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Compulsory Marketing Schemes and Section 92 of the Australian Constitution
ANTHONY GRAY[∗]
Abstract
This article considers the constitutionality of compulsory marketing schemes, traditional policy mechanisms in agricultural marketing in particular. Specifically, it argues that such schemes should be found to infringe the freedom of trade and commerce guaranteed by s 92 of the Australian Constitution. Firstly it considers the contradictory s 92 case law on the validity of compulsory marketing schemes, before considering the consequences for such schemes of the new approach to s 92 taken in Cole v Whitfield. It argues that on the existing approach, the High Court decision in Barley Marketing Board for the State of New South Wales v Norman was incorrect in validating a compulsory marketing scheme on a s 92 challenge. It also argues that the current test for invalidating laws under s 92 may be deficient, as being inconsistent with the purpose of the section. A simplified test, removing the need to establish protectionism, is preferred. Under this approach it will be easier to invalidate compulsory marketing schemes on a s 92 challenge. It is very unlikely that compulsory marketing schemes could be justified as ‘reasonable regulation’ or as being proportionate to the achievement of a legitimate objective given their negative economic effects, and their anti-competitive consequences. In turn, the interplay between s 92 and broader economic and competition principles is canvassed.
It has been traditional in some industries, particularly primary industries, that compulsory government marketing schemes operate in relation to products produced by that industry. Previous examples have involved the marketing of peanuts, dried fruits, barley, eggs and wheat.[1] Producers are typically prevented from selling to a purchaser of their choice, being required to sell their product to a collective marketing board, in return for a fixed price. A typical justification provided for such schemes is that they stabilise the price at which such produce can be sold, providing a more certain income for the farmer, and allow them to concentrate on where their skills likely lie – in farming – rather than in chasing markets or negotiating contracts. By pooling a range of suppliers together, the argument might be that such a supplier is in a stronger position than an individual farmer to negotiate with powerful buyers of the product. Some schemes might also be justified as quality control measures.
While most schemes were abandoned in light of the Hilmer competition reforms of the early to mid-1990s,[2] the ‘single desk’ Australian Wheat Board continued until the late 2000s, providing the most high profile example of this policy measure in Australia. Examples currently remain in place in New South Wales and Western Australia,[3] although recently it was estimated that Australia has the second lowest level of producer support of those in agriculture in any OECD country.[4] Indirect references were perhaps made to these issues in the Federal Government’s Agricultural Competitiveness Green Paper released late in 2014. The Green Paper canvassed the possibility of ‘introducing new marketing mechanisms that might restore balance of power to the producer’,[5] and flagged facilitation of the greater use of co-operative structures in agriculture. The Green Paper noted producers’ ongoing concerns about price stability and uncertainty, compromising their ability to plan and invest.[6] Such concerns are often used to justify collective marketing schemes in agriculture.
The issue of Australia’s role as a possible ‘food bowl’ of Asia has recently captured public attention. A 2012 Report by the Australia and New Zealand Banking Group Limited Greener Pastures suggests that the growth of the Asian middle class means that the value of Australian agricultural exports could grow by up to $1.7 trillion between now and 2050.[7] The Federal Government’s recent Agricultural Competitiveness Green Paper published in 2014 noted that Australia currently feeds 60 million people globally, and is responsible for one per cent of the world’s global agricultural products, with excellent prospects for growth.[8] The Federal Government is committed to a policy course of forming free trade agreements with key trading nations in order to achieve such growth. It attracted much publicity with its recent signing of a free trade agreement with China after a 10-year negotiation, as well as Japan and South Korea, with an agreement with India anticipated in 2015. The current federal Agriculture Minister is on record as having favoured the use of ‘single desk’ marketing schemes, at least in some cases.[9]
One policy option on the table could be the return to compulsory marketing schemes for some products, at either a state or federal level. There has been expressed support for such schemes, at least in the past, by the current Agriculture Minister, producers’ ongoing concern over price stability and uncertainty, as well as references in the 2014 Green Paper issued by the Minister’s Office to ‘appropriate collective bargaining by farmers’ to incorporate marketing mechanisms to restore balance of power to producers, and for a greater use of co-operatives.
On the other hand, it might be argued that such schemes contradict s 92 of the Australian Constitution; that section relevantly insists that trade and commerce among the states ‘shall be absolutely free’.Several s 92 cases have involved challenges to compulsory marketing schemes. As we will see, and typical of s 92 jurisprudence generally, there has been a real mix of approaches and results. In some cases compulsory marketing schemes have fallen foul of s 92. However according to the currently accepted interpretation given to the section, it is very unlikely that such schemes could now be challenged under s 92, for reasons explained below. One of the reasons for this article is the author’s belief that the current application of s 92 to compulsory marketing schemes does not produce the outcomes that it should, given the important purpose of the section.
Such schemes may also be offensive to Australian anti-competition law and policy. This argument also presents something of a paradox. Are such schemes anti-competitive (and bad) because they eliminate competition among Australian farmers for markets, or are they pro-competitive (good) because they (might) allow Australian products to be marketed more strongly on the international market, thereby making us more competitive on a global scale?[10] Should a distinction be drawn between their effects at a national level, and their effects at a state level?[11] Further, what relevance, if any, does the question of the possible anti-competitiveness of such laws have for s 92 issues? In recent times, the High Court has begun to tentatively explore that issue.[12] It could do so further, through the lens of compulsory marketing schemes.
This paper will consider whether a compulsory marketing scheme should be considered offensive to the principles implicit in s 92 of the Constitution. It will catalogue in Part A the range of s 92 decisions that have considered the constitutional validity of such schemes. It will argue in Part B that compulsory marketing schemes should in the vast majority of cases be considered unconstitutional as being in breach of s 92. They are inconsistent with the purpose of the section, and should not be brought within any ‘reasonable regulation’ exception making laws offensive to s 92 otherwise invalid, valid, because of their negative economic effects. They have been found to be contrary to the equivalent provision in the United States Constitution upon which the Australian provisions were modelled, and would be found to be prima facie anti-competitive for the purposes of the Australian Competition and Consumer Act 2010 (Cth), to the extent this is a relevant consideration in the interpretation of s 92.
It will be argued that such schemes should be invalidated even under the existing approach to s 92 as outlined in Cole v Whitfield (‘Cole’)[13], but pertinent criticisms of the current Cole approach will be noted. These criticisms tend to suggest that the requirement of protectionism in the current Cole test should be removed, and there is much in the history of the section and its purpose to support these criticisms. If this step were taken, it would easier to invalidate compulsory marketing schemes, since they can be justified on the basis of reasons other than ‘protectionism’.This is not to suggest that the section will or should be applied in absolute terms; in other words, possible regulatory justifications for any scheme challenged under s 92 will remain relevant.
It is considered necessary to traverse some of the history of challenges to compulsory marketing schemes, and their fate when subjected to a s 92 challenge.[14] Such discussion places the High Court’s finding that the compulsory marketing scheme considered in Barley Marketing Board for the State of New South Wales v Norman (‘Norman’)[15] was not offensive to s 92 in greater historical context. As will be seen, on many other occasions the High Court, admittedly applying different legal principles, found differently. For the purposes of my argument here, and to keep the discussion manageable (with more than 140 High Court decisions on s 92), I will focus on those cases where compulsory marketing schemes have been particularly implicated. However, obviously it is impossible to quarantine these cases entirely from the general ebb and flow of doctrines pertaining to s 92 more generally, including the free trade vs laissez faire argument, criterion of operation vs substantive approach, direct and indirect burdens, and questions of discrimination, protectionism and reasonable regulation. And despite the ‘clean start’ made regarding s 92 in Cole,[16] the High Court has clarified that this does not mean that nothing useful can be gleaned from cases decided prior to that case.[17] Compulsory marketing schemes generally fall into one of two categories – one providing that a state board can compulsorily acquire goods produced by a producer, typically produced in that state; another providing that anyone who wishes to sell into a particular market, regardless of where they happen to be based, must sell to a marketing board.
The first cases occurred during World War I. The case of State of New South Wales v Commonwealth[18] (‘Wheat Case’) involved state legislation permitting the Governor to declare privately-owned wheat as being required by the Crown (for the war effort), rendering void any contract providing for the sale of New South Wales flour. All members of the Court dismissed a challenge to the legislation based on s 92. Barton J indicated that s 92 protected the owner of goods from time to time, but did not prevent an (involuntary) transfer of ownership from a private individual to the government.[19] Isaacs J said the Act did not discriminate against interstate trade.[20] Gavan Duffy J said state laws only offended against s 92 if they ‘expressly forbid or restrain interstate trade and commerce’,[21] which was not the case here.
