king&wgdd level 61 governor phillip tower mallesons · king&wgdd mallesons level 61...

KING&WGDDMALLESONS

Level 61

Governor Phillip Tower1 Farrer Place

Sydney NSW 2000Australia

T +61 2 9296 2000F +61 2 9296 3999

www.kwm.com

8 July 2015

Dr Richard ChadwickGeneral Manager, Adjudication BranchAustralian Competition and Consumer Commission23 Marcus Clarke StreetCANBERRA ACT 2601richard.chadwick@accc.gov.au

Copy to

Australian Competition and Consumer CommissionLevel 20175 Pitt StreetSYDNEY NSW 2000adjudlcatlon@accc.gov.au

AUST. CONIPETITION 8>CONSUMER COWIMISSION

09JUL

CANBERRA

Dear Dr Chadwick

Australian Cotton Shippers Association Incorporated and members - application for authorisation

We act for Australian Cotton Shippers Association Incorporated ("ACSA").

1 Application for authorisation

We enclose 2 versions of an application for authorisation, and a submission in support of theapplication, pursuant to sections 88(1A) and 88(1) of the Competition and Consumer Act 2010 (Cth)(the "Act"). 1 version of the application is confidential and the other version is non-confidential andmay be placed on the Commission's public register.

We also enclose a cheque payable to the Australian Competition and Consumer Commission in thesum of $7,500, being the prescribed lodgement fee for the application for authorisation.

The application for authorisation is made jointly by ACSA and its members (including futuremembers) and all of each of their respective related bodies corporate (including each of their futurerelated bodies corporate) (together, the "Applicants").

ACSA is an association of 14 cotton merchants operating in Australia. ACSA's members purchasecotton from Australian cotton growers on a forward or spot basis and market and sell that cotton intothe global cotton market.

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19865558 l.docx

KING&WGODMALLESONS

Australian Competition and Consumer Commission 8 July 2015

Other copies of the application for authorisation

We have emailed to you and to adjudication@accc.gov.au a copy of the attached application forauthorisation and submission in support.

The conduct for which authorisation is sought

The application for authorisation concerns the making of, and giving effect to, provisions ofcontracts, arrangements and understandings between the Applicants that may contain exclusionaryprovisions within the meaning of section 45 of the Act and may contain cartel provisions within themeaning of Division 1 of Part IV of the Act.

In particular, the Applicants propose to make, and give effect to, provisions of contracts,arrangements and understandings to purchase cotton from cotton growers in Australia using pricinggrades based on high volume instrument ("HVI") classing of the colour and leaf of cotton (the"ProposedConduct")

The Proposed Conduct will result in the Applicants offering premium and discount Sheets ("P&DSheets") with quadrants of premiums and discounts for grades based on HVI classing of colour andleaf, rather than visual classing of those attributes.

The colour and leaf of cotton are 2 of the 5 attributes of cotton that determine its qualitative gradeand price. The other 3 attributes are staple length, micronaire and strength. Those 3 attributes arealready classed by HVI.

Timing

It would greatly assist the Applicants if the Commission could be minded to make its finaldetermination by September 2015 because the Applicants wish to begin using pricing grades andoffering P&D sheets based on HVI classing of the colour and leaf of cotton for forward purchases ofthe 2016 cotton crop.

The conduct for which authorisation is sought will give rise to a net public benefit

The conduct for which authorisation is sought will result in public benefits, including:

. Removal of discrepancies between the price paid by cotton merchants for cotton grown inAustralia and the price they receive for the same cotton in the global market:

. In Australia, cotton merchants pay growers for cotton based on a mixedclassification of the attributes of cotton with payment being made based on HVIclassification of the strength of fibre, staple length of fibre and micronaire of thecotton and manual (visual) classification of the colour and leaf attributes of cotton.

. In contrast, in the global market, customers are increasingly testing the cotton usingHVI machines for all 5 attributes when they receive the cotton or requiringmerchants to provide HVI data for all 5 attributes and, as a consequence,merchants are increasingly required to sell cotton based on HVI classification of all5 key attributes. This increasingly results in a mismatch between the method ofclassification used by merchants to pay Australian cotton growers and the methodof classification used by end-users in the global market to pay merchants forAustralian cotton.

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KING&WGDDMALLESONS

Australian Competition and Consumer Commission 8 July 2015

Therefore, granting the authorisation will align the basis for domestic and internationalprices and may reduce some of the price risk which cotton merchants currently face, at leastpart of which is passed onto growers.

