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Industries Assistance Commission - Report - Empty gelatin capsules, dated 7 December 1984 (No. 355)


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The Parliament o f the Commonwealth o f Australia

EM PTY GELATIN CAPSULES

Industries Assistance Commission Report

7 December 1984

Presented 20 March 1985 Ordered to be printed 28 March 1985

Parliamentary Paper No. 43/1985

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INDUSTRIES ASSISTANCE COMMISSION REPORT

EMPTY GELATIN CAPSULES

7 DECEMBER 1984

No. 355

INDUSTRIES ASSISTANCE COMMISSION REPORT

EMPTY GELATIN CAPSULES 7 December 1984·

AUSTRALIAN GOVERNMENT PUBLISHING SERVICE CANBERRA 1984

INDUSTRIES ASSISTANCE COMMISSION REPORT

EMPTY GELATIN CAPSULES

THE HONOURABLE THE MINISTER FOR INDUSTRY AMD COMMERCE

I forwara the Commission 's report on "Et-pty Oslatin Capsules" made in accordance with the reference of 25 October 1984 under Section 30 of the Industries Assistance Commission Act 1973.

(B. Sweeney) Acting Secretary

10 December 1984

For the purpose of the inquiry and report on this matter, in accordance with Section 19 of the Industries Assistance Commission Act 1973, the powers of the Commission have been exercised by:

D.L.McBride Commissioner

® Commonwealth of Australia 1984

Printed by C. J. THOMPSON, Commonwealth Government Printer

CONTENTS

Page

1. INTRODUCTION 1

2. INDUSTRY CHARACTERISTICS 2

3. THE MARKET 3.1 Market Segments 3.2 Domestic Producer's Sales 3-3 Imports

3-4 Stocks 3*5 Total Local Sales 3.6 Market Share ,

3.7 Quality

4. POLICY GUIDELINES FOR TEMPORARY ASSISTANCE 7

5. THE INDUSTRY'S REQUEST FOR ASSISTANCE 8

6. SUMMARY AND CONCLUSIONS 9

7- FINDINGS AND RECOMMENDATIONS 11

APPENDICES

A. Copy of The Reference B. List of Participants C. Requests D. Imports Cleared for Home Consumption E. Reporting Requirements Under Section 30A of the

IAC Act

F. Advice Received from Attorney-General's Department Regarding the Interpretation of Section 29A of the IAC Act.

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1 . INTRODUCTION

On 25 October 1984, the Minister for Industry and Commerce referred to the Commission, under Section 30 of the recently amended IAC Act, the question of whether it is necessary that urgent action be taken to provide assistance to the industry producing empty gelatin capsules falling within sub-item 95*08.1 of the Customs Tariff Act and, if so, the nature and extent of that assistance.^ A copy of the terms of reference is set out in Appendix A.

Imports of capsules are subject to minimum rates of duty (ie 2 per cent). In November 1983 dumping cash securities were imposed on imports of capsules from Japan. Following a dumping inquiry by the Department of Industry and Commerce, dumping duties of between 4 and 28 per cent were

collectedS The total amount of dumping duty collected to 16 November 1984 was $32 723, which represents about 1 per cent of the value of imports since cash securities were imposed.

The major material input in capsule manufacture is gelatin, which presently enters at minimum rates under an end-use under security by-law. Such by­ laws are currently under reference in the chemicals and plastics industries inquiry. Without by-law, imports of gelatin for use in capsule

manufacturing would be dutiable at a General rate of 20 per cent.

A public hearing to consider the questions raised in the reference was held in Canberra on 16 November 1984· The local manufacturer, the major importer, the bulk of capsule users and a potential domestic supplier of capsule grade gelatin made submissions. Those who presented submissions at

the hearing and those who tendered written statements are listed in Appendix B.

