Think Piece

Consequences of Cartelisation in Primary Commodities: Focus on Natural Rubber and Banana

By Pradeep Singh Mehta, Udai S. Mehta, 
October 2015
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Increasing global interdependence and economic linkages clearly make a case for not only challenging the philosophy underpinning the case of exemption of export cartels from national competition legislations, but also changing this philosophy. This think–piece, with the help of two illustrative case studies, shows the impact of cartelisation in primary commodity markets. The case of natural rubber cartelisation relates to the effects of cartels in a primary raw-material market. The second relates to cartelisation in bananas along the vertical chain and downward monopolistic pressure from the retail level.

The paper briefly analyses the economic consequences of export cartels while highlighting the need for international rules. It describes the political economy of the genesis of export cartels and also deals with the different types of exemptions being granted to the export cartels under domestic competition laws. Following an examination of the remedies for export cartels within the multilateral trade regime and by way of the extraterritorial application of domestic competition laws, it takes up the case of natural rubber and banana to depict the extent of anticompetitive harm due to the prevalence of export cartels.

Studies find evidence that international cartels, primarily organised by firms headquartered in industrialised nations, cause prices to rise above competitive levels for buyers in developing countries. Aside from having developmental consequences outside their territories, export cartels have also been seen to impact domestic welfare by influencing domestic production and pricing decisions. Operating such cartels in the home country can also create a potential situation of “conscious parallelism” when sensitive price information is shared to set prices for foreign markets. Another domestic effect is the exclusion of competition between export traders. There are various arguments made against exemptions of export cartels from domestic competition laws in many jurisdictions. Export exemptions undercut international trade policies that promote freer international trade and greater market integration. Another argument against exemptions is that the benefits do not reach the intended beneficiaries. It has frequently been argued that large international companies, not small and medium-sized ones, are taking advantage of export cartel exemptions, thus defeating their purpose.

In the World Trade Organization (WTO), a Member country cannot bring a complaint against another Member country for anticompetitive conduct by private actors. It can be said that the WTO is without a mandate to deal with such issues in the case of private export cartels, though in cases of state-related export cartels, there is a possibility of triggering the WTO dispute settlement framework in certain circumstances. This calls for a multilateral framework on competition law and policy to combat anticompetitive practices emanating even from private export cartels and framing an effective policy to combat export cartels in general. At present, there is no international forum authorised to work towards a legally binding compromise or common rules on a global competition agreement.

Export cartels should not benefit from a blanket exemption from competition laws, which would exclude them even from scrutiny under a rule of reason approach. When assessing the impact of an export cartel, a number of issues need to be considered in each particular case. Among them would be whether the cartel is a new entrant, the nature of efficiencies claimed, the market structure, and the degree of import penetration. Keeping in view the linkage between competition law and world trade system, there seems to be a fit case for designing effective remedies for export cartels under the WTO regime. The UNCTAD has also suggested that developed countries should abolish export cartel exemptions on a non-reciprocal basis. The growth of effective antitrust enforcement regimes from perhaps three active jurisdictions in the 1980s to dozens today is an example of voluntary global policy harmonisation. The time has come for WTO Members to consider resuscitating negotiations on the WTO’s role on competition law and policy, which have been stalled for a decade.

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