The Wheat Case was followed swiftly by Foggitt, Jones and Company Limited v State of New South Wales (‘Foggitt’).[22] There, a state law provided that stock (defined to mean cattle, sheep and pigs destined or possibly destined for export) in the states should be held for the purposes of disposal by the Crown pursuant to the war effort. If the government made the relevant order, such stock would become the property of the Crown, with some compensation payable to the previous owner of the stock. Although the facts seemed very similar to the Wheat Case, all judges deciding the case found the law offensive to s 92. Griffith CJ found the law infringed the right of an individual to use their property for the purposes of interstate commerce, without interference.[23] Here the law prohibited owners from transferring the property, without necessarily acquiring it.[24] This law was contrary to s 92. Isaacs J found that detention of a person’s property in order directly or indirectly to prevent or regulate commercial operations between states was a breach of s 92.[25] There was a direct interference with interstate trade and commerce.[26]
The validity of very similar legislation was considered five months later in Duncan v State of Queensland,[27] with a different result. There, the legislation applied to ‘stock’, meaning cattle, sheep and pigs where the product was intended to be exported or made available for export. Again, it applied for such stock to be held and kept for possible disposal to the Crown. Upon the government making an order, such stock could become the property of the Crown with the previous owners then becoming entitled to compensation. It was an offence for the owner to deal with stock subject to the legislation, except pursuant to government order. Here, five of the seven justices (Griffith CJ, Higgins, Gavan Duffy, Powers and Rich JJ, Barton and Isaacs JJ dissenting) found the legislation valid.[28] All five members of the bench in Foggitt participated in the Duncan result. Griffith CJ admitted the legislation was materially indistinguishable from that considered invalid in Foggitt, but claimed Foggitt was incorrectly decided and should be overruled.[29] Higgins J said the Act restricted property rights and did not interfere with interstate commerce,[30] and that the Wheat Case applied. Gavan Duffy and Rich JJ agreed the Act was not ‘directed against’ interstate trade[31] and any effect on interstate trade was ‘incidental’.[32]
Federal and State Governments were concerned with conditions in the dried fruit market, in particular, that excessive quantities were being grown compared with the domestic market, and that this could adversely affect prices for the product. State legislation was passed creating a Dried Fruits Board, with power to compulsorily acquire dried fruit. In facts which gave rise to James v Cowan (‘James’), the Board purported to acquire James’ output, at least some of which was destined for interstate. The Privy Council struck out the scheme as offensive to s 92. It found the object of the Act was to interfere with interstate trade and commerce.[33] Limits in Commonwealth law on the quantity which a dried fruit grower could sell interstate were also later struck down as being contrary to s 92.[34]
Queensland legislation provided that upon petition of 50 growers, a state governor might declare primary products to be a commodity for the purposes of the relevant legislation and then declare that commodity to be vested in a government board. The board would market the product locally and abroad, and account to the growers for the proceeds. A majority of the High Court found the Primary Producers’ Organisation and Marketing Act 1926 infringed s 92.[35] Rich J found that the legislation accomplished ‘the complete destruction of (the grower’s) freedom of disposition of his product’.[36] Dixon J stated the legislation ‘assumed complete control of the disposal of the commodity by or on the part of the grower’.[37]
While that restriction on the ability of a seller to sell otherwise than through the government board was held invalid, a somewhat similar scheme[38] was validated in 1939 in Milk Board (New South Wales) v Metropolitan Cream Pty Ltd (‘Metropolitan Cream’).[39] There, state legislation purported to vest milk supplied into the Sydney market in the board. Ignoring such regulation, the defendant supplied large quantities of cream directly to New South Wales purchasers. When prosecuted for a breach of the legislation, it argued the legislation breached s 92. A majority of the Court found the legislation valid. Latham CJ stated that not all compulsory marketing schemes breached s 92. Only those which were directed against interstate trade were invalid.[40] A distinction was suggested between mere regulation and outright prohibition. Starke J (dissenting) thought the Peanut Board v Rockhampton Harbour Board (‘Peanut Board’)[41] was directly applicable here, and so the legislation was invalid.[42] Evatt J stated that it did not affect the validity of the provisions that they might have a direct and/or disastrous effect on interstate marketing of products, provided the ‘main objects and purposes’ of the Act were disparate from trade and commerce, and the scheme was not being administered for the purpose of restricting interstate marketing.[43] Consistent with his dissent in Peanut Board, he found s 92 did not prevent the socialization of an industry of production.[44] McTiernan J took a similar position, holding that s 92 prevented legislation directed against interstate trade.[45]
Two key cases in the 1970s considered the compatibility of compulsory marketing schemes with s 92.[46] In North Eastern Dairy Co Limited v Dairy Industry Authority of New South Wales (‘North Eastern Dairy’),[47] state legislation provided that milk supplied for consumption in that state was vested in the Dairy Industry Authority of New South Wales. No one could supply or sell milk in New South Wales without being registered as a pasteuriser under the Dairy Industry Authority Act 1970 (NSW). Milk could only be pasteurised once, and the relevant milk had already been pasteurised in Victoria. In defiance of the legislation, the appellant, a Victorian plant, distributed milk to a private business in New South Wales. A majority of the Court (Barwick CJ, Gibbs, Stephen, Mason and Jacobs JJ, McTiernan J dissenting) found the challenged provisions contravened s 92.
Barwick CJ (with whom Stephen J agreed)[48] considered that in substance[49] the Act was designed to prevent the entry into the New South Wales market of interstate milk and to protect a monopoly position of New South Wales producers. There was no justification for such prevention in terms of quality or safety. He described an attempt by a state to give its producers a monopoly as an obvious infraction of s 92.[50] Barwick CJ said that the decision in Metropolitan Cream could not stand given the movement of the law, since that case, away from a consideration of the purpose of the legislation, and towards a consideration of its effects, in assessing compatibility with s 92.[51] Gibbs J found that the legislation in compulsorily acquiring interstate goods restricted it ‘directly and immediately’.[52]
Mason J said it ‘was no easy task to bring a legislative scheme involving expropriation or monopoly safely home beyond the reach of s 92’.[53] The effect of the Act was to ‘destroy’ interstate trade by effectively precluding interstate sale.[54] It was irrelevant that the legislation provided for the expropriation of interstate commerce and intrastate commerce alike.[55] He agreed that Metropolitan Cream should be overruled.[56] Jacobs J agreed the effect of the legislation was effectively to bring interstate commerce to an end, offensive to s 92.[57]
The other kind of compulsory marketing scheme was considered shortly after in Clark King and Co Pty Limited v Australian Wheat Board (‘Clark King’).[58] There, the New South Wales legislation provided that the Board could by notice to a person, require them to deliver wheat in their possession to the Board. The Board would sell the wheat interstate or overseas. Sale or delivery of wheat other than in accordance with the Act was prohibited. Four companies purchased wheat directly from New South Wales growers in contravention of the Act. By a majority of 3-2 a challenge to the legislation on the basis of s 92 failed.
In the majority, Mason and Jacobs JJ essentially validated the scheme based on the comments of the Privy Council in Commonwealth v New South Wales (‘Banking Case’)[59] that it might in some cases be reasonable for a government to conclude that prohibition with a view to state monopoly might be the only practical and reasonable manner of regulation, so answering any s 92 objection. Mason and Jacobs JJ noted the scheme was designed to prevent difficulties in the past caused by wild fluctuations in wheat prices, causing growers hardship and uncertainty. As a result of this scheme, growers would have assurance of a certain price when the wheat was sold interstate, and a minimum price when the wheat was sold overseas. As a result, ‘calamitous conditions of the past have been effectively prevented’.[60] The other judge in the ‘majority’ was Murphy J, who maintained his unique position that s 92 applied only to fiscal burdens, and so was not implicated here.[61]
Barwick CJ intimated that the words of the Privy Council in the Banking Case relied upon by Mason and Jacobs JJ in this case were not intended to undermine the basic principles they had set down elsewhere in the judgment, and were in the realms of hypotheticals. It could not be maintained here that the only practical and reasonable means of regulating the wheat market was to introduce the scheme challenged here. He believed the position of the majority to be contrary to past cases:
The argument that interstate trade and commerce remain free if carried on exclusively by a government agency, in one form or another, had been put in all the marketing cases, only to be uniformly rejected.[62]
Stephen J agreed:
Whether the matter be looked at from the viewpoint of grower or of merchant the result is the same: all trade in wheat, including interstate trade, is not merely not absolutely free, it is as unfree as any law which stops short of forbidding all dealings whatever in wheat can make it. Neither the text of s 92 nor the decided cases support the view that such a law can survive the operation of s 92.[63]
Clearly the High Court made a new start on s 92 jurisprudence in Cole[64] with its adoption of the discriminatory protectionism test, that the Court should consider (a) whether the challenged law discriminates against interstate trade and commerce either on its face or in effect; and (b) whether the law was passed for a protectionist purpose. There is also consideration of the existence of possible valid regulatory objectives in this analysis, including notions of proportionality. If the answer to both questions is ‘yes’, the law is constitutionally invalid pursuant to s 92. The Court made clear that the purpose of the section was to create a free trade area throughout the Commonwealth, denying governments power to prevent or obstruct the free movement of people, goods and communications across state lines.[65] The Court rejected past principles including the criterion of operation test, instead it reiterated that a practical, substantive approach should be taken.[66]
The only case to consider compulsory marketing schemes and s 92 post-Cole is Norman.[67] There, s56(1) of the Marketing of Primary Products Act 1983 (NSW) allowed the Governor to declare that a commodity be expropriated from producers and become the property of a marketing board. The producer would have a claim for payment for the commodity. Section 58 of the Act provided that contracts providing for the sale of a commodity the subject of the Governor’s declaration were void. The Governor had made a declaration regarding barley coming into existence in the state between 1985 and 1995. In 1988 a barley grower purported to sell their produce to a Victorian. The legislation was challenged on s 92 grounds. A unanimous High Court rejected the challenge.