. Greater efficiency in the domestic supply of ginned cotton because domestic prices willreflect the actual quality of cotton as measured by an accurate, objective and scientificmethod. Domestic prices will no longer be distorted by the possibility of errors andsubjectivities in the visual classification process.

. Increased reliability of the way cotton is classed in Australia, including by substantiallyreducing the possibility for errors and subjectivities which may be associated with the visualclassification process. As a result, growers will receive, and merchants will pay, prices thatreflect the actual colour and leaf of cotton.

Increased price competition and price transparency for growers because:

. the price offered to growers by merchants will be based on an objective, scientificmethod of classification that is readily comparable;

. HVI classification will allow merchants to offer a greater number of pricing gradeswhich describe the colour attributes of cotton with greater specificity and accuracy;

the Proposed Conduct will mean all domestic prices are based on the HVIclassification of colour and leaf, allowing growers to continue to readily compareprices between all Applicant merchants.

. Reduced transaction costs for growers and merchants because:

the accuracy and repeatable objectivity of HVI classing will reduce the instance ofdisputes between growers and merchants (and between merchants and their exportcustomers) regarding the colour and leaf grade of cotton; and

cotton merchants will no longer need to either re-class cotton or obtain both visualand HVI classing results at the initial classing in order to meet the demands ofglobal customers.

. Increased international competitiveness of Australian cotton, of which more than 99% istraded on the global cotton market.

Without authorisation, the move to HVI classing will be ad hoc and likely protracted, delaying therealisation of the clear benefits of HVI classing.

The conduct for which authorisation is sought will not result in any material public detriments, will notsubstantially lessen competition in any market, will not be likely to substantially lessen competition inany market and will not affect Australian consumers.

Accordingly, the Applicants respectfully submit that the Proposed Conduct will give rise to a netbenefit to the Australian public and should be authorised by the Commission.

19685558 l.docx Pages

KING&WCDDMALLESONS

Australian Competition and Consumer Commission 8 July 2015

Claim for confidentiality

The supporting submission and attachments to the supporting submission contain information that isconfidential to the Applicants.

The Applicants request that the parts of the supporting submission and attachments to thesupporting submission which are identified as confidential (including, in some instances,attachments to the supporting submission in their entirety) be excluded from the Commission'spublic register, by reason of the confidential nature of the matters contained in them.

We attach confidential and non-confidential versions of the supporting submission.

Meeting with the Commission and requests for further information

The Applicants would be pleased to meet with the Commission at its earliest convenience to discusstheir application for authorisation, should that assist the Commission.

If the Commission wishes to meet with the Applicants, or requires any further information about theapplication, please contact me.

T/iank you for your assistance.

>urs sincerely

laronHenrick

artner | Head - Comp Law & Regulatory Australia,+61 2 9296 2294+61 438 323 765^aron.henrick@au.kwm.corn

End 2

19685558. t.docx Page 4

Form ACommonwealth of Australia

Competition and Consumer Act 2010-subsections 88(JA) and (1)EXCLUSIONARY PROVISIONS

AND ASSOCIATED CARTEL PROVISIONS:APPLICATION FOR AUTHOMSATION

To the Australian Competition and Consumer Commission:

Application is hereby made under subsection(s) 88 (1A)/88 (1) of the Competition and Consumer Act2010 for an authorisation:

to make a contract or arrangement, or arrive at an understanding, a provision of which wouldbe, or might be, a cartel provision within the meaning of Division 1 of Part IV of that Act andwhich would also be, or might also be, an exclusionary provision within the meaning ofsection 45 of that Act.

to give effect to a provision of a contract, arrangement or understanding that is, or may be, acartel provision within the meaning of Division 1 of Part IV of that Act and which is also, ormay also be, an exclusionary provision withm the meaning of section 45 of that Act.

. to make a contract or arrangement, or arrive at an understanding, where a provision of theproposed contract, arrangement or understanding would be, or might be, an exclusionaryprovision within the meaning of section 45 of that Act.

. to give effect to a provision of a contract, arrangement or understanding where the provisionis, or may be, an exclusionary provision within the meaning of section 45 of that Act.

(Strike out whichever is not applicable}

PLEASE FOLLOW DIRECTIONS ON BACK OF THIS FORM

1 Applicants

(a) Name of applicants:

Aush-alian Cotton Shippers Association Incorporated ("ACSA"), its members(including all future members) and all of each of their respective related bodiescorporate (including all of their future related bodies corporate) (together, the"Applicants").

