Introduction

Good evening ladies and gentlemen and thank you very much for inviting me to address the 2000 Henry Norwik Lecture.

The stated aim of the Trade Practices Act 1974 (the Act) is to enhance the welfare of Australians through the promotion of competition and fair trading and consumer protection (section 2 of the Act). In particular it focuses on:

• unfair prices;
• the abuse of market power;
• the violation of consumer rights; and,

for the whole of Australia.

The role of the Australian Competition and Consumer Commission (the Commission) is to apply the Act properly, without fear or favour to anyone, no matter how powerful economically or politically, for the benefit of consumers of all kinds everywhere in Australia, including household consumers; small, medium and big business; farmers; local, state and federal governments; and all people everywhere, in capital cities, country towns and farms. All have an interest in being supplied competitively and efficiently at low prices with good service; and where they sell, to sell to buyers who have to compete for their output.

The Commission’s functions include:

• administration and enforcement of Part IV of the Act concerning anti-competitive behaviour;
• administration and enforcement of Part V of the Act concerning consumer protection;
• adminstration and enforcement of Part IVA of the Act which deals with unconscionable conduct in both commercial dealings and consumer transactions;
• administration and enforcement of significant parts of Part IIIA of the Act, the access regime;
• adjudication of authorisations under Part VII of Act;
• regulation, administration and enforcement in relation to certain industry specific forms of regulation eg: telecommunications (Part XIB, XIC). There are also some other industry specific laws in place or soon to be in place in sectors such as communications, energy and transport, under the Act and/or other Laws;

• adminstration and enforcement of Part VB concerning price exploitation in relation to the New Tax System. The Commission has this responsibility until 30 June 2002; and,
• the administration of the Prices Surveillance Act 1983.

Until 1995, there were significant limitations to the reach of the Act because it was based only on the Commonwealth constitutional power and because there were also various exemptions from it. The Competition Policy Reform Act 1995, however, greatly extended the reach of the Act by virtue of:

1. state and Territory governments passing complimentary laws to fill the constitutional gaps;
2. the removal of most exemptions of; and
3. the application of the Act to State public utilities.

Consequently, nearly all areas of business are now covered by the Act.

The Commission’s role is to enforce the law. The Commission, is in general, not a competition policy advocate. This is the role of other parts of government including the National Competition Council and the Productivity Commission.

Given all the functions and given the reach of the Act across all sectors, how does the Commission determine its priorities?

First, the Commission is not involved in debates about the future of statutory marketing boards, Australia Post or the like. It has made no submissions to the inquiries.

Only very occasionally does the Commission enter policy debates most often with the support and encouragement of the government of the day eg the Commission’s promotion of the arguments for reforms in the compact disc market has been encouraged by the present government and by the relevant Ministers in the previous government.

Second, the Commission is mainly concerned, so far as competition policy is concerned, with the non-traded goods and services market. Much of the work which it would otherwise need to do in the traded goods and services market is being accomplished by import competition now that tariffs and other forms of import protection have been reduced.

Third, within the non-traded goods and services sector the Commission’s principal focus is on the less competitive parts of that broad sector.

Fourth, the Commission does not favour detailed regulatory processes and outcomes and seeks to minimise them. For example in recent years there has been a drastic cutback in the role of prices surveillance. A few years ago some seventy-five companies had to pre-notify prices under the provisions of the Prices Surveillance Act 1983. Now the number is around two. Deregulation of petrol prices, the most important area of notification, has been recommended to the government.

As something of a temporary exception to this, the Commission has however been very busy in recent times with GST matters. In June last year, legislation was passed which fundamentally reformed our existing taxation system. Key elements of the reform relevant to the Trade Practices Act included the insertion of new Part VB into the Act to provide the Commission with power until June 2002, to prevent consumer exploitation and excessive profit taking in the transition to the New Tax System.

Indeed, for this purpose the Commission has been given a considerable augmentation of resources. The Commission has been allocated more than $50 million over the three years it is responsible for preventing price exploitation and profiteering as a result of the introduction of the New Tax System. We have put these resources to good use. We now have a large number of full time staff making up a GST division, we have contracted 550 people to conduct price surveys pre and post July 1, and we have also established a GST Call Centre, which has 72 staff working various hours.

There have been some misconceptions about what the Commission’s role in relation to the GST is, which I would now like to take the opportunity to clear up. The Commission’s role is not really a question of having thousands, if not millions of Commission employed inspectors checking prices to make sure that every one of them is in compliance with the new law. Rather, the Commission’s objective is too achieve a result whereby prices increase by no more than they need too, and where prices fall by as much as they should as a result of reductions in Wholesale Sales Tax and other cost savings related to the GST.

Now that the changeover to the New Tax System is substantially complete and most businesses have changed their prices, the Commission now has an even greater focus on enforcement of the law.

Finally, The Commission continues to publish its priorities and it follows internal processes to keep it focussed on areas of highest priority.

Extended Reach of the Trade Practices Act

The Market for Goods and Services

The Competition Policy Reform Act 1995 and associated State legislation has extended the reach of the Act across most markets for goods and services. It is now beyond doubt that the Act applies to public utilities, the professions, agriculture, the health sector, unincorporated businesses, government departments engaged in business and so on.