The local manufacturer, Lilly Industries Pty Ltd (Lilly) as a first preference requested the imposition of an ad valorem tariff of 25 per cent. As a second preference the company requested a bounty of 20 per cent of net domestic sale proceeds. The Parke-Davis Capsule Division, Warner-

Lambert K.K. (PD/WLKK), the major importer, and most users opposed any increased duty but generally the opposition to bounty assistance was not as strong. A full list of requests made by those who participated in the inquiry is set out in Appendix C.

1 For the remainder of this report the term "capsules" is used to describe the goods under reference. 2 Department of Industry and Commerce, Dumping Report No. 94, Empty Gelatin Capsules from Japan, June 1984.

2. INDUSTRY CHARACTERISTICS

In the early 1970s, capsule production in Australia was carried out by Parke-Davis Pty Ltd (PDPL) and Lilly. PDPL stated that quality problems had led to uneconomic operations and, after accumulated losses of almost

$2m, the company had ceased local production in 1976. From that date, the company commenced importation from Japan through PD/WLKK and imports have since gained a steadily increasing share of the Australian market. In 1984, PD/WLKK is expected to account for more than 95 per cent of total imports. Since 1976, Lilly, a wholly-owned subsidiary of Eli Lilly & Co, USA, has been the sole local producer.

Capsules range downwards in size from 000 through 00, 0, 1 , 2, 3 and 4 to 5, and may be plain (unprinted) or printed with the customer logo and/or product identification. Local production is concentrated in the two main size groups, 0 and 1. Production of size 4 is only undertaken for

orders in excess of 10m capsules. The largest capsule, 000, and the smallest, 5, are not produced in Australia.

Lilly produces for both local and overseas consumption, with exports usually accounting for more than 50 per cent of the company's output. Production rose marginally from 716m capsules in 1981 to 744m in 1982,

before falling to 702m in 1983· Production of 474m capsules in the first nine months of 1984 suggests that there will be a further reduction over the full year. Orders held have fluctuated, with the figure for the end of September 1984 being around 45 per cent more than for the corresponding period in 1983, but at a similar level to the figure at the end of June

1983.

Lilly currently operates on a five-day, three-shift basis providing production capacity of around 820m units. A seven-day, three-shift operation would increase capacity to some 1300m capsules but Lilly has not operated on such a basis since the mid 1970's . The plant is currently running at 48 per cent of its maximum capacity. Lilly stated that because of lack of orders it had been forced to close its plant for seven weeks in 1983 and one week to date in 1984· Lilly claimed these plant closures had

been reflected in its employment levels, which fell from 42 to 41 during 1982 and then to the current level of 39 by the end of 1983·

The machinery used by Lilly is understood to be the same as that used by PD/WLKK in its Japanese operation. Through its parent company, Lilly has access to, and uses, the latest technology.

Funds employed by Lilly increased by around 10 per cent from 1981 to 1982, but have remained at much the same level since then. The company made a profit in 1982, but then reverted to a loss in 1983· A loss approximately three times that of 1983 is projected for 1984.

A number of statements from capsule users stressed that prices of goods sold under the Pharmaceutical Benefits Scheme (PBS) are fixed and any cost increases, such as increased capsule prices, must be absorbed by the pharmaceutical manufacturer. Two options said to be available to capsule users are the substitution of other dosage forms such as tablets and powders, or the importation of filled capsules. Most capsule users indicated that any increase in the price of capsules could lead to the adoption of either of the above options.

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3. THE MARKET 3-1 Market Segments

The Commission estimates the total domestic market for capsules in 1984 to be about 1200 m units with a retail sales value of some $5 m. Throughout the course of the hearing the market was discussed in volume rather than value terms and the Commission's analysis of the market is couched in the same terms.

Capsules are used in the pharmaceutical industry for filling with pharmaceutical and vitamin type products and are sold into two major markets. The first market covers products available on prescription - mainly under the PBS. Evidence available to the Commission suggests that

approximately 60 per cent of the goods under reference is sold for use in this market. The second market segment involves the filling of the capsules with products such as vitamins, which are available over the counter through normal retail outlets. The Commission has estimated that approximately 30 per cent of the capsules sold in Australia is sold for use

in this market.

