely to contravene the

laws.

However, the guidelines point out that if the debt collector

contravenes s. 60, it doesn't mean the debtor can get away

with not paying the debt. Consumers who are legally bound

to pay or repay money must do so unless they have a valid

defence.

Creditors can take reasonable steps to ensure their debt is

repaid but they are not allowed to be unfair or intimidating.

The guidelines acknowledge that failure to repay a debt may

6 • A C C C u p d a t e — 2 0 0 11 2 A C C C u p d a t e 9 — A u g u s t 2 0 0 1•

ACCC guidelines

Debt collectors are not supposed to pester or

frighten a debtor, tell others about the debts,

or threaten to take action they aren't legally

entitled to take. This all comes under undue

harassment, and it is against the law. This

applies to anyone collecting debts, such as

banks, finance companies, shops, hospitals,

solicitors or debt collectors.

People who owe debts should not be harassed or called at

unreasonable hours. After 7.30 a.m. and before 9 p.m. is

okay, unless the debtor has arranged something else or

unless the debt collector has been trying for

a while to contact the debtor during the day.

Collectors should make their initial contacts,

at least, outside of someone's work. If a

collector needs to communicate with a

debtor at work, they should do so discreetly

and with care. A collector should only do

this if specifically asked, if an alternative hasn't been

provided, or if the debt relates to a debtor's own business.

If a collector does contact a debtor at work, they should

not let others know about the debt.

Collectors can visit in person but privacy and security

should be respected. They should use less intrusive means

if possible, especially initially, such as by phone, fax or mail.

Collectors should only make calls that are absolutely

necessary, up to about three (that you answer) a week, or

10 a month.

If a debtor has made arrangements to pay, a collector

should not contact them. They should also not contact a

debtor if liability has been denied in writing or that they

intend to defend any legal proceedings.

If the debtor has a lawyer, financial counsellor or someone

else representing them, a collector should contact them first.

When they should call

Where they should call

How they should call

How often they should call

Who they should call

Debt collection tested in the courts

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Can they call family and friends?

What they can't do

If collectors don't know how to contact a debtor,

they can contact family and friends to find out

where the debtor is. However, those friends and

family don't have to tell them the debtor’s

whereabouts and they are not liable for the debt.

The collector should not discuss the debt with

them or talk with the debtor’s children without

permission. They are not allowed to trick people

into disclosing their whereabouts.

Collectors are not allowed to lie or mislead a

debtor about:

They should also not use abusive, threatening or

obscene language, and they must not use or

threaten violence against either the debtor or

their property.

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who they are and who they represent;

the amount of money owed; and

what will happen if the debt isn’t paid.

Steps consumerscan take

If a debtor is not disputing the debt, realistic repayment

arrangements can be negotiated. Early and clear

communication as soon as difficulties arise will help

resolve any problems.

A debtor should also advise creditors of:

If a debtor wants a collector to stop a particular type of

contact, they should write to them saying what conduct

they don't like and what would be acceptable, for

example, telephoning them at home instead of work. They

should keep a copy of the letter.

They should keep accurate details about what has been

said and done, in case they need to make a complaint.

If a debtor needs help to manage what may seem to be an

unmanageable situation, they should talk to:

Complaints can be made to:

If a creditor contravenes s. 60, it is a criminal offence and

can lead to fines of up to $200 000 for a corporation, or

$40 000 for an individual.

Civil remedies include injunctions, damages, other orders

such as compliance programs and enforceable

undertakings.

Even if a creditor uses an agent to collect debts, the

creditor may still be liable for the agent's conduct if it

contravenes the Act.

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current contact details; and

any financial difficulties they may be having.

a free financial counselling service (usually listed under

community advisory services in the Yellow Pages); or

a free community legal centre.

State and Territory fair trading agencies; or

the ACCC.

Where to go for help

The end result

not be deliberate. It could be because people have

overcommitted themselves, or their financial

circumstances have changed because of

unemployment, ill health, divorce or separation.

Not paying a debt may also be because someone

disputes its existence or the amount of debt.


Surveys by the ACCC checking price movements pre-

and post- GST show that businesses generally

haven't used the change as an opportunity to

increase profit margins.

The ACCC has been surveying prices since December 1999.

The ongoing general survey involves collecting the prices

of identical products at different times. About 340 000

comparisons were made between May 2000 and

February 2001.

