Craig Kelly (Hughes, Liberal Party) Share this | Hansard source

I rise to speak on the Customs Amendment (Anti-dumping Measures) Bill 2011. The bill before the House will change the way in which antidumping measures are viewed, and it is supported by the coalition. This bill has its origins in a recent High Court decision. Although the coalition does not oppose the bill, the bill shows how confused and contradictory the government's policies are.

Dumping is defined as an act by a manufacturer in one country exporting a product to another country at a price that is below what it charges in its home market. Also, dumping has to cause a material injury to the local industry. It is very important to note that the test to prove dumping is not one where the goods are sold below cost and it is not one where the purpose of the dumper is to damage or eliminate a competitor, nor is there any need to demonstrate a substantial lessening of competition, as there is in many other competition laws. The only test required to establish dumping is that the goods are sold below the price that they are sold at in the home market.

It is easy to understand the logic of antidumping legislation. If a producer is large enough that they are able to divide up markets on a geographical basis and then discriminate in price between the different markets without facing different costs of supply, such a practice results in cross-subsidisation from one market to the other. This distorts the efficient operation of markets and it is clearly an unfair trade practice, one which we rightly condemn. In reality, dumping is just another name for international geographic price discrimination.

If we are to condemn geographic price discrimination on an international basis, where it causes or threatens injury to small competitors, equally we must condemn geographic price discrimination within a nation's borders. In the home of free market capitalism, the USA, geographic price discrimination has been considered an anticompetitive evil for over 100 years. Back in 1911, the US Supreme Court broke up the Standard Oil Company into 34 independent companies, and one of the reasons the court cited was that Standard Oil had engaged in geographic price discrimination. As the court noted:

The evidence is, in fact, absolutely conclusive that the Standard Oil Company charges altogether excessive prices where it meets no competition, and particularly where there is little likelihood of competitors entering the field, and that, on the other hand, where competition is active, it frequently cuts prices to a point which leaves even the Standard little or no profit, and which more often leaves no profit to the competitor ...

In 1936, when America's anti-trust laws were strengthened, they included a specific provision against geographic price discrimination which was known as the Borah-Van Nuys amendment. It stated:

It shall be unlawful for any person engaged in commerce … to sell … goods in any part of the United States at prices lower than those exacted by said person elsewhere in the United States for the purpose of destroying competition, or eliminating a competitor in such part of the United States ...

and that law remains part of US law today.

However, under our Australian competition laws we have no provision to deal with the problem of geographic price discrimination. With such a glaring hole in our competition laws it comes as little surprise that over recent years the Austrian supermarket duopoly has used geographic price discrimination to destroy competition. In one recent highly disturbing case exposed by the major TV networks it was shown that one member of the supermarket duopoly was engaging in a practice of charging altogether excessive prices in markets where it had little or no likelihood of competitors entering the field and that, on the other hand, in markets where competition was active they had cut prices to a point which drove a small competitor out of the market and as soon as that smaller competitor left the market prices were jacked up again. All this occurred right under the nose of the then competition minister, a stone's throw from his own electorate office.

While the practice of dumping has damaged many industries, I would like to share a classic tale of the dangers of dumping with the story of Herbert Dow, the founder of the Dow Chemical Company, and his battles with the Germans in the market for bromine. Bromine is a valuable chemical that has many commercial uses, including as a sedative, a flame retardant and a bleaching agent. It is also used to disinfect water and to make chemicals that work as pesticides and pharmaceuticals, and was also used in the making of film. However, since bromine was first mass-marketed in the mid-1800s the world production of bromine was controlled by a cartel of German firms who, with the German government's support, pursued an aggressive policy of dumping bromine to destroy competition from any foreign country that tried to set up to manufacture it itself.

Herbert Dow, born in 1866, was a technical whiz and an entrepreneur. During his senior year at school he watched the drilling of an oil well outside Cleveland and at the well site he noticed that the brine had come out to the surface and the brine was what the oilmen considered to be a nuisance. Dow took a sample back to his lab and tested it to see what it contained. He found it contained both lithium and bromine. So this set Dow to wondering whether the bromine could be extracted profitably from the abundant brine in the Cleveland area, as he knew that if he could find an economical way to separate the bromine from the brine he would be able to market the bromine throughout the world and break the German cartel. After many years of failure Dow developed a method of using electrolysis to produce bromine and sell it profitably for 36c a pound when at the time the Germans through their price-fixing cartel had established a worldwide price of 49c a pound.

