THE CASE OF EXPORT CARTEL EXEMPTIONS: BETWEEN COMPETITION AND

PROTECTIONISM
ABSTRACT
Most competition laws do not prohibit anticompetitive conduct that affects foreign target markets
as long as there is no spill over effect on the home market. The U.S. in particular justifies this
leniency towards export cartels by the aim of increasing efficiency in target markets that are
suffering from high entrance barriers for importers. Attempts to use the legal regime of the WTO
to overcome private restrictions of competition are likely to fail, because of the fundamental
differences between trade policy and competition policy. Although a multilateral competition
policy would be best suited to challenge export cartels, the current state of the political debate
makes it more likely that second-best solutions such as capacity building in lesser developed
target states will have to be established.

CHAPTER-1
I. INTRODUCTION: THE RELATIONSHIP BETWEEN INTERNATIONAL TRADE LAW
AND DOMESTIC COMPETITION LAW
Well-balanced trading frameworks and open markets are fundamental conditions for the fair
distribution of prosperity worldwide. Domestic trade policy influences the conditions for market
entry and market exit of foreign companies by setting tariffs or other, nontariff, barriers for their
products and services. Accordingly, the degree of trade liberalization is one important parameter
for the health of the competition in a given geographical and product market. The establishment
and the enforcement of free world trade is at the core of the GATT/WTO development. 1 It
appears to be undisputed that the GATT/WTO-system, although having a substantial impact on
world trade, has some difficulty linking questions of trade to other fundamental problems of the
world economic order. This involves, for example, problems of how to address negative
externalities (for example, environmental concerns) or other cases of market failure. A further
aspect of the debate is the stability of trans-border competition instigated by the reduction of
trade barriers, and the dangers for competition resulting from private closures of markets newly
opened through tariff concessions.
As a matter of principle, GATT and other WTO provisions deal with tariffs and nontariff trade
barriers put in place by states to structure or even impede the free flow of goods and services
across their border. The incentive for governments to use such instruments is explained by
strategic trade theory (STT), pointing out that government intervention in free trade can provide
opportunities for selected industry sectors to expand markets and thereby increase national
income.2
However, market participants also have a natural inclination to restrict the free flow of services
and goods, affecting competition through cooperation by reducing the uncertainty and the risks
inherent in free competition. "People of the same trade seldom meet together, even for merriment
and diversion, but the conversation ends in a conspiracy against the public, or in some
1

See, for example, paras. 1 and 2 of the preamble to GATT 1947.

P. Krugman, Strategic Trade Policy and the new International Economics (MIT Press, Cambridge, MA, 1995); an
overview over some relevant books can be found in J. Richardson "The Political Economy of Strategic Trade
Theory," International Organization 107 (1990); see also P. Krugman "Increasing Returns, Monopolistic
Competition, and International Trade," JIEL 469 (1979).
2

contrivance to raise prices."3 Of course, in a globalized economic order, such cooperation is

unlikely to be limited to the traders' home market. Cooperation can also be directed at foreign
target markets, because "Merchants and manufacturers are not contented with the monopoly of
the home market, but desire likewise the most extensive foreign sale for their goods." 4 As a
consequence, efforts to safeguard free trade and to initiate competition between domestic and
foreign products and services are likely to be undermined by the private restriction of such
competition. Companies might even expect their own governments to support such conduct--at
least as long as it does not affect competition in the home market to the detriment of domestic
market participants: "Their country has no jurisdiction in foreign nations, and therefore can
seldom procure them any monopoly there. They are generally obliged, therefore, to content
themselves with petitioning for certain encouragements to exportation." 5 However, if trade
policy instruments to protect and promote a state's industry are not at hand, because states are
legally bound to abstain from establishing trade barriers, such barriers might be substituted by
instruments of competition policy having a similarly supportive effect. One striking example is
the exemption of export cartels from the rules of domestic competition law. With such an
exemption, governments do not directly intervene in the free flow of goods and services through
traditional trade policy instruments such as tariffs or nontariff barriers. Nevertheless, in allowing
otherwise prohibited conduct because only foreign markets are targeted, states assist in affecting
the target market in a way that is prone to hurt its consumers and producers just as much as by
barring its economy from exporting. Due to the constant reduction of trade barriers, private
distortions of competition become clearer to identify and much more significant in their effects.
This mutual relation between private restrictions and tariff- or nontariff barriers has led to a shift
in the discussion towards a more international perspective on protecting competition against
private restrictions to complement the achievements of international trade policy.
Export cartel exemptions are instruments of competition policy for trade policy ends. "In a world
of international trade, competition and trade policy also become the same subject. Trade policy at
its heart involves choices over the level of competition between domestic and foreign producers
a state will permit or encourage. ... Absent a closed economy, competition and trade policy are
3

Adam Smith An Inquiry into the Nature and Causes of the Wealth of Nations (1776), Volume I: Book I, Chapter X,
p. 82.
4
Smith, Volume II: Book IV, Chapter IV, p. 1.
5
Id.

the two sides of the same coin."6 In many instances competition policy-related support to a state's
export business is even older than global free trade movement, but the former's relevance for and
influence on competition resurfaces now that a global free trade policy is developing.
Prosecuting and deterring international cartels increasingly occupies the time and energy of
competition authorities around the world. In order to provide appropriate policy instruments,
policymakers have had to address a range of issues: corporate amnesty policies,
extraterritoriality, building antitrust institutional capacity in developing countries, and
multinational agreements for competition authorities to cooperate and share information. In a
similar vein, some countries have eliminated or limited previously existing antitrust exemptions
for cooperation among private firms for exporting goods and services; others, however, have
steadfastly insisted on the importance of maintaining these exemptions.
With increasing consensus, both in favor of freer international trade and in opposition to price
fixing and market division agreements, these exemptions have come under criticism over the last
decade. By 1991, academics were beginning to call for a change in policy toward export cartels.
"[Export exemptions from antitrust laws] authorize firms to collaborate to engage in
anticompetitive behavior in foreign markets, at the expense of other countries' consumers and
producers, in a manner that would be unlawful if undertaken at home." Spencer Weber Waller,
the preeminent expert in this area, wrote that "the absence of international regulation pertaining
to the use of export cartels leaves a conspicuous gap in the enforcement of competition norms."
The Organisation for Economic Co-operation and Development ("OECD") voiced similar
criticism, calling for the "worldwide repeal of cartel exemption coupled with an efficiency
defense."
A few countries, such as the United States and Australia China and India, continue to offer
explicit export exemptions. Two questions arise: Is this antiquated or protectionist thinking on
the part of these "hold out" countries, or is it the correct policy stance? Do we want explicit
exemptions, implicit exemptions, or no exemptions at all? Many would argue that we should
have no exemptions: allowing firms to fix prices for domestic or export purposes should be
illegal. But if we cannot achieve that goal in the near future, it may be worse, not better, to have
6

P. Stephan "Competitive Competition Law?," University of Virginia School of Law, Law and Economics Research
Paper (03-3) (2003), 5.

countries moving to implicit exemptions if "implicit" implies no notification, no ongoing

oversight, and increased uncertainty regarding a firm's vulnerability to foreign antitrust
prosecution. If there are explicit exemptions, they should be based on considerations of global
welfare, rather than "beggar-thy-neighbor" strategies. Countries should work together either to
agree to eliminate export exemptions or to adopt explicit exemptions that are jointly monitored.
The current patchwork of implicit and explicit exemptions is the least favored approach.
This paper presents an overview of different types of "pure" export cartel exemptions (i.e., those
intended exclusively for trade in foreign markets), documents their changing international status,
and discusses the reasons for these changes. Our use of the term "export cartel" is not meant to
imply that the member firms are able to exercise market power, but simply that they have been
granted permission to engage in activities that cartels behave in, such as fixing prices. An "export
cartel" or "export association" is simply a group of firms that nations permit to work together
(sometimes with clear restrictions specifying over which dimensions they may or may not
coordinate). Such an association may or may not function as a classic price-fixing cartel. A "hard
core" cartel has the goal of price fixing and/or market allocation. An "export cartel" may have
the identical primary goal, or it might have strictly efficiency enhancing goals; or it may do both.
For example, the firms in the association may simply be sharing the fixed costs of marketing or
transportation.

