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Thursday, 1 September 1960

Mr SNEDDEN (Bruce) .- The honorable member for Grayndler (Mr. Daiy) has often given us a comedy performance. To-day, his speech was shot through with figures and it is regrettable that we were unable to accept them because we did not know whether they were a part of his comedy act or not. The honorable member has never been the same since the comedy team of Delo and Daly arrived in this country with its American patois. He has been seeking to out-do the Daly of the Delo and Daly combination. Indeed, that entertainer is sometimes called " Dilly Daly " on television. But the theatrical performance of the Opposition is not restricted to the honorable member for Grayndler. It has two extremes. It has the comedy man from Grayndler and, from East Sydney it has Edwardian tragedy, comic in its pathos and ridiculous in its plot. The honorable member for Grayndler said this is a country of sputniks. The only thing that the Labour Party seemingly lacks is a beatnik.

Mr J R Fraser - Come over!

Mr SNEDDEN - The only reason that I cannot go over and be the Opposition's beatnik is that I cannot put on the vacant, cow-like expression which is so necessary if one is to be a beatnik, and qualify for the Opposition. 1 turn to a matter which has occupied the attention of the people of Australia generally and apparently has occupied the attention of members of the Opposition because they have questioned whether or not certain legislation will be introduced. I refer to restrictive trade practices. An informal group of honorable members and senators who support the Government have looked at this matter and attempted to make some sort of investigation of the incidence of restrictive trade practices and their effect. We were able to look at the experience and legislation of the United Kingdom and the legislation of the United States of America. We were also able to look at the report of the Western Australian royal commission on the retailing of motor spirit in 1956, and at the report of the Western Australian royal commission on restrictive trade practices published in 1958. In addition, we were able tofind some expert advice and assistance in Melbourne.

We followed up various allegations made in various places, both personally and in the newspapers by businessmen and others. We interviewed a number of association secretaries, mainly in Melbourne. We found that there was absolutely no concealment by trade associations. They were quite unperturbed by suggestions of federal legislation and they freely discussed and explained the way in which their associations carried on. As a result of these investigations, we were able to satisfy ourselves that there were about 33 trade associations practising, to some extent, restrictively. We believed that there were more. We estimated that there would be about 69 trade associations in Victoria which were, to some extent, practising restrictively.

I emphasize that our investigations were superficial and were not systematic by any means. But we were fortified in our conclusions by the fact that the Western Australian restrictive trade practices royal commission had been able to isolate 106 examples of restrictive practices. Of course. Western Australia is not highly industrialized although the State has highly developed commerce and the economy generally is expanding. But, as we ail know, the State is spread out and industry is spread also. So, on the basis of the findings in Western Australia, we estimated that there were probably between 100 and 150 instances of restrictive trade practices is each State.

The total for Australia may be between 500 and 600. Of course, the figure for the whole of Australia could be a little misleading because many of the associations or practices within each State would be merely parallel to other associations or practices in other Slates. The monopolies royal commission which was set up in the United Kingdom under a 1948 act had a full-time staff. It spent two years in investigations and it had the resources of the British Board of Trade at its call. It found that 180 associations carried On restrictive trade practices. Of course, the United Kingdom has to be regarded differently from Australia. It is highly industrialized and has a population of not less than 50,000,000 people.

In giving this outline, it is most necessary to make the point that it is not true to assume that all associations engage in restrictive trade practices. Any such assumption would be far from the truth. There are many motives that have led to the development of associations throughout Australia, and it is possible to excise that part of an. association's activities which may be of a restrictive nature. If that part were excised, the association should be left to continue the major functions for which it was originally formed.

It is equally true to say that on many occasions an association is not aware that it is engaging in restrictive trade practices. That applies equally to the association as an entity and to the members of the association. I believe it is true to say that in 99 per cent, of the cases the members of the various associations believe they are acting honorably and are not aware of any harmful effects that may flow from restrictive trade practices.

Trade associations have had a long history, and that history has given them a proper air of respectability. Members of associations and associations as entities, generally speaking, accept the practice of restriction as being normal business behaviour. There is good reason for the development of that attitude, because both the United Kingdom and the Australian Governments have given a stimulus to the formation and development of trade associ ations. Indeed, they not only have given a stimulus to the formation and development of trade associations but have distinctly encouraged the commencement and development of a restrictive trade practice as a part of the associations' activities. I refer specially to the depression years when, in Australia and the United Kingdom, there was a climate which favoured price fixing. This climate was created by the view that the solvency of firms ought to be protected in order to give protection to employment. So out of that climate came a substantial encouragement of restrictive trade practices.

The next real surge and stimulus to those activities were given during World War II. In that period, definite encouragement was given to associations to represent industry and sectors of industry, and by representing sectors of industry to help control industry in the interests of the war effort. Very frequently a restrictive trade practice was given a stimulus, because during the war price fixing was frequently given official approval. Associations were actually given approval to institute price fixing as part of the war effort and in order to remove some of the paraphernalia of administration from government offices. So in Australia there was a development of trade associations and of the off-shoots of restrictive practices as in the United Kingdom. When these companies, firms, or whatever they were, moved to Australia and established plants here, it was a natural corollary that there should be established associations with the history and understandings that those associations had built up in the United Kingdom.