During the public hearing PD/WLKK argued that the market for capsules could be defined on the basis of whether contracts existed between users and suppliers. The company referred to this section of the market as the 'tied

market' and the remainder as the 1 free market'. PD/WLKK claimed that its 'tied market' represented nearly 40 per cent of the Commission's estimated total market of 1204m units in 1984· The company claimed that this segment of the market would not be available to Lilly in the short term even if the temporary assistance requested was granted.

3·2 Domestic Producers' Sales

Lilly's domestic and export sales of locally produced capsules are shown in Table 3·1 ·

TABLE 3-1 : DOMESTIC AND EXPORT PRODUCED BY LILLY : SALES BY VOLUME OF EMPTY 1981 TO 1984

GELATIN CAPSULES

Year ended Domestic Salesa Export Sales Total Sales

31 December m (units) % m (units) % m (units)

1981 347 42 477 58 824

1982 309 40 454 60 763

1983 282 45 340 55 622

1984b 210 35 388 65 598

a Includes internal transfers by Lilly for use in their pharmaceutical manufacturing operation. b Includes an estimate by Lilly of sales for the fourth quarter of 1984·

SOURCE: Submission and estimates by Lilly.

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Total sales by Lilly declined by 27 per cent between 1981 and 1984, with the bulk of the loss occurring between 1982 and 1983· Export sales have accounted for the major proportion of Lilly's total sales over the period. The major market for these sales has been South Africa. Lilly attributed

the large drop in export sales of 114 m units, between 1982 and 1983, to administrative problems experienced with its South African affiliate. The company claimed that its chances of regaining this loss depended on a variety of factors. A principal factor is the ability of the company to reduce the lead time required for orders from the Australian plant which is currently around double that required from European plants owned by its parent company. Export sales increased between 1983 and 1984, although

they are currently below those of 1981 and 1982. Lilly indicated that its ability to maintain and/or raise its export sales depended largely on decisions taken by its parent company in the USA as to the source of capsules to be supplied to the South African market. Domestic sales fell by 39 per cent between 1981 and 1984 with the major decline occurring between 1983 and 1984·

3·3 Imports

Official statistics of capsule imports are recorded in value terms and these are presented in Appendix D. Over 97 per cent of imports is sourced from Japan. PD/WLKK is the sole importer from Japan, and the Commission has used the figures provided in their submission as a basis for calculating the volume of capsule imports presented in Table 3·2.

TABLE 3.2 : IMPORTS OF EMPTY GELATIN CAPSULES CLEARED FOR HOME CONSUMPTION 1 981 -84 (m units)

Year ended Total

31 December imports

1981 676

1982 827

1983 862

1984 845

SOURCE: Submission supplied by PD/WLKK and estimates by the Commission.

Imports increased by.22 per cent between 1981 and 1982 but have remained relatively stable since 1982. PD/WLKK provided the Commission with estimates of its total imports for 1985· If Japan remains the dominant source of imports, these estimates would indicate that the quantity of imports for 1985 will be similar to that of 1984·

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3.4 Stocks

Lilly's stocks declined significantly between 1983 and 1984. This trend in stock levels was also apparent for a number of major users of capsules who gave evidence. These users included PDPL, Pfizer and Sterling. The Commission does not have sufficient information to estimate the effect this stock decline has had on the recent pattern of local sales of capsules However, the Commission considers that about 150 m capsules needs to be

added to 1984 sales to indicate the actual size of the market in that year.

3·5 Total Local Sales

Details of domestic sales by Lilly and the major importer PD/WLKK for the years 1981 to 1984 are set out in Table 3*3· The Commission estimates that these sales represent approximately 98 per cent of total capsule sales for the Australian market.