Still, it is their self-selection in obtaining exemptions from antitrust laws

regulating "hard core cartel" activities that sets these associations apart. We will use both terms,
referring to "export associations" when speaking about a legal designation and "export cartels"
when discussing the policy issues more generally.

CHAPTER-2
THE LAW OF EXPORT CARTELS

A. The Definition and Description of Export Cartels

According to a definition provided by the OECD, an export cartel is an agreement or
arrangement between firms to charge a specified export price and/or to divide export markets
(that is markets of the target states).7 This cooperation constitutes what is normally identified as
a hardcore cartel.8 However, export related cooperation between companies of one or more
national economies can cover even more activities. The typical activities of an export association
covered by the relevant U.S. legislation were described by a U.S. court as: exclusive export
arrangements for members, refusal of the association to handle export of nonmembers, fixing of
resale prices of foreign distributors or sales quotas, and price fixing agreements.9
Export cartels can be formed by producers from a single country, or they can be international
cartels, made up by producers of several countries and targeting a market where none of these
companies has as a home market. If export cartels also have effects in the domestic market, they
are called "mixed cartels." As regards their economic effects, export cartels have parallels with
export aids (or subsidies). Both distort competition to the disadvantage of foreign markets and
foreign competitors, but only the latter are internationally regulated by the WTO Agreement on
Subsidies and Countervailing Measures,10 although there is no GATT, WTO provision explicitly
prohibiting states from exempting export-related anticompetitive conduct arranged between
exporters themselves.

See the relevant entry in R. S. Khemani and D. M. Shapiro, Glossary of Industrial Organisation Economics and
Competition Law (1993) (http:// www.oecd.org/dataoecd/8/61/2376087.pdf; last visited 30 August 2006).
8
See the accepted description of a hard core cartel in: OECD (ed.) Hard Core Cartels (2000) 6.
9
US v Minnesota Mining & Manufacturing Co, United States v. Minnesota Mining & Manufacturing Co., 92 F.
Supp. 947 (D. Mass. 1950).
10
M. Trebilcock and R. Howse The Regulation of International Trade, 3rd edn (Routledge, London, 2005), 263.

B. Export Cartel Exemptions

Several major economies, such as those of the EU and the United States and India, implicitly or
explicitly grant immunities against antitrust liability for export related cartels, thereby
encouraging (or at least supporting) conduct that is prohibited when having domestic effect.11

1. The United States

It cannot come as a surprise that the United States, as the state with the oldest antitrust law
provisions, was also the first state to grant immunity to export-related anticompetitive conduct,
whereas import-related anticompetitive conduct by foreign companies has been prosecuted
vigorously in general, though with some exceptions as regards single-country export cartels. 12
The lack of protection against anticompetitive behavior taking place outside the United States,
but affecting the U.S. economy, did not cause any serious concern in 1909 because the
interdependency of a global economy was yet to develop. However, the more those global
economies became interdependent and the more those American companies faced foreign
competition at home and abroad, the more urgent the need became for a less rigid approach to
the strict territorial principle originally advocated. Consequently, U.S. courts regularly applied
American antitrust law to the conduct of American companies in foreign markets, if they
restricted or monopolized U.S. foreign trade, either their own or in cooperation with foreign
partners.13 According to this strain of case law any restriction of U.S. foreign trade was
prohibited independent of whether the conduct in question had taken place within U.S. territory
or outside.
In 1918, Congress was concerned with the weakness of U.S. companies being unable to
cooperate when facing competition from powerful foreign cartels. 14 The existence of American
11

For the sake of clarity, we assume in the following text that such conduct is exempted that could not be legal in
the domestic competition order; for example under the exceptions of Article 81(3) TEC.
12
See on the reasons for this distinction between international cartels and single country cartels: S. Weber Waller,
"The Ambivalence of United States Antitrust Policy Towards Single-Country Export Cartels," Nw J Int'l L&Bus 98
(1989/90).
13
US v American Tobacco Co, 221 U.S. 106 (1911); see also: US v Sisal Sales, 274 U.S. 268 (1928); US v National
Lead Co, 332 U.S. 319 (1947); US v Timken Roller Bearing Co, 341 U.S. 593 (1951); US v General Electric Co, 82
F Supp 753 (DNJ 1949); Continental Ore Co v Union Carbide and Carbon Corp, 370 U.S. 690 (1962).
14
M. Levenstein and V. Suslow, "The Changing International Status of Export Cartels," Am U Int'l LR 789
(2004/5).

antitrust law was regularly cited as the most serious impediment for the establishment of export
cooperation. Additionally, the high fixed costs of exporting restricted the ability of small and
medium enterprises to enter foreign markets. 15 To meet this situation, an export-related exception
from the general prohibition contained in 1 of the Sherman Act was laid down in the WebbPomerene Export Trade Act of 1918 (WPA),16 exempting from the general prohibition of antitrust
immunity "the formation and operation of associations of otherwise competing businesses to
engage in collective export sales."
The WPA continues to state that the "immunity conferred by this statute does not extend to
actions that have an anticompetitive effect within the United States or that injure domestic
competitors of members of export associations." Thus, the cartels had to be focused in the sense
of not causing anticompetitive spill- over effects in the domestic market.
More than 70 years after the WPA, the Export Trading Company Act of 1982 (ETC)17 was passed
under the impression that U.S. firms faced increased competition in the global marketplace and a
growing U.S. trade deficit which had persisted since 1971. The deficit had contributed to the
decline of the U.S. Dollar, and to inflation, unemployment, and the federal budget deficit. The
adverse development was blamed on unfair or disadvantageous foreign trade practices, such as
the subsidization of foreign competitors operating under less restrictive competition laws, and
the existence of foreign (mostly state-owned) monopolies. However, in addition, the adverse
application of American antitrust laws to American companies had been mentioned. The
perceived weakness of American undertakings in foreign markets that were structured by
monopolies and by state intervention required the legislator to "insulate United States business
from its antitrust laws for certain business conducted outside the country ... to assist American
business competing abroad."18
Congress intended to encourage the establishment of vertically integrated trading companies,
facilitating all aspects of export, as well as allowing competitors to jointly exploit market power
abroad, balancing the market power of foreign private cartels and state undertakings. Another
15

D. Larson, "An Economic Analysis of the Webb-Pomerene Act," JL Econ 46 (1970); S. Weber Waller, "The
Failure of the ETC Program," NCJ Int'l L & Com R 239 (1992).
16
15 U.S.C. 61-64.
17
Export Trading Company Act of 1982, 15 U.S.C. 4001.
18
See on this rationale: Den Norske Stats Oljeselskap As v HeereMac, 241 F.3d 420, 431 (5th Cir. 2001)
(Higginbotham, J., dissenting).