Applying its new tests of discrimination and protectionism, the Court seemed to concede the law had protectionist aspects, because it is gave small producers the benefit of the marketing authority’s increased bargaining power against large purchasers.[68] However, it was not satisfied there was any discrimination against interstate trade and commerce; it applied to all barley grown in New South Wales, regardless of its intended destination.[69] The Court also acknowledged the potential for laws prohibiting or restricting the export of a commodity from a state to confer an advantage on producers within the state over out of state producers.[70]
In summary, the High Court has spoken with many different voices in attempting to determine whether compulsory marketing schemes infringe freedom of interstate trade and commerce. Notwithstanding the difference in opinions, cases prior to Cole, such as Foggitt, Peanut Board, James and North Eastern Dairy, suggest that such schemes would generally be contrary to s 92. In the language of Rich J in Peanut Board and Mason J in North Eastern Dairy, the fact that such schemes effectively destroy interstate trade by preventing the producer from transacting in that manner should mean that they offend s 92. In the words of Stephen J in Clark King, they make interstate trade ‘unfree’.And in the words of Dixon J in Peanut Board, they take away the grower’s control over the sale of their product. However, given the interpretation of s 92 in and following Cole, in particular the Norman case, it appears much less likely that such schemes can be successfully challenged.
In Part B of this article, I will argue that, contrary to what the Court decided in Norman, such compulsory marketing schemes remain vulnerable to a s 92 challenge, either on the existing test, or in the application of a new approach to s 92 which I favour over the existing test.
As indicated above, the existing test to determine the compatibility of legislative schemes with s 92 focuses on discrimination and protectionism. We know that discrimination here can mean discrimination on the face of the legislation, or in effect.[71] It is less clear whether the concept of protectionism is considered according to the purpose of the challenged provision, its effect, or both.[72]
It is certainly a sensible position to take that compulsory marketing schemes should, according to a strictly logical view of s 92, be prima facie held unconstitutional, since they apparently conflict with the purpose of the section by obstructing the free movement of trade, and that neither the concept of discrimination, nor the concept of protectionism, should be taken into account. For the purposes of discussion here, I take as my starting point the current test which requires both a finding of discrimination and protectionism. I do so for at least two reasons; firstly, a pragmatic one – given the unanimous nature of the High Court decision in Cole, it seems unlikely that the High Court would completely abandon its approach in that case, at least in the foreseeable future, though admittedly the path of s 92 interpretation has been anything but predictable in the past. It is much more likely to see some refinement or tweaking of the approach, rather than complete abandonment of the ‘new’ approach. But secondly, and much more importantly in terms of principle, this author supports at least a discrimination principle to be applied in relation to freedom of trade provisions such as s 92. This mirrors the overseas experience.[73] That does not make the position unassailable, but it is sensible to note that comparable jurisdictions recognise that freedom of trade is not an absolute, but interferences with it must be carefully justified. Discrimination has arguably proven to be a workable principle in that context, seeking to balance legitimate arguments for some regulation of business activity with concerns about parochial, anti-competitive schemes.
It is argued that these schemes have the potential to be considered discriminatory against interstate trade, at least in effect. For instance, take the example of a New South Wales law vesting all of the production of a particular good in a Board. The Board will market the goods to interstate purchasers. As indicated earlier, the purpose of such a scheme is often to increase the marketing power that the seller here would otherwise have, or to create greater stability in pricing.
Let us say for example that the primary producer in New South Wales would, if they had marketed their product themselves, have charged $2000 per tonne of their product. However, the Board, which must meet its costs and to make provision for price stability over a longer time frame, might charge $3000 per tonne for the same goods. It can charge this price because of its market position. It can be seen that the scheme operates to burden interstate trade and commerce in a discriminatory way. Let us assume that before the Act was introduced, a Victorian purchaser could purchase the product from a local Victorian producer for $2500 per tonne. They would have been minded to purchase directly from the New South Wales producer, who before the law was introduced, would have sold the product to the purchaser at $2000 per tonne. However, the effect of the compulsory marketing scheme is to preclude the New South Wales seller from selling to the Victorian purchaser directly. If the Victorian purchaser wants to purchase the product from New South Wales, they will now have to pay $3000 per tonne. All things considered, they are now more likely to shun the interstate goods, and purchase locally.
It is appreciated that with different scenarios and cost structures, the outcome might be different. However, in the scenario painted, the law does discriminate against interstate trade and commerce in effect. It is not a complete answer to say that because the scheme applies to both New South Wales producer to be sold intrastate and interstate, it is valid. Further, though the scheme does not touch the intrastate purchase by a Victorian purchaser from a Victorian seller, it does affect the interstate purchase by a Victorian purchaser from a New South Wales seller. The argument which persuaded the High Court in Norman that the law is not discriminatory in effect because it applies to any of the product grown in New South Wales, regardless whether it is destined for interstate or intrastate, does not overcome the clear effect the compulsory marketing scheme has in deterring interstate trade. This is seen from the point of view of a Victorian purchaser who has a choice of purchasing a local Victorian product or an interstate product from New South Wales.
In other words, my argument here is that the High Court’s application of concepts of discrimination in Norman was too narrow. It focused on the impact of the law on interstate purchasers of New South Wales product, as compared with intrastate purchasers of New South Wales product, and found the Act did not discriminate between them. While that view was correct, this is not the only type of discrimination that arguably offends the section. Assume that a Victorian purchaser of barley could purchase from a local intrastate supplier, or from a New South Wales supplier, prior to the commencement of the legislation in Norman. Assume that as a result of the compulsory marketing scheme, the Victorian purchaser can buy from a local intrastate supplier, or from the New South Wales marketing board. The board’s prices are higher than the New South Wales farmer would have charged their customers. Surely, this makes it less likely that the Victorian purchaser will acquire the barley from the interstate supplier. In my view, this is ‘discriminatory’ in the context of the s 92 test, and ought, at least prima facie, to be prohibited. This is a broader view of discrimination than that applied by the High Court in Norman. It is argued that in order to give full effect to the intent and spirit of the section, the concept of discrimination must be applied broadly, taking into account not merely a comparison between how the law impacts an interstate purchaser compared with an intrastate one, but also how the law impacts on purchasing decisions of an interstate purchaser faced with options to purchase interstate or intrastate.
If we accept that such a provision can be discriminatory in effect, on the current law we must consider whether the law is protectionist. As the High Court itself seemed to concede in Norman,[74] such schemes can be seen as protectionist by protecting small producers from the price competition they would otherwise be subject to from larger producers, assuming the larger producers can produce the good more efficiently, taking on board economies of scale etc, as compared to smaller producers. Effectively, the legislation stops competition among suppliers on price. Surely, this protects less efficient producers at the expense of more efficient producers, contrary to the purpose of s 92, about which more is said below.
In conclusion, it is argued that on the existing law in relation to s 92, compulsory marketing schemes can be challenged as being discriminatory and protectionist. I will now turn to consider an alternative approach for assessing the validity of measures, when challenged under s 92. This alternative approach reflects the purpose of the section, and its pivotal role in the kind of federation envisaged by our founding fathers.
The extent to which the purpose of a section, such as can be gleaned from speeches during the convention debates or other material, is relevant in the current interpretation of the Constitution is a live issue in itself. Some scholars are clearly in the ‘originalist’ camp, others in the ‘living tree’ camp, with a host of provisions in-between. It is not necessary for the purposes of this article to dwell on that debate. It will be assumed, for the purposes of argument, that the intention of the founding fathers in relation to s 92 is important to a resolution of its meaning today. This assumption is made because in the current leading authority on s 92, Cole, the High Court relied significantly on the convention debates and the purpose of the section in seeking to give it meaning today,[75] and in seeking to make a new start on the interpretation of a section where there had been great complexity, uncertainty and change of position for a century. For the purposes of current argument then, this approach will be taken.
