Patrick Secker (Barker, Liberal Party) Share this | Hansard source

Exactly. Where two or more businesses reach a formal or informal agreement to limit competition among themselves—for example, by fixing similar prices or agreeing on separate marketing areas—they are said to form a cartel. Cartel conduct refers to contracts, arrangements or understandings between competitors to fix prices or share markets, to control output or rig bids. Such conduct harms consumers, businesses and the economy by increasing prices and reducing choice, service, innovation and efficiencies. The aim of cartel collusion is to increase individual members’ profits by reducing and restricting competition. Hardcore categories—not a term I am entirely comfortable with, but it is the one used in this legislation—of cartel conduct universally involve price fixing, output restrictions, market allocation and bid rigging.

I recently read a feature article in the Washington Post describing the squads of assassins working for multinational drug cartels—some of them former military and counterdrug personnel, highly trained, who have turned murder into an almost assembly-line duty in Juarez in Mexico and other fought-over drug trafficking battlegrounds. For the most part, these squads of assassins are used by cartels against one another battling over turf. Thankfully, in Australia cartels do not have such a deadly modus operandi.

Graeme Samuel, Chairman of the Australian Competition and Consumer Commission—another investment banker in a previous life—endows cartels with the term ‘well-dressed thieves’. While not deadly as in the Mexico case, the harmful effects of hardcore cartels are well understood. Consumers benefit from competition through lower prices and better products and services. When competitors agree to forgo competition for collusion, consumers lose those benefits. The competitive process of a free market only works when competitors set prices independently. When competitors agree to forgo competition for collusion, consumers again lose those benefits.

Secret cartel agreements are a direct assault on the principles of competition. Indeed, hardcore cartels are the most serious and harmful violations of competition law. They injure consumers by raising prices and restricting supply. They create market power, waste and inefficiency in countries whose markets would otherwise be competitive. A cartel shelters its members from full exposure to market forces, reducing pressures on them to control costs and to innovate—all adversely affecting efficiency in a market economy. Cartels harm consumers and damage economies. A successful cartel raises prices above the competitive level and reduces output—again, basic supply and demand so well understood from economics.

Consumers pay the cartel price, thereby unknowingly transferring wealth to the cartel operators. Cartels are generally considered among the most serious competition infringements, and competition authorities around the world are increasing their efforts to pursue cartel offences, both domestically and internationally.

Identifying and breaking up cartels is an important part of the competition policy overseen by antitrust watchdogs in most countries, although proving the existence of a cartel is rarely easy as cartel companies are usually not so careless as to put agreements to collude on paper.

The OECD’s competition committee conducted a survey of cartel cases with its members between 1996 and 2000 in an attempt to learn more about the harm from cartels. The amount of commerce affected by just 16 large cartel cases reported in the OECD survey exceeded US$55 billion worldwide. The OECD survey showed that the cartel mark-up can vary significantly across cases, but in some it can be very large, as much as 50 per cent or more, and the report concluded that the magnitude of harm from cartels is many billions of dollars annually.

The report of the 2003 review of competition provisions of the Trade Practices Act by the Trade Practices Act review committee, commissioned by the Howard government and chaired by Sir Daryl Dawson, known as the Dawson report, was released in April 2003. The Dawson review concluded that criminal penalties were an effective deterrent to serious cartel behaviour but noted that one of the critical issues in drafting penalties for any such offence would be identifying the elements of cartel behaviour that would differentiate a criminal offence from a civil breach. This bill is therefore one response to the Dawson report, introducing criminal penalties for serious cartel conduct. The bill makes the distinction by providing that a person commits an offence only if they make or give effect to a CAU that contains a cartel provision with the intention of dishonestly obtaining a benefit.