The Commission has an important educational role to play in making all of these newly covered areas aware of their obligations as well as their rights under the Act.

Two notable areas of litigation have been:

• the Bureau of Meteorology case launched by the Commission and resolved by means of undertakings. The Commission believes that the Bureau of Meteorology was engaging in behaviour in breach of s46 of the Act. The case demonstrates that the Commission is prepared to apply the law to any government department which is engaging in business behaviour in breach of the Act.
• the Commission was involved in litigation concerning anaesthetists. It alleges a price fixing agreement between certain anaesthetists in Sydney and also boycott behaviour. The case illustrates the importance of the Act to the health sector.

The Labour Market

The secondary boycott laws have been strengthened by the Government with the agreement of the Senate. The original secondary boycott laws were introduced in 1977 and greatly modified by the Labor Government from 1993 until 1996. Now they have been greatly strengthened with notable provisions in s45DB concerning the movement of goods into and out of Australia.

Apart from the MUA case the Commission has been involved in a number of cases before the Courts where it alleges secondary boycotts. Two concerned the Transport Workers Union, one the CFMEU, and one the CEPU.

It is not unusual when the Act is applied to a new sector as it learns to live with the law. In addition, the breaches of secondary boycott laws are more public, often being publicly announced, compared to the secretive, often undetectable, breaches of the Act by business. In addition, complaints about secondary boycotts are also more likely to be made to the Commission by victims of secondary boycotts than are complaints about other breaches. A secondary boycott that costs a small business person $100,000 and threatens to ruin that person’s business is more likely to lead to a complaint and the provision of evidence to the Commission than is a cartel that costs one million consumers $1 each. Finally, the law prohibits secondary boycotts irrespective of their effect on competition, whereas most of Part IV of the Act only applies to business behaviour that substantially lessens competition in a whole market (in the economic sense), and so more individual secondary boycott cases are likely to occur.

The Trade Practices Act & the Rural Sector

Farmers and rural businesses have a strong interest in their inputs being supplied competitively and efficiently and in their output being sold to competing businesses rather than to monopsonies which can exploit them. Consumers who live in country areas also want to be supplied competitively and efficiently.

The Act assists in the achievement of these desired outcomes.

The Act tends in my experience to be regarded with general approval in rural areas. If anything, the attitude has been that it should be strengthened and/or enforced more vigorously to get good outcomes.

Some examples of good outcomes for rural people from Commission actions include:

• actions to breakup cartels. Major Commission price-fixing and market sharing cases have typically involved cartel exploitation of rural consumers, businesses and farmers as much as urban consumers and businesses.

Examples include:

• the nationwide freight express cartel in the TNT/Mayne Nickless/Ansett Freight Express case
• the ready mixed concrete price fixing case in Brisbane, the Gold Coast and Toowoomba

• poultry price fixing by chicken processors in South Australia

An investigation that the Commission is currently involved in is:

• alleged price fixing and market sharing in relation to an understanding between ABB Power Transmission Pty Ltd, Alstom Australia Limited & Wilson Transofrmer Company - three principal Australian manufacturers and suppliers of power transformers.

More generally, the Commission’s successful actions have had wide effects on getting better prices for people all over Australia.

• actions to break up market power. An important case involving market power related to BHP’s refusal to supply wire posts for fences to Queensland Wire Industries (QWI) damaging the ability of QWI to compete in the supply of wire fences to farmers

- actions against resale price maintenance. The Commission took action some time ago in relation to resale price maintenance and price fixing by ICI in relation to fertilisers.

- Telstra gave refunds of $45 million to people who paid wrongly for maintenance and repairs costs associated with its wire repair plan went to many people in rural areas.

• the Reef Distributing case involved misleading conduct in relation to the supply of fertiliser to many farmers.

• you would have read in the press lately that the Commission is taking action against Medibank private for misleading and deceptive conducting in relation to health insurance.
• consumer protection issues in relation to the Electricity Supply Association of Australia (ESSA). The Commission has received complaints about damage to household appliances and other losses due to power surges and brown-outs. It welcomes the opportunity to establish consumer rights in relation to power supplies.

Statutory Marketing Authorities

I now intend to briefly discuss some issues concerning Statutory Marketing Authorities (‘SMAs’) and former Government owned monopolies which have been privatised. There have been a number of matters in this area that have been considered by the Commission. In this context I should state that there has been some ongoing disquiet amongst various grain growers and traders concerning the allegedly anti-competitive market structures involved in the grain industry.

Proposed AWB/GrainCorp Joint Venture

In 1994/95 the Commission considered a proposed joint venture arrangement between AWB and GrainCorp. In that matter staff considered the relevant markets were the markets for trading or marketing grains produced in NSW and the market for storage and handling of grains in New South Wales.

The joint venture raised concerns relating to the potential for a trader which would be structurally linked to the bulk storage and handling facility to restrict access to the facility, increase prices, and obtain competitors’ commercially sensitive information to use to its advantage. It was therefore considered that the joint venture was likely to result in a substantial lessening of competition in the market for grain trading. Under these circumstances, the Commission decided to oppose the joint venture. The parties subsequently offered undertakings, which the Commission decided not to accept. The Commission took the view that it could not envisage any form of behavioural undertakings that would have addressed the structural problems the joint venture would have put in place.