The father of Australian federation Henry Parkes repeatedly outlined his understanding of the importance of free trade in the debates of the 1890s. At the Australasian Federation Conference in 1890 he referred to an American case, Guy v Baltimore,[76] commenting that
The case seems to set at rest, in the most emphatic manner, what is sometimes disputed – the question of existence of entire freedom throughout the territory of the United States ... between any two of the States – indeed, from one end of the States to the other – the country is as free as the air in which the swallow flies. We cannot too fully bear in mind this doctrine of the great republic.[77]
In the following year, he moved four fundamental resolutions at the National Australasian Convention, one of which stated that freedom of trade and intercourse between the federated colonies shall be absolutely free. He explained his proposal:
I seek to define what seems to me an absolutely necessary condition of anything like perfect federation, that is, that Australia ... shall be free – free on the borders, free everywhere – in its trade and intercourse between its own people, that there shall be no impediment of any kind – that there shall be no barrier of any kind between one section of the Australian people and another, but, that the trade and the general communication of these people shall flow on from one end of the continent to the other, with no one to stay in its progress or to call it to account.[78]
The High Court picked up on these comments in its decision in Cole, concluding that the purpose of the section was to prevent laws which ‘prevent[ed] or obstruct[ed] the free movement of people, goods and communications across state boundaries’.[79]
The problem, to which other academics have alluded, is that the test that the High Court settled upon in Cole requiring both discrimination and protectionism in order that the law be held invalid due to s 92, does not completely reflect this purpose. Examples can be readily given of laws that offend the purpose of s 92 as espoused by the founding fathers and as espoused by the High Court in Cole, yet are not invalid if tests of discrimination and protectionism are applied. They include laws that, although disadvantaging interstate trade, do not protect or assist a local producer.[80] They include laws that the enacting body can demonstrate were passed for revenue-raising purposes, rather than protectionist purposes. These have been well developed elsewhere, and space restrictions here do not allow their full amplification. Most recently, two members of the High Court openly canvassed the possibility that the protectionism element may be discarded from the test.[81] There is also confusion as to how the protectionist requirement is to be established, whether it requires a focus on purpose or effect, or both,[82] and how protectionism relates to discrimination.[83] It is noteworthy that in relation to comparable jurisdictions which enshrine free trade as a fundamental principle, neither the United States[84] nor the European Union[85] requires protectionism to be shown in order to invalidate challenged laws based on free trade provisions.
The meaning of ‘protectionism’ here should perhaps be clarified. It is taken by the author to mean to protect an intrastate trader from interstate competition, in line with its expression in Cole.[86] It is essential to bear in mind that the relevant inquiry focuses on protection of intrastate trade over interstate trade, rather than a more generalised enquiry of protection that would include, for instance, measures that protected smaller traders from competition from larger traders. The passage in Norman which discusses protection in terms of protecting smaller traders from competition created by larger traders is apt to mislead, unless the context in which those statements is made is borne in mind. Earlier on the same page, the Court said that the laws protected smaller producers against large interstate purchasers. But the point is about protection of the intrastate as opposed to the interstate, not the small as opposed to the big.
Pragmatically, it would be easier to tackle the validity of a compulsory marketing scheme on the grounds of s 92 if the element of protectionism were removed, using the word ‘protectionism’ in the way defined here. This is because such schemes are often justified on the basis that they are needed to stabilise prices, provide producers with predictable income etc. It is thus harder for them to be said to be ‘protectionist’ in the sense required by the current s 92 test, even more so if a purpose rather than effect approach is taken to questions of protectionism. In short, they can be argued to have been enacted for reasons other than protectionism. As a result, while a finding of protectionism remains required in order to establish s 92 invalidity, such schemes are less likely to be found invalid, despite the fact they are clearly anathema to the kind of free trade nation anticipated by the founding fathers.
In my view, there is a strong argument that compulsory marketing schemes, involving the compulsory acquisition of all of a particular product, offend the purpose of s 92. If, as the High Court said in Cole, the purpose was to prohibit laws which prevented or obstructed free movement of goods across state lines, how can a law which, in effect, prohibits the interstate sale of goods be valid? It is difficult to think of a law that better fits the description of a law that ‘prevents or obstructs’ interstate trade, to use the High Court’s own words, than one which legally prohibits it, forcing the producer to sell to a marketing board.
This argument holds when the views of founding fathers on the purpose of the clause that would become s 92 are considered. Parkes J said there should be no impediment or barrier to interstate movement of goods, Isaacs J agreed that nothing barring freedom of entry would be permitted, Quick J said the section ensured free passage across the frontier, and Deakin J said the section removed obstacles to intercolonial trade. It is simply impossible to reconcile these statements with a law that bans a New South Wales producer from selling his/her product to a Victorian purchaser. Such a law clearly bars interstate movement of goods, stops passage across the frontier, and erects an obstacle to intercolonial trade. So, if the purpose of the section is determinative of the approach to the interpretation of s 92, as the High Court said it was in Cole, then whatever test is applied, it should not permit compulsory marketing schemes which effectively bar interstate trade. Yet, just such a scheme was validated in the post-Cole world by the High Court in Norman.
It is considered instructive to consider relevant United States case law pertaining to this issue. In the case of s 92 and the American case law, it has earlier been pointed out that the father of Australian federalism, Henry Parkes, made extensive reference to the American case law on the commerce clause in pointing out the objective that he considered would be served by a provision such as s 92.[87] In the first s 92 case considered by the High Court, Fox v Robbins,[88] four of the five presiding judges referred to American authorities in their resolution of the issue. All of them participated in the Convention Debates, including discussion of the clause that would become s 92. Five members of the High Court in Castlemaine Tooheys Ltd v South Australia stated that the Unites States case law was relevant in considering s 92 interpretation.[89] In Betfair Pty Ltd v Western Australia (‘Betfair’) the High Court explicitly endorsed the utility of United States commerce clause cases in considering the requirements of s 92,[90] devoting several pages of the judgment to their consideration. In other words, recourse to the American dormant commerce clause jurisprudence is considered justified in considering how s 92 should be interpreted. Members of the High Court have repeatedly said as much.
There is no express equivalent to s 92 in the United States Constitution. However, the United States Supreme Court has implied from the commerce power granted to Congress, a ‘dormant commerce clause’ which prohibits states from enacting certain measures in the commercial area. Specifically, the dormant commerce clause has been interpreted to constitutionally prohibit laws which discriminate either on their face or in effect against interstate commerce.[91] In addition, laws that do not discriminate against interstate trade may still be held invalid if the burden they place on commerce generally is disproportionate to the legitimate objective(s) of the legislation.[92]
In the United States, Congress has implemented measures with respect to the marketing of certain agricultural goods. This commenced in the 1930s at the time of the Great Depression,[93] and has continued since then. Concerns that such measures could violate anti-competitive laws have been obviated in some instances by specific exemptions from these laws in the case of agriculture,[94] perhaps recognising the particular difficulties faced by farmers in relation to the perishable nature of their product, wild fluctuations in market price, and high costs of transportation. Legislation was passed specifically encouraging the development of co-operatives in the agricultural sector.[95] The policy success or otherwise of such legislative responses is open to question.[96]
An example of Congress’ regulation of agriculture is the Federal Agriculture Improvement and Reform Act 1996 which seeks to impose a minimum price in relation to various classes of milk. It does so with the ostensible goal of providing some stability and certainty in terms of prices, in particular to assist producers.[97] Such an Act is valid pursuant to the commerce clause. Sometimes, states seek to implement similar schemes, and questions arise regarding their validity, given the dormant commerce clause. Resolution of the validity of such schemes is of particular relevance to Australia.
In Cloverland-Green Spring Dairies Inc v Pennsylvania Marketing Board,[98] the United States Court of Appeals for the Third Circuit considered a Pennsylvanian law which imposed minimum milk prices at the wholesale and retail level. These prices were higher than the federal minimum, and higher than in neighbouring states, which did not impose price controls. The legislature claimed that such measures were needed to guarantee producers ‘desirable profits’ and to ‘best protect the milk industry’ of that state. An out of state milk producer who sold their milk in their home state at prices substantially lower than the Pennsylvanian prices wished to supply into the Pennsylvanian market. They argued that the price guarantees effectively prevented them from doing so because their price advantage was wiped out by the laws of that state, limiting their ability to compete to factors other than price. They argued the minimum prices were higher than needed to keep reasonably efficient producers in business.
In reversing a decision rejecting a dormant commerce clause challenge to such measures, the Third Circuit held
A reasonable trier of fact could conclude that, by eliminating out-of-state dealers’ competitive advantage, the Commonwealth’s (Pennsylvania’s) minimum wholesale prices cause local goods to constitute a larger share, and goods with an out of state source to constitute a smaller share, of the total sales in the market.[99]
A law removing a competitive advantage enjoyed by interstate trade and commerce was considered in terms of the dormant commerce clause in Baldwin, Commissioner of Agriculture and Markets et al v Seelig.[100] Seelig was a New York milk dealer who had been purchasing milk supplies from Vermont, which were cheaper than what could be obtained from within New York state. About 70 per cent of the market for milk in New York was satisfied by local producers, the remaining 30 per cent sourced from interstate. The New York legislature introduced measures imposing a minimum price to be paid by dealers to producers. It sought to apply these measures to milk coming from interstate. This effectively removed the price advantage that had been enjoyed by purchasers of interstate milk such that there was no more incentive to purchase interstate milk, destroying the interstate trade. New York justified its measures on the basis that price stability was essential to keeping producers in business.