Antitrust breaches are not always easy to identify and are frequently hard to distinguish from robust competition. Indeed, a few years ago Microsoft ran into trouble largely because it bundled its web browser with the Windows operating system and was duly found to have violated antitrust law. Yet bundling is a common business practice that can be entirely legitimate. To put this concept in its most simple terms, a breakfast restaurant can bundle items such as eggs, bacon and sausages onto a plate and sell it for less than the sum of the individual constituent parts, but this is certainly not dishonest. It is often tricky, too, to draw the line between healthy discounting and predatory pricing. Loyalty discounts are widely used in business and have benefits for consumers and suppliers alike; conversely, loyalty schemes can be used to keep rivals out of the market and preserve an incumbent’s monopoly.

I raise these examples to show the difficulty in saying for sure whether the actions of businesses are harmful to consumers and the care we must take as legislators to determine and define the term ‘dishonesty’, as this legislation does. The last thing we want is for Australian businesses to be confused or genuinely unclear on what is permissible such that the threat of heavy criminal law sentencing makes them wary of competing aggressively.

Australia has quite a record of applying civil penalties for price fixing. In November 2007 the Visy group of companies was fined a record $36 million for price fixing in the cardboard market. That case created quite a stir, not just because of the record fine but also because the judge said that every Australian had been harmed by the cartel each time they bought goods that had been moved in cardboard boxes. Other examples were the August 2008 agreement by Qantas to pay $20 million to settle the Australian liability for its involvement in an international freight-price-fixing cartel; the 2005 fixing of retail prices of petrol in the Ballarat area of Victoria; and 2004 price fixing in the abalone industry, also in Victoria. Indeed, in my own state of South Australia the Australian Competition and Consumer Commission instituted proceedings in the Federal Court against timber companies for price fixing and attempted price fixing of timber-estimating services in contravention of the Trade Practices Act 1974.

It is not in dispute that cartel conduct is comparable to other criminal conduct such as theft and fraud and, as such, warrants criminal sanctions. Following the line of the judge’s comments in the Visy case, it can be concluded that cartel conduct is comparable to theft because the perpetrators are robbing the community and consumers who purchased the goods and services affected by the cartel conduct. I recall recently seeing it described as ‘theft with a briefcase’. But, as I said earlier, we must get the dishonesty test right so as to deter actions such as those of Visy, Qantas, the abalone and petrol industries, the timber merchants and so on—all significantly different in the nature of their business activities—while at the same time not frightening out of business those corporations or individuals who are acting quite legally and competitively.

The principal purpose of sanctions against cartels is deterrence, but I question the need to make this a criminal action rather than a civil action as is presently prescribed and where successful action has occurred. At the very least, the penalty should take away the value of financial gains that would otherwise accrue to the cartel members and the inflation that would have been applied based on the risk factor of discovery and sanction. Calculating cartel gains for the purpose of arriving at an appropriate fine is difficult, and it is equally difficult to factor in a value of the probability of detection. Strong financial sanctions provide an incentive for cartel members to defect from their conspiracy and cooperate with the investigating authorities, and strong sanctions make leniency programs work.

A number of OECD countries have imposed very large fines, the equivalent of tens or hundreds of millions of dollars, against organisations in cartel cases. This bill prescribes for individuals a maximum jail term of 10 years and/or maximum fines of $220,000 and for corporations a fine that is the greater of $10 million, three times the value of the benefit from the cartel or 10 per cent of its annual turnover. I note that the member for Blair said that the penalty of 10 years is the same as that in the US. But their legal system is different from ours. The penalty in the US is often used in plea bargaining, a practice quite different from that here in Australia, so that comparison is not as valid as one might ordinarily think.

The penalties in this bill are in my view severe, but where do we draw the line in the allowance for the chairman of the ACCC to make a decision about what is a hardcore cartel and what is not? Does an agreement by stock owners and stock agents to have a minimum price at stock sales constitute a cartel? Because that happens at virtually every stud animal sale in the country. I am not convinced that this legislation answers that question. What action is to be taken over the worldwide diamond cartel that restricts supply and stabilises diamond prices? I doubt whether this legislation will address that. What action is to be taken over OPEC, a very famous worldwide cartel that organises oil prices and supply and demand—although, as we have seen, with quite variable prices. Again these questions remain unanswered, perhaps because we are powerless against such cartels.

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