TABLE 3-3 : TOTAL LOCAL SALES - EMPTY GELATIN CAPSULES 1981-84

Year ended 31 December

Sales by Lilly8 Sales by PD/WLKK Total Local Sales0

m (units) % m (units) % m (units)

1981 347 33 669 65 1 036

1982 309 27 812 71 1 143

1 983 282 25 837 73 1 141

1 984 ° 210 20 820 78 1 054

a Includes internal transfers by Lilly for use in their pharmaceutical manufacturing operation. b Includes estimates by Lilly and PD/WLKK of sales for 1984· c Includes Commission estimates of sales by other suppliers.

SOURCE: Submissions by Lilly, PD/WLKK and estimates by the Commission.

Total local sales increased by 10 per cent between 1981 and 1982. They remained stable in 1983 and then declined in 1984 to approximately the level achieved in 1981. Lilly's share of total local sales has fallen from 33 per cent to 20 per cent between 1981 and 1984. The decline from

25 per cent to 20 per cent between 1983 and 1984 reflects, in part, the decision of a major user, Merck, Sharp and Dohme (MSD) to source its requirements, on a single-year contract basis, from PD/WLKK. MSD previously

sourced their capsule requirements from Lilly.

3.6 Market Share

Lilly provided the Commission with its estimates of the total Australian market and their corresponding market share for the period 1976 to 1984· These are shown below in Table 3-4·

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TABLE 3-4 : LILLY'S ESTIMATE OP THE MARKET AND ITS MARKET SHARE®

1976 1977 1978 1979 1980 1981 1982 1983 1984

Australian Market (m units)

1150 1170 1200 1210 1220 1235 1240 1250 1250

Market Share w

47 45 35 33 35 26 22 21 18

a Excludes internal transfers by Lilly for use in their pharmaceutical manufacturing operation.

SOURCE: Lilly's submission.

Lilly's estimates which exclude its internal transfers show that the total domestic market has increased gradually from 1150m units to 1250m units while its share of the market has declined progressively from 47 per cent in 1976 to 18 per cent in 1984· Lilly stated it had suffered serious disadvantage over the last three-years as a result of its declining market share.

3-7 Quality

Beecham Research Laboratories (Beecham), as well as a number of users who submitted written statements claimed that, in their experience, the capsules supplied by PD/WLKK were of a superior quality and offered technical features not available in locally produced capsules. Lilly stated that there were minor dimensional differences between its own capsules and those supplied by PD/WLKK and that these differences require adjustments to the settings of capsule filling machines when changing from one capsule type to another. Lilly claimed that failure to make such adjustments had been the principal reason for complaints regarding the quality of their capsules vis-a-vis those supplied by PD/WLKK, and that these complaints were largely overcome when the correct adjustments to the filling machines were carried out.

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4. POLICY GUIDELINES FOR TEMPORARY ASSISTANCE

The Temporary Assistance Authority was abolished as a result of amendments to the IAC Act in October 1984 and the Commission is now responsible for advising on all temporary assistance matters. This is the first temporary assistance reference under the ammended Act.

The Commission's functions in reporting on temporary assistance matters referred under section 30 of the IAC Act are more restricted in scope than most of its other reporting functions. The Commission's general policy guidelines are cast in terms of encouraging the growth of efficient and

internationally competitive industries and facilitating structural adjustment while having regard to the interests of other industries and consumers. Temporary assistance is covered by a separate Part of the Act which specifies in section 29A that, when holding inquiries and reporting

on matter referred to it under section 30, the Commission shall have regard to the desire of the Government that temporary assistance be provided an industry only if:

. there has been a change in circumstances under which the industry operates, and further:

. such a change in circumstances fulfills all the following conditions:

- it is largely outside the control of the industry; it is peculiar to, or is having a particularly severe impact on the industry; and it has caused, or threatens, serious injury to the industry.

