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Wednesday, 11 February 2009
Page: 886

Ms MARINO (10:25 AM) —The Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 provides for the criminalisation of cartel conduct and will necessitate the creation of an indictable criminal jurisdiction in the Federal Court for the trial of offences. The Trade Practices Amendment (Cartel Conduct and Other Measures) Bill 2008 was introduced to act as a deterrent to price fixing. Criminalising cartels brings Australia into line with the United States, Canada and the United Kingdom, which have similar sanctions. The bill will make it an offence for a corporation to make or give effect to a contract, arrangement or understanding between competitors that contains a provision to fix prices, control outputs, divide or share markets or rig bids.

This cartel legislation has become increasingly necessary because Australian businesses are engaged in the global marketplace. The OECD has defined hardcore cartels, and Australia must ensure it has similar laws to prevent and manage international cartel conduct crossing borders. This bill is important and should be subject to consideration and scrutiny to deliver the intent of the legislation. Cartel behaviour has a major impact on the object of the Trade Practices Act. That object is to enhance the welfare of Australians through the promotion of competition and fair trading and the provision for consumer protection by focusing on issues such as unfair prices, market power abuse and consumer rights violations. By their very nature, cartels have a significant impact on small business through anticompetitive conduct. This is even more relevant in the current global economic environment, where some executives may well resort to cartel practices. It is even more important, then, that this legislation is a strong deterrent, as well as sending a clear message to major corporations or multinationals dealing with small businesses in Australia.

As small business is a key driver of competition and choice, as well as employing nearly half the workforce, it is essential that the commercial environment promotes small business growth and development without the abuse of market power by major corporations. We know that numbers of viable, independent, competitive small businesses cannot be underestimated, particularly in rural and regional areas, where one of the primary principles of National Competition Policy, the public benefit test, is most relevant and most at risk. Small business underpins the economic and social fabric of countless regional communities. They are the businesses that employ locals and financially support local community service, education and sporting groups. Small business brings enterprising families who are prepared to have a go to rural areas and, of course, small business by its very definition is most vulnerable to cartel market concentration and unconscionable conduct practices by major corporations—for example, the farmer and grower sectors and small retailers. The majority of our farmers are absolute price takers, with no capacity to pass on increasing costs of production. They often are producing perishable products that have to be processed very quickly, which automatically places them in a vulnerable position with processors and buyers. They deal with limited numbers of often vertically integrated companies and, for those in the domestic retail market, two major supermarket chains that control the majority of the market. Small business also often has to deal with multinationals.

The Trade Practices Act powers are even more important, given that we have one of the most highly concentrated retail sectors in the world. There appears to be an increasing gap between farmgate prices and retail prices. Equally, farmers, small retailers and small businesses have limited financial capacity, time and resources to take on major corporations, even through the ACCC and court processes, or to apply for exemptions under the trade practices provisions: consider the ACCC and Federal Court process and the time commitment and costs borne by the Victorian Farmers Federation members, and farmers themselves, in the chicken growers bargaining authorisation case and the successful appeal against the ACCC ruling. The authorisation application on behalf of Western Australian dairy farmers is another example of vulnerable growers trying to manage the ACCC process. These cases highlighted the problems the ACCC has in dealing with small business versus big business cases. I can well remember walking into a hearing with the ACCC and being told how disappointed they were with the submission. The ACCC had expected a submission along the lines of that presented in a previous case by Air New Zealand and Qantas. At that time there were fewer than 300 dairy farmers in Western Australia, and now there are fewer than 200 dairy farmers left in the state.

In Australia, of the 2.227 million litres of milk sales in 2008, 55 per cent is sold by supermarkets. An overwhelming majority of this, 78 per cent, is sold by Coles and Woolworths. Coles and Woolworths have significantly grown their home brand milks using a Dutch auction style tendering process to secure milk volumes from milk processors. Of course, the fact that 78 per cent of total milk is sold through these supermarkets is a major driver in the bidding process. Woolworths’ next home brand milk tender is due later this year. With the Dairy Farmers Milk Cooperative now in the hands of National Foods, there will be one less competitor in the tender process. I will be very interested to see which of the nation’s three remaining major processors tender for the contracts, which ones are successful with their bids and, ultimately, what impact this will have on farmgate prices.

One thing we can be sure of is that the farmers will bear the cost of low price tenders. These same farmers are producing one of the most, if not the most, perishable food products in the world and, by this very definition, those same farmers are extremely vulnerable. Their product has to be picked up, processed and sold on virtually a daily basis. Their competitive capacity in this environment, unless there are serious milk shortages, is significantly compromised. We should never forget they are producing milk to some of the highest quality standards in the world. Each time there is rationalisation in the number of processors—by way of mergers, acquisitions or withdrawals from the market, resulting in fewer buyers and less competition—the farmer and the small family business bear the ultimate cost. Dairy is our third largest, major value added and exporting rural and food industry, directly employing approximately 40,000 people. However, as I said, by the perishable nature of their product and the considerable market power of buyers, the farmers are amongst the most vulnerable in the marketplace. In recent weeks, dairy farmers have also seen severe cuts in milk prices.