The survey covers prices for a wide range of common

household goods and services. Prices are collected from

around 10 000 sites in 115 locations (capital cities, major

regional cities and towns) in all States and Territories.

Between May 2000 (just before the GST was introduced)

and February 2001 the overall average price change was

an increase of only 4.4 per cent.

If you exclude fresh fruit and vegetables, which have

highly variable supply and demand characteristics because

of their perishable and seasonal nature, the increase drops

to 3.2 per cent.

Remove alcohol and tobacco products (subject to CPI-related

half-yearly indexation of excise rates unrelated to the New

Tax System) and it drops further to 2.9 per cent.

On the same basis, the average price change between

May–October 2000 was only +2.6 per cent — which means

that between October 2000 and February 2001 there was

only a slight average increase.

The ACCC considers that price increases happened mainly in

the three months after 30 June 2000, and that further

increases resulting from the New Tax System are unlikely.

Prices that have risen since September 2000 have generally

been in line with inflation trends that existed before the New

Tax System changes.

Others may be accounted for by some businesses having

separated tax and non-tax factors in pricing and holding off

passing on the non-tax factors when the tax changes

occurred. These businesses would now need to make sure

that future price increases are justified by these non-tax

factors and aren't implemented under the guise of the GST.

It's these non-tax factors that are now increasingly responsible

for price changes. They include increasing production costs

for raw materials, labour, imported plant and equipment;

changes in the Australian dollar exchange rate; fuel price

rises; and climatic conditions and seasonal patterns affecting

fresh produce supply.

The table shows that average price changes for most

products have moved moderately since October 2000. The

May 2000–February 2001 averages are in the unshaded

column, with those for May–October 2000 shown in the

next. The fresh food group jumped to 10.3 per cent during

May 2000–February 2001 because of large increases in the

prices of bananas, apples, pears, potatoes, pumpkins and

lettuces.

Before the February survey the following factors, unrelated to

tax changes, affected the supply-side of fresh food prices

surveyed:

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floods in northern New South Wales and southern

Queensland growing areas during November 2000; and

extreme heat conditions over summer creating poor

growing conditions for many crops, particularly lettuce,

onions and potatoes.

Post-GST price movements

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The surveys also showed almost no significant differences in

average price changes when comparing:

Apart from checking prices to assess the general impact of

the New Tax System on prices, the ACCC's monitoring work

also helped to identify potential cases of price exploitation.

Most of those investigated arose because businesses either

experienced technical errors with their GST implementation

or misunderstood its effect on the supplies made by their

businesses. Errors included charging GST:

In most cases businesses readily admitted their error and took

corrective action including providing refunds or discounting

products for an agreed period.�

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capital cities with regional areas;

smaller businesses with larger retailers/retail chains; and

the States and Territories.

on GST-free items, such as food, sunscreen products and

prescription medicines;

in relation to a pre-GST contract in circumstances where

the contract provided no review opportunity; and

in the absence of a clause allowing the business to pass

on any GST charge to the customer.

Advertising prices

Advertised or quoted prices should include GST. Some

businesses complain that including GST in their prices will

lose them sales because customers will believe their prices

are higher than their competitors. It's a good reason for

standardising the way prices are advertised.

And that's what the ACCC is working towards: if a business

supplies goods and/or services to individual customers (who

cannot claim input tax credits, and who therefore pay GST

that won't be refunded later), then the prices should be GST-

inclusive — because customers are entitled to know the total

price before deciding to buy.

Product group average price changes — May 2000–February 2001 survey data

Group Average change Average change Estimated New Tax

System effect on

prices by end 2000

3.2

10.3

2.8

4.2

-0.3

-5.9

2.0

1.8

8.5

4.2

5.9

5.1

11.2

All groups weighted average 4.4 2.7* 3.0

May '00–February '01 May–October '00

% % %

Clothing and footwear 3.8 7.5

Fresh/unprocessed food 2.9 -1.1

Household furnishings and equipment 1.2 2.2

Household services and operation 2.6 2.2

Personal care -1.2 1.5

Recreation — audio visual -6.1 -3.6

Recreation — other 1.8 3.2

Processed food and beverages 0.2 -0.3

Meals out and takeaway food 8.1 9.2

Miscellaneous goods and services 3.6 3.6

Medical and health 5.5 5.4

Motor vehicle expenses 2.9 1.9

Alcohol and tobacco products not applicable 6.0

* The May–October 2000 overall result does not include alcohol and tobacco products.