A unanimous Supreme Court declared the New York provisions unconstitutional pursuant to the commerce clause. The measures were designed to ‘suppress or mitigate’ the consequences of competition among the states. The whole point of the union was to end trade wars between states:
The Constitution was framed under the dominion of a political philosophy less parochial in range. It was framed upon the theory that the peoples of the several states must sink or swim together, and that in the long run prosperity and salvation are in union and not division.[101]
This case is particularly noteworthy in the context of a s 92 discussion. The High Court has specifically considered, in the post-Cole era, laws removing a competitive advantage that had been enjoyed by interstate trade and commerce. It specifically held that whilst such equalisation measures might be justified, it did not alter their character as offensive to the requirements of s 92.[102] Thus the American case law provides some examples of decisions where restrictive state marketing regimes in the agricultural sector have been invalidated, or their potential for invalidity noted, on the basis that they infringe the same principles upon which the Australian s 92 is based.
In its s 92 jurisprudence, the Courts have long recognised something of a ‘reasonable regulation’ exception.[103] This has continued in the post-Cole era, with members of the High Court specifically alluding to notions of disproportionality and identification of legitimate objectives in current s 92 analysis:
The fact that a law imposes a burden upon interstate trade and commerce that is not incidental or that is disproportionate to the attainment of the legitimate object of the law may show that the true purpose of the law is not to attain that object but to impose the impermissible burden.[104]
Given that above it has been argued that a purpose of protectionism ought not be required for s 92 invalidity, the above statement needs to be paraphrased, since it is referring to whether the law has an illegitimate purpose, as per the current law. In other words, if a law is otherwise offensive to s 92, because it is discriminatory against interstate trade and commerce on its face or in effect, it may be saved by evidence that there are legitimate reasons for the discrimination, and the discrimination involved is proportionate to the attainment of the government’s proven legitimate objective. On this basis, we can consider whether such schemes can be justified as proportionate measures to achieve a legitimate objective.
It is argued that such schemes improve the strength of the negotiating position of the seller. Rather than selling individually, where the individual farmer would be in economic terms a ‘price taker’, the promise of a collective marketing effort is that greater prices, and greater margins, will be achieved by the farmers acting collectively.[105] It is also argued that such schemes serve to stabilise prices for a particular commodity, to provide producers with more certain and predictable income. It might be argued to be a legitimate objective to seek to improve margins to producers and/or to stabilise the returns they receive.
On the other hand, economic studies have found that such schemes are distortionary, providing benefits to those producers whose goods are subject to the scheme, at the expense of consumers of those goods, and at the expense of competitor farmers in jurisdictions not subject to such a scheme.[106] Such schemes were found to reduce overall welfare.[107] The price of the goods to the consumer will, all other things being equal, rise.[108]
Indeed, some scholars have discussed the notion of ‘regulatory capture’.This is the idea that, while we used to think that regulation was a method of advancing public interest over private benefit, often regulation is in fact a method of subsidising private interests, at the expense of the public good.[109] Talking about compulsory marketing schemes, Wiley states that
Government market intervention is therefore very often an anticonsumer effort to enlarge producers’ share of social wealth. Compounding its anticonsumer redistributive character is the deadweight loss such market regulation usually creates; the high prices that follow from restricted output reduce both the absolute size of the economic pie and the relative size of the consumers’ slice. In static terms, in short, such regulation tends to impose a cost on society as a whole in order to shift wealth from consumers to producers. And perhaps of the greatest long-run significance, such producer restraints reduce the rate of economic growth by slowing the speed with which the economy both adopts new technologies and reallocates resources in response to changing conditions.[110]
The Hilmer Report, to be discussed briefly below, also casts doubt on the efficiency of compulsory marketing schemes in the agricultural sector in achieving their desired policy goals. Recently, the Competition and Policy Review released its Draft Report in September 2014. Noting the removal of price and supply restrictions in the agricultural sector in the 1990s, it concluded that ‘governments should resist calls for past reforms to be unwound’.[111]
In the result, even if an increased return to the producer and/or price stability of a product are legitimate objectives, and it is accepted that laws otherwise offensive to s 92 might be justified on the basis of their pursuit of a legitimate objective in a proportionate manner, it is not entirely clear that compulsory marketing schemes, in their distortionary impacts, lowering of overall welfare, inhibition of needed technological and other change and shielding of producers from the rigours of competition are proportionate means of achieving such an objective. As indicated above, the answer may differ according to whether the compulsory marketing scheme is implemented at state, rather than federal level, because in the latter case the negative effects would be largely imposed on non-Australian consumers.[112]
Intuitively, given the purpose of s 92 to overcome barriers to trade within the nation, it might be thought that principles of anti-competition law might have some relevance to the interpretation of the section. They reflect similar sentiment, that as a general rule the public interest and the advancement of the nation are best served by open competition among providers, regardless of where in Australia they happen to be located, rather than the erection of border fences with the purpose and/or effect of reducing competition.
In recent times, justices of the High Court have in s 92 cases referred to these broad competition law principles. Examples include reference in the joint reasons in Betfair Pty Ltd v Western Australia to the National Competition Policy of the mid-1990s as part of the ‘Australian legal and economic milieu in which s 92 operates’.[113] In Betfair Pty Ltd v Racing NSW Kiefel J appeared to flag the possibility that principles such as ‘substantial lessening of competition’, a concept central to Part IV of the Competition and Consumer Act 2010 (Cth), might be useful in assessing schemes or laws challenged pursuant to s 92.[114]
To the extent that competition principles are relevant to the assessment of validity of provisions under s 92, aspects of the Hilmer Report are considered highly relevant:
Monopolies over the marketing of agricultural products have their origins in economic and institutional circumstances of several decades ago. Governments have created quasi-monopoly marketing rights in a number of agricultural boards, sometimes accompanied by a power of compulsory acquisition of crops, control over pricing, and/or production quotas. The rationales for domestic monopoly arrangements of this kind have varied over time, including increasing returns to farmers, stabilising prices or providing farmers with countervailing market power vis-à-vis buyers ... providing rural producers with countervailing market power will only rarely be justified on efficiency grounds, and the dangers of quarantining prices from market forces have recently been illustrated by the wool industry. Providing income support to producers can generally be achieved at lower cost to the community by other means.[115]
Generally under competition law,[116] provisions requiring that all producers of a good within a particular jurisdiction sell to a marketing board, and to no other, would be contrary to s45 of the Competition and Consumer Act 2010 (Cth), prohibiting a corporation from making a contract or arrangement, or arriving at an understanding, with the effect of substantially lessening competition. Part IV of the Act, in which s45 is situated, applies to the Crown in right of a state or territory, to the extent that it is carrying on a business.[117] This application is important given that, historically, many of these boards were established by government. Clearly, a government board that acquires goods from a producer, and then markets them to buyers, is carrying on a business.
In sum, to the extent that competition principles are relevant to s 92 analysis, concededly a point subject to debate, they tend to suggest that compulsory marketing schemes should be struck down under s 92 given their anti-competitive effects.
This article has noted past High Court precedent, recognising the potential for compulsory marketing schemes to breach the principles underlying s 92 of the Constitution. However, with the new start to interpretation of the section in 1988 and the adoption of the discriminatory protectionism test, it now seems less likely that such schemes will be found to offend the section, as evidenced by the High Court decision in Norman. It has been argued here that, even if the current approach is maintained, there are strong arguments that such compulsory marketing schemes are discriminatory against interstate trade and do effect, and may be intended to effect, protectionism.
Secondly, it has taken on board arguments by others that the Cole two-stage test should not be followed given its incompatibility with the purpose of the section, and particularly that the requirement to demonstrate protectionism be removed. The paper has agreed with those suggestions; pragmatically, if the need to demonstrate protectionism to successfully challenge a law under s 92 was removed, it would be easier to have a compulsory marketing scheme invalidated under s 92. The paper has referred to United States case law on the equivalent provision to s 92 where the Court accepted arguments about the impact of such schemes on interstate commerce.
The paper has considered whether, if such schemes are potentially in breach of s 92, they might be justified by the relevant government as reasonably proportional measures in pursuit of a legitimate objective of price stability or certainty for producers. Even if these are legitimate objectives, and such an ‘exception’ should exist, there is reason to doubt whether these measures are proportionate ways of achieving such objectives. This is due to their distortionary effect on the market, transfer of welfare from consumers to producers, inhibition on needed business reform etc, as recognised by economists, particularly when their negative impact on competition is widely known, and which would likely result in such arrangements being found to be contrary to the Australian competition legislation, were they to be tested in this manner. There appears to be a growing acceptance on the court that economic concepts, including competition concepts, are relevant to an assessment of the requirements of s 92.