In addition to assessing the nature and implications of any change in circumstances and framing recommendations in accordance with the policy guidelines of section 29A, the Commission has certain other obligations when reporting on temporary assistance matters. These are set out in

section 30A of the Act and are reproduced in Appendix E. Broadly, the Commission is required:

(i) not to recommend that particular temporary assistance be provided an industry if the provision of that assistance would seriously disadvantage another industry in Ausralia;

(ii) not to recommend that assistance be provided for a period exceeding 12 months;

(iii) to recommend whether or not the Minister should refer to the Commission under section 23 a matter relating to the giving, continuance or withdrawal of assistance to the industry;

(iv) to report whether a further inquiry and report on temporary assistance is likely to be necessary following a period of such assistance; and

(v) to report, if the Commission considers appropriate, on particular action the industry should take while in receipt of any temporary assistance the Commission proposes.

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5. THE INDUSTRY'S REQUEST FOR ASSISTANCE

Lilly's first preference of an ad valorem duty of 25 per cent was opposed by most of the users who gave evidence. In the Commission's view, the effect of such an increase in duty on imported capsules on the overall level of Lilly's output in the short term is uncertain for a number of

reasons, including:

(a) the extent to which a considerable proportion of the Australian market is held on a contractual basis;

(b) the extent to which such an increase may encourage a shift in demand away from the local capsule filling industry to the importation of filled capsules; and

(c) the claim by some major users that quality differences and extra costs incurred by using Lilly capsules would still not cause them to source locally even with increased duty on imports.

Lilly's second preference of bounty assistance has the advantage of having minimal effect on the users of capsules. However, other factors such as the assistance afforded inputs and competing products would have to be considered when assessing the relative merits of the two requested forms

of assistance.

Lilly claimed that without temporary assistance at the level requested it would cease local production within 12 months. It also expected that it would continue to need tariff assistance at about 15 to 20 per cent in the longer term.

It further claimed that capsule production is currently largely unassisted by the tariff and the activity would be taxed if the end-use under security by-law relating to its gelatin input were removed and this input became dutiable at the general rate applying to gelatin. Lilly also argued that under the general policy guidelines of section 22, the Commission would,

inter alia, have to weigh the efficiency considerations of recommending some form and level of assistance for capsule production for the period preceding a government decision on the final report for chemicals and plastics. In the Commission's view, these matters are not open to

consideration during this inquiry as it has to be conducted pursuant to Part IV of the Act.

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6. SUMMARY AND CONCLUSIONS

Since PDPL ceased local manufacture in 1976 imports from PD/WLKK have gradually accounted for an increasing share of the domestic market at Lilly's expense. Traditionally, Lilly has exported a substantial proportion of its output to South Africa. However, in recent years the

level of exports has declined and Lilly's ability to develop new export markets is subject to the approval of its parent company. There has been a gradual decline in Lilly's level of production to the extent that currently only around half of its capacity is being utilised. Though employment has

remained fairly constant since 1981, the low level of capacity utilisation has been adversely affecting production costs and losses have been incurred in three of the last four years.

Major declines in Lilly's domestic sales have occurred between 1977 and 1978 (a decline of 21 per cent), 1980 and 1981 (a decline of 26 per cent), and 1983 and 1984 (also a decline of 26 per cent). The most recent decline in sales largely represents the loss of one contract, that of MSB.

