Interactions
between trade and competition could not be more intimate as they are today when
countries the world over are getting severely affected by the volatility of
trade in primary commodities.
The major commodity spike of 2007-08 sent alarm bells ringing when the prices
of many primary goods doubled from what they had been not so long ago. Much of
this fluctuation may be explained by way of simple economics of demand and
supply, while managing supply side failures is critical to restore some sense
in the market.
One such management issue is that of the inability of trading nations to deal
with rampant anticompetitive practices, especially when the importing countries
pay heavily for anticompetitive practices exempted by exporting countries’
competition laws. Case in point here is the global potash fertiliser export
cartel.
A recent study has highlighted the overcharge paid by India due to
anticompetitive practices in the global potash market. Under a competitive
scenario, the price of potash would decline from $574 per tonne in 2011 to $217
by 2015, and subsequently, increase to $488 by 2020. However, in the continuing
presence of fertiliser cartels, the price of potash would steadily increase
from $574 per tonne in 2011 to $734 in 2020. The resulting overcharge for India
and China, two of the largest buyers of potash amounts to more than a billion
US$ per year per country.
Such export cartels are in some cases government sponsored. For example,
in February 2010, China, which controls more than 95 percent of the global
production of rare earths, a collective name for 17 minerals used in high
technology from mobile phones to military equipment, announced that it intended
to impose restrictions on rare-earth mining in the next five years while
maintaining international cooperation on trade in the metals, including
“reasonable” export quotas.
But export cartels also exist in the manufacturing sector and can originate in
developing countries. For example, last year the Chinese government filed an
amicus brief in a US court in support of a motion to dismiss a private suit
against four Chinese vitamin manufacturers accused of having cartelised their
exports to the US since 2001. The Chinese government argued in its brief that
it had supervised the price-fixing as part of its effort to “play a central
role in China’s shift from a command economy to a market economy” and in order
to mitigate the exposure Chinese companies faced in potential antidumping
investigations.
Export cartels have a significant influence on prices in general and on
the swing of prices of primary products in particular. Competition authorities
in the countries of origin of the export cartels do not act against them
because export cartels do not affect the domestic markets of the cartelists.
Competition authorities in the victimised countries either do not have powers
to act against the export cartels which they suffer from for a variety of
reasons. They may lack extra-territorial jurisdiction (as the litigation in
India against the US-based soda ash cartel under the now repealed Monopolies
and Restrictive Trade Practices Act, 1969 showed); the sovereign compulsion
doctrine may prevent them from prosecuting state sponsored export cartels; they
may not have the means to gather the evidence they would need to convict the
perpetrators even if they have jurisdiction or they can be under pressure from
their government not to act against them so as not to expose the country to
retaliations endangering its own economy and state supported export cartels.
In January, 1997 the WTO established a working group on the interaction between
trade and competition policy to explore the linkages and see whether a
multilateral agreement on competition can be incorporated in the WTO. The idea
was carried forward in the Doha Development Agenda. Alas, the same was taken
off the negotiating agenda in 2004 due to opposition by developing countries to
negotiations on several issues, which included competition policy.
Given the reforms in competition regimes brought about across the world
since the collapse of the agenda in WTO (130 countries have adopted a
competition law today as opposed to 35 in 1995) and now that it seems as though
the Doha negotiations do not have an immediate future and that the WTO has to
redirect its focus from trade negotiations to analyses, the time has come for
this multilateral organisation to undertake a serious and dispassionate study
of the effects and the appropriate legal regime to regulate export cartels.
Such a study would need to distinguish between the export cartels which may
actually enhance the export opportunities of small countries which would not
otherwise be able to access export markets from the export cartels which have
no such redeeming values and are limited to rent seeking and reduce competition
rather than enhance it. It would also need to distinguish between the purely
private export cartels and the state sponsored cartels, like oil, which may
deserve a different treatment. Finally, it should take into account the fact
that export cartels may originate in countries which have vastly different
levels of economic development and therefore have quite different domestic
impacts.
Sweeping the issue under the carpet as has been the case of late foster
beggar-thy-neighbour activities hampering competition in international markets
and preventing trading countries from getting the benefits of trade
liberalisation.
The writers are Chairman, OECD Committee on Competition Policy and Secretary
General of CUTS International respectively.
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