A restrictive trade practice undoubtedly affects the public. But the public is not always aware that it is affected by a restrictive trade practice or that a restrictive trade practice is actually in operation. The group which made the inquiry to which I referred earlier saw the nature of the practices in Australia, and we knew from the United Kingdom report what was the nature of the practices there. We were able to discern from these things that the pattern of restrictive practices in Australia was almost identical with that in the United Kingdom prior to the legislation of 1956.

The main consideration in a restrictive trade practice - I emphasize that this is not the main consideration of trade associations; I am now putting the trade association aside and am thinking of the restrictive trade practice in isolation - is price fixation. By " price fixation " I mean the manufacturer's price and the distributors' margins. The purpose in attempting to achieve this is to avoid competition. The price fixed can be in the form of an agreement, which may be oral, written, or even understood. The second form is that of setting distributors' price lists. The third form, which is the corollary to the second, is the enforcement of the retail price. The next purpose of a restrictive trade practice is the diversion of trade to specified persons and the exclusion of others from it. The sanctions employed to achieve price fixation and the element of exclusive dealing are of three kinds. First, there is the collective boycott; secondly, there are fines or expulsion from the association concerned; and thirdly, there is restriction of entry into the realm of the enjoyment of the exclusive dealing.

The effect of a restrictive trade practice on the public and on the economy generally is to increase prices. A restrictive trade practice, in addition, stultifies the quality and variety of goods and has the third result of depriving persons of an opportunity to compete in the market. But again I must emphasize, Mr. Temporary Chairman, that it is not correct to assume that every association practices restrictively. It is also not true to assume that every practice which appears to be restrictive is in fact harmful.

Many practices clearly are harmful. Perhaps the most outstanding example of this, and one which has been well publicized and very correctly documented1, is that in which the retail house of Mark Foy's Limited, in Sydney, came into collision with an organization known as Retra - the Radio, Electrical and Television Retailers Association. This incident was a classic example of the collective boycott. As a result of it, the firm of Mark Foy's was deprived of the opportunity to market television sets for a long period. The point from which the conflict emerged was the allegation by Retra that Mark Foy's had breached1 a code of advertising ethics. The position is that the Attorneys-General or Chief Secretaries of the States have all agreed since that what Mark Foy's were advertising should be embodied in hire- purchase legislation. I believe that the contretemps has now been settled and that the firm of Mark Foy's is again retailing television sets. But it is true that by the use of a collective boycott that company was deprived of its right to market television sets for a considerable period of time.

Many such practices clearly are harmful, and some restrictive practices clearly are not harmful. In the case of some there is great difficulty in distinguishing whether they are harmful or not harmful. An example of this merging pattern where it is so difficult to decide whether a restrictive practice is harmful or not, was given by the honorable member for Newcastle (Mr. Jones) during this debate the other day. He referred to the marketing of motor car tyres and pointed out that in the past it has been possible to obtain a substantial discount on tyres, but that now those discounts were not available. The consequence of that has let the small garage operator into the tyre re-selling business. Whereas before he could not compete with an organization which was able, through the magnitude of its business, to give a substantial discount, now he can do so because no discounts are given at all and he can enter into this trade of tyre reselling.

The two things which flow from this, are, first, that the consumer suffers, in that he cannot get a discount for a motor car tyre, but on the other hand the small garage proprietor is now enabled to enter into the field of tyre re-selling and that is where the line becomes misty and it is a matter of investigation before a decision can be taken as to whether or not this practice is harmful. I am just putting this example, which the honorable member for Newcastle gave, as an illustration of where it is difficult to decide what is harmful and what is not, because on the one hand it achieves a benefit to one group and, on the other hand, it achieves a benefit to a different group.

Perhaps another example of the difficulty of deciding whether a practice is harmful can be found in a news item in the Melbourne " Age " of 30th August last. There, under the heading. " Price Pact by Cable Makers " we read -

The only two companies manufacturing electric power cable in Australia have been operating under an agreement to fix prices of the cable for the past 18 months.

Later the article says that Mr. Richmond, who represented one of the companies, said -

If the price fixing agreement were withdrawn, one or other of the companies would be forced out of business and a monopoly would remain. Whether that is true could only be determined by examination. Whether this agreement ought to be permitted to subsist would depend ultimately on whether it was harmful or not or whether, on balance, it was more harmful or less harmful.

In seeking legislation to cover a subject such as this we must set out our criteria and then be prepared to find our own solution to our own problem. I am reinforced in that view by a report presented to the International Bar Association at its 7th conference. The conference was held in Cologne and the report was published in July, 1958. The report, dealing with monopolies and restrictive trade practices, was presented by a most learned man, Mr. Wilberforce, a Queen's Counsel, who, together with two others, was the author of the outstanding text book on the subject. In the course of presenting the report, he said -

If we may venture to draw a conclusion from these differentiations-

That is, the differentiations from country to country all over the world in their restrictive trade practices legislation - it is perhaps this, that any legislator who is thinking of drawing up a law to govern and control restrictive practices, for any country, oi group of countries, cannot simply select a model from among the various patterns he sees around him, as many countries have adopted the Code Napoleon, or a uniform law as to negotiable instruments. He must very carefully lay down for himself the economic and social aims which he hopes to achieve, and the economic and social context within which he hopes to make his system work. Only when he has done that can he look around to see if he can find something to help him in what others have done. The variety is now such that he may well find it. And further it is hopeless to expect countries of different size, different dependence on trade of different kinds, difFerent administrative traditions, to develop or work towards a uniform legal system in this field.