Cash securities were imposed against imports from Japan in November 1983 and a dumping inquiry was completed in June 1984. Following that inquiry, dumping duties were introduced against the major source of import supplies, Japan. Lilly argued that the anti-dumping action against imports has had

little or no effect on its competitive position. On the basis of evidence submitted by PD/WLKK, it would appear that imports have not increased in volume between 1983 and 1984 and further, the company predicts that they will remain at similar levels in 1985·

During the inquiry differing views were expressed about the time frame in which changed circumstances should be assessed. As the Act is not clear on this, the Commission has considered the second reading speech accompanying the introduction of the amending legislation. The Commission adopted this

approach after seeking advice from the Attorney-General's Department and this advice is reproduced as Appendix F. In this speech the Minister assisting the Minister for Industry and Commerce stated:

'The Government's decision to alter the temporary assistance arrangements reflects its concern that the current provisions provide opportunities for assistance to be granted where the underlying problems are not temporary but of a long term

structural nature, or reflect an economy-wide problem which is impacting adversely across all sectors.Ί

In the light of this, the Commission considers it to be the intent of the new Act that temporary assistance should not be accorded if the change in the circumstances of an industry are of a long term structural nature. As a further guide, the Commission considers that the intent of the new guidelines and the nature of the changed circumstances to which they apply may be gauged from the limitation of temporary assistance to 12 months at

any one time and the requirement to review those circumstances before any subsequent period of temporary assistance is afforded.

Lilly's evidence appeared to highlight two principal factors which it claimed constituted a sufficient change in circumstance to warrant the granting of temporary assistance. These were declining export sales and a declining share of the Australian market exacerbated by the injury suffered before anti-dumping action afforded assistance. The combined effect of

1 Australia. Parliament. House of Representatives, Daily Hansard, Proof, 5 October 1984, p. 1738

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these developments has been a decline in production and profitability. Lilly claimed that the losses of recent years are expected to continue unless it receives additional assistance. In the Commission's view, these developments do not constitute a change in circumstances under the policy

guidelines of section 29A.

The 25 per cent loss in exports between 1982 and 1985 due to. administrative problems experienced with Lilly's South African affiliate was partly recovered in 1984· However, its chances of regaining all of the substantial export volume it lost appear to depend on a complex mix of factors, some of which are outside the control of Lilly's Australian management. The long term decline in Lilly's domestic sales must also be a factor conditioning its ability to continue to service the overseas needs of its parent company.

The recent developments in the Australian market referred to by Lilly continue to reflect the gradual decline in its competitive position evident since 1976 when it began to face an importer, rather than a local competitor. As noted in section 3*6, Lilly has estimated its share of the

Australian market has been in continuous decline since 1976, falling from 47 per cent to 18 per cent by 1984· The Commission's view that Lilly's underlying problem is not temporary but is of a long term structural nature is supported by the long period of time over which the company's fortunes have deteriorated and the apparently certain prospect that it would be

unable to return to its current level of assistance once temporary assistance ceased. The ongoing deterioration in total sales and profitability has merely reached a point whereby the company's underlying cost structure has risen relative to the prices received for the sale of its diminishing level of output giving rise to a movement towards more severe losses.

As the Commission has concluded that there has not been a change in circumstances necessary for the application of temporary assistance it has not been necessary to determine whether the change which has occurred, is largely outside the control of the industry, is peculiar to or is having a particularly severe impact on the industry and has caused or threatens serious injury.

In accordance with the policy guidelines within which it must report on temporary assistance matters, the Commission recommends that no temporary assistance be provided to empty gelatin capsule production.

In the light of this recommendation, only one of the other reporting requirements requires a response by the Commission, namely that the Commission recommend whether or not the Minister should refer to the Commission under section 23 a matter relating to the giving, continuance or

withdrawal of assistance to the industry.

The Commission notes that assistance for the production of empty gelatin capsules is already under reference as part of its chemicals and plastics industries inquiry. The Commission is due to report on these industries by 28 February 1986. The end-use under security by-law for the gelatin used by Lilly is also under reference, as part of the interim reporting requirement for the chemicals and plastics inquiry while pharmaceutical products which incorporate capsules are under reference in the pharmaceutical and veterinary products inquiry.

Since the matter of assistance for capsule production is currently before the Commission it will not recommend a further reference.

