I move that the Bill be now read a Second Time.
The object of this Bill is to confirm an Order which I have made under the Restrictive Trade Practices Act, 1953, on the recommendation of the Fair Trade Commission, relating to the operation of resale price maintenance in the supply and distribution of cookers and ranges. The Commission's report of their inquiry into this matter has already been circulated to Deputies, but I propose to give here a summary of its contents.
The inquiry related to resale price arrangements by suppliers and distributors of cookers and ranges using electricity, bottled gas and solid fuel. Cookers utilising town gas are sold direct to consumers by the various town gas companies and no resale price is, therefore, involved in the case of such goods. Home manufacturers supply the greater part of the market in electric cookers; supplies of these cookers are also imported, on payment of import duty of 37 per cent. (25 per cent. preferential), by a number of firms. Approximately three-quarters of sales to the public are through the Electricity Supply Board. For that reason, and also because discount margins on these cookers are lower than on other electrical goods, they are not, in general, sold below specified prices, and the enforcement of resale prices is not resorted to.
Cookers using bottled gas are imported by two firms as an adjunct to their business of selling the gas, and are distributed to selected dealers who receive discounts, of 25 per cent. from one company and 20 per cent. from the other, off specified retail prices. As with electric cookers, these specified prices are generally adhered to and the question of resale price maintenance does not arise.
The bulk of the market for cookers and ranges using solid fuel is supplied by home manufacturers. There is a duty of 40 per cent. on imports, which in 1960 reached only a small proportion of the total home production. Of the five firms engaged in home production, by far the major share of the market is supplied by Waterford Ironfounders Ltd. and Hammond Lane Ironfounders Ltd., Waterford being the largest supplier in the country. The evidence at the inquiry showed that, apart from Waterford Ironfounders, the suppliers of these goods allow traders freedom to charge whatever prices they wish.
At the inquiry, it was learned that from 1952 onwards the policy of Waterford Ironfounders had been directed towards the achievement of resale price maintenance at all levels of distribution. At that time the company reorganised its distribution system on the basis of a fixed retail price from which proportionate trade and cash discounts were allowed to the various categories of distributors. At this time, also, a Joint Committee was formed by the company, composed of representatives of the distributors and the company. In the implementation of its policy, the company consulted the distributors' group of the Committee and took its recommendations into consideration. Price maintenance was one of the aims of the Committee, and was regularly discussed at its meetings.
The evidence at the inquiry showed that efforts by the company and the Joint Committee to maintain prices were not successful, and complaints of price cutting by appointed distributors were frequent. In 1958 Waterford introduced a new agreement for distributors, which again provided for resale price maintenance at all levels of distribution, but with lower discounts from the fixed retail prices. The list of scheduled products affected by the agreement was also substantially reduced. Notwithstanding determined efforts to make this agreement effective, it was not observed in many places and by 1959 price cutting was widespread. In October, 1959, the company introduced the present form of agreement, which provides for the calculation of discount on a trade price instead of on a fixed retail price as heretofore, and substitutes a recommended retail price for a fixed retail price.
This distribution system is based on written agreements with the company's wholesale agents and registered stockists. The wholesale agent's agreement requires him to maintain and display a specified stock of the company's scheduled products; to purchase goods every year up to a stipulated value and to employ certain craftsmen, salesmen and travellers. The registered stockist's agreement requires him to display and stock a stated minimum number of cookers and ranges, and a stock of spare parts. Both classes are also bound to certain price arrangements involving (a) a recommended retail price, and (b) a trade price which is 12½ per cent less than (a). In sales to the public, a wholesale agent is allowed, in order to meet competition, to reduce the recommended retail price by 5 per cent. The registered stockist is required to sell the products "in accord with" the recommended retail price; the company stated that this does not mean that he is expected to maintain the recommended price, and that he is, in fact, free to charge any price he wishes.
It was stated on behalf of the company that the system introduced in 1959 abolished resale price maintenance at retail level while maintaining it at wholesale level. Some witnesses claimed, however, that they had not been made aware of this, and, while there is some doubt as to the interpretation of the agreements, it appears that at least the company did not emphasise that retail price maintenance had been abandoned.
The company submitted that the present system of distribution, involving price maintenance at wholesale level, was the only alternative to the setting up of its own distribution system throughout the country. It regarded the Wholesale Agent as an extension of the company who should distribute and service its products in exactly the same manner as if the company had set up its own area depots. It contended that, in these circumstances, a policy of resale price maintenance was justified.
In the course of the inquiry, it emerged that of the 79 appointed wholesale agents, only three or four were engaged exclusively in the wholesale trade, and six of them appeared to conduct a purely retail business. Because of this fact, the wide disparity in discounts allowed to wholesale agents and other traders in the products created difficulties in the trade, as the wholesale agents used their larger discounts to compete for the available business. Furthermore, the margins laid down by the company were wide enough to suit the less efficient distributors, and the more efficient felt that they were being forced into charging unjustifiable prices. Much price cutting was concealed and could not be proved.
The Commission reported that it was clear from the evidence that the pre—and after—sales services provided for in the agreement were not as important as the company suggested, and the relevant conditions were not being enforced. In the Commission's view the company's claim that the wholesale agent is required to act, in effect, as an extension of the company itself is open to challenge. The agents are independent merchants who purchase the products and might reasonably claim that they should be free to sell them in accordance with the requirements of their own business.
The Commission felt that it should be possible for the company by means of a suitable discount structure and without resale price maintenance to ensure that its distributors displayed ample stocks and placed orders in sufficient quantities in accordance with the company's production programme.
In the light of these considerations, the Commission were of opinion that, having regard to the fact that distributors are virtually limited to home-manufactured cookers and ranges by reason of the high protective tariff on imported products, the operation of a policy of resale price maintenance by the dominant home manufacturer restricted the free play of economic forces. They considered that this policy prevented the growth of a competitive price structure, thus increasing prices to the public and giving rise to discrimination between traders. It was the Commission's opinion, therefore, that this policy was against the public interest and they recommended that, in regard to solid fuel cookers and ranges, resale price maintenance by a supplier and discrimination related to it should be prohibited.
In regard to electric and bottled gas cookers, while the general absence of price cutting has so far obviated any necessity for enforcement of specified resale prices, the Commission considered that traders who wished to sell such products at less than suggested or recommended prices should be free to do so, and accordingly they recommended that the prohibition proposed in relation to solid fuel cookers should also be applied to electric and bottled gas cookers.
The Restrictive Trade Practices Act, 1953 provides that an Order of this kind shall not have effect unless it is confirmed by an Act of the Oireachtas. The Bill now before the House is the confirming Bill which is necessary to give the force of law to the Order concerned.
In the case of confirmation Bills, the arrangement is that the Order which it is proposed to confirm would not be capable of amendment by the House but would be accepted or rejected as it stands. The matters with which the Order deals have been the subject of a detailed public inquiry by the Fair Trade Commission, and their report sets out the arguments in favour of adopting the provisions embodied in the Order. I can therefore recommend this Confirmation Bill to the House without reservation, and I am confident that its enactment will prove an effective barrier to the growth of restrictive practices in the supply and distribution of cookers and ranges, and lead to more equitable arrangements for those engaged in the trade.