Sale of the Victorian Grain Elevators Board

In 1994, the State Government of Victoria announced that as part of its privatisation program interested parties would be invited to submit expressions of interest to purchase the GEB. An offer for the GEB was received from a consortium consisting of Victorian Grain Services, AWB and ABB. The offer was rejected because it did not meet the State Government’s reserve price.

In early 1995, the Commission considered the then two firm tenderers: a consortium consisting of Victorian Grain Services, GrainCorp and ABB; and Elders Ltd. The Commission considered that a number of issues were raised by the bids including:

• whether a trading organisation should be permitted to control a storage and handling organisation;
• whether one storage and handling organisation should be permitted to obtain an interest in another such organisation; and
• whether the minor shareholders in the consortium, GrainCorp and ABB would be likely to be in a position to exercise some control over the GEB, or be in a position to profit from information held by the GEB.

The Commission decided to not take any action in relation to the tenderers. The Victorian Grain Services/GrainCorp/ABB consortium acquired the GEB.

AWB Corporate Restructure

In October 1997 the Commission considered the restructure of the AWB, which involved the formation of a holding company and two wholly owned subsidiaries for the single export desk wheat pool activities and the domestic grain trading activities. The new structure was proposed by the Grains Council of Australia (GCA) and endorsed by the GCA/AWB/Department of Primary Industries and Energy Working Group The stated objective of the restructure was to preserve the single desk status for the export of Australian wheat. The AWB stated:

‘... Underlining this objective is the need for separation and transparency in the AWB’s businesses to ensure that the:

• SDS is not unduly impacting on the domestic market, and
• the AWB non-SDS activities are not gaining a competitive advantage compared with other domestic market participants.’

Authorisation

Authorisation under the Act is a concept that is important to many rural and resource industries. The Act recognises that competition is not always the best method for encouraging efficient markets and to promote the welfare of all Australians. Where market failure occurs increased competition will not result in increased efficiency. However, there may be distinct and substantial public benefits from not prohibiting anti-competitive conduct and allowing agreements between competitors to proceed. In response to this argument, the Act has an "authorisation" provision, a section that gives the Commission a role in judging whether the public benefit from a proposed arrangement or from other prohibited conduct outweighs the anti-competitive effect from that conduct. If the Commission determines that this is the case, then it provides authorisation for the conduct - the conduct is then immune from any action under the Act.

The public benefit of the conduct for which authorisation is sought is assessed within the context of the market. The Act requires the Commission to have regard to all the circumstances that relate to the public benefit. Public benefit is not defined by the Act, but left to the discretion of the Commission. Some outcomes that have been recognised as public benefits in the past include:

• fostering business efficiency;
• industry rationalisation;
• expansion of employment;
• promotion of industry cost savings;
• promotion of competition in industry;
• promotion of equitable dealings in the market;
• development of import replacements;
• growth in export markets; and,
• arrangements which facilitate the smooth transition to deregulation.

The last mentioned public benefit has been used quite considerably in the context of deregulation of many rural industries. The removal of statutory protection measures and statutory marketing authorities has meant that many primary producers have suddenly gone from concentrating on producing grains, eggs and dairy products to becoming marketeers overnight.

The Commission has dealt with a number of rural industries that have sought authorisation for various marketing schemes following the withdrawal of government support for those industries. In assessing these applications, the Commission accepted that in most cases there would be a public benefit in mechanisms that facilitate the transition from a regulated scheme to a deregulated regime. This position helped to avoid a dislocation in the functioning of a market that would be caused by too sharp a move from regulation to deregulation.

The Commission granted authorisation to the Australian Wool Exchange Ltd for its articles of association and code of conduct and business rules. The application for authorisation was made following the withdrawal of the Commonwealth Government from its involvement in the administration and marketing of wool. The major industry group established AWEX to fill the void left by the government’s withdrawal.

The Commission was concerned that AWEX would have such a large share of the market that it may stifle innovation and competition and that many participants in the industry would feel that they must join AWEX if they were not to be disadvantaged in relation to their competitors. However, the Commission recognised that the wool industry needed a period of stability to adapt to the dramatic changes it had recently undergone while AWEX reviewed its selling regulations and business rules to reflect the move to a deregulated market.

The Commission also accepted that there were public benefits in AWEX maintaining quality control in the industry, considered a key factor in the wool industry’s international competitiveness, and in maintaining the existing wool selling rules to provide for efficient functioning of the market during the transition phase. It granted authorisation for a period of three years, subject to a number of conditions. The substantial contribution which the wool industry makes to the Australian economy from its export arrangements was an important consideration in the decision.

The Commission has dealt with a number of rural industries which have sought authorisation for marketing schemes following deregulation. Generally the Commission has accepted that there would be a public benefit in mechanisms which facilitate the transition from regulation to deregulation as this helps to avoid a dislocation in the functioning of the market caused by too sharp a change. Thus, authorisation was granted to the winegrape industry to enable various groups in the industry to hold meetings to reach an indicative price for winegrapes. This contrasted with previous arrangements where prices had been fixed. The new arrangements were found to improve information and to assist growers to adjust to an environment in which they had to negotiate their own prices.