legislative motive was to dispel any uncertainty about the scope of American Antitrust Law that
might at that time have had a negative impact on small and medium enterprises' willingness to
cooperate when exporting. These external reasons were perceived to be complemented by
internal barriers to trade--such as that companies that are able to export would not do so because
they shied away from high fixed costs for entrance into new markets and because they suffered
from a lack of expertise in these markets.
To surmount these problems, the ETC contained several provisions aimed at the promotion of
American export trade, expanding the option to exempt export cartels on the basis of the WPA.
In contrast to the latter, the ETC provided for antitrust immunity not only with regard to goods,
but also with regard to services; and not only for associations, but also for any person or
partnership. The ETC also covers undertakings even if their exports represent only a relatively
small share of their trade. Among the specific tools were jurisdictional changes to anti-trust law
and the establishment of antitrust immunity for certified activities.
The certification-provision invites companies engaged in export to apply for a certificate of
review issued by the Secretary of Commerce with the concurrence of the Attorney General,
setting limits to their antitrust liability before they engage in such conduct. As long as the
certificate remains in effect, its holder remains immune from antitrust liability as far as the
conduct in question is covered by the certificate.
The ETC states that, to "obtain the certificate a person must show that the proposed activities: (1)
will neither substantially lessen competition or restrain trade in the United States nor
substantially restrain the export trade of any competitor of the applicant; (2) will not
unreasonably enhance, stabilize, or depress prices in the United States of the class of goods or
services exported by the applicant; (3) will not constitute unfair methods of competition against
competitors engaged in the export of the class of goods or services exported by the applicant; and
(4) will not include any act that may reasonably be expected to result in the sale for consumption
or resale in the United States of the goods or services exported by the applicant."

Confusing decisions about the actual jurisdictional reach of U.S. antitrust law had also made
legislative clarification of the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA) 19
desirable.
In 1981, a Federal Court had decided that American antitrust law was inapplicable where an
American and a Canadian company had cooperated to the detriment of another Canadian
undertaking in the Canadian market. 20 That seemed to be at odds with an earlier decision
allowing a foreign government to sue an American company for treble damages in U.S. courts if
it had been harmed by an attempt to restrain and monopolize interstate trade for the manufacture,
distribution, and sale of certain drugs.21
According to the FTAIA, Sections 1-7 of the Sherman Act shall "not apply to conduct involving
trade or commerce (other than import trade or import commerce) with foreign nations unless
such conduct has a direct, substantial, and reasonably foreseeable effect (A) on trade or
commerce that is not trade or commerce with foreign nations, or on import trade or import
commerce with foreign nations; or (B) on export trade or export commerce with foreign nations,
of a person engaged in such trade or commerce in the United States; and (C) such effect gives
rise to a claim under the provisions of sections 1 to 7 of this title, other than this section." If
Sections 1-7 of the Sherman Act apply to such conduct only because condition B is satisfied,
then only injury to export business in the United States is covered.
The FTAIA encourages U.S. business to engage in export cooperation (or any other wholly
foreign business activities) as long as domestic effects are incidental and insubstantial. The Act
can be read as the legislator's encouragement of U.S. companies to "act as anti-competitively as
they wish, as long as they respect the American economy and refrain from activity that would
injure participants in the domestic market,"22 or, to put it briefly, as a "Congressional effort[s] to
protect American markets in an internationalized economy."23
2. The European Community

19

7 Sherman Act, 15 U.S.C. 6a.

National Bank of Canada v Interbank Card Assoc, 666 F.2d 6 (2d Cir. 1981).
21
Pfizer Inc v Government of India, 434 US 308 (1978).
22
S. F. Halabi, "The 'Comity' of Empagran," HJIL 288 (2005).
23
Id. at 280
20

10

Article 81 and 82 TEC are the main foundations of European Competition Law. Article 81 TEC
prohibits acts of anticompetitive cooperation "which may affect trade between Member States
and which have as their object or effect the prevention, restriction or distortion of competition
within the common market." Article 82 TEC addresses the abuse of a dominant position "within
the common market," if this abuse "may affect trade between Member States." Thus, the wording
of both provisions expressly relates to anticompetitive effects within the Common Market.
Notwithstanding these references to effects on the common market only and to trade between
Member States only, the Commission and the ECJ have in principle understood the provisions to
be applicable to export cartels targeting foreign markets.
The application of Community competition law is guided by the effects principle when inbound
restrictions are at stake. This is consequently followed for outbound restrictions. If an agreement
is to be implemented in the market of a state outside the Community, it can still have effects on
the Community market itself--either by restricting one partner's ability to allocate the supplied
goods to where it is most advantageous, or by preventing reimport into the Community.
However, should parties to an agreement find a way to design a pure export cartel (for example,
by trading in goods that do not have a market within the Community at all), no repercussions on
the Common Market could occur and the cooperation would therefore not be prohibited by the
competition law of the Community.24 As a consequence, although the rules of the European
Community do not expressly exempt or encourage cartels whose effects are felt purely in export
markets, for lack of effects in the Community market the TEC does not assign jurisdiction to the
Commission to deal with them.25

3. INDIAN POSITON WITH RESPECT TO EXPORT CARTELS

Definition of Cartel
24

ECJ, Case 174/84, Bulk Oil (Zug) AG v Sun International Limited and Sun Oil Trading Company [1986] ECR
559; see also Commission Decision 77/100/EEC of 21 December 1976, OJ 1977 L 30/10, para. 24.
25
See the statement of the Representative of the European Community and its member States as reported in the
Report of the Meeting of 2/3 October 2000 of the WTO Working Group on the Interaction between Trade and
Competition Policy (WT/WGTCP/M/12) 10.

11

Cartel has been defined, in section 2 (c) of competition Act, 2002 as under:
cartel includes an association of producers, sellers, distributors, traders or service providers
who, by agreement amongst themselves, limit, control or attempt to control the production,
distribution, sale or price of, or, trade in goods or provision of services.
The key points in this definition are:
Two or more agents
Agreement between the agents
Control or attempt to control
As per the definition, for cartel to form two or more agents must come together. Most important
dimension in the definition is that a cartel requires an agreement between firms. This agreement
is generally in terms of formal or informal agreements among firms designed to reduce or
suppress competition in the market. Thirdly, this association of agents must be able to control the
production, distribution, and sale or price of, or, trade in goods or provision of services.
The objective of a cartel is to produce less at higher price i.e. more profit at less effort, injuring
the interests of the consumers including other firms (whose competitiveness is harmed by
cartelization) and Governments.
In competition Act, 2002, hardcore cartel has not been defined explicitly; neither there is
generally accepted definition of hardcore cartels. There is however a recommendation of the
Organization for Economic Cooperation and Development on hardcore cartels. According to that
recommendation, a hardcore cartel is:
An anti-anticompetitive agreement, anti-competitive concerted practice, or anti-competitive
arrangement by competitors to fix prices, make rigged bids (collusive tenders), establish output
restrictions or quotas, or share or divide markets by allocating consumers, suppliers, territories,
or lines of commerce.
Thus Competition Act, 2002 includes all the four forms of hard core cartels given in the OECD
definition of hardcore cartels. The definition given by OECD emphasizes on the expression
12

anti-competitive which is repeated therein thrice. This means in OECD recommendations

hardcore cartels are per se illegal, but Competition Act, 2002 provide one of the escape valves in
the proviso. This means Competition Act, 2002 does take care of efficiency aspect even of cartel.
International Cartel
Though this word has not been used in the Act, Act does provide for effects doctrine. So
competition has a role to play to handle the international cartel. Such jurisdiction is provided in
the competition statutes of some countries. India is one such. Section 32 of the Indian
Competition Act, 2002 declares that acts taking place outside India but having an effect on
competition in India would in certain situations fall within the ambit of the Act. The extract of
the said section is:
The Commission shall, notwithstanding that,
(a) An agreement referred to in section 3 has been entered into outside India; or
(b) Any party to such agreement is outside India; or
(c) Any enterprise abusing the dominant position is outside India; or
(d) A combination has taken place outside India; or
(e) Any party to combination is outside India; or
(f) Any other matter or practice or action arising out of such agreement or dominant position or
combination is outside India, have power to inquire into such agreement or abuse of dominant
position or combination if such agreement or dominant position or combination has, or is likely
to have, an appreciable adverse effect on competition in the relevant market in India.
Import and export cartels:
Export cartels are those where independent, non-state related producers from one country take
steps to fix prices or engage in market allocation in export markets, but not in their domestic
market. Here the conspiracy of action in concert does not involve any impact in the country
where the cartel members are headquartered. In other words, an export cartel is made up of firms
from one nation with an agreement to cartelize markets abroad. Export cartels fix prices or
13

outputs in the participating members export markets but not in their home markets. On a global
basis, the anti-competitive effects of export

