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Baroness O'Cathain moved Amendment No. 10:

After Clause 2, insert the following new clause--

("Non-excluded cases
Non-excluded suppliers: the Chapter I prohibition

(" . Any case which would be excluded by virtue of section 3, but in which a supplier without any published and justifiable reason--
(a) refuses to supply goods to a reseller or categories of resellers who cannot obtain those goods elsewhere on suitable terms, or applies to them differing prices or conditions of sale, or
(b) applies less favourable prices to resellers in one territory as compared with prices applied to resellers in any other territory,
shall not be treated as excluded for the purposes of section 2.").

The noble Baroness said: In moving Amendment No. 10 I shall speak also to Amendments Nos. 11, 31 and 32. First, I wish to declare an interest; I am a director of Tesco. I apologise for not doing so during my intervention on Amendment No. 9.

We all know that the objective of the Bill is to strengthen competition law, in effect allowing greater competition by removing barriers to competition. My noble friend Lord MacLaurin, who regrets that he is unable to be here today to reinforce the views that he expressed on Second Reading, stated during that debate that he agreed with the right honourable lady the President of the Board of Trade who,

    "spoke of the importance of using competition policy to ease the pressures on family budgets".--[Official Report, 30/10/97; col. 1179.]

The purpose of the amendment is to achieve just that by virtue of dismantling selective distribution agreements. I am aware that such agreements are not at the forefront of most people's minds, but they are what they describe. Some manufacturers, for their own reasons, say, "We will not distribute our products to retail outlet X or supermarket A". They restrict the number of outlets allowed to sell a product.

I suggest that the public interest is not generally served by such action. Some suppliers refuse to supply certain outlets because they fear that those outlets will discount the goods. The self-same suppliers--and they are mainly from overseas--see this market as an opportunity for high margins if they restrict the outlets in which their goods are sold. Some companies refuse

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to negotiate price with the retailers, which results in consumers being disadvantaged. In respect of some goods, the mark-up is as high as 300 per cent.

Perhaps I may give the Committee some hard examples, although Members may not be in the market for Levi's 501s, which are jeans. The US selling price of those jeans is the equivalent of £25, while the price in the United Kingdom is £52. In the US, Calvin Klein's men's jeans cost the equivalent of £28, while in the United Kingdom they cost £59.95. The problem is that the suppliers of such jeans suggest that selling them in supermarkets ruins "the allure" of the product.

Perhaps not all your Lordships identify with jeans, but many will identify with champagne. Is the allure of Moet & Chandon ruined by being universally available in supermarkets and other outlets? Perfumes or fine fragrances, as they are known in the trade--they are reasonably dear to my heart--present another case. I suggest that people should be allowed to buy their jeans and fine fragrances wherever they live or normally shop, irrespective of their economic classification of A, B, and C1s, C2s or D3s. Surely it is the Government's view that access and availability should not be restricted.

When debating Amendment No. 9 we discussed the small pharmacy in Llandysul but this amendment does not deal with such small pharmacies. The manufacturers who are restricting the distribution of their goods are huge international and multi-national businesses. Unilever, for example, which is one of the biggest companies in the world, owns the European rights to Calvin Klein perfumes.

The point was clearly made at Second Reading by my noble friend Lord MacLaurin. He said:

    "The more goods you allow to be sold by a diverse and large number of retailers the more you will improve the quality and standard of living of the population as a whole. You will also bear down on inflation--a goal shared by every government I can recall".--[Official Report, 30/10/97; col. 1180.]

Furthermore, the National Consumer Council has expressed concern about selective distribution and its impact on the customer.

I am not launching an attack on branded and luxury goods; after all, they are the spice of life and I want more people to have them. However, I am anxious that consumers in London or Leeds pay prices for the goods they wish to buy that are comparable to the prices paid by consumers in Seattle or Atlanta. Retail price maintenance was abolished in 1964 save that certain classes of goods are exempt from that prohibition on public interest grounds. I suggest that this Bill is an ideal vehicle by which we can stop that apparent discrimination caused by selective distribution agreements. I beg to move.