With their monopoly threatened by this new source of supply, the Germans made it clear to Dow that if he tried to sell bromine anywhere in the world other than the USA they would dump unlimited quantities of cheap bromine on the American market and drive Dow out of business at whatever cost. But one of Dow's greatest strengths was that he was stubborn and he hated being dictated to by a bully. So he took on the German cartel and sold bromine back into Europe at 36c a pound, undercutting the German price which had been established at 49c. As soon as the Germans discovered what Dow was doing they dumped bromine into America at just 15c a pound, well below the previous world price of 49c and also below Dow's 36c, determined to drive Dow out of business. But rather than bowing down to the Germans and withdrawing from the world market because of this dumping practice, Dow had his agent in New York discreetly buy up hundreds of thousands of pounds of the dumped German bromine at the 15c price. He then repackaged it and sold it back to Europe, including Germany, at 27c a pound, making a tidy profit along the way. Dow then diverted all his US production to supply foreign demand throughout the world at 36c a pound, taking further market share from the Germans.

Expecting to run Dow out of business, the Germans were befuddled and Dow only became stronger. So the confused Germans kept dumping bromine into the US at lower and lower prices, first at 12c and then 10c a pound, trying to run Dow out of business. Meanwhile Dow kept buying all the bromine he could, repackaging it and selling it back into Europe for 27c a pound, pocketing an even greater profit at the expense of the Germans. Once the Germans finally discovered what was going on it was too late. The Germans had lost millions, depleting their ability to develop new products. Meanwhile Dow had more capital courtesy of the Germans' dumping. That enabled Dow to expand his business and challenge the Germans' dominance in many other chemicals. For example, Dow entered the dye industry and began producing indigo more cheaply than did the dominant German dye cartel. During World War I, when Germany quit trading with the allies, Dow was able to produce products such as aspirin, phenol for explosives and chemicals used to strengthen aeroplane wings, and he did so more efficiently and at lower cost than the previously dominant Germans had. One of the great counterfactuals of world history is what would have happened if the Germans' plan to maintain their worldwide monopoly in bromine and other chemicals had not been thwarted by Herbert Dow.

While this bill is concerned with goods being sold in Australia at prices below those at which they are sold in other countries, what Australian consumers should really be concerned about is goods being sold in Australia at prices far in excess of those available to consumers in other countries. Take the example of Coca-Cola, a commodity that is sold in supermarkets in almost every country throughout the world. One would expect that there would be only marginal differences in the prices of such a popular product in supermarkets throughout the world. In Australia, the 'everyday low price' of a two-litre bottle of Coca-Cola currently being offered by the supermarket duopoly is $3.65. Yet a quick check on the internet shows that consumers can buy the same two-litre bottle of Coca-Cola in England for the everyday low price of $2.48. In the USA they pay the equivalent of $1.83. Even in New Zealand, at Woolworths supermarkets the everyday low price is the equivalent of $2.66; in Hong Kong, just $1.65; in South Africa, $2.22; and in Singapore, $2.25—in comparison to Australia's $3.65. It not just Coca-Cola. Compared to countries elsewhere throughout the world, Australian consumers pay grossly excessive prices for many basic supermarket items. So either Australian consumers are the victims of reverse dumping or there is something fundamentally flawed in the competition in our supermarket sector.

The government has failed miserably and repeatedly to protect competition in Australian markets. Before the last election the government made a big song and dance about lack of competition, but all we have seen since it has been elected is a shameful whitewash of the grocery inquiry. Its only initiative has been the high farce of GroceryWatch, the most useless website every created. Now, to show what the government thinks of competition, instead of being a ministry competition has been downgraded to the level of a parliamentary secretary. And this is all before the introduction of a carbon tax, which will push up the price of goods for all in Australia. It is a tax that will place Australian products at a significant competitive disadvantage. The real impact of a domestic carbon tax will be that overseas goods will be shipped into Australia at lower prices than those for which similar goods can be made in Australia. It will damage Australian manufacturers 100 times more than will the problem of dumped goods.

So, while we should be rightly concerned about goods being dumped onto Australian markets below the price at which they are sold in other countries, our real concern should be the fact that Australian consumers are currently paying significantly higher prices than consumers in the rest of the world do. This problem will only be made worse by the carbon tax, irrespective of any changes to our laws on dumping.

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