[∗] B Bus (Acc) LLB (Hons) Grad Dip Leg Prac LLM PhD, Professor of Constitutional Law, University of Southern Queensland. Thanks to the anonymous referees for helpful comments on an earlier draft, and to the Editors for their diligence and professionalism.
[1] Examples of legislation include the Marketing of Primary Products Act 1945 (Tas), Primary Producers’ Organisation and Marketing Act 1926 (Qld), Marketing of Primary Products Act 1983 (NSW), Marketing of Primary Products Act 1958 (Vic), Marketing of Eggs Act 1941 (SA) as well as various legislation at issue in the case law I describe in the first part of the paper. At the federal level, the Wheat Industry Stabilisation Act 1968 (Cth).
[2] A table of key developments appears in Emily Gray, Max Oss-Emer and Yu Sheng, ‘Australian Agricultural Productivity Growth: Past Reforms and Future Opportunities’ (Research Report, Australian Bureau of Agricultural and Resource Sciences, 2014) 15.
[3] Eg Marketing of Potatoes Act 1946 (WA) s 22, Rice Marketing Act 1983 (NSW) s 56.
[4] Gray, Oss-Emer and Sheng, above n 2, 2.
[5] Commonwealth of Australia, Agricultural Competitiveness Green Paper (October 2014), xxi and xxii, 31–32
<http://www.agriculturalcompetitiveness.dpmc.gov.au/sites/default/files/green_paper.pdf> .
[6] Ibid xxii, 26.
[7] Australia and New Zealand Banking Group Limited, ‘Greener Pastures: The Global Soft Commodity Opportunity for Australia and New Zealand’ (Issue 4, 2012).
[8] Commonwealth of Australia, above n 5, xiii.
[9] ABC, ‘Senator Joyce Backs Single Desk for Wheat Exports’, Lateline Business, 21 May 2007 (Ali Moore and Barnaby Joyce) <http://www.abc.net.au/lateline/business/items/200705/S1929204.htm> .
[10] The Agricultural Competitiveness Green Paper openly canvasses the desirability of ‘facilitating a national brand’ in agriculture: Commonwealth of Australia, above n 5, xxxvi, 32.
[11] For example, sometimes past reviews have recommended retention of a ‘single desk’ approach at national level, but its removal at state level, effectively because the negative consequences at national level were felt by non-Australians, and the positive consequences felt by the Australian producer. However, at state level Australian consumers would largely bear the brunt of the scheme, which would operate to the advantage of local producers. New South Wales, Review of Legislation establishing the NSW Rice Marketing Board, Final Report (1995) 19, 21: The Report concluded that ‘providing the Rice Board with the ability to derive above normal returns from domestic consumers goes beyond the powers required to offset potentially anti-competitive activities of wholesalers’, but that at the national level, the ‘ability to obtain above normal returns from export markets (might) offset the efficiency costs associated with the arrangement’.
[12] Betfair Pty Ltd v Racing New South Wales [2012] HCA 12, [116]–[122] (Kiefel J).
[13] Cole v Whitfield [1988] HCA 18; (1988) 165 CLR 360 (‘Cole’).
[14] ‘Right from the beginning, compulsory acquisition troubled the court more than any other question arising under s 92’: Michael Coper, Freedom of Interstate Trade under the Australian Constitution (Butterworths, 1983) 82.
[15] Barley Marketing Board for the State of New South Wales v Norman [1990] HCA 50; (1990) 171 CLR 182(‘Norman’).
[16] Cole [1988] HCA 18; (1988) 165 CLR 360.
[17] Betfair Pty Ltd v Western Australia [2008] HCA 11; (2008) 234 CLR 418, 451 (Gleeson CJ, Gummow, Kirby, Hayne, Crennan and Kiefel JJ): ‘it would be an error to read what was decided in Cole v Whitfield as a complete break with all that had been said in this Court respecting the place of s 92 in the scheme of the Constitution’.
[18] [1915] HCA 17; (1915) 20 CLR 54.
[19] Ibid 80.
[20] Ibid 99: ‘all wheat in New South Wales territory is treated alike, no differentiation arising by reason of inter-state trade’.
[21] Ibid 105.
[22] Foggitt, Jones and Company Limited v State of New South Wales [1916] HCA 28; (1916) 21 CLR 357 (‘Foggitt’).
[23] Ibid 361.
[24] Ibid 363 (Barton J).
[25] Ibid 365.
[26] Ibid 364. Rich J expressed general agreement with Griffith CJ, Barton and Isaacs JJ. Gavan Duffy J doubted the outcome but did not expressly decide either way.
[27] Duncan v State of Queensland (1916) 22 CLR 556 (‘Duncan’).
[28] Higgins and Powers JJ did not sit in Foggitt.
[29] Duncan (1916) 22 CLR 556, 582. This case was heard five months after Foggitt. The other judge that had invalidated the law in Foggitt but validated the (virtually identical) one in Duncan, Rich J, did not attempt to reconcile the cases and did not expressly overrule Foggitt.
[30] Ibid 631.
[31] Ibid 641; see also 648 (Powers J).
[32] Ibid 636.
[33] [1932] UKPCHCA 2; (1932) 47 CLR 386, 396–7.
[34] James v Commonwealth [1936] HCA 32; (1936) 55 CLR 1, 61: as a partial prohibition on interstate trade; the Court also frowned on a licensing requirement.
[35] Peanut Board v Rockhampton Harbour Board [1933] HCA 11; (1933) 48 CLR 266 (‘Peanut Board’).
[36] Ibid 277.
[37] Ibid 288; the Act is ‘entirely restrictive of any freedom of action on the part of the producers’ (Starke J, 285), a direct restriction, regulation, fetter or control over interstate trade and commerce (McTiernan J, 308). Evatt J dissented, finding no evidence of any intention to prohibit, prevent or limit interstate trade (301).
[38] There was the difference that while in Peanut Board the compulsory acquirer was the state in which the producers resided, in Metropolitan Cream it was the state to which the goods had been supplied (a different state than where the supplier resided).
[39] Milk Board (New South Wales) v Metropolitan Cream Pty Ltd [1939] HCA 28; (1939) 62 CLR 116 (‘Metropolitan Cream’). The decision is apparently also contradicted by dicta comments in Crothers v Shiel [1933] HCA 42; (1933) 49 CLR 399. There the case involved New South Wales milk legislation providing for the compulsory supply of all milk in the metropolitan market to the board, rather than directly by the seller. Section 92 was not relevant on the actual facts, because the supplier charged was in New South Wales. However, in dicta, 409–410 (Rich J, with whom Dixon and McTiernan JJ agreed): ‘even if an actual transaction of interstate commerce is found to be impeded by the Milk Act so that the freedom of interstate trade is impaired s 92 will prevail over the Milk Act’, suggesting that if the milk had been from another state, he may have found the Act in breach of s 92.
[40] Metropolitan Cream [1939] HCA 28; (1939) 62 CLR 116, 132.
[41] Peanut Board v Rockhampton Harbour Board [1933] HCA 11; (1933) 48 CLR 266 (‘Peanut Board’).
[42] Metropolitan Cream [1939] HCA 28; (1939) 62 CLR 116, 141.
[43] Ibid 150.
[44] Ibid 152; he was consistent in R v Vizzard; Ex parte Hill [1933] HCA 62; (1933) 50 CLR 30, 94 that s 92 does not confer ‘a right to ignore state ... marketing regulations, and to choose how, when and where each of them will transport and market the commodities’.
[45] Ibid 158.
[46] Another 1970s case on point is Cantarella v Egg Marketing Board for the State of New South Wales [1972] HCA 16; (1972) 124 CLR 605, where the High Court validated (3-2) state regulations prohibiting the sale or offer of sale of any eggs transported for a distance of more than 300 miles in New South Wales unless graded by a government marketing board. Evidence of (now discredited) criterion of operation reasoning is evident in at least one of the majority judgments (Walsh J): ‘the circumstance that they have been carried on an interstate journey is not the circumstance selected by the law as that which brings it into operation’ at 619.The other majority justices, Windeyer and Owen JJ, validated the law on the basis it was regulatory in character.
[48] Ibid 602.
[49] Ibid 588–9: ‘the legislative provisions directly produce the result that a trader may not lawfully sell within the state a commodity of commerce, except on terms dictated by or on behalf of the state. The fact that these provisions put an end to the trade of the trader cannot be regarded as an ‘economic’ and thus irrelevant consequence of the legislation. It is plainly and fairly within its operations’.
[50] Ibid 579.
[51] Ibid 584.
[52] Ibid 600.
[53] Ibid 616. Mason J said the above before clarifying that it would need to appear that the scheme was the only practical and reasonable manner of regulation, given what the Privy Council had stated in Commonwealth v New South Wales [1949] HCA 47; (1949) 79 CLR 497, 640–1.