Small business continues to be affected by major corporations. A previous senate inquiry summary noted:

Over the past twenty years or so, Australia has seen the demise of hundreds of small grocery stores, butchers, bakers, florists, greengrocers, pharmacists, newsagents, liquor outlets and other small retailers as a direct result of the continuous expansion of major supermarket chains and major speciality retailers, often subsidiaries of the same conglomerate.

The ACCC itself acknowledges that cartel conduct probably costs economies all over the world trillions of dollars each year, hurting small business and consumers and adding an estimated 10 per cent to the cost of products where they are operating. Increasing market concentration in business also costs small business and consumers. We see this in the retail sector affecting smaller retailers. We are seeing it in the banking sector, particularly with the Labor government’s support of the big four banks. There is no doubt that this makes the big four banks even more dominant players in financial markets and undermines competition. The ACCC’s approach to this will be extremely interesting.

We see increasing market concentration in the fuel market. In 2002-03 for instance, Coles and Woolworths sold 10 per cent of petrol. In 2006-07, Coles and Woolworths accounted for approximately 44 per cent of all petrol sales. In an article by Melissa Singer the CEO of the Service Station Association, Ron Bowden, is reported to have said in relation to the defeat of Fuelwatch that he was ‘relieved with the Senate’s decision’ and that ‘since the supermarket chains had entered the petrol market, the rate of independent closures had doubled’. Then we see the concentration of the wholesale fuel market. In 2006-07, Caltex held 39 per cent of the market, Shell 29 per cent, Mobil 16 per cent and BP 12 per cent. Collectively, that is 96 per cent of wholesale sales. The independents hold four per cent.

A further example of the ACCC’s incapacity to manage small versus big business issues is the fertiliser industry. The substantial market share opportunities for Incitec Pivot in recent times and the ‘take it or leave it’ position farmers find themselves in was clearly highlighted by the gap between world benchmark prices and prices being paid by our farmers—again, farmers in small business being affected by market concentration. The terms of reference of the Dawson review said that the government is aware of concerns that ‘excessive market concentration and power can be used by businesses to damage competitors’. This will not be the last amendment to the Trade Practices Act; it is just the next amendment. A range of definitions of cartel conduct is contained throughout the act. Sections 45 and 45A are quite specific in relation to serious, hardcore cartel conduct.

Under this legislation, other Commonwealth offences will be heard in state and territory courts.  The Federal Court is to be vested with this jurisdiction due to its extensive experience with civil and quasi-criminal cartel cases under the current Trade Practices Act. However, it is understood that, where prosecutions involve offences both under the cartel provisions and state or territory law or, alternatively, other Commonwealth offences to which this bill does not apply, state or territory superior courts will hear those matters without the offences being disjoined.

The amendments proposed in this bill will provide for the complex procedural framework required by the new jurisdiction. The procedural provisions have been modelled on existing state and territory provisions and will apply in all Federal Court trials, regardless of where the trial is being conducted. This is considered preferable to applying the procedural and evidentiary provisions of the relevant state or territory, and this is where the Evidence Act 1995 will be applied.

I note that the proposed penalties relate to 10 years jail and/or a fine of $220,000 for individuals. Corporations will face fines that mirror the current maximum pecuniary penalties for breaches of civil penalty provisions. That is, the greater of $10 million—or three times the benefit obtained by the criminal cartel conduct, if this indeed can be determined—or 10 per cent of its annual turnover. The penalty for corporations was a recommendation of the Dawson review of the Trade Practices Act.

This bill is also to be considered by the immigration and legal policy committee. An issue raised at the Senate Standing Committee on Legal and Constitutional Affairs in December related to pretrial disclosure. Proposed section 23CF requires an accused who takes issue with a fact, matter or circumstance disclosed in the prosecution’s case to state the basis for doing so.

The Law Council of Australia has indicated its concern that this may compromise an accused’s right to silence. The justification stated in the explanatory memorandum is that this will permit the court to narrow the issues to be dealt with at trial. The Law Council recommended that a comparable provision to that applicable in New South Wales which allows such a procedure be adopted, unless it will cause prejudice to the defence. Alternatively, there should be no adverse consequences flowing from the accused’s nondisclosure, which is the practice in Victoria.

In relation to bail, proposed section 58DA provides:

If the Court refuses to grant bail, the accused cannot make a subsequent application unless there has been a significant change in circumstances.

That is more onerous than provisions applying in any other Australian jurisdiction. Proposed section 58DB is also silent as to whether there is any presumption in favour of bail. In other jurisdictions, there is generally a presumption in favour of bail, except in specific circumstances. There is also no provision in this bill for the court to provide reasons for refusing bail.

Six submissions have been lodged with the Senate Standing Committee on Legal and Constitutional Affairs. Some requested more debate on the matter, suggesting that a separate reference to the Australian Law Reform Commission should be made to engage wider debate and consideration. With 118 pages of complex draft legislation and such a short time frame in which to lodge submissions to the committee, this has resulted in mostly short submissions, citing insufficient time to consider the bill in detail. There was general belief that it is essential to consider such an important bill in detail. I support the bill, subject to the findings of the Senate inquiry, due on 20 February.