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What does ‘Made in Australia’ really mean?

Is the fact that a product is labelled

‘Made in Australia’ an important

factor in your decision to buy it?

Do you understand the difference

between ‘Made in Australia’ and

‘Product of Australia’?

If you suspect something doesn't

originate in Australia, but claims to, do

you know what you can do about it?

The Trade Practices Act prohibits

businesses from making a false or

misleading claim about the place of

origin of goods. Under the Act,

businesses are protected against such

charges if they meet certain tests. For a

product labelled 'Made in Australia', the

two tests are that the product should be

substantially transformed here, and at

least 50 per cent of the costs of

production should have occurred here.

Australian icon, Golden Circle, agreed to

amend its labelling three years ago

when it claimed some juices were

Australian made when, at the time, they

actually contained high levels of

imported concentrate.

As ACCC Chairman, Professor Allan Fels,

said, 'The ACCC takes seriously

potentially misleading claims about a

product's country of origin as many

consumers place great importance on

buying Australian products.'

For goods to be 'substantially

transformed' they must have undergone

a fundamental change in form,

appearance or nature so that they are

new and different goods to those

existing before. This means that

processes such as repackaging or mere

assembly are not likely to qualify an

imported good as ‘Made in Australia’.

But it can be difficult to pick. For

example, the ACCC decided, despite

some legal opinion to the contrary, that

substantial transformation occurs when

tablets or capsules are made in Australia

from imported ingredients. This decision,

welcomed by the complementary health

care industry, arose from a review of

how the country of origin laws applied

to the industry.

Not only must goods be substantially

transformed, but 50 per cent or more of

the cost of their production or

manufacture must have occurred here.

To qualify, three broad categories of

costs of production or manufacture are

considered: the costs of materials,

labour and overheads.

Material costs are usually easy to

calculate. But labour and overheads

only count towards the costs of the final

goods.

'Product of …' is a premium claim about

a good's origin, and the criteria to

qualify for protection under the Act are

much stricter. They are:

These criteria apply to any variations of

the words, including 'produce of' and

'produced in', and they also apply to

goods produced in any country, not just

Australia.

In July 2000 the ACCC took Taj Food

Sales Pty Limited to court for making

false country of origin claims about its

basmati rice. It had been importing

basmati rice from Pakistan and

packaging it in 1-kilo bags marked with

the words 'Produce of India'.

Some consumers believe Indian basmati

rice to be superior to that grown in

other countries and it was this

conception that the company was

trying to exploit.

The Federal Court, where the case was

heard, found that it had made these

false claims. The company agreed not to

do so again and published corrective

newspaper advertisements offering

refunds to consumers.

In another case the issue of what

constitutes a 'significant ingredient' was

raised. YBD Pty Ltd is a Victorian-based

company that produces muesli slices

and other related products. Many of its

products were labelled as ‘Product of

Australia’ and, in finer print, 'Made from

local and imported ingredients'.

The imported ingredients were apricots,

sultanas and coconut. The ACCC

believed these constituted significant

ingredients because they were the

essential defining element of the

product, rather than the main ingredient

in terms of percentage.

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each significant component or

ingredient must originate from the

country of the claim; and

all, or virtually all, of the production

processes must take place in Australia.

What is 'substantiallytransformed'?

What are the costs ofproduction?

How does ‘Made inAustralia’ differ from‘Product of Australia’?

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The ACCC contacted the company,

which agreed to remove the words

‘Product of Australia’ and replace them

with ‘Australian made Australian

owned’.

Some companies prefer to use more

qualified claims so that they don't have

to meet in full the 'substantial

transformation' or '50 per cent content'

tests for ‘Made in Australia’. However,

even for qualified claims, close attention

should be paid to the wording. For

example, if the imported content is

greater than the local, the label should

read 'Made in Australia from imported

and local ingredients'. Or if the local

content is greater, 'Made in Australia

from local and imported ingredients'.

Other claims, if brought to the notice of

the ACCC, will be assessed on their

merits. They may try to imply a lesser

connection with the country, for

example, 'Built in …' or 'Assembled in

…'. But if they are misleading they still

run the risk of legal action by the ACCC,

a competitor or any other interested

party.