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7. FINDINGS AND RECOMMENDATIONS

In reply to the questions raised in the Minister's reference of 25 October 1984, and pursuant to part IV of the IAC Act, the Commission:

Finds it is not necessary that urgent action be taken to provide assistance to the industry producing empty gelatin capsules;

Recommends that no temporary assistance be accorded empty gelatin capsules falling within sub-item 95*08.1; and

Recommends that the industry producing empty gelatin capsules not be referred to the Commission under section 23 of the IAC Act.

D.L. McBRIDE Commissioner

CANBERRA, AUSTRALIAN CAPITAL TERRITORY 7 DECEMBER 1984

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APPENDIX A

COPY OF THE REFERENCE

INDUSTRIES ASSISTANCE COMMISSION ACT 1973

Whereas it appears to me that, because of the difficulty it is experiencing, urgent action may be necessary to provide assistance to the industry producing empty gelatin capsules falling with sub-item 95.08.1 in Schedule 3 of the Customs Tariff Act as proposed to be altered.

Now therefore I, JOHN NORMAN BUTTON, Minister for Industry and Commerce, in pursuance of my powers under Section 30 of the Industries Assistance Commission Act, hereby request the Commission to undertake an inquiry in relation to the said industry and report to me:

(a) Whether it is necessary that urgent action be taken to provide assistance to that industry, and

(b) If such action is necessary, the nature and extent of the assistance that should be provided to that industry.

MINISTER FOR INDUSTRY AND COMMERCE

25 October 1984

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APPENDIX B

LIST OF PARTICIPANTS

Name of witness and capacity in which appearing

Name of organisation or company represented

Address Abbreviation

Robert Francis Hodgins Manager Manufacturing Operations Lilly Industries Pty Limited Wharf Road WEST RYDE NSW 2114 Lilly

Colin John McArthur Manager Capsule Operations

Ivor Joseph Powis Manager Treasury and Information Systems

Alfred Ernest Sharkey Consultant

Alan Thomas Norman Davis Gelatine (Australia) Co 28 Spring Street

BOTANY NSW 2016 Davis

Marcel Scoupe Director

Parke-Davis Capsule Division Warner-Lambert K.K. C/- Nafco Partners Pty Ltd PD WLKK 83 Palmerston Crescent

SOUTH MELBOURNE VIC 3205

Graham Smith Australian Manager

Kevin Joseph Cosgrave Consultant

Name of witness and capacity in which appearing

Name of organisation or company represented

Address Abbreviation

James Joseph Collins Parke-Davis Pty Ltd

Regional Director

Kevin Joseph Cosgrave Consultant

32 Cawarra Road CARINGBAH NSW 2229

Andrew Norman MacKinnon Materials Manager

Beecham Research Laboratories Pharmaceutical Division of Beecham (Australia) Pty Ltd

300 Frankston Road DANDENONG VIC 3175

Neil Owen Chandler Technical Manager

PDPL

Beecham

Written Submissions were received from:

Upjohn Pty Limited Sterling Pharmaceuticals Pty Limited Cyanamid Australia Pty Limited

B.R. Squibb & Sons Pty Ltd Merck Sharp & Dohme (Australia) Pty Ltd F.H. Paulding & Co Limited Pfizer Pty Limited

Sigma Pharmaceuticals Pty Ltd C-Cure A Division of Aldgate Grove Pty Ltd

APPENDIX C

REQUESTS

Company or organisation Requests and suggestions

Lilly As a first preference requested a 25 per cent ad valorem tariff.

If a tarrif is considered inappropriate, the company then sought a bounty (having the same gross subsidy equivalent as a 25 per cent tariff) should be provided. The suggested rate of bounty was 20 per cent of net sale proceeds.

Davis Supported Lilly's application for temporary assistance.

PD/WLKK Opposed any form of temporary assistance.

PDPL Opposed any form of temporary assistance.

Beecham Opposed any form of temporary assistance.

Sterling Pharmaceuticals Pty Limited Opposed any form of temporary assistance.