[54] Ibid 614.
[55] Ibid.
[56] Ibid.
[57] Ibid 633.
[58] Clark King and Co Pty Limited v Australian Wheat Board [1978] HCA 34; (1978) 140 CLR 120 (‘Clark King’).
[59] Commonwealth v New South Wales [1949] HCA 47; (1949) 79 CLR 497 (‘Banking Case’).
[60] Clark King [1978] HCA 34; (1978) 140 CLR 120, 191.
[61] Ibid 194.
[62] Ibid 157.
[63] Ibid 173.
[64] Cole [1988] HCA 18; (1988) 165 CLR 360.
[65] Ibid 391 (Mason CJ, Wilson, Brennan, Deane, Dawson, Toohey and Gaudron JJ).
[66] Ibid 400–1.
[67] Norman [1990] HCA 50; (1990) 171 CLR 182.
[68] Ibid 202.
[69] Ibid.
[70] Ibid 204.
[71] Cole [1988] HCA 18; (1988) 165 CLR 360, 399.
[72] At some points in Cole, the Court refers to purpose: ‘a law which has as its real object the prescription of a standard for a product or a service or a norm of commercial conduct will not ordinarily be grounded in protectionism and will not be prohibited by s02’ (see 408). However, the court then seems to contradict itself, suggesting that it is the effect of the measure that should be considered (see 408). In Castlemaine Tooheys v South Australia, the joint judgment refers to whether the ‘object and effect’ of the challenged legislation is discriminatory in a protectionist way. However it does not make it clear whether these are separate or joint enquiries: (1990) 169 CLR 436, 474 (Mason CJ, Brennan, Deane, Dawson and Toohey JJ); statements in Norman suggest purpose is the relevant criterion: Norman [1990] HCA 50; (1990) 171 CLR 182, 204 (Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ); leading s 92 commentator Gonzalo Villalta Puig suggests that the effect of the legislation must be the relevant factor: ‘the reality is that it is only the effect of the law or measure that can be empirically quantified. Unlike purpose, effect is not measured in words but in actions. Effect is palpable and intangible. Purpose is not’: Gonzalo Villalta Puig, ‘A European Saving Test for Section 92 of the Australian Constitution’ [2008] DeakinLawRw 4; (2008) 13(1) Deakin Law Review 99, 119; Amelia Simpson agrees the High Court’s case law on point is ‘internally contradictory’: Amelia Simpson, ‘Grounding the High Court’s Modern Section 92 Jurisprudence: The Case for Improper Purpose as the Touchstone’ (2005) 33 Federal Law Review 445, 455.
[73] The United States has long applied a discrimination test to its dormant commerce clause (the equivalent of s 92) jurisprudence: Guy v Baltimore, [1879] USSC 63; 100 US 434 (1880); Welton v Missouri, [1875] USSC 187; 91 US 275 (1875); lest it be argued these cases are not relevant to Australian constitutional law, the High Court in Betfair Pty Ltd v Western Australia [2008] HCA 11; (2008) 234 CLR 418, 461 specifically noted the utility of late 19th century United States case law in considering the interpretation to be given to s 92; see also Article 34 of the Treaty on the Functioning of the European Union, where a discrimination approach was originally applied, only for a broader approach to be taken.
[74] Norman [1990] HCA 50; (1990) 171 CLR 182, 202: referring to the defendants’ argument that the law was protectionist by protecting small producers in giving them the benefit of the marketing authority’s increased bargaining power against interstate purchasers, the High Court said ‘this “protectionism” in favour of growers ... is not accompanied by any element of discrimination’ (Mason CJ, Brennan, Deane, Dawson, Toohey, Gaudron and McHugh JJ).
[75] Cole [1988] HCA 18; (1988) 165 CLR 360, 366–91.
[76] [1879] USSC 63; 100 US 434 (1879).
[77] Official Record of the Proceedings and Debates of the Australasian Federation Conference, Melbourne, 10 February 1890, 46 (Henry Parkes).
[78] Official Report of the National Australasian Convention Debates, Sydney, 2 March 1891–9 April 1891, 24–25 (Henry Parkes). This understanding is mirrored in the statements of other founding fathers: ‘we shall have nothing that bars freedom of entry into any state of goods from any other state’: Official Record of the Debates of the Australasian Federal Convention, First Session, Adelaide, 22 March 1897 – 5 May 1897, 1142–4 (Sir Isaac Isaacs). ‘What (we) want to secure is free passage across the frontier ... freedom from all preferences or obstructions’: Official Record of the Debates of the Australasian Federal Convention, Third Session, Melbourne 20 January 1898 – 17 March 1898, Vol 2, 1017 (John Quick); Deakin stated the section was designed to remove ‘everything in the nature of an obstruction placed in the way of intercolonial trade’: Official Record of the Debates of the Australasian Federal Convention, Third Session, Melbourne, 20 January 1898 – 17 March 1898, 2373 (Deakin).
[79] [1988] HCA 18; (1988) 165 CLR 360, 391 (Mason CJ, Wilson, Brennan, Deane, Dawson, Toohey and Gaudron JJ).
[80] Christopher Staker, ‘Section 92 of the Constitution and the European Court of Justice’ (1990) 19 Federal Law Review 322, 343; Susan Kiefel, ‘Section 92: Markets, Protectionism and Proportionality – Australian and European Perspectives’ [2010] MonashULawRw 15; (2010) 36(2) Monash University Law Review 1, 9; and Gonzalo Villalta-Puig, The High Court of Australia and Section 92 of the Australian Constitution (Lawbook Co, 2008) 134.
[81] Betfair v Racing New South Wales [2012] HCA 12; (2012) 249 CLR 217, 274 (Heydon J), 292 (Kiefel J).
[82] Simpson, above n 68, 462: in favour of focusing on purpose; as is David Sonter, ‘Intention or Effect? Commonwealth and State Legislation After Cole v Whitfield’ (1995) 69 Australian Law Journal 332, 336; Staker reads the cases as requiring the impugned law have protectionist ‘effect’: Christopher Staker, ‘Section 92 of the Constitution and the European Court of Justice’ (1990) 19 Federal Law Review 322, 340; Puig, above n 68, 118–24 : is critical of the purpose approach: ‘the reality is that it is only the effect of the law or measure that can be empirically quantified. Unlike purpose, effect is not measured in words but in actions. Effect is palpable and tangible. Purpose is not’.
[83] The author’s understanding is that discrimination and protectionism are separate, though related concepts. This reading is supported by cases such as Norman [1990] HCA 50; (1990) 171 CLR 182, 202 where the Court found that the scheme had an element of protectionism, but was not relevantly discriminatory. However, compare the view of Kiefel J in Betfair Pty Ltd v Racing New South Wales [2012] HCA 12; (2012) 249 CLR 217, 288 that protectionism in s 92 ‘necessarily implies discrimination’, with her view in Betfair Pty Ltd v Racing New South Wales [2012] HCA 12; (2012) 249 CLR 217, 288: ‘not all discriminatory measures will have a protectionist effect’ (Kiefel J)
[84] ‘We need not ascribe an economic protection motive to the North Carolina legislature to resolve this case’: Hunt, Governor of North Carolina et al v Washington State Apple Advertising Corporation [1977] USSC 124; 432 US 333, 352 (Burger CJ for the Court, except Rehnquist J who did not take part).
[85] The European Court applies a ‘hinder’ test to laws challenged on free trade grounds ie whether the challenged measure actually or potentially hinders, directly or indirectly intra-union trade: Procereur du Roi v Dassonville (C-8/74) [1974] EUECJ R-8/74; [1974] ECR 837, [5] (European Court of Justice). It is not essential to show that local trade is advantaged by the challenged provisions in order to have the measure declared invalid: Co-operative Co-Fruitta Sri v Amministrazions delle Finanze della Stato (C-193/85) [1987] ECR 2085 (provision held invalid although the enacting state produced only a negligible quantity of the good taxed); Jukka Snell, ‘Non-Discriminatory Tax Obstacles in Community Law’ (2007) 56 International and Comparative Law Quarterly 339, 341.
[86] Cole [1988] HCA 18; (1988) 165 CLR 360, 394 where the unanimous High Court found the object of s 92 was the prohibition of measures which ‘have the effect of conferring protection on intrastate trade and commerce of the same kind’.It is essential to bear in mind that the relevant inquiry focuses on protection of intrastate trade over interstate trade, rather than a more generalised enquiry of protection that would include, for instance, measures that protected smaller traders from competition from larger traders. The passage in Norman which discusses protection in terms of protecting smaller traders from competition created by larger traders is apt to mislead, unless the context in which those statements is made is borne in mind: Norman [1990] HCA 50; (1990) 171 CLR 182, 202. Earlier on the same page, the Court said that the laws protected smaller producers against large interstate purchasers. But the point is about protection of the intrastate as opposed to the interstate, not the small as opposed to the big.