Cartels can be no better than a zero-sum game, in which one countrys exporters gain from
monopoly rents are another countrys consumers losses. But on national basis it is a beggar-thyneighbor policy, in which one nations gains is at the cost of other nations cost. So there is no
good reason to exempt export cartels from the application of competition law. Generally, export
cartels are exempted from the national competition laws in many countries.
In competition Act, 2002, export cartels have been exempted from the provisions relating to anticompetitive agreements. Section 3 (5) (ii) confirms it:
The right of any person to export goods from India to the extent to which the agreement relates
exclusively to the production, supply, distribution or control of goods or provision of services for
such export.
Import cartel is one more form of international cartel, but here like export cartels members of
import cartels belong to one country not to two or more countries. But this one country is
importing country. The members of import cartels form the cartels for the purpose of eliminating
the importers from competing with cartels members. The import cartel after eliminating the
competitors can regulate price, and other terms and conditions of goods and services that are
imported into the home markets. These cartels hurt both the firms abroad who are trying to enter
the home market as well as the home consumers who have to face distorted terms and conditions
in dealing imported goods and services. Such cartels should also be checked at least for the sake
of domestic consumers.

International Cartels Indias Approach to Legal Enforcement

Till date, almost nothing has been done on international cartels, in India. However, it is not as
though India has remained untouched by international cartels. A study done by Simon Evenett
and Julian L. Clarke estimates that the overcharges in India during the conspiracy period of the
14

vitamins cartel were US$25.71mn.26 There may have been other cartels that negatively impacted
India. There may be many such cartels in the future as well. What then is Indias legal and
institutional capacity to deal with international cartels?
CUTS, an India-based public interest organization collected some information on the vitamins
cartel and passed it on the competition authorities for further action. However, the competition
authorities came to the conclusion that no case could be made in this regard. The grounds for
arriving at such a conclusion was, however, not known. Many of the companies involved in this
case have commercial presence in India and the issue of jurisdiction, in all probability, would not
have been a hindrance.
The old competition law of India (Monopolies and Restrictive Trade Practices Act) provided for
the initiation and follow-up of anti-cartel enforcement, but only through general provisions
against restrictive and unfair trade practices. The new Act, however, specifically addresses cartel
concerns. Considering the transnational nature of international cartels, the incorporation of the
effects doctrine (that is inquiry into acts taking place outside India, but having an effect on the
markets in India) in the new Act is facilitative to anti-cartel enforcement. However, India must
ensure that the law is duly implemented. India must also develop effective techniques for
investigating international cartels.
4. The Question of Jurisdiction
There has been significant discussion in all developed countries as to how far national
competition law should be applied to foreign companies' conduct taking place outside the state's
territory but having an effect in the market of the regulating state (incoming effects). In contrast,
as demonstrated in this project, little effort has been made to apply competition law in reverse
cases, where anticompetitive conduct takes place on the regulating state's territory, but has an
effect outside that territory only (outgoing effects).
There has always been awareness of the fact that a regulatory framework relating to incoming
effects has to be developed within the rules of public international law concerning the bases of
jurisdiction. With regard to prescriptive jurisdiction (that is the question to whom a state may
extend its competition laws), the territorial principle and the personal principle are of obvious
26

Connor, John (2003), Private International Cartels: Effectiveness, Welfare and Anticartel Enforcement, Purdue

15

relevance. On the basis of the latter, states might extend their competition laws to their citizens
wherever their anticompetitive conduct takes place. The former enables a state to regulate
anticompetitive conduct that is initiated within its territory, but is completed outside its territory
(subjective territorial jurisdiction) and vice versa (objective territorial jurisdiction). Because this
base for jurisdiction seemed to be confined to the commission (or completion) of physical acts, it
did not serve its purpose in a globalized economy with transborder trade. As a consequence, the
effects doctrine has been developed 27 attempting to expand a state's jurisdictional reach beyond
the restrictions of the territorial/personal principle in the classic sense. After having employed a
strictly territorial approach,28 in the classic Alcoa case, the United States asserted jurisdiction
over a foreign company whose anticompetitive conduct was meant to harm competition in the
United States by developing anticompetitive effects in its economy. The effects doctrine served
as a justification to explain the exercise of a jurisdiction to prescribe the conduct of a foreign
company, taking place on foreign territory. However, when engaging in export cartels,
anticompetitive conduct takes place on the territory of the non-regulating (or encouraging) state
and in most instances the actors will be citizens of that state. This makes the objective
territoriality principle as well as the objective personality principle applicable, which both confer
jurisdiction to prosecute export cartels. Consequently, jurisdictional rules of Public International
Law do not pose a problem to the prohibition of export cartels. The refusal to deal with export
cartel exemptions on the basis that they do not have an effect in the territory of the regulating
state is a worthwhile argument only in the interpretation of current statutory or treaty provisions,
but, as a policy recommendation for prospective changes in the law, it is quite misleading,
because the "effects" doctrine had not been designed to restrict the objective territoriality--or the
objective personality--principles. A reluctance to protect foreign markets against the
anticompetitive conduct of companies located within a state cannot be explained by legal
restraints, but as a matter of competition policy.
5. State Participation and Immunity

27

United States v Aluminium Company of America, 148 F.2d 416 (2d Cir. 1945); see for the UK Rio Tinto Zinc
Corp v Westinghouse Electric Corp (1978) All ER 434 (HL); critical, however, Timberlane v Bank of America, 549
F.2d 597 at 611. (1970); more recently Den Norske Stats Oljeselskap As v HeereMac, 241 F.3d 420 (5th Cir. 2001)
on the one hand and Kruman v Christie's Int'l, 284 F.3d 384 (2d Cir. 2002) on the other hand and finally F.
Hoffmann-La Roche Ltd. v. Empagran S.A., 123 S. Ct. 2359 (2004).
28
American Banana Co v United Fruit Co, 213 U.S. 347 (1909).