Cyanamid Australia Pty Limited

Opposed any action that will lead to increased costs.

Merck Sharp & Dohme (Australia) Pty Ltd

Requested no change.

F.H. Paulding & Co Limited Opposed any action that will lead to increased costs.

Sigma Pharmaceuticals Pty Ltd Opposed any action that will lead to increased costs.

APPENDIX D

APPENDIX E

REPORTING REQUIREMENTS UNDER SECTION 3QA OF THE IAC ACT

"30A. Where the Commission is requested under section 30 to undertake an inquiry in relation to an industry, the Commission-

(a) shall, after giving notice of the inquiry in accordance with section 32, forthwith hold the inquiry;

(b) shall, as soon as practicable, but not later than 45 days after the day on which the request was made, report to the Minister in accordance with the request;

(c) shall not, in its report to the Minister in accordance with the request, recommend that particular assistance be provided to the industry, if the provision of that assistance to the industry would seriously disadvantage

another industry in Australia;

(d) shall not, in its report to the Minister in accordance with the request, recommend that assistance be provided to the industry for a period exceeding 12 months; and

(e) shall, in its report to the Minister in accordance with the request-

Ci) recommend whether or not the Minister should refer to the Commission under section 23 a matter relating to the giving, continuance or withdrawal of assistance to the industry;

(ii) report whether, in its opinion, the circumstances under which the industry, or a group of industries that includes the industry, is operating are such as to warrant the holding, before any temporary assistance that may be provided to the industry

following receipt by the Minister of the report ceases to be so provided, of a further inquiry under this Part in relation to the industry; and

(iii) in a case where the Commission proposes to recommend in the report that assistance be provided to the industry for a particular period and considers it appropriate to recommend that the industry undertake particular action during that period - recommend

that the industry so undertake that action".

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APPENDIX F

ADVICE RECEIVED FROM ATTORNEY-GENERAL'S DEPARTMENT REGARDING THE INTERPRETATION OF SECTION 29A OF THE INDUSTRIES ASSISTANCE COMMISSION ACT

"I refer to your memorandum of 26 November 1984 seeking advice whether the second reading speech introducing the Industries Assistance Commission Amendment Bill 1984 can be used by the Commission to clarify the meaning of s.29A which that legislation substituted in the principal Act, the

Industries Assistance Commission Act 1973 ('the IAC Act').

2. Section 29A of the IAC Act in so far as relevant provides:

'29A. In the performance of its functions under this Part, the Commission shall have regard to the desire of the Commonwealth Government that temporary assistance be provided to an industry

... only if there has been a change in the circumstances under which the relevant industry ... operates ...'

3. I understand that in the course of a current inquiry under the Act the question has arisen whether the expression 1 change in the circumstances' means a temporary change in circumstances or extends to situations where the change in circumstances is permanent. It appears that the Commission

is of the view that were the second reading speech to be considered this would give substantial support to the former interpretation. In my opinion, the expression 'change in the circumstances' in s.29A of the IAC

Act could reasonably have either of the meanings suggested for it. The expression is not defined in the Act. The provision of s .29A is therefore ambiguous.

4. Sub-section 15AB(1) of the Acts Interpretation Act 1901 ('the AIA Act') provides in so far as relevant that

'(1) Subject to sub-section (3), in the interpretation of a provision of an Act, if any material not forming part of the Act is capable of assisting in the ascertainment of the meaning of the provision, consideration may be given to that material -

(a) ...

(b) to determine the meaning of the provision when -

(i) the provision is ambiguous or obscure ...

Sub-section 15AB(2) prescribes, without limiting the generality of sub­ s. (1), certain material that may be considered, including the second reading speech (para.(f)). Consequently s .15AB operates to allow consideration of the second reading speech in resolution of the ambiguity

of meaning apparent in s.29A of the IAC Act."

(D.A. JESSCP) for Secretary

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