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Tuesday, 22 February 1977

Mr Ian Robinson (COWPER, NEW SOUTH WALES) -The Trade Practices Act, which was introduced by the Labor Government, is vague and uncertain. New legislation, however, must contain safeguards for small business, safeguards for vital capital investment and safeguards against the possible extension of Government monopoly. For example, I believe that it is time the monopoly of one bank- the Commonwealth Bank- in post offices and schools through exclusive savings account agencies was ended. There are many other such cases. The amending legislation is a first step in a determined effort by the present Government to restructure the existing legislation which was introduced by the Labor Government and which, as I said, is vague and uncertain. In a number of aspects it is too restrictive, not appropriate to the Australian market place, and really unsatisfactory. It has resulted in a great deal of unwarranted time and expense by business. It has impeded the investment of new capital and therefore, in part, the recovery of the economy during the past year.

The proposed amendments should be commended as a means of removing or lessening some of the detrimental aspects of the legislation. There has been general acceptance of and support for the current proposals. Since the amending legislation was first tabled, the Minister for Business and Consumer Affairs (Mr Howard), as he indicated earlier, has received a number of submissions recommending further desirable amendments. The proposed procedures are commendable. As indicated by the Minister, the Bill will be re-introduced with sections redrafted to take into account many of the suggestions that have been made. I believe that this is a complete answer to the doubts expressed by the honourable member for Port Adelaide (Mr Young).

I wish to debate a number of matters which I believe are important in considering the amending Bill. I deal firstly with exclusive dealing and normal requirements contracts. The amending Bill adheres to the suggestion of the Swanson Committee in providing that from section 47 sub-section (2) of the Act the following words be deleted: . . . or subject to a contract arrangement or understanding.

In the words of the Swanson Committee, this recommendation was designed 'to word the application of the sub-section to an ordinary commercial requirements contract'. But I believe that the omission of the words will not achieve the effect intended. If normal commercial requirements contracts are to be excluded, it is logical that to put the issue beyond doubt a specific exclusion should be included in the section. For example, a new sub-section to section 47 may read as follows:

(3)   Sub-section (2) does not apply with respect to normal requirements contracts between a seller and a buyer whereby the buyer undertakes to buy all or a substantial part of his requirements for a particular commodity from the seller.

Secondly, capital intensive industries are of crucial importance. Australian manufacturers in capital intensive industries have submitted that they should have the ability, without fear of interference from the Trade Practices Commission, to make long term or continuing loyalty arrangements with their customers so that the viability of large scale investment will not be inhibited. Unless such arrangements are permitted under the amending Act there will remain a standing discouragement to major new investments which Australia so badly needs. I suggest that the appropriate amendment could be implemented best by way of the inclusion of a further exception in section 5 1 of the Act. This could be done by the addition of a new subsection, possibly sub-section (4). I have no doubt that in the Committee stages of the debate on this Bill and, of course, in the redrafting some appropriate wording in this regard will be considered.

The supporting argument for this addition is that the Act should permit an Australian manufacturer in a capital intensive industry to make such loyalty arrangements with its customers as are reasonably required to assure the viability of the manufacturer. To this end the manufacturer and its customer should be permitted to make long term or continuing arrangements, freely negotiated between the parties, which will permit the manufacturer to reward a customer who commits himself to buy from the manufacturer a substantial proportion or quantity of the customer's requirements and/or commits himself to buying Australian made goods. I am sure the honourable member for Port Adelaide would have a particular interest in that. Further, the manufacturer and its customer should be permitted to make long term or continuing agreements which will assure for the customers a sustained and reliable source of supply at reasonable prices and to minimise the damage of spasmodic surges of imports which are usual in capital intensive industries. Capital intensive industries are those which relative to sales turnover have high capital investment in manufacturing assets or have a high capital servicing charge for depreciation, interest and the like relative to labour costs, or which have scale factors- economies of scale.

