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									and allocation of orders : in certain cases there is price protection instead of
delivery time protection for the allottee.
   151. We asked the C.M.A. whether it had informed the purchasers of the
existence of the arrangements. It stated that " details have not been officially
communicated to customers, although it is believed that customers are aware
that there are working arrangements among telephone cable manufacturers."
Indeed, the system appears essentially to depend on non-disclosure to the
purchaser and we note that in the past it has been a fairly general practice to
refer to government departments by code names. We approached some of
the larger purchasers concerned and none of them were aware of the
existence of the arrangements although the G.P.O. suspected that there was
some arrangement between the makers tendering for one particular order.
However, at the end of January, 1952, we were assured by the C.M.A. that,
in accordance with its present policy " to leave the customer free to select
rather than to allocate ", it proposed to discontinue the allocation of orders,
whether by price or delivery, under all these agreements, except with the
consent of the customer.
                               Submarine Cable
   152. Submarine telephone cable is made by only three makers and sub-
marine telegraph cable by only one. Since 1935 most submarine cable,
including all submarine telegraph cable, has been made by Submarine Cables
Ltd.—a company which was formed in 1935 when two C.M.A. members
merged their interests in this special type of cable. Submarine Cables Ltd.
is wholly owned by these two C.M.A. members, though not itself a member
of that association.
   153. More than half of the output of Submarine Cables Ltd. is taken by
Cable and Wireless Ltd. Considerable quantities are also supplied from time
to time to the G.P.O. and the Admiralty, and the company has maintained a
substantial export trade. Before the war the price of the cable supplied to
Cable and Wireless Ltd. was determined according to an agreed formula
which allowed for variations in the cost of materials and of labour. Purchases
of Cable and Wireless Ltd. have been much, heavier since the end of the war
and have been provisionally based on the same formula, though the price may
be varied as the result of an extensive cost investigation made by G.P.O.
accountants. Cable and Wireless Ltd. is shortly to review its buying
arrangements.

               CHAPTER 9 : COVERED CONDUCTORS
   154. Covered conductors are invariably incorporated as components in
other goods. Before the war there was some retail sale, largely to radio
enthusiasts making their own radio sets, but any retail sale that remains is
negligible. We have already mentioned the great range of size among covered
conductors and that virtually every piece of electrical machinery and apparatus
contains covered conductors. Sections of this part of the industry are subject
to rapid technical developments and the electrical and radio industries are
constantly changing their demands.
   155. Unfortunately the statistics we have collected do not enable us to
estimate the total home sales of covered conductors nor the proportion of the
total which is sold by C.C.A. members. The C.C.A. tells us that its members
probably make at least 75 per cent, of all the covered conductors produced in
this country.
                                      44
                    Tlie Coyered Conductors Association
    156. The C.C.A., whose early history is described in paras. 49 to 51
(Chapter 4), now has twelve members, one of whom joined on 1st January.
1950: there is also a " collaborator ", i.e. a company working under an agree-
ment with the C.C.A. The membership and the current agreement Me given
in Appendix 5. The seven founder members of the C.C.A. were members
of the CM.A., as are six of the present members. We are told that the C.C.A.
has no connection with the C.M.A. or with any of the associations affiliated to
the C.M.A. in spite of the common membership of some companies, and the
C.C.A. asked to be separately represented before us. Nevertheless the agree-
ments of the associations have much in common and are indeed often identical
in wording.
    157. The C.C.A., like the C.M.A., was reorganised in 1948, the new agree-
ment being based on proposals made by B.I.C.C. The 1936 agreement pro-
vided that the association's object was to control and regulate business in
covered conductors, and the association claims that during the currency of
this agreement the members became more aware of the need for technical
as well as commercial co-operation. The objects of the association under its
present agreement, for the period 1948-57, are identical (except for the goods
controlled) with those of the M.C.M.A., and the association business is
conducted on similar lines. Important resolutions now require a quantum
vote of 80 or 90 per cent, compared with 75 per cent, under the old agreement.