16

Export cartel exemptions might well insulate a company against domestic antitrust liability, but
they do not necessarily offer the same degree of protection against liability in the foreign target
market. The degree of protection is dependant upon the degree of state involvement in the
establishment of the cartel.
Even though export cartels are not a typical trade policy instrument, the regulating state is, at
least indirectly, involved in their creation. The degree of the state's involvement in the formation
of export cartels can vary from mere disregard (by either not having antitrust rules at all, or by
the implicit exemption of export cartels from competition law), to active protection and
encouragement (through explicit exemption and a registration procedure) and, further, to state
compulsion of private companies, or even to the state itself being an economic actor (as opposed
to a regulator) behaving in an anticompetitive manner in foreign state's economy.
As long as cartels are merely exempt from the application of domestic antitrust laws but are not
required by such laws, a challenge to an export cartel on the basis of the target state's competition
law by no means violates any of the exempting state's sovereign jurisdictional rights.29
6. The Enforcement Asymmetry
Export cartel exemptions would be a much smaller problem for international trade were there to
be an international competition law regime of whatever shape coupled with international
enforcement mechanisms--a development that currently seems to be quite unrealistic.
Alternatively, cartel exemptions could become a non topic, were all states (and the target states in
particular) in a position to tackle anticompetitive behavior in a robust manner on the basis of the
effects doctrine. This, however, is not the case. To serve as a deterrent, competition law has to be
enforced robustly.
Though competition laws have become increasingly popular all over the world, most of the target
states for export cartels lack the expertise or the resources to enforce their competition laws
actually and credibly against foreign companies. The assumption that there is no impediment to
any jurisdiction affected enforcing its competition law to prosecute the anticompetitive effects of
29

ECJ joined cases 89, 104, 114, 116, 117 and 125 to 129/85, Ahlstrm et al v Commission ("Woodpulp") [1988]
ECR 5193, para. 19; on the economic aspects of sovereignty see S. Weber Waller and A. Simon, "Analyzing Claims
of Sovereignty in International Economic Disputes," NW J Int'l L & Bus 1 (1985/86); idem. "A Theory of Economic
Sovereignty," Stan JIL 347 (1986).

17

foreign cartels30 does not take into account the lack of resources and the lack of expertise in the
target markets.
Even if an LDC were to attempt to investigate or prosecute a foreign export cartel on the basis of
the effects doctrine, the evidence of anticompetitive conduct lies abroad, as well as any valuable
assets that could be used to enforce a judicial or administrative decision on damages for the
violation of antitrust laws. LDCs have little or no bargaining power to access either evidence
outside their jurisdiction or, at a later stage of the process, foreign assets. Consequently, although
the competition laws of a LDC applying the effects doctrine could in theory provide a basis to
prosecute export cartels, in practice they are unlikely to do so successfully. Effectively, export
cartel exemptions prevent the competition authorities of the state in which a company is
domiciled--and therefore holding the most information about the conduct and having the best
access to the actors in question--from assisting those that are harmed by anticompetitive behavior
(the target states). Moreover, as long as at least one economy that has sufficient bargaining power
to resist enquiries from other states upholds its export cartel exemption, that state will be a safe
haven for agreements on export cartels, because all evidence for their conduct will be virtually
inaccessible for the foreign prosecutors of target states.
C. Explicit and Implicit Exemptions
Most developed states besides the United States have become increasingly reluctant to advocate
and grant such immunities in an explicit way.31 However, this reluctance should not be
interpreted as a tacit acceptance that export cartel exemptions constitute unfair practices in
shifting rents from foreign to domestic markets. It is more likely that granting such exemptions is
implicitly understood to have some strategic advantages.
The need for an explicit exemption has several advantages, but the main one is transparency. Not
only the interested public, but also competitors and the target states could use this knowledge to
prepare for counter-measures. Also the national authority of the regulating state can take a closer
30

Stated by the representative of the United States, see WTO Report on the Meeting of 20-21 Feb 2003
(WT/WGTCP/M21, May 2003) 15.
31
See Levenstein and Suslow (note 24) 786-7; also significant voices within the scholarly discussion demand the
abolishment of these exemptions in particular with regard to LDC as target States: E. Fox "International Antitrust
and the Doha Dome," VJIL 928 (2003); J. Drexl, "International Competition Policy after Cancun," 450 (2004); A.
Guzman "The Case for International Antitrust," Berk JIL 372 (2004).

18

look at the domestic activities of the cartelists to make sure that the lawful export cartel does not
have a spill-over effect on the domestic market.
Predictability for the cooperating companies is added to the advantages of explicit exemptions in
those cases, where the involvement of the agency goes beyond the mere administration of
notifications. A need for consent or permission at least regularly shifts the burden of proof to the
administration or any private plaintiff, because the agency actively accepts the behavior as
lawful.
Because of their lack of secrecy, reported and even more so explicitly exempted export cartel
exemptions supposedly do "not bear the hallmarks of what was traditionally considered to be a
hardcore cartel."32 However, this assumption, made in defense of export cartel exemptions in
general, confuses substance and procedure. It is not convincing to accept a certain conduct as
procompetitive just because it is not kept secret when this lack of secrecy is due to the fact that
the conduct is actually supported by the home state. The statement also distracts from the fact
that, by abandoning (or not putting in force) explicit exemptions without adjusting the
substantive reach of domestic competition law, no strong procompetitive statement in favor of
the potential target markets is made.
Rather, abandoning procedures to notify or register export cartel exemptions contributes to an
even lesser degree of transparency from which the competition authorities of target states might
benefit in pursuing such cartels. Thus, even without considering the effects of export cartel
exemptions, it seems desirable that, should a state choose to offer such exemptions to its
companies and should there be no international rule preventing it from doing so, for the sake of
transparency the exemptions should be made transparent, that is, explicit. It must, however, be
clear that, in the European Community, under the new decentralized regime of Council
Regulation 1/2003, explicit exemptions do not fit well in this system of a now directly applicable
Article 81(3) TEC.

D. The Protection of Foreign Markets

32

Stated by the Representative of the United States, see Report on the Meeting of 20-21 Feb 2003 of the WTO
Working Group on the Interaction between Trade and Competition Policy (WT/WGTCP/M21) 15.

19

Legal rules are designed for a certain end. The more a rule maker is in the position to shape or
influence legal and extralegal factors the more likely it is that the objective of the rule will be
achieved in the end. In the best of all worlds, this presupposes congruency between effects and
territory. Thus, for national competition law the most appropriate market to protect seems to be
the domestic market. It is only here that the regulating state possesses the power to shape a
framework for the economy in which competition is able to flourish. In this market the regulating
state's tools have the most comprehensive impact. In contrast, any protection of competition in a
foreign market is necessarily incomplete. From a domestic point of view, every state has a
toolbox of instruments to safeguard competition, whereas in foreign markets a wide range of
state decisions relating to competition or industry policy (such as the establishment of and
support for national champions) might add to a nonexisting competition structure. Thus, the
protection of competition in foreign markets as an objective of a national policy means bringing
two different situations into consideration. On the one hand, there is the domestic situation,
where competition law is only one aspect of safeguarding a market structure as a whole.
However, here, all aspects can be influenced by the state in question. On the other hand, there is
the foreign situation where, apart from the problem of export cartels targeting this market, all
other anticompetitive behavior can only be influenced on the basis of a (possibly excessive)
understanding of the effects doctrine. Many more aspects of state influence on the market are
beyond the regulating state's reach (and should be not of interest to it in the first place) because
of the fundamental principle of nonintervention into the target state's economic decisions.33
Yet the restricted impact of a regulating state's competition policy decision on a foreign state
only means that the former cannot be held liable for undistorted competition in the foreign
market state. It is not the regulating state's responsibility (nor is it within its capability) to prevent
anticompetitive market structures in foreign states. However, this prevention is not expected
anyway and such a statement is quite misleading, because it seems unsatisfactory to defend
support for anticompetitive conduct affecting a target state only by the theoretical possibility of
other, additional and perhaps government-induced distortions of competition in that target state.
Two wrongs do not make a right. Rather, in an ideal world, one only expects that the home State
contributes to the restriction of anticompetitive conduct within its own jurisdiction, as much as it
33

20

would with regard to its own market and at least to the degree that domestic competition is
protected.

