Review of the effectiveness and validity of operations of the MAIF Agreement:Research Paper

4.3 What are the characteristics of the Australian regulatory environment that affect the effectiveness of the MAIF Agreement?

Page last updated: 18 June 2012

Whilst there have been changes in regulatory theory and practice since the inception of the MAIF Agreement in 1992 (for example, the establishment of the World Trade Organisation in 1995), these changes have not adversely impacted, or held back its effectiveness.

The Review found that the voluntary self regulatory nature of the MAIF Agreement is complementary to associated regulatory frameworks.

The Review found insufficient evidence to suggest that a more heavy-handed regulatory mechanism would deliver additional benefit in achieving the stated aims of the MAIF Agreement.

In weighing these various factors, the Review determined that the MAIF Agreement is currently effective and that this form of regulation remains appropriate.

Noting the continuing trends towards deregulation in other areas and overall efforts of Governments to reduce compliance costs, no developments in economic regulation are anticipated in the short to medium term that will have a significant impact on the operation and effectiveness of the MAIF Agreement.

These issues are discussed in more detail below.

4.3.1 Changes in the Australian regulatory context have had limited implications for the MAIF Agreement

Review questionInsights:
What have been the changes in the Australian regulatory context throughout the life of the MAIF Agreement and what are the implications of these for the terms and scope of the MAIF Agreement?
  • The voluntary self-regulatory nature of the MAIF Agreement remains an appropriate mechanism (also discussed at Section 5.1.5).
  • Although there have been changes in regulatory thinking since the inception of the MAIF Agreement, these changes have not adversely impacted its effectiveness.
Changes in the Australian regulatory context throughout the life of the MAIF Agreement.

While there have been advances in regulatory thinking since the MAIF Agreement was implemented, the regulatory tools that are available to policy makers today are fundamentally similar. The infant formula marketing environment however, continues to evolve so it is appropriate to review the mechanisms used to implement the MAIF Agreement to determine whether it remains the best way to achieve the Agreement’s stated objectives.

Regulatory thinking and practice in Australia has significantly changed since the MAIF Agreement was implemented in 1992. Economic regulation has undergone significant change, commencing with the Committee of Inquiry into a National Competition Policy (Hilmer Report 1993) and consideration by the Council of Australian Governments and subsequent development of the National Competition Policy in 1995 (COAG 1995). This reform process led to the establishment of the ACCC and a drive for efficiency and competition, especially within state-owned enterprises. More recently, jurisdictional consumer protection regimes have been consolidated into nationally consistent consumer laws. The Australian Consumer Law is jointly administered by the ACCC and jurisdictional consumer protection agencies.

Successive Commonwealth and jurisdictional governments have focused on reducing the burden that unnecessary regulation can impose on business and society. Several ‘red tape’, and now ‘green tape’ reduction programs aimed at streamlining government regulation and reducing compliance costs for business have been implemented across a range of sectors.

The Australian Government has detailed processes to ensure that the form of regulation is appropriate to solve an identified problem at least cost. The process includes the preparation of a regulatory impact statement that sets out the rationale for the regulation. This trend has resulted in more evidence-based solutions to regulatory issues, and more stringent processes for the introduction of new regulations.
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Implications of the regulatory context for the terms and scope of the MAIF Agreement. This Review assessed the effectiveness of the MAIF Agreement in addressing community expectations and considered whether the current wording and interpretation is effective in meeting health and related social policy objectives.

The MAIF Agreement is a ‘light-handed’ (ACCC, 2011) industry code, which is voluntary in nature. The ACCC has found that voluntary self-regulatory codes have been more successful in certain circumstances, such as when the regulatory body has widespread industry support (ACCC 2011). Benefits of a light-handed regulatory approach include:
  • Effective consumer protection at a low cost
  • Increased transparency in the relevant industry
  • Increased stakeholder confidence in the relevant industry
  • A competitive advantage to signatories of a voluntary code.
The ongoing challenge for government is to ensure that any regulation responds to an identified problem, and does so efficiently by maximising the benefits to the community relative to the costs of the regulation. There are many factors to consider when choosing the appropriate regulatory tool (or form of regulation), such as the nature and history of the industry and the ability of a particular regulatory arrangement to deliver the identified objectives. Only four industries have required the introduction of a prescribed mandatory code.7

The form of regulation chosen to implement the MAIF Agreement has a direct impact on the MAIF Agreement’s coverage, enforceability, ability to influence behaviour and ultimately, its success in achieving its stated objectives.