Contrasting with this, the Commission refused authorisation to tobacco growers for a voluntary marketing scheme to replace the Tobacco Industry Stabilisation Plan which the Government had decided to phase out. The proposed new plan was virtually identical to the previous arrangements for setting prices, grades and production quotas, the only difference being that it would be voluntary.

The applicants claimed that it would give the industry and tobacco growers time to adjust to operating without protection from the world market. However, the Commission considered that a scheme which simply replicated the previous statutory arrangements lacked any real commitment to deregulation and would not help the industry make the adjustment that the government clearly intended. In the Commission’s view, the scheme would simply prolong adjustment to a deregulated market by insulating inefficient growers from competition. At the same time, the restrictions on competition and associated inefficiencies would continue to impose costs on the broader community.

During 1997, authorisation was granted to Inghams in South Australia covering joint negotiation of standard five year agreements between Inghams and its contract chicken growers. The agreements provided for a benchmark growing fee to be negotiated each six months between the processor and grower representatives, with actual fees being paid on the basis of the relative efficiency of each grower.

The Commission recognised that the new arrangements had a number of anti-competitive features, particularly with regard to prices and market entry. However, their effect was limited by the contract provisions encouraging individual grower efficiency, and by the market pressures exerted by competing processors and chicken retailers. The Commission considered it would be unreasonable to expect growers to move from a totally regulated system, in which grower contracts for the whole industry were negotiated by a statutory committee, to one where each grower had to negotiate individually with the processing company, given the significant imbalance between growers and the vertically integrated processor in bargaining power and access to information about growing costs and performance. Authorisation was granted for five years, the Commission regarding the arrangements as temporary whilst the industry progressed to a less regulated structure. The Commission has also recently issued a draft determination proposing to grant authorisation to a similar arrangement involving the other large chicken processor in South Australia, Steggles.

The Commission has also authorised the Victorian Egg Industry Cooperative (VEIC) Agreement. The Agreement covers the franchising of brand names and other intellectual property owned by the VEIC, provides for producers to have exclusive rights to supply certain stores, and sets out guidelines for quality, standards, delivery and supply.

Because the Victorian egg industry had been highly regulated since 1937, egg producers had no marketing skills and no lines of access to the market independent of the former Egg Board. In these circumstances, the Commission considered that the costs of adjustment might cause efficient producers to leave the industry. The Commission saw the Agreement as providing a marketing framework which left the ultimate marketing decisions to the producer, as opposed to the former regulated system in which all decisions were made by the Egg Board. The Commission granted authorisation to the Agreement for two years while the industry passed through its transition phase.

Provided industry has demonstrated a clear commitment to deregulation, the Commission has accepted there is public benefit in an industry marketing scheme that enables producers to adapt to the conditions of a competitive market.

Medical Practitioners

Not all rural authorisation applications, however, are successful. Recently the Australian Medical Association sought authorisation for rural doctors in South Australia to bargain collectively with the State Government regarding Visiting Medical Practitioners at public hospitals in rural South Australia Health Department. Although the Commission granted the authorisation, it was only for a very limited period of time and that time has now expired. In essence, the Australian Medical Association argued that by allowing collective bargaining it would be possible for doctors to receive higher remuneration which would, in turn, attract more doctors to rural areas which is often an area of shortage of supply.

The Commission is not unsympathetic in principle to the view that doctors in rural areas where there are shortages should receive higher pay and other rewards. However, it’s concern was that the AMA was in fact seeking identical rates for all doctors in all parts of rural South Australia, including the Barossa Valley. There is, in fact, no shortage of doctors in the Barossa Valley, as any visitors to that part of South Australia in need of urgent medical attention would know. Moreover, doctors in that region, typically, are able to combine the provision of services in the Barossa Valley with the provision of services in Adelaide. In other parts of South Australia there may well be shortages of doctors. The Commission saw little merit in a system being authorised under which there would be a floor price that would be uniform in these different parts of South Australia. Indeed, there is far more likelihood that in the absence of collective bargaining the South Australian Health Commission would have far more flexibility in being able to increase remuneration in areas of shortage.

Whilst on the subject of medicine, the Commission is currently under attack from the Australian Medical Association for applying competition law to the health sector. According to the President of the Australian Medical Association, Dr Phelps, the application of competition law could even threaten lives. I do not share the implied belief of the AMA that if we have more medical practitioners there would be a greater threat to life. Incidentally, the AMA has also been widely disseminating the view that if there are two doctors in a country town and they agree on a roster, that this would be in breach of the Act. To be technical about it, this arrangement would be unlikely to, in the words of the Trade Practices Act, substantially lessen competition in a market. Moreover, in the unlikely event that it did, the Commission’s priorities are such that no action would be taken. In its decisions, the Commission takes into account consumer benefits and consumer detriments. In this case there would be clear benefit to consumers and so it would not be taking action.