CHAPTER-3
EFFICIENCY OF EXPORT CARTELS
It seems questionable, if not immoral, that a state should allow or support behavior to the
disadvantage of foreign markets that is strictly prohibited on the domestic market. The most
obvious allegation against export cartels is that its members pursue monopoly gains that have to
be met by foreign consumers paying prices above the competitive level. Though there are
considerable difficulties in finding common ground on how to calculate possible losses in target
states, as a matter of principle there seems to be agreement that international cartels "impose
21

severe costs on importing countries, including many developing countries"34 in essence by

shifting gains from the target state (its consumers and producers) to the exporting state. This
"practice manifests a welfare calculation that gives no weight to foreign consumers, and
suggests some indifference to local consumers that probably bear some costs from foreign export
cartels."35 However, besides the economically and politically questionable argument that export
cartels help to raise currency imports, few advocates of exemptions would openly agree that they
are little more than an attempt to enhance domestic welfare at the expense of global welfare or
the welfare of consumers in the target market in particular. As a consequence, governments as
well as scholars offer some more sophisticated arguments to justify leniency regarding export
cartels.36 These arguments are centered around the promotion of efficiency and welfare not only
for the exporting state, but also for the target state.37
Export cartels are defended as an instrument for risk reduction and cost sharing. By pooling sales
activities, cartel members avoid an expensive duplication of services and, if fixed expenditures
are involved, even economies of scale can be exploited. 38 According to a U.S. government
publication, cooperating companies can benefit from joint market research, trade shows,
advertising, financing, and servicing as well as training activities. In that respect, export cartel
exemptions have the potential to help companies that typically lack the resources to engage in
effective export activity when acting on their own.
This argument, however, is generally only brought forward for small and medium undertakings
(SMU) that wish to rationalise and facilitate exports by pooling knowledge and expertise.
However, the ability to export products or services is dependant on the channels used to trade
them. The SMU will tend to use indirect export channels (through partners in the target market)
rather than exporting directly themselves, because the establishment of specific distribution
channels (maybe in several markets with a relatively low share of exports) is associated with
34

Trebilcock and Howse (note 13) 602.

P. Stephan "Competitive Competition Law?," University of Virginia School of Law, Law and Economics
Research Paper (03-3) (2003), 15.
36
See the overview offered by J. Basedow, Welkartellrecht (Mohr Siebeck, Tbingen, 1998), 27; W. Moeschel,
"Internationale Wettbewerbsbeschrnkungen," in H. Lemann (ed.), Festschrift fr Rudolf Lukes (Kln, Heymann,
1989), 467.
37
Comprehensively on this: Stephan (note 7) 7; A. Guzman, "Is International Antitrust Possible?," NYULR 1512-18
(1998); Levenstein and Suslow (note 70), 818; Bhattacharyea (note 72), 347.
38
A. Dick "Are Cartels Efficiency Enhancing or Monopoly-Promoting," 2 (1989) (UCLA Economics Working
Papers No. 601; http:// www.econ.ucla.edu/research/workingp.html; last visited 29 July 2006).
35

22

disproportionate entrance costs and requires a large degree of market specific expertise.
Nevertheless, it has been frequently argued that it is not the SMU that take advantage of export
cartel exemptions-- rather exemptions have regularly been sought by large international
companies--but there are exemptions to this;39 consequently, the empirical situation is quite
complex. It remains unclear due to a lack of data, particularly from those jurisdictions that do not
require an explicit request for exemption as well as from those that treat an exemption given
confidentially.
In addition to overcoming structural deficiencies on the side of the exporting companies, the
exemptions are supposed to facilitate the exporting companies' market access to foreign markets
suffering from restricted competition, thus helping exporters to overcome market barriers in the
target state (the "defense argument"). Foreign companies tend to lack knowledge of the market
they are targeting, which again causes competitive disadvantages with regard to domestic
competitors. Additionally, exporters might be confronted with nontariff-barriers, accumulated
market power, and other aspects of distorted competition making market access more difficult 40.
The restriction to be overcome by countervailing market power could be due to the
anticompetitive conduct of incumbents, but it could also be caused by state-induced trade
restrictions.41 Exporting companies can be further disadvantaged when, for example, attempting
to enter a target market dominated by cartels, oligopolies, or--even worse--a monopoly on the
demand or the supply side. In all of these cases they face a market in which, due to these
distortions, competitive conduct will not be successful. Coordinated conduct of exporters can
assist them in entering the market notwithstanding the distorted competition; the new foreign
market entrants introduce new competitors, which can then bring about increased efficiency.
Referring to all those aspects, the United States in particular claims that export cartels have
procompetitive effects in facilitating the entrance of new foreign competitors to the target
market. This is said to have as a consequence all of the typical welfare effects of more
competition--such as innovation, better quality, and lower prices. However, it seems questionable
whether an overly generous approach to supporting export cartels does not have as a
39

See on this WTO Report of the Working Group on the Interaction between Trade and Competition Policy to the
General Council (WT/WGTCP/7 July 2003), 14.
40
See http://www.trade.gov/td/oetca/teamup.html (last visited 24 July 2006).
41
These, however, should continue to lose their significance with the further advancement of the WTO-system. This
will also make national monopolies less threatening, because being subjected to international free trade diminishes
domestic market power and makes markets contestable.

23

consequence the additional incremental development of dominant positions or other

anticompetitive structures within the target market, with further detrimental effects for third
parties. The export cartel exemption leads to a significant reduction of risks for exporters while
all gains remain with them.42 Like all cartels, export cartels have other typical negative effects
such as the delay of technical progress and increasing costs for consumers.
Whether on balance an export cartel actually promotes competition in the target market depends
on whether the exporters are new market entrants or not. If the former is the case then there is
some likelihood that market entrance is linked to the cooperation. There is a welfare enhancing
benefit in the target market, if cartelization leads to a per unit cost reduction in supplying this
market, but the effect must not be outweighed by the sales restraining effect of the cartelization. 43
An export cartel will only be successful if a large proportion of market participants join in. Thus,
cooperating exporters need a significant joint market share in the target market, because
otherwise their output restriction leads to a rising price umbrella invites free-riders to benefit,
which again undermines the cartelists' profitability. If the free-riders are market participants
domiciled in the target market, their benefits reduce the overall damage for the targeted economy
(although consumers still suffer from prices above the competitive level).
On the basis of the assumption that the objective of competition laws in general is consumers'
rather than competitors' welfare,44 setting up a welfare equation with gains from anticompetitive
conduct that domestic firms achieve against losses of foreign consumers seems quite
questionable. Also, under normal market conditions, a single country export cartel will be unable
to raise the price significantly, therefore giving much less scope for nonparticipants to benefit.
The outsiders' production costs remain the same when not cooperating with the cartelists, which
means that there are no free-rider benefits to be had. This exerts pressure on outsiders to join in
further restrictions of competition. In addition to that, exemptions for export cartels may
encourage defensive measures by the target market's government or other market participants
42

43

See A. Bhattacharyea, "Export Cartels," JWT 336 (2004), 350.