Other claims are

sometimes made

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The ACCC is developing a program

specifically to keep people in rural

and regional Australia informed

about their rights under the Trade

Practices Act. It should mean

they're better prepared to recognise

anti-competitive practices and

consumer protection issues.

Through its first Competing Fairly Forum

(discussed below), the ACCC learned

that many in these communities know

nothing about the Act or the ACCC.

Over the next six months the ACCC will

be working with rural and regional

communities to identify relevant trade

practices issues to help it better target

the work of the program.

The ACCC already has an extensive

network of contacts throughout all

States and Territories that includes fair

trading organisations, small business

industry associations, local government,

area consultative committees and

business enterprise centres.

Communication with rural and regional

communities is one of the key aims of

the new program, so the ACCC will be

hiring regional outreach officers in each

of its regional offices and it will be their

job to regularly visit communities to

discuss trade practices issues and

concerns.

They will build on the work the ACCC

has already done with the satellite

broadcasting of its Competing Fairly

Forums, which give these communities

the opportunity to participate directly

with the ACCC's Chairman and

Commissioners, and other trade

practices experts, and to have their

concerns heard directly.

Two forums have been broadcast so

far. The first in November 2000

discussed broad trade practices issues

and went to 28 towns. The second,

in May 2001, went to 62 and

focused on the issue of

unconscionable conduct — a topic

participants in the first forum wanted

more information about.

Future forum broadcasts will explore

other trade practices issues relevant

to rural and regional communities.

Information on the forums can be

found at the website

<http://www.forums.accc.gov.au>.

The ACCC produces a wide range of

information about its role and

functions, and the Trade Practices

Act. One publication directed

specifically at the rural and regional

sector is

. More, on topical issues,

are planned. Videos are also

planned, to add to one already

available on unconscionable

conduct.

The program will also target rural

and regional press with

advertisements and articles on trade

practices issues.

Rural industry and the Trade

Practices Act

For more information on the

rural and regional program,

call the ACCC infocentre on

1300 302 502.

The ACCC’s new rural

and regional program


Commission offices

ACT

New South Wales

Tamworth

Victoria

South Australia

Queensland

North Queensland

Western Australia

Tasmania

Northern Territory

(national office)

Chief Executive Officer, Brian Cassidy

PO Box 1199, DICKSON ACT 2602

Tel: (02) 6243 1111 Fax: (02) 6243 1199

Regional Director, Geoff Williams

GPO Box 3648, SYDNEY NSW 1044

Tel: (02) 9230 9133 Fax: (02) 9223 1092

Director, Albert Julum

PO Box 2071, TAMWORTH NSW 2340

Tel: (02) 6761 2000 Fax: (02) 6761 2445

Regional Director, Tom Fahy

GPO Box 520J, MELBOURNE VIC 3001

Tel: (03) 9290 1800 Fax: (03) 9663 3699

Regional Director, Bob Weymouth

GPO Box 922, ADELAIDE SA 5001

Tel: (08) 8213 3444 Fax: (08) 8410 4155

Regional Director, Alan Ducret

PO Box 10048, Adelaide Street Post Office

BRISBANE QLD 4000

Tel: (07) 3835 4666 Fax: (07) 3832 0372

Director, Tony Hilton

PO Box 2016, TOWNSVILLE QLD 4810

Tel: (07) 4729 2666 Fax: (07) 4721 1538

Regional Director, Sam Di Scerni

PO Box 6381, EAST PERTH WA 6892

Tel: (08) 9325 3622 Fax: (08) 9325 5976

Regional Director, Peter Clemes

GPO Box 1210, HOBART TAS 7001

Tel: (03) 6215 9333 Fax: (03) 6234 7796

Regional Director, Derek Farrell

GPO Box 3056, DARWIN NT 0801

Tel: (08) 8946 9666 Fax: (08) 8946 9600

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The ACCC receives complaints from

consumers and businesses via:

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the ACCC infocentre on

1300 302 502;

email through its website at

<http://www.accc.gov.au>;

letters and faxes sent to ACCC

offices all around Australia; and

electronic forms submitted through

the ACCC's website Slam-a-

Cyberscam facility.

The ACCC's new infocentre team are

professional problem solvers whose job

it is to take inquiries and complaints by

telephone. The calls they receive cover

all aspects of the Trade Practices Act

from consumer protection to regulatory

issues. Some are referred to more

appropriate agencies, and others

referred to the relevant ACCC

investigator.