Where the Commission might take action is if all the doctors in the country town reached an agreement to discontinue bulk billing or if the specialists in a country area decided to boycott a country hospital unless it increased their remuneration.

Regulatory Decisions

The Commission has made a number of regulatory decisions, in relation to gas transmission pipelines, electricity and telecommunication utility infrastructure. One notable decision is the Central West Pipeline System Pipeline which extends from Marsden to Dubbo, NSW.

The decision allows gas users to pay lower charges than originally proposed, but still accommodates the pipeline operator’s desire to reduce the financial risks associated with the pipeline. I believe, in coming to this decision the Commission achieved a good balance between the development needs of the local communities and their small businesses and consumers and the financial needs of the pipeline operator.

Telstra Price Controls

Just last Friday, the Commission, as part of its national inquiry into Telstra price controls, held a public hearing in Albury.

The Commission has been directed to conduct a review by the Minister for Communications, Information Technology and the Arts. The terms of reference require the Commission to hold a public inquiry into whether there is a need for price control arrangements on Telstra to continue after the current arrangements expire on 30 June 2001. Should the Commission consider there is still a need for price control arrangements, the public inquiry should also determine what form they should take, including duration, means of implementation and mechanisms for their review.

The series of hearings currently being held, throughout Australia, are the next stage in the public inquiry process, and are designed to provide a forum for the public, industry participants and consumer groups to discuss the price control arrangements.

The Commission expects to finalise its reviews of the price control arrangements and release a report by late January 2001.

Fuel Prices

Fuel prices continue to spur interest everywhere around Australia. The Commission monitors the prices of unleaded petrol, automotive distillate (diesel) and auto liquefied petroleum gas (LPG). In October, the Commission released a report on industry-wide price movements - Report on the Movement in Fuel Prices in the September Quarter 2000 - which is available from the Commission’s website.

A combination of factors affect fuel prices, including international prices, the Australian/US dollar exchange rate, Federal and State excises and taxes, and discounting in the market.

All these factors has had an effect on fuel prices this year, especially rises in international prices together with a fall in the value of the Australian dollar. The local discount cycle influenced prices, especially for unleaded petrol in metropolitan areas. The New Tax System also contributed to the extent that the excise rate was reduced, the GST introduced and local industry costs were affected. As the GST is based on a percentage of the price, it rose due to increases in international prices.

It is difficult to specify exactly the different components that affected fuel prices over the year. In the case of unleaded petrol and diesel, the Commission developed a retail import parity indicator against which to assess the actual movement in prices since 30 June 2000. This indicator takes account of the key underlying factors affecting unleaded petrol and diesel prices, including international prices, exchange rates and taxes.

It is not appropriate to construct a retail import parity indicator to analyse the change in country prices because freight costs and the level of State subsidies in some States differ from region to region.

Fuel Price Movements - Australia

• Taking the average price of unleaded petrol across the five major capital cities, prices have increased by 17.7 cents per litre (cpl) between the months of January (75.0 cpl) and October 2000 (92.7 cpl);

• The price of diesel across the five major capital cities increased by 26.0 cpl between the months of January (77.5 cpl) and October 2000 (103.5 cpl);
• The price of auto LPG across the five major capital cities increased by 14.9 cpl between the months of January (35.3 cpl) and October 2000 (50.2);

International Price Movements

• Tapis crude increased by over US$ 7 per barrel between January (US$ 25.54 per barrel) and October 2000 (US$ 32.72 per barrel);
• Singapore Mogas Unleaded – the international benchmark used by Australian refiners for unleaded petrol – increased by around US$ 5 per barrel between January (US$ 28.08 per barrel) and October (US$ 32.85 per barrel);

• Using the rule of thumb that a US$ 1 change in the price of refined product leads to a 1 cent change in the price of petrol at the pump, pump prices have increased by 5 cpl as a result of the increase in the price of Mogas;

• Saudi CP – the international benchmark for auto LPG increased from US$ 256 per tonne in January to US$ 325 in October – an increase of US$69 per tonne.
• The Australian/US dollar exchange rate declined by around 13 cents between January (0.6562) and October 2000 (0.5300).

• Using the rule of thumb that a one cent decline in the exchange rate leads to a 0.8 cpl increase in the price of petrol at the pump, pump prices have increased by 10.4 cpl as a result of the decline in the exchange rate.

Albury Prices

• The average price of unleaded petrol in Albury in January 2000 was 84.8 cpl. In October 2000 it was 100.5 cpl – an increase of 15.7 cpl.

• The increase in prices in Albury is 2 cpl lower than the increase in the five city average;

Albury Prices compared with Sydney and Melbourne prices

• Comparing Albury prices with Sydney prices, the differential has declined. In January 2000 the differential between Albury and Sydney unleaded petrol prices was 7.8 cpl. In October it was 4.6 cpl.

However, we must cautious about these kinds of comparisons as there may particular local factors affecting the price differential in both the city and rural areas. We must be careful to compare like with like, this point is often overlooked.

• Comparing Albury prices with Melbourne prices, the differential has also declined. In January 2000 the differential between Albury and Melbourne unleaded petrol prices was 8.8 cpl. In October it had declined to 5.5 cpl.
• For diesel and LPG, we only have prices for Albury going back to the last week of June. These have already been provided.