For the U.S. Brown Shoe Company v U.S., 370 U.S. 294, 320 (1962); the ECJ has not been similarly clear, but in
publications of the Commission similar statements are made: "consumers end up paying more for less quality. That
is why cartels are illegal under EU competition law" (see Commission EU competition policy and the consumer--a
new brochure describing the basic concepts of European competition policy (2004; http://
ec.europa.eu/comm/competition/publications/consumer_en.pdf; last visited 24 Aug 2006); emphasis added).
44

24

(such as the establishment of countervailing import, or purchasers', cartels). Actually, in a target

state, market power sometimes is only accumulated or organized as a response to the conduct of
an export cartel,45 while the export cartel (allegedly) was encouraged to penetrate this market
notwithstanding import cartels or state monopolies. Yet not only is the target market likely to
react. The possibility of export cartel exemptions in one country encourages other countries
exhibiting similar economic structures to allow the formation of export cartels as well. No
regulating state will be inclined to prohibit its own companies from participation in such a cartel,
because this prohibition could lead to these companies' withdrawal from the target market
whereas the other states' remaining companies could continue to distort competition, but now
also to the disadvantage of the new outsider. This disadvantages domestic products of the
regulating states without a corresponding advantage. Consequently, export cartel exemptions
lead into a downwards spiral of anticompetitive measures and counter-measures taken by
governments and market participants.
All the above demonstrates that there are instances and structures in which export cartels
facilitate market penetration but that a very distinct set of conditions has to be met for that result
to be achieved rather than just giving exporters the opportunity to reap cartel gains. The
efficiency-argument is therefore only legitimate if there are actually structural impediments of
the would-be exporters or other restrictions of free trade in the target market making exports
unattractive that might otherwise take place. Neither should export cartel exemptions be granted
implicitly, simply because they do not affect the home market. Under such a regime, the
regulating state deprives itself of the possibility of scrutinizing any efficiency gains in the first
place; it is also impossible to foresee, monitor, and prevent any likely spill-over effect on the
domestic market. In addition, explicit exemptions that simply refer to the extraterritoriality of the
effects caused by the conduct cannot satisfy the need to analyze the possible efficiency effects.
Thus, the suggestion of removing export cartel exemptions 46 would only remedy the existence of
explicit export cartel exemptions. Only a positive obligation to remove provisions restricting the
applicability of a prohibition to those cases in which there is an effect on domestic trade could
contribute to more efficiency.
45

46

Trebilcock and Winter (note 2), 675.

25

CHAPTER-4
EFFECTS ON DOMESTIC MARKETS
There is a twofold interaction between the domestic market structure and export cartels. As
discussed earlier, a certain structure of the domestic market encourages companies to enter into
export-related agreements. The dangers of the reverse case, however, where companies
cooperating with regard to foreign markets are inclined to continue and expand this cooperation
with regard to the domestic market, is one the most important arguments against an export cartel
exemption, apart from scrutinizing its merits for efficiency. It relates to a second aspect of the
effects of export cartel exemptions on domestic markets, in particular the repercussions of such
exemptions on the domestic market.

26

These repercussions can be positive, if, for example, successful export activity has as a
consequence that domestic capacities become more used, or even have to be expanded--which
again has positive effects on domestic employment. It is also possible that strong competition on
the target market requires quality improvements that are beneficial for the domestic market as
well, but neither aspect is predominant and both entail dangers for domestic competition,
because every export cartel whose members command a substantive overall share of that market
can influence domestic supplies and prices through their export decisions. Overall, it is more
likely that the repercussions will be negative. The general assumption that there is a possibility of
negative repercussions cannot be rejected as unlikely simply because export cartels are supposed
to be targeted at foreign markets. It seems not too far-fetched to suggest that companies
successfully cooperating with regard to foreign markets will continue to do so with regard to the
home market as well. Even if there is no explicit cooperation, the exchange of information and
the resulting knowledge of cost structures and other important parameters of competitiveness is
likely to result in conscious parallel behavior.
Unless there is no consumption whatsoever of the exported goods/services in question in the
home market, export cartels are likely to influence the amount of production as well as prices on
the foreign markets. If the prices of the two markets are interdependent, a price increase or loss
of quality in the foreign market will lead to the same effects taking place in the home market. 47
Additional influence on domestic prices is exerted should the increased export activity affect the
internal production of or supply with the goods or services in question. These influences will not
occur, however, where the exported goods or services have no relation whatsoever to goods or
services on the domestic market or where it is possible to prevent the collusion in export sales
from having negative effects on the competition in the home market.48
A likely spill-over effect is illustrated in the Junghans-decision of the European Commission. 49 A
watchmaker had developed a vertical distribution system, inter alia, prohibiting the resale of
watches into certain areas outside the EC. With regard to Article 85 TEC (now Article 81 TEC)
the Commission held that, although "currently" agreements restricting the export from Member
States into non-Member States do not affect Community trade, this assessment might change if
47

S. Diamond, "The Webb-Pomerene-Act and Export Trade Associations," Columbia LR 827 (1944).
Bhattacharyea (note 22), 332-3.
49
Commission Decision 77/100/EEC of 21 December 1976, OJ 1977 L 30/10, para. 24.
48

27

free trade agreements with the state in question are put in force. For the time being, the fact that
crossing the border twice will lead to double customs duties makes re-import unattractive, but
once the trade barriers are lifted, a restriction on trying to re-import by restricting the exports in
the first place might adversely affect Community trade. If the export cartel shapes conditions in
such a way that a reflux from the target market into the market of the regulating state is
prevented, trade in the regulating state is distorted. The cartel is no longer a pure export cartel.

CHPTER-5
EXPORT CARTEL EXEMPTIONS IN THE WTO
The international trade system that is centered around the GATT and administered by the WTO
has seen an impressive development since 1947. After reducing tariffs to an unprecedented low,
attention has been directed at nontariff barriers and more and more topics have been included to
the agendas of trade rounds, especially in the Tokyo-round and more so the Uruguay-round.
However, although the idea of an international competition order complementing international
trade order had originally been addressed by the predecessor of the GATT, the Havana Charter,
to a large extent the GATT itself and the associated agreements have remained silent on this
subject matter. Many governments and international trade scholars have lamented the lack of an
28

overarching and coherent international competition policy, let alone an international competition
law order.50 The Ministerial Conference in Singapore (1996) established a Working Group on the
Interaction between Trade and Competition Policy (WGTCP) to study various aspects of this
issue. The Doha Ministerial Declaration (2001) further clarified the mandate for the Working
Group, but due to a decision by General Council about the Doha Work Programme, 51 the issue
had been taken of the agenda. In the light of the recent collapse of negotiations in this round, it
seemed wise to relieve the agenda of just another conflict-laden topic, and the famous
Fuji/Kodak dispute dealing with the foreclosure of the Japanese film market 52 revealed that the
WTO did not have the means to challenge private restraints of trade. Here, it turned out be the
central question whether the distribution system, basically excluding foreign film products from
the Japanese market, had been set up under the guidance of the government (resulting in a trade
law problem) or whether it had been established upon private initiative (resulting in a
competition law problem). Because the United States could not prove a sufficient degree of state
involvement on Japan's side, the claim was rejected, in effect declaring it to be a question of
competition law with which the Panel could concern itself.
Although the WTO remains mainly committed to lifting state barriers to trade (as opposed to
restrictions of competition caused by private undertakings), the GATT and its associated
agreements contain some provisions related to competition law.53 Also, in regard to outgoing
interferences with competition in target markets it should be appreciated that the Uruguay-round
Agreement on Subsidies and Countervailing Measures (SCM) has continued the trend of making
it more difficult for countries to subsidize exports which can have the same economic effect on
target states as tolerating export-related anticompetitive conduct.54 However, even though there
50

This overarching discussion cannot even be touched here; see as a starting point, for example, Fox (note 73), 911;
Guzman (note 73), 355; more reluctantly P. Stephan "Global Governance, Antitrust and the limits of International
Cooperation," Cornell ILJ 173 (2005).
51
Decision Adopted by the General Council on 1 August 2004 (WT/L/5792), August 2004.
52
WTO Panel Report Japan--Measures Affecting Consumer Photographic Film and Paper (WT/DS44/R); on this M.
Matsushita, "Basic Principles of the WTO and the Role of Competition Policy," Wash U Global Stud L Rev 369
(2004).
53
An important example for this development can be found in the GATS, where Article VIII imposes a duty on each
Member State to "ensure that any monopoly supplier of a service in its territory does not, in the supply of the
monopoly service in the relevant market, act in a manner inconsistent with that Member's obligations under Article
II and specific commitments" (para. 1) including cross-subsidization (para. 2). Article IX(1) GATS in particular
states "that certain business practices of service suppliers, other than those falling under Article VIII, may restrain
competition and thereby restrict trade in services." Thus, according to Article IX(2), Member States must enter into
negotiations with other Member States to eliminate these practices.
54
S. Dillon, International Trade and Economic Law and the European Union (Hart, Oxford, 2002), 103.