ACSA is an incorporated association under the Associations Incorporation Act 1981(Qld).The current members ofACSA are Auscott Limited ("Auscott"); Cargill CottonLimited ("Cargill Cotton"); CNCGC Australian Pty Ltd ("CNCGC"); EcomCommodities Pty Ltd ("Ecom"), Glencore Grain Pty Limited ("Glencore Grain");LDC Enterprises Pty Limited ("Louis Dreyfus"), Namoi Cotton Alliance ("NamoiCotton"); Noble Resources Australia Pty Ltd ("Noble Cotton"); OmnicottonAustralia Pty Ltd ("Omnicotton"); Plexus Cotton Limited ("Plexus"); QueenslandCotton Corporation Pty Limited ("Queensland Cotton"); Reinhart Australia PtyLimited ("Reinhart"); S & G Cotton Australia Pty Ltd ("S&G Cotton"), andTwynam Agricultural Group Pty Limited ("Twynam").

19886559 l.doc

(b) Description of business carried on by the applicants:

ACSA

ACSA is an association of 14 cotton merchants operating in Australia.

ACSA's members purchase cotton from Australian cotton growers on a forward orspot basis and market and sell that cotton into the global cotton market.

A negligible amount of the cotton is sold to end-customers in Australia.

ACSA's key roles and objectives include promoting and enhancing the export ofAustralian raw cotton, promoting the interests of its members and the cotton industrygenerally in overseas markets, preserving the sanctity of contracts and the integrity ofthe Australian cotton trading industry, facilitating compliance with contractualobligations, promoting corporate responsibility, best management practice andprosperity within the industry and the communities in which ACSA'ls membersoperate.

ACSA's members

ACSA's members purchase cotton from growers in Australia and export the cotton.A detailed description of the activities of each ofACSA's members is contained inthe attached submission.

(c) Address in Australia for service of documents on the applicants:

c/- Sharon Henrick

Partner - Head - Competition Law and Regulatory - AustraliaKing & Wood MallesonsLevel 61, Governor Phillip Tower1 Farrer Place

Sydney NSW 2000Email: sharon.henrick@au.kwm.com

Contract, arrangement or understanding

(a) Description of the contract, arrangement or understanding, whether proposed oractual, for which authorisation is sought:

Provisions of contracts, arrangements or understandings between the Applicants topurchase cotton from cotton growers in Australia using pricing grades based on highvolume instrument ("HVI") classing of the colour and leaf of cotton, including tooffer premium and discount sheets (P&D Sheets) with quadrants of premiums anddiscounts for grades based on HV1 classing of colour and leaf, rather than visualclassing of those attributes.

HVI classing is a machine-based system of measuring (or "classing") attributes ofcotton. Presently, the colour and leaf content of cotton are measured visually bycotton classers.

The colour and leaf of cotton are 2 of the 5 key attributes of cotton that determine itsqualitative grade and price. The other 3 attributes are staple length, micronaire andstrength. HV1 classing is already used to assess the staple length, micronaire andstrength of cotton.

19886559 I.doc

(b) Description of those provisions ot the contract, arrangement or understandingdescribed at 2 (a) that are, or would or might be, exclusionary provisions and (ifapplicable) are, or would or might be, cartel provisions:(Refer to direction 4)

The provisions of the contracts, arrangements or understandings described in 2(a)above may contain exclusionary provisions within the meaning of section 45 of theAct, and may contain cartel provisions within the meaning of Division 1 of Part IV asfollows.

Pursuant to the provisions of the contracts, arrangements or understandings, cottonmerchants will purchase cotton from cotton growers and pay prices for the cottonbased on the HVI classing, rather than visual classing, of the colour and leaf contentof the cotton.

Pursuant to the provisions of the contracts, arrangements or understandings, cottonmerchants or cotton growers will acquire cotton classing services from cotton classinghouses that use HVI classing, rather than visual classing, of the colour and leafattributes of cotton.

(c) Description of the goods or services to which the contract, arrangement orunderstanding (whether proposed or actual) relate:

The supply of ginned cotton by cotton growers to cotton merchants. (Cotton isdelivered to cotton merchants after it has been ginned.)

The provision of cotton classing (or grading) services by cotton classing houses tocotton merchants or cotton growers.

(d) The term for which authorisation of the provision of the contract, arrangement orunderstanding (whether proposed or actual) is being sought and grounds supportingthis period of authorisation;

The Applicants seek an indefinite term for the authorisation as the proposedprovisions of the contracts, arrangements and understandings will involvepermanent advancement in the way cotton merchants purchase cotton from cottongrowers in Australia.

Alternatively, should the Commission not be minded to grant authorisation for anindefinite period, the Applicants seek authorisation for a minimum period of 10 years.