[87] Official Record of the Proceedings and Debates of the Australasian Federation Conference, Melbourne, 10 February 1890, 46 (Henry Parkes).
[88] [1909] HCA 81; (1909) 8 CLR 115, 120 (Griffith CJ), 122–3 (Barton J), 126 (O’Connor J).
[89] (1990) 169 CLR 436, 468–70 (Mason CJ, Brennan, Deane, Dawson and Toohey JJ).
[90] Betfair Pty Ltd v Western Australia [2008] HCA 11; (2008) 234 CLR 418, 459-465 (Gleeson CJ, Gummow, Kirby, Hayne, Crennan and Kiefel JJ); in so doing the Court noted the apparent marginalisation of the United States case law by the High Court in Norman [1990] HCA 50; (1990) 171 CLR 182, 203-204, apparently disagreeing with it (461).
[91] Hughes v Oklahoma, [1979] USSC 74; 441 US 322, 337 (1979).
[92] Pike v Bruce Church Inc, [1878] USSC 47; 397 US 137, 142 (1970).
[93] Agricultural Adjustment Act 1933.
[94] For example, s6 of the Clayton Act exempted from the provisions of the Act agricultural co-operatives, provided they did not take the form of a company
[95] The Capper-Volstead Act (7 USC 1982) lifted these restrictions on company formation in the agricultural industry. It allows farmers to set prices jointly through a co-operative, in ways that would otherwise be an illegal restraint of trade under s1 of the Sherman Act. However, only producers and farmers can be members of the co-operative, in order to retain its immunity from anti-competition laws. It also allowed the Secretary of Agriculture to initiate action against a co-operative where it had acted to monopolise trade such as to ‘unduly enhance’ prices: see for discussion Amber Brady, ‘Post-Smithfield and Hazeltine: An Evaluation of the Capper-Volsted Act as an Alternative Means of Marketing Power for Producers’ (2005) 10 Drake Journal of Agricultural Law 331. A similar exemption from New Zealand anti-competition law was granted to Fonterra, formed from the merger of that country’s two biggest dairy companies. Fonterra is owned by 13 000 New Zealand dairy farmers, and was originally granted ‘single desk’ export rights into particular markets. It represents about 95 per cent of New Zealand dairy farmers, and generates 20 per cent of that country’s export receipts: Anna Kingsbury, ‘Should United States Antitrust Law be Applied to State Trading Enterprises in Agricultural Trade?’ (2004) 9 Drake Journal of Agricultural Law 185, 204–5.
[96] David Domina and Robert Taylor, ‘The Debilitating Effects of Concentration Markets Affecting Agriculture’ (2010) 15 Drake Journal of Agricultural Law 61: The authors are highly critical of the increased concentration of marketing of agricultural products in America, claiming that the result has been declining returns and profitability of farmers, increase in price to the consumers, withthe benefit going to the ‘middle man’.‘[W]here markets are unconcentrated with many buyers and sellers, there is a strong tendency for efficient, workable and fair methods to develop as a result of the interaction of many participants all seeking a neutral and open market place’: American Antitrust Institute, ‘The Next Antitrust Agenda: The American Antitrust Institute’s Transition Report on Competition Policy to the 44th President of the United States’ (2008) 282.
[97] Hillside Dairy Inc et al v William J Lyons et al[2003] USSC 4145; , 539 US 39 (2003).
[98] [2002] USCA3 161; 298 F 3d 201 (3rd Cir, 2002).
[99] Cloverland-Green Spring Dairies Inc v Pennsylvania Milk Marketing Board, [2002] USCA3 161; 298 F 3d 201, 214 (2002). Subsequently, the Court found that Cloverland failed in its action for evidentiary reasons: it could not show on the facts that the law actually nullified a competitive advantage it enjoyed: Cloverland-Green Spring Dairies Inc v Pennsylvania Milk Marketing Board, [2006] USCA3 182; 462 F 3d 249 (2006). Sometimes, Congress makes it clear that state laws that would otherwise be challengeable under the dormant commerce clause are immune from challenge due to evidence that Congress intended they should continue to operate: Shamrock Farms Company v Ann Veneman, [1998] USCA9 1579; 146 F 3d 1177 (9th Cir, 1998).
[100] [1935] USSC 53; 294 US 511 (1935). This case was specifically referred to by the High Court as being useful in considering the interpretation of s 92 in Betfair Pty Ltd v Western Australia [2008] HCA 11; (2008) 234 CLR 418, 460–1 (Gleeson CJ, Gummow, Kirby, Hayne, Crennan and Kiefel JJ), and in Castlemaine Tooheys Ltd v South Australia (1990) 169 CLR 436, 470 (Mason, Brennan, Deane, Dawson and Toohey JJ).
[101] Baldwin, Commissioner of Agriculture and Markets et al v Seelig[1935] USSC 53; , 294 US 511, 523 (Cardozo J, for the Court) (1935).
[102] Bath v Alston Holdings Pty Ltd (1988) 165 CLR 411, 427 (Mason CJ, Brennan, Deane and Gaudron JJ).
[103] Commonwealth v Bank of New South Wales [1949] HCA 47; (1949) 79 CLR 497, 639: ‘regulation of trade commerce and intercourse among the states is compatible with its absolute freedom’.
[104] Castlemaine Tooheys Ltd v South Australia (1990) 169 CLR 436, 472 (Mason CJ, Brennan, Deane, Dawson and Toohey JJ).
[105] Basil Coley, ‘Economic Factors Associated With the Growth and Development of Agricultural Cooperatives’ (2000) 10 San Joaquin Agricultural Law Review 7, 15–16.
[106] New South Wales, above n 11, 17; Gray, Oss-Emer and Sheng, above n 2, 11–14.
[107] Steve McCorriston and Donald MacLaren, ‘Single Desk State Trading Exporters’ (2005) 21 European Journal of Political Economy 503, 522.
[108] David Baumer, Robert Masson and Robin Masson, ‘Curdling the Competition: An Economic and Legal Analysis of the Antitrust Exemption for Agriculture’ (1986) 31 Villanova Law Review 183, 198; David Domina and Robert Taylor, ‘The Debilitating Effects of Concentration Markets Affecting Agriculture’ (2010) 15 Drake Journal of Agricultural Law 61, 65: ‘food prices are up, not down, and the American food consumer is hurt, not helped by concentrations among processors of raw agricultural products for human consumption’.
[109] John Shepard Wiley, ‘A Capture Theory of Antitrust Federalism’ (1986) 99 Harvard Law Review 713, 723.
[110] Ibid 725–6.
[111] Commonweatlh of Australia, Competition Policy Review Draft Report (September 2014), 114 <http://www.competititionpolicyreview.gov.au/files/2014/09/Competition-policy-review-draft-report.pdf> .
[112] New South Wales, above n 11, 19–21: which recommended retention of ‘single desk’ arrangements at the export level, but not at the domestic level, in its review of agricultural marketing schemes in light of the Hilmer Report, primarily because of where the negative consequences of the scheme would be borne. The Hilmer Report had noted that legislative schemes which impacted on competition, such as agricultural marketing schemes, should be reviewed due to their impact on competition, and their continued existence would need to be clearly justified on public interest grounds.
[113] [2008] HCA 11; (2008) 234 CLR 418, 452 (Gleeson CJ, Gummow, Kirby, Hayne, Crennan and Kiefel JJ).
[114] (2012) 239 CLR 217, 292–3.
[115] Frederick G Hilmer, Mark Rayner and Geoffrey Taperell, ‘National Competition Policy Review’ (Report, 1993) 194–5. The Competition Policy Reform Act 1995 (Cth) and Competition Principles agreement did not explicitly deal with agricultural marketing, but did call for a general legislative review under which legislation interfering with competition was presumed to be inefficient and undesirable, unless justifiable on public interest grounds: John Quiggin, ‘The Hilmer Reforms and NSW Agriculture’ (Report, James Cook University, 24 June 1997) 20; the Competition Policy Review Draft Report (2014) stated that government should ignore calls to reintroduce price or supply restrictions in agriculture.
[116] Obviously, this is subject to an authorisation of the activity by the Commission pursuant to s88 of the Competition and Consumer Act 2010 (Cth). At least in relation to joint ventures, the Commission has heard arguments that collective action is needed to maximise public benefit: Macadamia Co and Suncoast Gold Pty Ltd [1991] ATPR (Com) 50–109. Refer for discussion to Stephen Corones, Competition Law in Australia (Lawbook Co, 4th ed, 2007) 316–17.
[117] Competition and Consumer Act 2010 (Cth) s 2B; Lynden Griggs, ‘The Dismantling of Crown Immunity – The Hilmer Reforms Completed’ (2004) 12 Competition and Consumer Law Journal 224; Nick Seddon, ‘Holes in Hilmer Revisited: Government Exemption from Australian Competition and Consumer Law’ (2012) 20 Australian Journal of Competition and Consumer Law 239.
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