Complaints received via email are

analysed for trade practices issues by

the infocentre team, then referred on

or answered as appropriate.

Complaints sent as letters or faxes are

often more detailed about specific

ACCC investigations, and these are

referred to investigating officers. More

general complaints undergo the same

analysis process as other forms.

ACCC infocentre

Email

Letters and faxes

Electronic complaints

ACCC response-ibilities

ACCC priorities

Slam-a-Cyberscam is located on the

ACCC website and allows victims of

online scams to lodge complaints with

the ACCC electronically. The ACCC

monitors these complaints for trends in

online conduct, and refers them to

other agencies as appropriate. The

ACCC will investigate any complaints

that are clear breaches of the Trade

Practices Act, providing they include

evidence and contact details.

The ACCC service charter requires that:

The ACCC is a Federal authority and

investigates matters that involve:

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telephone messages be acted on

within 24 hours;

written complaints be

acknowledged within 7 days;

written complaints be responded

to within 28 days; or

when a response is not possible

within 28 days, the complainant to

be kept informed of progress.

apparent blatant disregard

of the law;

a history of previous

contraventions of the law;

significant public detriment;

the potential for action to

have worthwhile educative

or deterrent effect;

a significant new market issue; or

a likely outcome that would

justify the use of the resources.

The ACCC and complaints


Chief Executive Officer

Mergers and Asset Sales

Adjudication Branch

Compliance Division

Consumer Protection

Small Business

Brian Cassidy (02) 6243 1124

Mark Pearson (02) 6243 1276

Tim Grimwade (02) 6243 1226

David Smith (02) 6243 1234

Carl Buik (02) 6243 1066

Nigel Ridgway (02) 6243 1223

Restrictive Trade Practices

Michael Kiley (02) 6243 1052

GST Operations

Rod Overall (02) 6243 1297

Corporate Management

Legal Group

Regulatory Affairs

Electricity Group

Gas Group

Transport and Prices Oversight

Telecommunications Group

Helen Lu (02) 6243 1009

Bruce Brown (02) 6243 1273

Bob Alexander (General Counsel)

(02) 6243 1283

Joe Dimasi (03) 9290 1814

Michael Rawstron (02) 6243 1249

Kanwaljit Kaur (02) 6243 1259

Margaret Arblaster (03) 9290 1862

Michael Cosgrave (03) 9290 1914

Media liaison

General publications queries

ebsites

Lin Enright (02) 6243 1108

(02) 6243 1143

[email protected]

http://www.accc.gov.au

http://gst.accc.gov.au

http://forums.accc.gov.au

ACCC infocentre

1300 302 502

W

Commission contacts

New on the bookshelf

The ACCC has released the following publications this year.

— A bi-monthly subscription

publication — now available on CD-ROM

— free

— free magazine

— a publication of the Utility Regulators

Forum. Free magazine

— 30 min video explaining

unconscionable conduct. $10 from Canberra office

— videos from the 1st and 2nd

forums. $10 from Canberra office

— monitoring report. $10

by Karen Yeung. $25

—

a magazine giving non-technical readers an understanding

of the ACCC's role in the telco industry. Free

ACCC Journal 31, 32, 33

ACCC Journal cumulative index for

January–December 2000

ACCC update 8

Network 6, 7

Fair game or fair go

Competing Fairly Forum

Impact of farmgate deregulation on the Australian

milk industry

The public enforcement of Australian competition

law

Telecommunications infrastructure industries

fair.com — advertising and promoting Internet access.

Free booklet.

Inquiries into the declaration and revocation of

services and exemptions

Changes in the prices paid for telecommunications

services in Australia

Telecommunications competitive safeguards

Telstra's compliance with the price control

arrangements

Telecommunication Infrastructures in Australia

2001

Report on ACCC Price Surveys: General Survey,

February 2001 collection

GST Talks 10, 11

GST News for Business 17, 18

Report under s. 75AZ of the Trade Practices Act

GST Bulletin 22–27

— website only

— free

and

— free

— a BIS Shrapnel report prepared for the ACCC.

$25 from Canberra office

— free

— free

— free

—

5th and 6th reports free from Canberra and Melbourne

offices

— website only

Print Post approved PP255003/04404

issue 9, august 2001 update issue 9.pdfprofessor allan fels, ao, who gives his slant on the...

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