On a local note, I am told that there is not sufficient petrol price competition in Albury Wodonga. Previous reviews of country petrol prices have shown that if independent petrol companies gain a place in a town prices usually fall markedly. I note that in Albury Wodonga there are 15 petrol stations of which only one is an independent site. I understand that Woolworths – which has led price falls in many country areas - has had two applications before Council for stations/supermarkets. One application, I understand, has been with Council for around twelve months. Unfortunately planning laws have been used in other centres to frustrate the entry of independents. I hope this is not the case in Albury Wodonga.

The Commission’s analysis concluded that, on average over the September quarter, actual unleaded petrol and diesel prices were below the retail import price indicator for the five major metropolitan cities together.

In the case of LPG, a retail import parity indicator could not be used. Instead the Commission examined actual price movements against movements in the factors affecting LPG prices and concluded that actual price increases in the capitals in the review period were lower than expected.

The gap between city and country prices varied from one location to another and tended to narrow in the second half of the quarter. The Commission is continuing in-depth investigations of whether or not oil companies have passed on, or pocketed, some or all of the Fuel Sales Grant Scheme intended to benefit country motorists.

The Commission will continue to monitor and analyse average fuel prices across Australia.

Competing Fairly Forum

On 8 November 2000, the Commission held the first "Competing Fairly Australia’s Regions’ Forum. This was a pilot project - an experiment in new ways of building mutually valuable connections between the Commission and local communities through their business leaders and others. The Forum was linked up close to 30 towns across regional and outer-metropolitan Australia via satellite.

I was joined with business leaders from such organisations as the Australian Chamber of Commerce and Industry, the Australian Retailers’ Association, the National Farmers’ Federation and Australian Business.

Fair competition is widely accepted a ‘parenthood’ of good business practice because it just makes commercial sense. The program, in association with supporting national and state stakeholder partners, aims to bring together local business leaders as well as influential community players including Local Government and present issues that are relevant to businesses across Australia.

The participation of local communities will help the Commission shape future initiatives and its eductive role through new ways of building bridges through Small Business Enterprise (SBE) networks.

This Forum is just one part of the Commission’s ongoing commitment to engaging with the interests and the concerns of small business and medium sized enterprise across Australia’s communities, including regional and remote areas.

The International Dimension

Tonight I would also like to discuss the international dimension to competition policy.

As we all know, the international factor in the economic activities of countries has been increasing greatly in recent decades.

Trade has grown even faster than economic growth in the last 50 years - so also have foreign investment and international capital flows.

The causes of this include:

• economic growth itself which both creates ever increasing demand for imports and also increases the capacity of economies to produce exports; it also generates greater amounts of savings which may be invested domestically and internationally to meet the greater investment demands associated with economic growth.
• technological innovation. This pervades most fields of economic activity but is especially great in the areas of information and communication technology. A sector particularly affected by technological growth in these areas is the financial services sector, which, in turn, facilitates higher degrees of financial and economic interaction between economies in different countries.
• falling transport costs.
• international, as well as domestic, liberalisation of trade, investment and economic activity generally.

Generally speaking, globalisation has positive effects on promoting competition and in widening consumer choice. However, it can be associated, in some cases, with anti competitive behaviour on an international scale and this can pose problems for national governments which have difficulties in dealing with behaviour taking place in other countries that can affect their own economies.

I would particularly focus on the areas of international cartels and global mergers, although I shall also mention some other areas where the global dimension to anti competitive behaviour is relevant.

Global Cartels

Global cartels, that is, cartels organised on an international scale, have long existed ever since the beginnings of international trade. There is a long history of cartels, in particular, during the nineteenth and early parts of the twentieth century. Indeed, in 1907 an important US Antitrust case sought to end the tobacco cartel which had divided up world markets between British producers who controlled the UK, US producers who controlled the US and the rest of the world which was divided up and allocated to either British or American producers who agreed not to compete in one another’s markets.

However, there appears to have been a sharp increase in the extent of global cartel activity, or at least in its detection, in the past few years. If there has been an increase in the amount of international cartel activity, rather than just an increase in the amount that has been detected, this is probably due to the impact of trade liberalisation. Liberalisation is generally good for competition, but it tends to put pressure on firms that have dominated particular local markets without much international competition. Facing competition for the first time, some of them tend to get together with producers in other countries to divide up world markets and to agree on prices and output.

The vitamins case is the most spectacular example. Vitamins is an important product supplied to the food processing industry and the animal feed industry. There is also a small amount supplied to consumers directly. Food companies blend raw vitamins into things like bread, rice and juice. The animal feed industry buys huge amounts of bulk vitamins to produce healthier and faster growing livestock. An example would be huge chicken farms. The vitamins cartel affected $5-6 billion of US commerce. The worldwide effect would be much greater – over $20 billion.

There is evidence that the cartel increased prices by around 70 percent during the 1990’s.

