§ Lieut.-Colonel Schofield
asked the President of the Board of Trade when the Monopolies and Restrictive Practices Commission's Report on the Supply and Exports of Electrical and Allied Machinery and Plant will be published; and if he will make a statement about its contents.
§ Sir D. Eccles
The Report was published today. It covers three classes of goods which fall under the following broad headings:
- (a) steam and water driven turbo alternator plant;
- (b) generators other than those in (a) and electric motors (except that in both cases there is a minimum limit of output);
- (c) transformers (except the smallest kinds).
In 1952 the value of United Kingdom manufacturers' sales of machinery in the three classes amounted to £88 million. Home sales of class (a) machinery were £11 million while exports were £12 million, a total of £23 million. Home sales of class (b) machinery amounted to £31½ million and exports to £10½ million, a total of £42 million. The corresponding values for class (c) machinery were £14 million, £9 million and £23 million.
A number of restrictive agreements are operated by United Kingdom manufacturers. Nearly all the manufacturers who are parties to these practices are members of the British Electrical and Allied Manufacturers' Association (B.E.A.M.A.). The practices are not operated by the B.E.A.M.A. and not every member of the Association who makes these products is a party to the practices. The practices are operated under agreements of the "Trade Groups" or, in some cases, under agreements sponsored by the International Electrical Association Ltd. (I.E.A.). The agreements of the groups which are administratively associated with, but distinct from, the B.E.A.M.A. cover the home market and part of the export market. The main provisions of the agreements include all or some of the following arrangements:
- (i) Notification, that is the central notification by signatories of specified particulars of inquiries, and subsequently of orders, received for machinery or plant the subject matter of an agreement. This information, or some part of it, is circulated among signatories and enables them to discuss relevant technical or commercial matters.
- (ii) Compensation, that is the payment by the successful tenderer of a sum of money to be used to compensate other tenderers who are members of the group for the expenses involved in tendering.
- (iii) Common minimum price, that is a price for specified machinery or plant below which all signatories have agreed not to quote, except as otherwise provided by the agreement. The minimum is in practice normally the actual price quoted. This does not mean that the prices quoted by all signatories to an agreement in response to a particular inquiry will necessarily be Identical. For some of the more complicated machinery they are in fact unlikely to be so, since the operating characteristics offered by the various signatories will differ and these technical differences will be reflected in price adjustments which are provided for in the agreement. If, however, all tendering signatories were to offer machines of identical performance (though not of identical design) their prices would also be identical unless any of them exercised their
111 right to quote above the minimum. In the case of larger machinery which is supplied under contract this practice is often called "level tendering".
- (iv) Supplementary provisions relating to such matters as uniform conditions of contract, main contractor's handling charges, discount and price maintenance on resale; in their general effect these provisions support the main price arrangements.
The agreements sponsored by the I.E.A., to which British and foreign manufacturers belong, cover broadly that part of the export market not covered by the group arrangements. Both British and foreign members are parties to agreements for the notification of inquiries and orders. In addition, compensation arrangements are operated between British members of the I.E.A. for certain types of machinery (for which these members also agree common prices) and are the counterpart of the arrangements for compensation for tendering expenses under certain group agreements.
Except in isolated cases, only the British members of the I.E.A. have made arrangements for common minimum prices. The I.E.A. now operates only one formal agreement expressly providing for the maintenance of common minimum prices on all inquiries notified, but ad hoc price arrangements may follow notification of individual inquiries for other types of machinery. From time to time cooperation between members of the I.E.A. has taken the form of protection of exporters. A manufacturer may, for instance, claim a prior interest in a contract, usually because he supplied the original machinery to the power station concerned. Other manufacturers may agree to quote a higher price or longer delivery period or else to refrain from tendering at all. These protection arrangements in which foreign members have participated in some cases relate mostly to certain machinery in class (a).
The Commission finds that the conditions to which the Monopolies and Restrictive Practices (Inquiry and Control) Act, 1948, applied prevail as regards both the supply and exports of machinery in each of the classes (a), (b) and (c).
The Commission's principal finding on the industry's arrangements is that the common price system whether operated through the groups or the I.E.A. is against the public interest in relation to the supply and exports of machinery in 112W each of the three classes (a), (b) and (c). (One member dissents from this conclusion in so far as it relates to exports.) In arriving at this conclusion the Commission has had regard to differences in market conditions as between one type of product and another and as between supply in the United Kingdom and by export. As far as the home supply of machinery in classes (a) and (c) is concerned, the Commission has paid particular attention to the situation arising from the unification of the electricity supply industry and to the relations of the manufacturers with the Central Electricity Authority and the area electricity boards.
Certain other arrangements are also found to be against the public interest in as much as they support the common price system.
The following arrangements would operate against the public interest in the absence of a common price system:
- (i) compensation of unsuccessful tenderers in relation to the supply and exports of mast machinery in class (a) and certain machinery in class (b);
- (ii) notification of inquiries and orders in relation to the supply of machinery in classes (a), (b) and (c), and also in relation to exports of such machinery in so far as overseas manufacturers participate;
- (iii) differential prices in relation to the supply of machinery in classes (a), (b) and (c) in so far as they are obligatory or involve the listing of individual buyers entitled to allowances, and the arrangements in relation to the supply of certain machinery in classes (b) and (c) for discounts and rebates based on the aggregation of purchases, or on buying a given proportion of requirements, from a number of manufacturers;
- (iv) protection arrangements in relation to exports of certain machinery in class (a);
- (v) common conditions of sale and contract in relation to the supply and exports of machinery in classes (a), (b) and (c) in so far as they are obligatory;
- (vi) a number of minor practices.
The Commission recommends that all the group and I.E.A. agreements in which are embodied the common price arrangements or any of the arrangements which it has found operate or may be expected to operate against the public interest should be terminated, and that the United Kingdom manufacturers should not in future enter into any agreements or arrangements with one another, or set up any other organisation, for these purposes.113W
The Commission sees advantage, as regards both supply and exports of all classes of machinery, in co-operation between the manufacturers in technical matters. It also sees advantage in the pooling of market information in respect of exports; for this reason it finds that the notification arrangements for exports would not operate against the public interest in the absence of a common price system, provided that overseas manufacturers did not participate. It also sees no objection to recommended model conditions of sale and contract under any of the heads of its reference.
The Central Electricity Authority (C.E.A.) purchased about four-fifths of the class (a) machinery supplied in the United Kingdom in 1952. Metropolitan-Vickers Electrical Co. Ltd., and The British Thomson-Houston Co. Ltd., which are subsidiaries of Associated Electrical Industries Ltd. (A.E.I.), accounted for about two-fifths of such machinery supplied in the United Kingdom in the same year. The Commission has found nothing adverse to the public interest arising from the special positions of C.E.A. and of the subsidiaries of A.E.I.
The Restrictive Trade Practices Act, 1956, prohibits the Board of Trade from taking any action under Section 10 of the Monopolies and Restrictive Practices Act, 1948, in respect of any agreement made subject to registration by the Act of 1956. Agreements which relate to exports and which do not contain any registrable provision relating to the home market are not subject to registration. I am invitine the industry to send me their comments on the report as soon as possible.