Commercial functions and determination of policy" are left in the hands of the
association,, but two separate sections, one for enamelled wire and the other
for textile covered wire, were' established to deal with technical questions
and problems affecting production. Although the association had laid down
standards of quality before 1948, the 1948 agreement was the first agreement
to include provisions on this subject.
    158. The present agreement provides that any member may propose that
a non-member be admitted to the association and if the proposal is accepted,
the conditions of membership are decided by special resolution. It is not
likely that the proposal is more than a formality after negotiations have
been concluded for, as the following paragraphs show, we have found
that considerable discussion may take place with prospective members
before the basis of any agreement is reached. The C.C.A. tells us that
it must be satisfied with a new member's status and that his products
are of a standard equal to that of C.C.A. members.
    159. A small company which had started making covered conductors at
the beginning of the war applied in 1944 for membership of the C.C.A.
but this was refused " because of the unsettled conditions of trading due
to the war". Another approach was made in 1945, when the company
"found it difficult to obtain business in some directions owing to not
being a member of the C.C.A.". In 1948 the company resigned from the
I.C.E.G., as it received no orders. It then reduced its export prices,
and informed the C.C.A. that it would only rejoin the I.C.E.G. if it were
allowed to join the C.C.A. The association discussed the situation but,
because members knew little about the company, and some feared that its
admission would lead to a proportionate loss of business, it decided that
** the time was not opportune" to offer membership. The door was left
open for further negotiations but the company still remains outside the
association.
    160. Another company made an approach to the C.C.A. in 1942. A
negotiating committee was set up by the C.C.A. but after a discussion
between this committee and the company, the company decided not to
                                       45
 apply for membership. It does not now think that it would be assisted
 by membership, or is hindered by non-membership, as it concentrates on
 products outside the normal range.
    161. The histories of two other applications for membership are linked.
 In 1937 the C.C.A. opened negotiations with a company whose competition
 had caused the association to do " a great deal of price cutting", and
 made an agreement for one year's collaboration. The company was given
 a quota and arrangements were made for fixing its prices. It was agreed
 that after twelve months the company would either become a full member
 or take back full liberty of action. After about six months the collaborating
 company decided not to continue the agreement, mainly because one of
 its staff had left and set up his own factory. The company thought that
 this competition could best be met by individual action, and advised the
 association that it had found it was "not able effectively to compete with
 outside firms if [it] had to refer to an association for prices ". A second
 agreement was made between the association and this company in 1939
and has since been renewed annually ; there were further negotiations in
 1948 which have led to an extension of the agreement originally made
in 1939, until the end of 1952.
    162. The company which had caused the collaborating company to ter-
minate its first agreement (see para. 161), applied for C.C.A. membership
in 1949. At first the C.C.A. was reluctant to admit it, for one result
of admission to membership would be that all production of a certain type
of* wire would be controlled by the association and some members thought
that this might tempt another competitor to start production. A little later,
however, it was considered that the admission of this company might lead
to a speedier conclusion of negotiations with the collaborating company,
whose interest in certain large customers would then no longer be threatened
by a non-member of C.C.A. The applicant was therefore admitted to the
association in 1950.
                                 Standards
   163. The members of the C.C.A. may sell only those conductors which
conform to the standards adopted or approved by the association and to
B.S.I, standards. The association claims that its tests are often more
stringent than those laid down by the B.S.I, and has emphasised to us
the importance of the control over the quality of its members' products
which is achieved by this system.
   164. We have been told that because covered conductors are used as
components by other manufacturers standardisation presents more problems
than in other sections of the industry. The C.C.A. believes that it can
best serve its members' interests by supporting the B.S.I., on whose com-
mittees its members' technical officers serve, and it claims that it often
makes initial drafts of specifications and suggests the tests to be used.