29

is now an increasing awareness of private distortions of trade as well as for the impact of
"outgoing" anticompetitive conduct on target states' economies, both developments have yet to
be interconnected.
As a consequence, the fact that national markets remain the dominant reference point of
domestic competition policies will continue to fuel the two tendencies of international antitrust:
the over-expansive use of the effects principle to regulate anticompetitive conduct by foreign
actors having effects on the home market, as well as the continuous leniency towards negative
effects for foreign markets, most notably export cartels. It will also lead to a search for secondbest solutions on the basis of current legal positions. Given the close link between trade and
competition, it seems worthwhile to examine the actual significance of the GATT provisions for
international competition law and export cartels in particular, notwithstanding the fact that there
is no coherent competition code or treaty as such.
A Multilateral Framework Agreement?
Should there be a multilateral framework on competition policy to deal with international
cartels?
Dialogue had been initiated to include provisions on cartels in a multilateral agreement on
competition under the WTO, but the discussion has been stalled for the present There are
proponents and detractors of the aforementioned proposal and both sides have heir range of
compelling and vague arguments. But before even considering such arguments, it is necessary to
realise that there are certain core issues, which unless resolved, render even the debate
meaningless.
Should there be a multilateral agency to deal with international cartels, or a multilateral
agreement would provide only a framework for cooperation, leaving the job of discovering and
proving a cartel at the national level. The framework that had been proposed at the WTO was
based on the latter option. Developing countries lacking the requisite resources and technical
expertise would find it very difficult to break international cartels without substantial cooperation from developed ones. This level of co-operation may not be forthcoming in view of
confidentiality requirements. How then, will the proposed agreement be able to provide for
credible mechanisms safeguarding the interests of both developing countries as well as
30

developed countries? Other concerns would include, for instance, that many developing
countries do not yet have the expertise to negotiate on competition issues and also that the
primary motivation of developed countries of having such an agreement is considered to be
market access rather than consumer protection. Also, deciding the forum to pursue such an
agreement is of vital importance. Given the need for co-operation over compulsion, the WTO,
for instance, may not be the appropriate forum. It is imperative to address these issues before
there can be any meaningful discussion and perhaps there can be an alternative forum other than
the WTO (Mehta et al, 2005).
Bilateral Agreements
International co-operation may also be achieved by the means of bilateral agreements. Issues
covered by such bilateral agreements include investigatory cooperation, jurisdictional issues and
the sharing and exchanging of confidential information, when allowed under a nations laws. The
US is particularly prolific in signing such agreements, although whether or not this leads to
active co-operation on their part is another matter altogether.

Some Illustrative Cases

The Vitamins Cartel
Duration and Effect: The vitamins cartel to fix prices and allocate market shares for the sale of
certain vitamins operated from 1990-1999. Annual global sales over the conspiracy period
averaged US$1.34bn. (Yu, 2003) The price increase generated by this cartel has been estimated
to be 35 percent. In the US alone this cartel may have produced US$500mn in overcharges.55
(OECD, 2003)

55

OECD (ed.) Hard Core Cartels (2000) 6.

31

Impact on Developing Countries: The aforementioned high overcharge definitely impacted

developing countries in view of the fact that developing countries imported around US$6.6bn
worth of vitamins in the course of the conspiracy.
Leading producers of vitamins including Roche AG and BASF of Germany, Rhone-Poulenc of
France, Takeda Chemical of Japan formed a cartel dividing up the world market and price fixing
for different types of vitamins during the 1990s. The cartel operated for over 10 years and later
prosecuted with the help of Rhone-Poulenc which defected from cartel and cooperated with US
authorities. Roche paid fines of US $ 500 million and total fine collected exceeded US $ 1
billion in the US alone. The overcharges paid by 90 countries importing vitamins were estimated
t o the tune of US $ 2700 million during the 1990s. The analysis also revealed that jurisdictions
with weak cartel enforcement regime suffered more. Damage wise, India incurred overcharges
of more than US$ 25 million (Clarke and Evenett, 2003)
LYSINE CARTEL:
Lysine is an amino acid that stimulates growth and results in leaner muscle development in
dogs, poultry and fish. It is also mixed with corns and is an input for feed products. Between
1992 and 1995, five producers belonging to Japan, Korea and US controlling more than 97% of
the global capacity engaged in price fixing, allocation of sales quota and monitoring of volume
agreements. The DoJ undertook searches with the cooperation of FBI and on the basis of
subpoenaed documents together with tape recordings of meeting of the conspirators could make
out a strong case of colluding on lysine prices around the world for three years.
SODA ASH CARTEL:
In September, 1996, American Natural Soda Ash Corporation (ANSAC) comprising of six
American producers of soda ash attempted to ship a consignment of soda ash at cartelize price to
India. Based on the ANSAC membership agreement, the M.R.T.P. Commission held it as a prima
facie cartel and granted interim injunction in exercise of its powers in terms of Section 14 of the
M.R.T.P. Act. The Supreme Court, however, overturned the order of the Commission inter alia,
on the ground that it did not give it any extra territorial operation.
TRUCKING CARTEL:
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Eliminating competition in the market by fixing the freight rates without liberty to the members
of the truck operator union to negotiate freight rates individually is common in the trucking
industry. The M.R.T.P. Commission passed Cease & Desist order against Bharatpur Truck
Operators Union (order dated 24.8.1984 in RTP Enquiry No.10/1982), Goods Truck Operators
Union, Faridabad, (order dated 13.12.1989 in RTP Enquiry No.13.13.1987, Rohtak Public Goods
Motor Union (order dated 25.8.1984 in RTP Enquiry No.250/10983. In the absence of any
penalty provision, however, no fines could be imposed.

CONCLUSION

Trade policy is not an isolated discipline. It is embedded in a multi-faceted legal and political
environment and whether it actually achieves aspired effects is dependant upon decisions and
outcomes in other policy areas. The main ambition of modern trade policy is to establish a free
flow of products unrestricted by tariffs and nontariff barriers, but there is a likelihood that
companies as well as states will try to replace trade policy instruments with other means. Trade
law is not well equipped to deal with this situation, mainly because it essentially focuses on state
conduct (as opposed to private anticompetitive conduct) and on competitors rather than
consumers, market access rather than undistorted competition. This different focus makes trade
law in its current state incapable of addressing the problem of anticompetitive conduct in foreign
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markets even if that conduct is supported by the host state of the companies involved. However,
unfairness does not necessarily amount to illegality. Thus, this article should be perceived as a
plea not to force competition law problems into trade law templates. Apart from causing serious
theoretical incoherencies, this would most certainly lead to a difficult legitimation crisis of trade
law and its rather successful system of dispute resolution. It is important to realize that the
significance of the problem does not allow for second-best solutions: Instead it has to be tackled
directly through bona fide international cooperation and a clear obligation to treat incoming and
outgoing anticompetitive conduct alike.

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