There are simple and obvious examples to which we, in Australia, can turn and two of them, of course, are the United Kingdom and the United States of America. In a contrast between the systems of those two countries it will become obvious that there is a three-dimensional difference between them. The first dimensional difference is the time of the legislation. The second is the form of the legislation, and by this 1 mean the difference between, on the one hand, the United Kingdom administrative process and, on the other hand, the United States of America criminal process. The third dimensional difference is the depth to which the legislation goes. Insofar as the time is concerned, the United States legislation commenced in 1890 with the Sherman Act which, in its original form, was thought to be merely declaratory of the common law of the time, but made a departure from that law a misdemeanour and thereby punishable. In 1914 the Clayton Act was passed and it enabled the United States Supreme Court to develop the doctrine which is called occupancy of the market, which is the one which so occupies industry in the United States of America to-day. Then in 1936 the Robinson-Patman Act was passed, making it. an offence to sell goods at an unreasonably low price merely in order to wipe out a competitor so that, after having wiped him out, that person could come back into the field and obtain a monopoly in those goods. In 1950 there was passed what is called the Cellar-Kefauver Act, which deals with mergers.

In the United Kingdom, on the other hand, there was no such legislation until 1948 when the Monopolies and Restrictive Trades Practices Inquiries Act was passed, as the result of which royal commissions lasting over three years were held; and in 1956 the Restrictive Trade Practices Act was passed. In the United Kingdom until 1950 all reliance was placed on the common law. Australia, in terms of time, is in the field of the United States of America, because it passed the Australian Industries Preservation Act in 1906, almost half a century before the United Kingdom first legislated in this field. I come now to the second difference, that of form. In the United Kingdom legislation has an administrative base and in the United States of America a criminal base. In the United Kingdom the law calls for the registration of all associations and agreements; and then there is an inquiry and if the inquiry reveals a restrictive practice there is an order issued by the commission to cease and desist the practice. This is directed to an association, whereas, in the United States of America, with its criminal base, the prosecution is launched against the individual. In Australia we have a constitutional problem of some great magnitude and one which occupied the attention of the Constitutional Review Commitee. The United States of America has a wider concept of the interstate power and also, because of the largeness of the population and the smallness of the states there is a far greater frequency of inter-state movement, and the United States therefore has a wider capacity to legislate. I think we in Australia quite definitely would not have the power that the United Kingdom has of making registration compulsory - which, incidentally, Western Australia has done in legislation. In Western Australia reliance has been placed solely on the publication which would follow registration.

The third difference between the legislation in the United States and that in the United Kingdom is the depth to which it goes. The United States, from the outset, has sought to prevent conglomeration into great industrial enterprises by the consolidation of new holdings. The United Kingdom, on the other hand, attacks the restrictive trade practice as such, and does not concern itself very greatly with mere aggregation. I think this is because of the United Kingdom's belief that, by aggregation, efficiency is likely to be achieved; but if aggregation results in a restrictive practice, the legislation relating to restrictive practices can pick it up and prevent it from carrying on.

It is important, in considering this matter, to pay attention to the exculpation provisions available in the United Kingdom to render an agreement by an association free from the processes of the act. Roughly stated, they are as follows: One may say that a practice is not bad, first, because it prevents unemployment, or because it is conducive to employment; secondly, because it contributes to export earnings; thirdly, because it fights a monopolistic supplier; fourthly, because it gives protection to the consumer; fifthly, because there is a specific and substantial public advantage. I personally believe that to those exculpation clauses Australia needs to add two more. The first would be that a practice would be exempted if it promoted standardization of manufacture and that standardization were in the public interest. The second would be that a practice would be exempted if it developed the volume of production, and if the development of the volume of production were in the public interest. Perhaps such legislation as wc pass might specifically prohibit collusive tendering and collective boycott.

Two other questions immediately emerge from these considerations. The first relates to tied contracts. On this matter, perhaps, much deeper thought will be necessary, because tied contracts to a great extent contribute to volume of production. The other matter that must inevitably concern us is the question of the merger or takeover which is likely to create an aggregation of great interests. This is a problem which beset the United States and the United Kingdom, and each of these countries chose quite different - indeed, diametrically opposed - methods of dealing with it. The United States said that it could not happen, and it developed the occupancy of the market doctrine, by which it has the power to force a company to disgorge its holdings so as not to offend this doctrine. On the other hand, the United Kingdom has left that aspect virtually alone, believing that the restrictive trade practices legislation as such could take care of any harm that was likely to emerge from aggregation.

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