Parties to the proposed arrangement

(a) Names, addresses and descriptions of business carried on by other parties orproposed parties to the contract or proposed contract, arrangement orunderstanding:

Proposed parties to the contracts, arrangements or understandings are ACSA,ACSA s present and future members (cotton merchants) and their relatedbodies corporate.

ACSA

PO Box 4 Annerley Qld 4103

19886559 l.doc

Contact: Tracey Byrne-Morrison

Telephone: +61 7 3848 3823

Email: cottonshippers@bigpond.com

Auscott

Level 3, 56 Pitt Street Sydney NSW 2000

Contact: Arthur Spellson

Telephone: +61 2 9295 4800

Email: marketing@auscott.com.au

Cargill Cotton

16 McLean Street Goondiwindi Qld 4390

Contact: Phillip Sloan

Telephone:+61 74671 0222

Email: Philip_S)oan@cargi)l.com

Ecom

Suite 801, Level 8, 15 Castlereagh Street Sydney NSW 2000

Contact: Alexander Harris

i ciepiione: -i-o i z y^zj joj i

Email: aharris@ecomtrading.com

CNCGC

Suite 504, 65 York St Sydney NSW 2000

Contact: Tom Zheng

Telephone:+61 292622342

Email: torn.z@cncgc.corn.au

Glencore Grain

Level 8,484 St Kilda Rd, Melbourne VIC 3004Contact: Nick Kelly and lan Ritter

Telephone:+61 746380611

Email: nick.kelly@glencoregrain.com.au; ian.ritter@glencoregrain.com.au

Louis Dreyfus

Level 3, 1 Breakfast Creek Road, Newstead Qld 4006

Contact: Gordon Cherry

Telephone:+61 732535999

19886559 1.doc

Email: gordon.cherry@ldcom.com

Namoi

Ib Kitchener St, Toowoomba, Qld 4350

Contact: Eimear McDonagh

Telephone: +61 7 4631 6108

Email: emcdonagh@namoicotton.com.au

Noble Resources

Suite 910, 1 Queens Road, Melbourne VIC 3004

Contact: William Schreier

Telephone: +61 475 977 251

Email: wschreier@nobleagri.com

Omnicotton

Suite 72, 283 Given Terrace, Paddington Qld 4064

Contact: Cliff White

Telephone: +64 7 3367 1801

Email: cwhite@omnicotton.com

Plexus

Suite 1, Level 1, 50 Commercial Road, Newstead, Brisbane, Qld 4000

Contact: John Lupton

Telephone: +61 7 3257 0666

Email: john.lupton@plexus-cotton.com

Queensland Cotton

55 Wyandra Street, Newstead Qld 4006

Contact: Phill Ryan

Telephone: +61 7 3250 3307

Email: pryan@olamnet.com

Reinhart

Unit 10A, Level Two, Central Plaza582 Ruthven Street Toowoomba Qld 4350

Contact: Tony Geitz

Telephone: 07 4637 9070

Email: t.geitz@reinhart.ch

19886559 l.doc

(b)

S & G Cotton

68 Main Avenue, Balmoral Qld 4171

Contact: Roger Tomkins

Telephone:+61 733994890

Email: roger@balmoralcotton.com

Twynam

Level 7, 17 Bridge Street SYDNEY NSW 2000

Contact: Bryan Goldsmith

Telephone: +61 2 9325 9000

Email :bgoldsmith@twynam.corn

Names, addresses and descriptions of business carried on by parties and otherpersons on whose behalf this application is made:(Refer to direction 5)

See above.

Public benefit claims

(a)

(b)

Arguments in support of application for authorisation:(Refer to direction 6)

Please see attached submission.

Facts and evidence relied upon in support of these claims:

Please see attached submission.

Market definition

Provide a description of the market(s) in which the goods or services described at 2 (c) aresupplied or acquired and other affected markets including: significant suppliers and acquirers;substitutes available for the relevant goods or services; any restriction on the supply oracquisition of the relevant goods or services (for example geographic or legal restrictions):(Refer to direction 7)

Please see attached submission.

Public detriments

(a) Detriments to the public resulting or likely to result from the contract arrangement orunderstanding for which authorisation is sought, in particular the !ike!y effect of thecontract arrangement or understanding, on the prices of the goods or servicesdescribed at 2 (c) and the prices of goods or services in other affected markets:(Refer to direction 8)

Please see attached submission.

19886559 I.doc

(b) Facts and evidence relevant to these detriments:

Please see attached submission.