To be profitable a capital intensive industry must operate at a level near to full capacity, which is one reason why loyalty arrangements with customers are vitally essential and, incidentally, why selling at marginal costs on export markets is a usual practice world wide. In the small Australian market the economic size of a manufacturer's plant or an increment in capacity needs to be relatively larger vis-a-vis the markets than their counterparts in competitive countries, such as the United States of America or countries in Europe. Economic size is dependent upon scale factor, which causes capital costs and operating costs per unit of output to fall as plant capacity increases. To compete in a world market Australian manufacturers must install units of plant that are as large as feasible in relatively small Australian market circumstances. Thus, often in Australia there is room for only one or very few companies to make the same product if the industry is to be economic, whereas in Europe and in the United States there could be, say, five or ten different companies in the same industry because the total market is so much greater. We have seen this in the dilemma of the motor industry.

Where scale factor applies, for example, in the manufacture of chemicals, paper, steel or petroleum, the minimum plant or plant increment can involve capital expenditures ranging from, say, $40m to $200m or more. To justify an expenditure of this magnitude it is necessary, or often vital, for the manufacturer to have reasonable security in the home market, which in turn provides a base on which to develop exports. To this end a manufacturer should be able to reward by way of preferential pricing contracts or otherwise, those customers which give continuing preference to the Australian manufacturer. This can be done by offering price discounts for a substantial proportion or quantity of the consumers' requirements. Such an arrangement is mutually beneficial in that it provides the manufacturer with the base load essential for efficient and economic operation and provides the customers with a secure source of local supply at a more consistent price.

Australian companies in capital intensive industries will refrain or hesitate from making large investments unless they are able to make with customers supply arrangements which will give a reasonable assurance of a continuing base ad demand. Similarly, major investments in some service industries will be prejudiced unless there is reasonable expectation of a sufficient and continuing base load demand. Service industries in this category include transport and handling operations which require special vehicles or large loading devices. We know the dilemma of the transport industry in respect of cost factors at the present time. The type of supply arrangements I refer to are preferable in Australia to the alternatives of vertical integration, which is practised in large markets such as the United States of America or Europe, or quantity discounts designed to tie the bigger users to the supplier as these discounts usually go beyond those justifiable by cost savings.

These alternatives are disadvantageous to small businesses in that they favour big users to the detriment of small ones and impede the entry of small new businesses. The honourable member for Port Adelaide made some reference to this but I am not too sure that he really understood what he put to the House. The Act should be amended so that companies are permitted to enter into mutually acceptable long-term or continuing supply arrangements with their customers which reward such customers for loyalty and for consistency of purchase from Australian sources.

The third matter, the 'benefit to the public' criteria, should be taken into account- and of course has been taken into account- by the Trade Practices Commission when determining what is a benefit to the public in relation to proposed sub-sections 90 (6) and 90 (7) of the amending legislation. Matters such as this are not qualified in any way and are solely at the discretion of the Commission. The setting of criteria which the Commission is required to take into account would result in decisions by the Commission being more objective and consistent and less haphazard. The criteria should be broad and not necessarily exhaustive and should not limit in any way the generality of the expression 'benefit to the public'. These criteria should be similar to those which were previously in section 50 of the Restrictive Trade Practices Act and could be inserted as a new sub-section if the Government reviews this aspect. I have no doubt that it will be looking closely at it. This would ensure that important aspects to be considered could not be overlooked or ignored by the Commission. The addition of a new sub-section to section 90 could solve this problem.

