The relentless march of globalisation was slowed somewhat last week. A national court held several multi-national companies to count for anti-competitive practices. The national court was the Australian Federal Court and the multi-national companies were three pharmaceutical giants and their Australian vitamin subsidiaries, Roche Vitamins Australia Pty Ltd, BASF Australia Ltd and Aventis Animal Nutrition Pty Ltd.
The three companies were fined a total of $26 million for price collusion. One company was fined $15 million, the highest single fine in Australian Trade Practices history. The companies were also restrained from meeting to discuss pricing matters for four years. If they break that order they will be up for criminal sanctions.
The case is highly significant because the Australian arms of these companies were acting under secret agreements made at the international level of their respective companies. It shows that multi-nationals are not above local law and that they cannot always ride roughshod over national considerations, contrary to the typical anti-globalisation mantra.
The other significance of the case is that globalisation is often seen as a concurrent evil with competition policy. In this instance, however, one (competition policy) was used as a sword against the other (globalisation).
The judgment will also arm lawyers working for consumers and Australian businesses who have been disadvantaged by the anti-competitive price-maintenance agreements. The vitamins in issue were both for use by human consumers and also commercially by livestock companies. The activity of the three companies in colluding not to compete on price has cost those livestock companies and consumers dearly, according the lawyers conducting a $100 million class action against the companies.
The penalties send a clear message both in Australia and to multi-nationals that anti-competitive conduct contrary to Australian law will not be profitable. The penalty – amounting to up to 7 per cent of the vitamins’ sales effectively wipe any profit out, and that is without considering that there is a costly civil class action in the wind.
The case should also help give consumers some confidence that someone in authority is looking after their interests in a general climate of scepticism about whether any of the benefits of globalisation and competition policy are trickling down.
The case illustrates that the advantages of free trade (globalisation) will not flow without a powerful watchdog like the Australian Competition and Consumer Commission to ensure that the trade is genuinely free and not tainted by collusive conduct.
One of the difficulties for proponents of globalisation and competition policy is that the benefits are difficult to see. Competition in things like utilities that were hitherto state monopolies and in agriculture which was heavily regulated has reduced prices either to consumers directly or to other businesses which in turn have passed them to consumers. But they have only been passed on because competition makes it more difficult to withhold the profit. However, the benefits are incremental. Whereas some of the dislocation and cost to individuals affected has been highly concentrated and therefore highly visible.
The vitamins case illustrates what happens without competition and without an enforcer of competition. Consumers and smaller businesses get ripped off.
In effect, the old state-run utility monopolies were little better than colluding pharmaceutical companies. They artificially held up prices to the detriment of all.
The case also shows that pharmaceutical companies have to be watched very carefully if they are not to abuse monopolies and extract excessive profits. The ACCC’s role is just one. The other is taken up by the Pharmaceutical Benefits Advisory Board which sets the price the Government will pay for drugs it subsidises. Many of these drugs are patented. The board should jealousy guard its independence to ensure the companies meet national needs.