                              Prices and terms
   165. For the use of members the C.C.A. maintains a price list, and
individual members issue to their customers lists of prices in accordance
with the C.C.A. price list. The C.C.A. has also from time to time entered
into supply agreements with certain of its larger customers, who are granted
preferential terms, in return for the assurance afforded of the large volume
of business represented by these customers' requirements. These agreements
are referred to later in para. 171. In addition, certain customers enjoy
special terms from the C.C.A. although they have not entered into any
                                      46
written undertaking with the association : this group of customers takes
about 6 per cent, of the total C.C.A. sales and includes companies who
are members of the C.M.A. or are associated with C.M.A. members. In
several cases these prices, differing from the C.C.A. list prices, derive from
a time when the customer was thought to be considering seriously making
the covered conductors hitherto obtained from C.C.A. members.
   166. All the members now quote common terms and prices. We have
found a few cases where nominal fines have been imposed, for instance, for
making a mistake in calculating a price. Under the 1936 agreement a
Competition Committee was set up to recommend special terms or lower
prices for use in meeting competition from non-members. So that members
who supplied at a lower price might not be penalised, an annual levy was
made on all members to provide a sum equal to half the difference between
" competition " prices and standard net prices ; the levy was distributed to
those who completed " competition " orders. The Competition Committee
came to an end during the war and has not since been revived.
   167. In 1937 a new company started to produce covered conductors and
the C.C.A. realised that this was a potentially serious competitor. One
member proposed that an attempt should be made to control the company's
supplies of copper wire. The matter was discussed with some members of the
trade association concerned but because that association "did not control
the finer sizes and the competitor would be able to buy large? sizes from out-
side firms, it had been felt .that it would not be possible to restrict supplies
of bare copper ". The matter was then dropped. Competition from the same
source in 1938 forced the C.C.A. to consider a reduction of price to a
subsidiary of a company enjoying special prices from members by special
agreement, and the members were concerned to discover that the subsidiary
had freedom to purchase where it liked and " could not be forced to pay
high prices ".
    168. Present C.C.A. selling prices are made up of a " basis price " and
charges for " extras ". The " basis price " is linked with the price of copper
wire bars while the " extras " are intended to cover the cost of the various
types of insulants, of the type of reel used, and of certain other factors. The
basis price and the extras include profit. The rate of profit added for each
type of conductor has varied in the past, and has been what members con-
sidered appropriate in each case. It was laid down in the 1936 agreement
that prices " shall have a reasonable relationship to cost", but no attempt
 was made to define what this relationship should be, or to establish a common
 system of cost accountancy. The whole C.C.A. pricing system is, however,
 at present being revised, and the 1948 agreement (which, in this respect, is not
 yet in effect) has laid down the following method for determining selling
 prices. In each of the two sections of the association there are two com-
 mittees ; the first of these, the Costs Committee, is required to " recommend
 to the Council the cost prices to be adopted by each section of the C.C.A."
 and for this purpose may employ " full-time accountants " ; the second, the
 Prices Committee, " shall recommend to the Council, selling prices which shall
 be based on the average of not less than the three lowest costs and not more
 than the five lowest costs submitted by members ". To this average cost a
 standard rate of profit is to be added. We have been informed that with
 very few exceptions the prices in the new price list for all the twenty thousand
 or so items which are being reviewed will include a 15 per cent, profit rate
 added to the average of the three lowest costs.* A further amount will be
   * In some cases there are only three makers of a particular type so that the average then
includes all makers.
                                            47
added to allow for quantity rebates and carriage charges. The C.C.A. hoped
to issue its new price list in 1952 and at the same tune to abandon the special
price agreements which have been made with certain customers. In September,
 1951, the C.C.A. told us that the new price list would be issued on 1st January,
 1952. The work proved to be more involved and exacting than anticipated
and the date of issue was postponed to 1st July, 1952. In April, 1952, we
were advised that further delay was inevitable.
   169. The prices of certain types of conductor are not listed but are available
from the secretary. From 1936 they were estimated by reference to one or
two designated members' prices. They are now estimated by sub-committees
of the Price Committees, on which are represented all those members making
the conductor concerned.