The conspiracy appears to have begun in 1989 when executives at Roche AG, and BASF began holding talks about price fixing. They decided to carve up the vitamin market and to recruit other major vitamin makers to come in on the arrangement, like Rhone-Poulenc of France and Takeda Chemical Industries from Japan. Later, yet further vitamin producers joined the cartel. Nearly all world vitamin producers now face massive fines. Already Roche has paid fines of $US500 million and the total fines already collected exceed $US1 billion in the US alone. Fines in other countries and damages cases lie ahead.

The cartel appears to have operated in a fairly stable manner for over 10 years. There were frequent high level executive meetings. There were very detailed arrangements involved in the administration of the cartel, including careful budgeting, market allocation, price fixing and so on.

I think it is worth noting that vitamins are not produced very much in the United States. They are mainly produced in Europe and Asia. The American business culture is far more wary about entering into price fixing arrangements, although as I shall show in a moment, the Archer Daniels Midland’s conspiracy shows that one must be wary about this kind of generalisation.

Another important cartel concerned Archer Daniels Midland which in 1996 paid $100 million to settle US charges about price fixing conspiracies that occurred with European and Japanese to fix the prices of feed additives. Some top executives are now in jail. The Archer case was revealed by Mr Mark E Whitacre an Archer executive who secretly tape recorded company executives discussing price fixing with rivals. In fact, he very conveniently was able to arrange for the videoing, as well as recording, of these meetings for a couple of years. An entertaining tape of the proceedings of this cartel is available.

The Archer Daniels Midland’s case involved international cooperation between American, Japanese and European firms to fix prices in the worldwide food and feed additives industries.

Another important case concerned UCAR International Inc which pleaded guilty in participating in an international cartel which agreed to fix prices and allocate market shares in the US $500 million graphite electrodes industry.

The US is currently investigating a number of other international cartels. There are over 25 Grand Jury investigations. We are told that there are some major cartels still to be disclosed.

The above conspiracies involved secret meetings of high level executives in a number of countries around the world. Typically the meetings were held outside the United States where fear of imprisonment, high penalties and detection is greatest. A significant number of meetings were held in the Asian region.

I believe that the existence of international cartels on a rather large scale is an important reason why steps need to be taken to enhance the extent of international cooperation in competition law and perhaps why every country needs to consider having a competition law and policy of its own.

Global mergers

In recent times there has been a spectacular increase in the extent of international merger activity, in one sector after another – finance, communications, oil, airlines, pharmaceuticals, automotive professional services and so on.

For the most part, these mergers are not anti competitive and pose no major challenge to the global economy’s major competitiveness. Indeed, in many cases, they enhance competitiveness and improve economic efficiency by creating more efficient arrangements for international business transactions.

However, it is very important that we be vigilant about these matters.

I am often asked whether in Australia or indeed or in other smaller countries global mergers pose an economic threat and are we powerless to deal with them.

My answer is, for the most part, the global mergers that we read about every day are not anti competitive. Most of them are logical commercial developments occurring in response to the forces of globalisation, technological change and liberalisation. For example, many of the financial sector mergers in Europe are a response to the advent of the Euro which is leading to the emergence of a single European financial market. In the United States many of the financial mergers are a response to deregulation of financial markets which had previously prohibited operations on a truly national scale within the United States.

Likewise, telecommunications mergers have a great deal to do with the emergence of a liberalised approach to telecommunications and the breaking down of barriers to international transactions. Similarly with airlines.

Another reason why these mergers do not deeply concern me is that these days in particular, major anti competitive mergers are likely to be stopped by overseas authorities. In this respect, it is worth noting that the United States after a rather quiet period in the 1980s has become far more active in the public enforcement of anti trust law. The European Union is also becoming far more active than in the past. Japan and Korea are also stepping up some of its anti trust activities and I have no doubt that there are other examples. Indeed in some respects the real issue is that some global mergers have to be approved by so many regulators in so many countries that greater cooperation between regulators is required.

However, it still remains the case that some mergers that occur internationally can damage competition and will force consumers to pay more in certain countries with particular market structures. Are these countries powerless to act?

My own view is that they are not. I shall take Australia as an example. When Gillette tried to take over Wilkinson Sword in the wet shaving market, the Commission opposed the merger successfully in the Federal Court of Australia, even though the transaction occurred offshore and succeeded in having a divestiture imposed upon the companies with the selling off of the Wilkinson Sword brands to an independent buyer for ten years.

This case established the jurisdiction of the Act with respect to off shore mergers and showed that strong remedies are possible.

Moreover, when a merger occurs that is anti competitive, it is often possible to resolve it in a manner that does not damage competition. A recent example was the attempt by the British American tobacco company (trading in Australia as WD & HO Wills) to take over Rothmans. In some countries this would not have damaged competition. However, in Australia it was clear that it would. There are only three companies – WD & HO Wills, Rothmans and Philip Morris – and imports are fewer than 1%. The Commission considered that a merger of two of three big players would reduce competition. It opposed the merger. Following this, British American Tobacco and Rothmans decided to release 17% of the total brands of cigarettes on the market and they were acquired by Imperial Tobacco, a major international tobacco organisation which has now entered aided by an initial 17% market share and the introduction of its own well established brands into Australia. Some coincidental changes in tax law will also boost imports. As a result, there remains three strong credible players in the Australian market and the original merger between British American tobacco and Rothmans has been able to go ahead in Australia as well as in other parts of the world.