5.30 p.m.

Lord Borrie: The noble Baroness, Lady O'Cathain, has made a very plausible case. Indeed, it is more than plausible. It is extremely accurate in relation to many types of selective distribution agreements and goods because they have involved what one might call covert retail price practices. They have involved the refusal to

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supply those retailers who are known to reduce margins, perhaps through their efficiency, so enabling customers to buy goods at a cheaper price than elsewhere. However, the noble Baroness's speech was just a little one-sided. It was as if all goods must be supplied to Tesco, or all branded goods made available to the mass distributor without restraint.

The noble Baroness mentioned some products. I am perhaps more familiar with champagne and perfume than I am with Levi 501s. However, there is evidence that the success of some goods--of many perfumes, I am sure--is due in part at least to the fact that they are available only in a particular kind of environment or shop. There is mutual benefit to the manufacturer, the retailer and of course to the consumer who feels that he has something special. Let us take the gift shop at the House of Lords. If those chocolates and other items with the appropriate brand markings upon them were available freely in Tesco, it might be that there would be some diminution of value, excitement and enjoyment to the customers.

However, I have a more serious point to make. There are a number of distribution agreements which are beneficial to manufacturer, retailer and customer because particular kinds of retail outlet are freely chosen by the manufacturer on the basis that they offer a certain kind of service or repair service; or they have certain kinds of skilled employees; or they wish to promote those goods through marketing arrangements which involve the retailer's agreement to take certain steps in relation to, for example, product display and so on. Those retailers would not be prepared to do that if the goods were available freely everywhere because they would be incurring a great deal of expense in marketing those goods and would achieve very little return because the goods would be available in all sorts of other places.

I am saying to the noble Baroness, Lady O'Cathain, and the Committee that you can make generalisations but there is merit in those cases being dealt with on a case-by-case basis. After all, that is fundamental to this Bill which enables the director general and the competition commission on appeal to determine whether agreements which appear to be prohibited should be specially exempted or not. I should not like to see a generalised provision of the kind which the noble Baroness suggests.

Lord Simon of Highbury: My noble friend Lord Borrie has approached the problem, in a sense, from the end of the jeans back to the general. I should like to stay with the general in trying to respond to the noble Baroness's amendments.

I put this matter in the context of what is the scope of the prohibition. I emphasise that the Government's intention in reforming competition law is to set up an effective framework for investigating anti-competitive practices; for assessing in individual cases whether a practice is anti-competitive; and to take action to stop anti-competitive practices where identified. The Bill is not designed to deal explicitly with every conceivable anti-competitive practice. We could not do that.

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Very shortly we shall be debating specific amendments in relation to the exclusion of vertical agreements from the Chapter I prohibition, which will be relevant in general terms. If introduced, any such exclusion must of course allow anti-competitive practices to be tackled. A refusal by a dominant supplier to supply certain outlets, a problem sometimes associated with selective distribution agreements, would, if found to be abusive, remain subject to the Chapter II prohibition. Equally, I am advised that there is EC jurisprudence that differential pricing by dominant firms which is abusive may be tackled under Article 86. Therefore, both those approaches exist. As I shall continue to say because it is such a pivotal point, such jurisprudence will apply in the interpretation of a Chapter II prohibition as a result of Clause 58. Therefore, we are covered in general terms for the particular set of circumstances which the noble Baroness put before the Committee.

Finally, the safety net, as it were, is that anti-competitive practices resulting from networks of vertical agreements will remain subject to an examination under the Fair Trading Act. Therefore, with those three statements of the way in which we can generally approach the particular problem that the noble Baroness put, I am confident that we have a regime which will work, and work effectively, in tackling anti-competitive behaviour however it expresses itself and in particular in the sense explained by the noble Baroness explained. Therefore, I ask the noble Baroness to withdraw the amendment.

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