Contracts, arrangements or understandings in similar terms

(a)

(b)

(c)

This application for authorisation may also be expressed to be made in relation toother contracts, arrangements or understandings or proposed contracts, arrangementsor understandings, that are or will be in similar terms to the abovementioned contract,arrangement or understanding:

Is this application to be so expressed?

No.

If so, the following information is to be furnished:

(i) description of any variations between the contract, arrangement orunderstanding for which authorisation is sought and those contracts,arrangements or understandings that are stated to be in similar terms:(Refer to direction 9)

Not applicable.

(ii) Where the parties to the sunilar term contracts) are known - names,addresses and descriptions of business carried on by those other parties:(Refer to direction 10)

Not applicable.

(iii) Where the parties to the similar term contract(s) are not known - descriptionof the class of business carried on by those possible parties:

Not applicable.

Joint Ventures

(a)

(b)

Does this application deal with a matter relating to a joint venture (See section 4J ofthe Competition and Consumer Act 2010)7

No.

If so, are any other applications being made simultaneously with this application inrelation to that joint venture?

No.

(c) If so, by whom or on whose behalf are those other applications being made?

No.

Further information

(a) Name, postal address and telephone contact details of the person authorised by theapplicant seeking authorisation to provide additional information in relation to thisapplication:

19886559 l.doc

Sharon Henrick

Partner (Head - Competition Law and Regulatory - Australia)King & Wood MallesonsLevel 61, Governor Phillip Tower1 Farrer Place

Sydney NSW 2000Telephone: +61 2 9296 2294Email: sharon.henrick@au.kwm.com

Dated § ^ z^sd by/on behalf of the applicants

WWV(Silgnature)

.Sh^ron Louise Henrick

ng & Wood Mallesons

Partner - Head - Competition Law andRegulatory - Australia

19886559 l.doc

DIRECTIONS

Use Form A if the contract, arrangement or understanding includes a provision which is, ormight be, a cartel provision and which is also, or might also be, an exclusionary provision.Use Form B if the contract, arrangement or understanding includes a provision which is, ormight be, a cartel provision or a provision which would have the purpose, or would or mighthave the effect, of substantially lessening competition. It may be necessary to use both formsfor the same contract, arrangement or understanding.

In lodging this form, applicants must include all information, including supporting evidence,that they wish the Commission to take into account in assessing their application forauthorisation. ~rf"V

Where there is insufficient space on this form to furnish the required information, theinformation is to be shown on separate sheets, numbered consecutively and signed by or onbehalf of the applicant.

Where the application is made by or on behalf of a corporation, the name of the corporation isto be inserted in item 1 (a), not the name of the person signing the application and theapplication is to be signed by a person authorised by the corporation to do so.

Describe that part of the applicant's business relating to the subject matter of the contract,arrangement or understanding in respect of which authorisation is sought.

Provide details of the contract, arrangement or understanding (whether proposed or actual) inrespect of which the authorisation is sought. Provide details of those provisions of thecontract, arrangement or understanding that are, or would or might be, exclusionaryprovisions. Provide details of those provisions of the contract, arrangement or understandingthat are, or would or might be, cartel provisions.

In providing these details:

(a) to the extent that any of the details have been reduced to writing, provide a true copyof the writing; and

(b) to the extent that any of the details have not been reduced to writing, provide a fulland correct description of the particulars that have not been reduced to writing.

Where authorisation is sought on behalf of other parties provide details of each of thoseparties including names, addresses, descriptions of the business activities engaged in relatingto the subject matter of the authorisation, and evidence of the party's consent to authorisationbeing sought on their behalf.

Provide details of those public benefits claimed to result or to be likely to result from theproposed contract, arrangement or understanding including quantification of those benefitswhere possible.

Provide details of the market(s) likely to be effected by the contract, arrangement orunderstanding in particular having regard to goods or services that may be substitutes for thegood or service that is the subject matter of the application for authorisation.

Provide details of the detriments to the public, including those resulting from any lessening ofcompetition, which may result from the proposed contract, arrangement or understanding.Provide quantification of those detriments where possible.

Where the application is made also in respect of other contracts, arrangements orunderstandings, which are or will be in similar terms to the contract, arrangement orunderstanding referred to in item 2, furnish with the application details of the manner in whichthose contracts, arrangements or understandings vary in their terms from the contract,arrangements or understanding referred to in item 2.

19886559 l.doc

10. Where authorisation is sought on behalf of other parties provide details of each of thoseparties including names, addresses, and descriptions of the business activities engaged inrelating to the subject matter of the authorisation, and evidence of the party's consent toauthorisation being sought on their behalf.

19886559 1.doc