Where a problem has been characterised as one that might be appropriately addressed through a prescribed industry code, the Minister considers the following factors when deciding whether prescription under the CCA is appropriate. The Minister may have regard to other relevant factors in addition to these criteria.
If, after a preliminary assessment of these criteria and other relevant matters, the Minister is satisfied that there are sufficient grounds for the making of a code, will he embark on the public consultation and regulatory processes involved in the prescription of an industry code.
A. Identification of a problem, and existing regulation that applies, within an industry
For any form of new regulation to be considered, including the prescription of an industry code, a problem should be identified and a case must be made to indicate that additional regulation is needed.
The nature and magnitude of the problem should be identified with precision, to ensure that regulation is being adequately targeted. Problems that might be effectively addressed by industry codes will usually involve market failure such as misuse of market power, asymmetric information or the presence of externalities.
All existing regulation should be considered, at the national, State and Territory levels, as it applies to the identified problem, to ensure that the relevant industry regulation is not either currently addressing the problem or capable of addressing the problem with more active enforcement.
B. Effectiveness of any industry self–regulatory measures
Given the identified benefits of self regulation, industry codes would not generally be prescribed unless evidence exists to indicate that self regulation has been attempted within an industry and failed to address the identified problem.
If an industry has not sought to self regulate to address an issue it may suggest that there is the potential for that to occur before prescription of an industry code is considered.
C. Other regulatory options
All regulatory and non–regulatory options that may address the identified problem should be considered. This includes no action and reliance on existing regulation, such as the generic competition and consumer provisions of the CCA. There should be clear evidence that the market is incapable of addressing the problem without additional government intervention to justify the need for a prescribed industry code.
D. Goals of a prescribed industry code
The goals of a prescribed industry code should be clearly identified and there should be clear evidence that they are achievable.
The primary goal of an industry code, from the perspective of the Australian Government, is that it enhances the wellbeing of the Australian people. This might be achieved by reducing complexity that industry participants or consumers are required to deal with, by reducing risks, by ensuring that industry participants are afforded some measure of fairness in their dealing with other industry participants, or by increasing the aggregate output from a particular industry.
Industry codes are not, as a general proposition, designed to address circumstances in which smaller participants in an industry experience competitive pressures that relate to limited access to economies of scale in purchasing, bargaining or access to markets. If this is the case, there should be compelling evidence to indicate that the problems experienced are so significant that they have effects beyond individual firms or groups of firms within an industry, such that there is a public interest in the prescription of an industry code.
The form of a proposed industry code
A code should be drafted simply and clearly and avoid complexity and ambiguity. It should also be drafted to address specific problems and in terms of requirements and obligations, not aims and ideals. Its provisions should be enforceable and consistent with concepts used in related legislation, particularly the Competition and Consumer Act 2010.
A mandatory code of conduct is not a mechanism for restricting or controlling competition in a market, by imposing barriers to entry or permitting anti–competitive activity. Nor is it a way of circumventing the operation of other parts of the Competition and Consumer Act 2010.
A code should be drafted in such a way as to avoid:
- any actual or potential anti–competitive effects arising from its terms; and
- unnecessary limitations or intrusions into normal commercial decision making.
Those proposing a code should also contemplate alternative dispute resolution systems prior to any resort to the remedies available under the Competition and Consumer Act 2010, and to the extent that it is legally possible and appropriate, these systems may be incorporated into the proposed code.
E. Benefit–Cost analysis
As applies to all regulation making within the Commonwealth, a rigorous impact (benefits and costs) analysis is necessary to inform decision makers on the likely merits of prescribing an industry code.
The analysis should be assessed as adequate by the Office of Best Practice Regulation (OBPR) according to the criteria set out in Part 3.5 of the Best Practice Regulation Handbook.
The Minister will consider the costs and benefits of a proposal on an interim basis before deciding to embark on the process of prescribing an industry code.