The point is that very often practical solutions can be found to seemingly difficult problems.

Another case we have dealt with has been the Coca Cola acquisition of Schweppes. This is an interesting merger because it has never been proposed that it should occur in the US where there are clear anti trust problems. At this stage, the merger has not proceeded in France where there have been anti trust problems which were made clear in the Orangina case. Moreover, there have been problems with the merger in the European Union. Australia opposed the merger. It noted strong opposition by many outlets that sell Coke. Following that, Coke put two proposals to try and meet our concerns but, in each case, the Commission believes that they could not overcome its concerns. The essential concern of the Commission is with the merging of the two sets of brands, ie, Coca Cola brands and the powerful international brands of Schweppes. The undertakings to which I have referred and which have been rejected by the ACCC, have all failed to address this fundamental concern. They involve concessions about other minor brands and some other arrangements.

Another interesting solution has occurred in a couple of cases where the Commission had initial concerns. When BHP, Australia’s major steel company, wanted to take over New Zealand Steel, the Commission believed that there could be some anti competitive effects in certain parts of the steel market, even though international trade would take care of many problems. However, when the Commission objected a practical solution was found. The Government agreed to reduce tariffs on an accelerated basis in relation to those parts of the market where there could have been an anti competitive effect. Accordingly, it is my provisional view that many of the problems for competition created by global mergers can be met by appropriate action in domestic markets.

Competition in Rural and Regional Australia

In October 1999, the Productivity Commission released a report into the Impact of Competition Policy Reforms on Rural and Regional Australia.

The report provided a comprehensive analysis of the factors behind economic and social developments in rural and regional Australia and the effects of competition policy on the community.

The report indicates that most of the conditions affecting rural and regional Australia are the result of long-term factors, such as declining global commodity prices, technological innovation and changing customer preferences. The report notes that competition policy has been wrongly blamed for some of the effects of these long-term changes in the environment facing our rural industries.

Effective competition policy fosters the development of a competitive, flexible economy that allows a smooth transition to changes in the domestic and international environment.

Some areas where rural and regional Australia has benefited from competition policy include:

• large users of electricity in country Australia have enjoyed significant reductions in energy charges
• rail reforms have produced significant benefits, particularly for users in country Australia, with national freight rates falling 16 per cent in real terms; and,
• competition in telecommunications has seen STD prices fall.

When I visit country areas I do not find people arguing for a weaker Trade Practices Act. If anything, they usually want it stronger.

In many respects the problem I find in country areas is not competition, but the lack of it. It is the lack of competition that causes high prices.

Petrol is an example. For years country people have been very unhappy about high fuel prices, which have been caused not by high transport costs but by lack of competition.

Now, following the undertakings in the Ampol-Caltex case, Woolworths and some others are entering country towns. This is competition at work bringing more competition in country towns - but small service station owners face the threat of closure in some cases. This shows the complications of competition policy - simplistic views of its role are rarely adequate.

Turning to banks, there is a major concern about rural bank closures. Suppose the Treasurer relaxed his prohibition on key bank mergers, and suppose we ignored the merger law, suppose we had no competition policy, do you think there would be more or less bank branches? I would suggest that if the four pillars policy is seen as part of competition policy it is arguably helping to keep branches in country areas. In other words, competition policy, in some respects, may be helping to overcome certain problems in country areas.

One area of contention concerns the future of statutory marketing bodies. This is more a matter for the legislative review.

The Commission has been eminently reasonable in granting authorisations to chicken processors; wine and grape growers; egg farmers; and has accepted tobacco grower arrangements reached after early difficulties. The opposite of competition is monopoly.

A study by Professors Creedy and Dixon of the University of Melbourne published in Economica, a leading international journal, demonstrates empirically that most monopolies in Australia have adverse effects on income distribution.

Monopoly is no more a friend of the poor than is competition a friend of the privileged.

Conclusion

In conclusion I would just like to say that effective competition is the key to efficiency and productivity in businesses, whether they be competing on a local, national or international basis. It is the factor that encourages innovation, cost and production efficiency and enhanced consumer satisfaction by businesses striving to keep ahead of their competitors.

However, stiff competition also creates incentives for unethical traders to 'cut corners' to beat their rivals, and this is where the Commission must step in. Recent trends have shown that a culture of healthy and legal competition between businesses has developed in Australia since the introduction of the Act. The incentives to cheat will always be too much for some businesses to resist, and hence there will always be a need for Commission type enforcement.

The Commission seeks to continually meet community expectations and to remain an effective force in protecting consumer welfare and economic efficiency. I believe it is well positioned to continue to meet the likely challenges and demands in the future.

The Act has had a significant impact on business and consumers in encouraging and maintaining an environment, which is both competitive and fair. In the future, it is essential that Competition Policy continues to evolve and international cooperation is strengthened so that new issues can be addressed as they arise.

Addressing the issues of the new economic environment will require governments, business and consumer groups to work together, both on a national and international level to establish an effective framework for economic regulation and consumer protection which will allow both consumers and ethical business to operate safely and effectively in the global marketplace.