The Best Practice Regulation Handbook (Department of Finance and De-regulation 2010) emphasises that a regulatory response must be proportional to and appropriate for the identified problem. If perceptions of the ‘problem’ were to change (for example, through new technology), or community expectations as to a particular matter were to shift over time, then it may be appropriate to re-assess the form of regulation being used.

Some examples relevant to the MAIF Agreement might include:
  • A significant reduction in breastfeeding rates in Australia
  • A shift in community concern / awareness of breastfeeding issues or regarding the scope of the Agreement
  • A link between increased demand for infant formula products and trends in marketing practices (e.g. marketing of toddler milk drinks is not currently covered under the MAIF Agreement)
  • A significant public safety risk caused by a lowering of manufacturing standards products covered by the Food Standards Code
  • Significant, or repeated breaches of the MAIF Agreement by signatories and the MAIF Agreement’s inability to effectively sanction parties
  • Practices by a non-signatory manufacturer or importer that were in clear contravention of the Articles of the MAIF Agreement

Figure 4 displays several regulatory options available to implement the MAIF Agreement on a spectrum from light-handed to heavy-handed regulation.

Figure 4 Spectrum of regulatory options

Figure 4 Spectrum of regulatory options. For detailed description of the image please refer to the descriptive link next to the image Description of the Image

Table 18 in Appendix E discusses these regulatory options available to Government to implement the MAIF Agreement and discusses the advantages and disadvantages of each option. Evidence collected on stakeholder views on the voluntary nature of the MAIF Agreement is also included at Section 5.1.5.

4.3.2 Stakeholders did not foreshadow significant future economic regulatory changes that will impact on the MAIF Agreement

Review question
What are the possible future developments in Australian economic regulation and their potential impact on the operation of the MAIF Agreement?

Insights:

  • No significant future developments in economic regulation were identified as having an impact on the operation of the MAIF Agreement; however, the trend towards deregulation and reducing compliance costs was acknowledged.
  • The MAIF Agreement interacts with several other regulatory mechanisms including the Food Standards Code (labelling laws), the Codex Alimentarius Commission and consumer protection legislation (ACCC).

There were limited comments from interviewees in relation to how possible future developments in economic regulation may impact on the MAIF Agreement. Several interviewees referred to the trend towards deregulation and self-regulatory approaches. One stakeholder supported this trend, noting that the MAIF Agreement was consistent with this approach. Other stakeholders considered the trend towards deregulation as a negative for the MAIF Agreement.
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Interviewees also commented on the need for consistency between the MAIF Agreement and other areas of regulation, including the Food Standards Code, the Codex Alimentarius Commission and the Competition and Consumer Act, as discussed below:
  • Food Standards Code (FSANZ) – any infant formula sold in Australia must comply with the Australian and New Zealand Food Standards Code (the Code). FSANZ, the Code administrator, commented that the MAIF Agreement and the Code are generally consistent (in the areas where they overlap) however, alignment could be improved in some specific areas. These suggested changes are captured in Table 10 at Section 5.1.6 of this report. FSANZ stated that it will commence a review of Standards 2.9.1 of the Code (labelling of infant formula) this year. Standard 2.9.1 is Australia’s response to WHO Code Article 9.2.
  • Codex Alimentarius Commission (Codex) – Australia is a member of Codex which is the international food standards setting body and is recognised by the WTO. Stakeholders commented that FSANZ needs to ensure Australia’s food standards are consistent with the Codex standards.
  • Competition and Consumer Act 2010 (ACCC) – Stakeholders recognised that the consumer protection functions of the ACCC complement the MAIF Agreement by providing general provisions preventing misleading and deceptive conduct in the sale of goods and services. These provisions protect consumers from a range of conduct including misleading information on labels, or misleading conduct of any party involved in the sale of infant formula.

7The four prescribed mandatory codes are the Franchising Code, Horticulture Code, Oil Code, and the Unit Pricing Code.