                               Quantity Rebates
   170. The C.C.A., like the C.M.A., accepts the principle of aggregated
quantity rebates. It has allowed such rebates since 1936 and argues that
" the system of aggregated quantity rebates enables a customer to spread his
purchases, if he desires, over all members of the Association". The
present scale of rebates is :—
       25 tons and under 50 tons per annum                    -jfe-d. per Ib.
       50 „ „          „ 100      „     „                       id. perlb.
      100 „ „          „ 200      „     „                       id. perlb.
     200 „ „           „ 300      „     „                     iVd. perlb.
        Thereafter in 100 tons jumps each ^d. per Ib. more up to a maximum
     of l^d, per Ib. on 1,700 tons and over.
   These rebates are paid to some 70 customers taking in all about 45 per
cent, of the total C.C.A. sales, who have unwritten understandings with the
association, which undertakes that its members will pay annually a rebate
in respect of the customers' aggregated purchases. Any other customer (except
those with exclusive buying rebates, see para. 171) receives a rebate of
|d. per pound weight on each individual order exceeding 5 tons. A cash
discount of 1\ per cent, for monthly account payments and 3 per cent, for
payment within eight days is allowed to all purchasers.
                              Exclusive dealing
    171. A scheme providing for exclusive buying rebates to be available to
 all customers has been considered several times since 1937, but has not
 been adopted.     The arguments brought forward against it were that
customers " were not in favour of such a scheme as, for reasons of reciprocal
 business, they might wish to place a small amount of business with firms
outside the C.C.A." and "it was difficult to arrive at an effective scheme
without offering additional discounts which were too great to be borne by
members at the present [1939] level of selling prices". Ten customers who
together purchase almost one-third of the C.C.A. output, have signed agree-
ments with the C.C.A., all involving some undertaking to buy exclusively
or a minimum proportion of their requirements from C.C.A. members : one
customer agrees to purchase at least 70 per cent, of requirements from
the C.C.A., three agree to purchase 90 per cent, and six 100 per cent.
The rebates differ in each case. Each customer binds its associated com-
panies to keep the agreement, and undertakes not to resell or manufacture
conductors. Prices are " basis " prices less amounts varying from £d. per
pound to l|d. per pound plus standard extras. It has been explained to
us that the terms of the agreements have been settled after taking into
                                     48
consideration the volume of business with each customer and the proportion
purchased from C.C.A. members, and that the object of the prohibition on
manufacture by customers is to ensure that the C.C.A. members are not
left with the task of making the more difficult conductors while their
customers supply themselves with the larger volume of simpler types. There
are no penalties for breach of agreements, beyond the forfeit or reduction
of rebates where appropriate, nor is there any system of checking the
declarations made by customers.
                             The Quota System
    172. A quota system was already in operation in 1936. As in the case
 of the CM.A., the quotas were a percentage sliare of the business available
 and each member's quota was based on his past sales. Penalties and
 bonuses were calculated according to a formula which related them to the
 "gross profit rate" which might be expected. Thus in 1936 and 1937,
 15 per cent, was payable on the first 5 per cent, in*excess of quota, 20 per
 cent, was payable on the next 5 per cent, in excess and 25 per cent,
 on any further excess. Bonuses ranged from 10 per cent, on the first
 7£ per cent, deficiency to 5 per cent, on any further deficiency up to
.33£ per cent. No bonus became due on any deficit in excess of one-third
 of quota. These rates were somewhat heavier than those of the C.M.A.
 and in 1938 three companies unsuccessfully suggested certain modifications.
 During the discussion one member remarked that the original intention
 of the agreement had been to make it impossible to gain any profit from
 any production in excess of quota. The C.C.A. claims, however, that these
 penalties were not intended to equal the profits made on excess production,
 but only to deter members from greatly exceeding their quotas.
    173. Before the 1936 agreement the members of Cable Research (see
 Chapter 11) agreed with two other companies, one being the largest pro-
 ducer of covered conductors, that this latter's quota should be reduced
 slightly every three years. The agreement was allowed to lapse in 1944
 when this company's .share of the market was 2 per cent, lower than in
 1936.