Let me deal with some of the aspects of such a new sub-section. Such a new sub-section could make provisions in respect of:

(a)   the needs and interests of consumers, employees, producers, distributors, importers, exporters, proprietors and investors;

(b)   the needs and interests of small businesses;

(c)   the promotion of new enterprises;

(d)   the need to achieve the full and efficient use and distribution of labour, capital, materials, industrial capacity, industrial know-how and other resources;

(e)   the need to increase production efficiency in Australian industries;

(f)   the need to achieve the production, provision, treatment and distribution, by efficient and economical means, of goods and services of such quality, quantity and price as will best meet the requirements of domestic and available overseas markets;

(g)   the ability of Australian producers and exporters to compete in overseas markets;

(h)   the likely effect of such contract, arrangement or understanding or proposed contract, arrangement or undertaking, as the case may be, on the efficiency that the applicant corporation will achieve or is likely to achieve in desirable economies of scale;

At present that is a very vital matter.

(i)   the likely effect of such contract or acquisition, as the case may be, on the price at which the applicant corporation will be in a position to supply goods or services to the relevant market;

(j)   the effect of imports and overseas competitors on the efficiency of Australian manufacturers and on the markets; and

(k)   Government policy in relation to the industry in which the applicant corporation is engaged.

Of course there are many other vital sections. I refer to the international intergovernment agreements. They need a great deal of scrutiny. 1 am sure that the Government intends to do that before the Bill is re-introduced.

The fifth matter concerns conference with and assistance by the Commission. This leads to some very doubtful considerations, if one studies the present provisions, inasmuch as there is not an adequate opportunity for the persons negotiating with the Commission to put constructive details or to answer to the Commission. In other words, it is a little too much one way under the present provisions. It is a matter of how this can be opened up without turning it into something akin to the over-done approach we find in other areas. I am referring of course to the Industries Assistance Commission and the off-shoots of other instrumentalities.

Mr Young - You will wake Bert Kelly up if you keep saying that.

Mr Ian Robinson (COWPER, NEW SOUTH WALES) -Well, I think the matter involves what is practical, what can be done to best serve the objectives of enterprise in this country, the prudent use of capital, the efficient use of labour and, in particular, an effective result in the interests of the consumer. That is what the Government is dealing with and what it expressly proposes to do.

The honourable member for Port Adelaide has said that he is a little disappointed to see some trend towards a better opportunity for free enterprise to operate in a free enterprise area. I think that he is inclined to make references that deal fairly specifically with the control mechanisms that are in the philosophy of his Party. These control mechanisms can undoubtedly lead to all sorts of difficulties for industry and the more so in this sophisticated day and age when there is not the freedom of movement on the economic front that there might have been a few years ago. I have had raised with me other aspects relating to the effect of the proposals in clause 49. 1 have not had an opportunity of looking closely at this matter but from what has been put to me it appears that it tends to do the very reverse perhaps to what was intended. The cost to the consumer can be forced Up because of the requirements that are discovered as a consequence of the effects of clause 49. 1 hope that the matter will be looked at very carefully indeed.

This is a most important measure. There is no question of the Government's bona fides. The Government has introduced the Bill and allowed it to lay on the table for a number of months. It now gives this opportunity for a lengthy debate. The Parliament will be prorogued. The Bill will later be re-introduced. There has been scarcely a precedent for a situation where such careful and detailed thought can be given to legislation. Yet it was suggested by the honourable member for Port Adelaide that the legislation was not receiving the kind of treatment that perhaps it should. The Government has said clearly that it accepts the recommendations of the review committee that price discrimination and other matters need to be given a proper scrutiny. To do that, we need to provide the mechanism. In fact the review committee stated that the previous law had unsatisfactory provisions. I do not know what the Opposition's proposals are. It certainly has not advanced any thus far in this debate. Some passing references were made. So far nothing substantial has been mooted. Later speakers may make some proposals. I am sure that the redrafted Bill will take into account matters that are mentioned in this debate and matters that have been submitted to the Government from all sections of industry and from all those who are vitally concerned with this measure. Undoubtedly there will be further consideration of the legislation. I have no doubt that in the Committee stage there will be an opportunity for some of the details that can be touched upon only in this debate to be examined further and for effective deliberation to be made upon them.

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