    174. The C.C.A. advised us that the 1936 quota system had been designed
 " in a serious attempt to maintain the business in [the existing] proportions
 so as to prevent wasteful competition between members, to spread the
 available business so far as possible among the different factories, maintain
 employment and keep overhead charges to a minimum." The rates of
 penalty and bonus were reduced during the'war "because of the changed
 conditions". After the war a return to old levels was considered but it
 was suggested that such a return would penalise members " who at present
 had no alternative but to meet the demand from users who could not
 obtain delivery from other firms ". One member had " had to supply at
 a loss a large portion of the business which other members were unable
 to undertake". The war time rates were, therefore, continued until 1947.
 During the negotiation of the 1948 agreement there were further demands
 for lower penalties and in the discussion it was pointed out that " it was
 necessary that the [quota] arrangements should be such that members who
 were inefficient'would not b,e subsidised by those who were progressive".
    175. The 1948 agreement introduced important modifications in the quota
  system. There are now two schemes, one for enamelled and one for textile
 covered conductors. We are told that the quotas are based on productive
  capacity as measured by each member, though the figures have been
  checked against past sales. Wide tolerances were introduced and the penalties
                                       49
and bonuses (now called contributions and receipts) are the same in both
sections. A penalty of 5 per cent, is paid on the value of turnover in
excess of 115 per cent, of quota (112£ per cent, in the case of members
with quotas greater than 20 per cent.)"; the bonus rate is 5 per cent, of
the difference between 80 per cent. (82£ per cent, for members with
quotas over 20 per cent.) of quota and actual production when this is
less than 80 per cent. Reductions of penalties, or levies on all members,
may be made to ensure that a bonus of 5 per cent, is paid and that no
surplus is left. Members make monthly returns to the secretary who
tabulates and circulates them.
   176. We have studied statements from the C.C.A. showing the calculations
of contributions and receipts from 1945 to 1949. Four members who
exceeded their quotas in the first three years (i.e., under the old agreement)
also exceeded their quotas, in general, in the last two years although to a
smaller extent. One member sold in 1945-47 five times its quotas and
in 1948-49, almost double. (Six members sold less than' their quotas
throughout; two of these had sales of between one-third and one-half
of their quotas, but in most of the six cases, divergence from quota
was less in 1948 and 1949 than previously. Only one member
changed from excess production in 1945-47 to deficiency in 1948 and
1949. The average divergence of members' turnover from their quota was
26 per cent, in the years 1945-47 : in the years 1948-49, under the new
agreement, the average divergence was 23 per cent, in the case of the
textile section and 14 per cent, in the case of the enamelled section.
                                     Patents
   177. The policy of the C.C.A. in respect of patents is similar to that
of the associations affiliated to the C.M.A. (see Chapter 5). We have been
told that while no licences have been granted to non-members, none have
been refused.
                                    Expenses
   178. The expenditure of the C.C.A. amounted to £5,000 in 1948 and
£5,340 in 1949. These sums were provided by levies on the members.


CHAPTER 10 : IMPORT REGULATION AND THE INTERNATIONAL
                CABLE DEVELOPMENT CORPORATION
   179. The activities of the C.M.A. and the C.C.A. with which we are
concerned are confined to the United Kingdom market. But we found
that certain restrictions are imposed on the import of cable from abroad
under agreements to which some members are parties and accordingly it
was necessary to examine the arrangements made with cable makers in
other countries in order to understand their effect on imports into this
country.
   180. According to the Secretaries of the English Group of the International
Cable Development Corporation (I.C.D.C.), the first international cartel
in the. cable-making industry—between English and German groups—began
in 1907 and was followed by other agreements between various countries.
In 1928, during a period when, we -are told, there was intense competition
in the sale of mains cable, the I.C.D.C. was formed. It was registered
in Liechtenstein in 1931. The original members were fifteen national
Groups of cable makers from almost all the European countries which made
mains cable, representing nearly 90 makers. The leading Groups were
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