Busting cartels for development

©David Rooney

Promoting effective competition in developing countries means getting tougher on cartels in the OECD area, and compensating customers internationally. Through a new competition fund, the OECD could play a lead role in making sure poorer countries get a fairer deal.

Cartels are the most egregious form of anti-competitive practice in the world. Rival firms explicitly agree not to compete with each other, to restrict output and raise the price of their products. They harm consumers in both developing and developed countries because of their upward impact on prices and their corresponding downward impact on consumer welfare. They also afford firms the luxury of being inefficient.Little wonder cartel busting is one of the most important activities of competition authorities around the world. However, while enforcement is quite effective in many of the richer countries, it is lacking in the developing world, because of resource constraints and inexperience.To be sure, the OECD runs training workshops to assist developing countries in building skills to deal with cartels and other anti-competitive practices. But innovative approaches are needed to compensate consumers from developing countries who fall victim to international cartels, most of which are based in OECD countries.Cartels operate at both national and international levels. They are no small force. The imports of their products by developing countries sold by sixteen international cartels, which operated during the 1990s, amounted to US$81.1 billion or 6.7% of these countries’ imports and 1.2% of their national incomes in 1997. The resulting increase in prices was about 20 to 40% of the market price, which illustrates the immense adverse impact they have had on economies. This means overcharges in the range of $16 billion to $32 billion, which corresponds to between one third to two thirds of the total development aid received by developing countries in the late 1990s.Across the globe, cartel activities are being penalised. In recent times, record fines of more than $500 million have been levied by the UK and US competition authorities on British Airways (BA) for colluding with Virgin on transatlantic flights. There are other airlines too, such as Korean Airlines, which have been actioned against. BA is also facing action under the EU laws and other jurisdictions. Furthermore, the affected consumers in the US have also filed for class action damages against BA.The fines levied on the airlines will be credited to the treasuries in the US and UK, and citizens who have filed private action suits against the said airlines will be compensated. Many consumers from various countries in the developing world also fly to the US, often via Heathrow airport, yet neither these customers nor their governments will be able to fine the airlines or claim compensation!Should a portion of these fines not be used to strengthen institutions in the developing world that help in enforcing fair competition? The main reason this does not happen is because there is no effective global competition law and no agency to enforce one.In many cases where the victims of cartels are numerous but cannot be identified, it is common practice for courts to award compensation to some public institution or public interest group. Though short of compensating the victims themselves, this is widely seen to be an acceptable alternative way of using the money–legally it is referred to as a cy près award, a Latin expression meaning “next best use”. In India, when manufacturers won court cases against the government for excess excise payments, the money was not refunded to the manufacturers, but put into a government-administered Consumer Welfare Fund for investment in further consumer education, advocacy and research. Similarly, in Brazil the fines are put into a government-administered fund and used exclusively for consumer protection or competition advocacy. In Peru, there is a system whereby half the fines collected go to a recognised consumer association, again to be used for consumer education and advocacy.In the US, fines in antitrust cases are quite often put into a trust account to be used only to pursue education and research on competition policy issues. In June 2007, the George Washington University Law School received a cy près award of $5.1 million from a class action antitrust lawsuit to endow a centre on competition law. The law school at Loyola University in Chicago received an award to establish the Institute of Consumer Antitrust in 1994.These awards relate to mainly domestic cases. However, there are several international cases too, from which no award has been made to parties outside the domestic jurisdiction. One of the most notorious international cartel cases related to bulk vitamins. The cartel was penalised in all rich country jurisdictions, but not in a single developing country. In California, a Vitamin Cases Settlement Fund was created from an out of court settlement. It has already made grants totalling $29 million and more are in the pipeline. All such awards are given under national laws and remain restricted to their boundaries. Action by developing country authorities has been absent, because most of them, including big countries like India or China, do not have an effective competition law. Smaller developing countries too suffer for similar reasons.There is thus a strong case for strengthening the enforcement and advocacy roles of competition institutions in the poor world through funding from a part of the fines paid. This could be done by creating an international competition fund to be managed by a credible intergovernmental organisation such as the OECD. Such a fund should be accessible to competition institutions and non-government organisations in the developing world to strengthen their competition regimes. Secondly, to enable the creation of such a fund, national laws in the rich world will need to be amended to allow a transfer of a scientifically determined amount from fines.One has to remember that the case is to assess the damage of an international cartel on the developing world and allocate funds accordingly. We are not suggesting that fines be allocated on violations of a pure domestic jurisdiction, though some countries would not mind doing so. As we live in a global village, rather than being scientifically fussy about precise impacts of such cartels on developing countries, it might indeed be more cost effective simply to levy a portion of fines in breaking up international cartels by assuming a certain effect on poorer countries. Such minima would help discourage cartels from forming in the first place.For the OECD, competition is a natural fit. And at a time when the organisation is expanding its contacts with large developing countries such as China and India, setting up a new competition fund could help it build stronger relationships with smaller, poorer victims of cartels too.NOTE: This article expresses the opinion of the author and does not necessarily represent the opinion of the OECD or its member countries.*CUTS (Consumer Unity & Trust Society) International is a leading research and advocacy organisation, based in India. The author is also the co-chair of the International Network of Civil Society Organisations on Competition and participates regularly in OECD competition fora. He can be reached at psm@cuts.org. Udai Mehta and Sonia Gasparikova contributed to this article.
References
  • Evenett, Simon, Margaret C. Levenstein and Valerie Y Suslow (2001),“International Cartel Enforcement: Lessons from the 1990s”, The World Economy, Vol 24 No 9, September.
  • Evenett, Simon and Julian Clarke (2003), “The Deterrent Effect of National Anti-Cartel Laws: Evidence from the International Vitamins Cartel”, Antitrust Bulletin, Fall edition.
  • OECD (2002), Fighting Hard-Core Cartels: Harm, Effective Sanctions and Leniency Programmes, OECD, Paris.
  • UNCTAD (2005), “A synthesis of recent cartel investigations that are publicly available”, note by the UNCTAD secretariat, UN conference on Competition Policy, November.
  • Levenstein, Margaret and V. Suslow (2001), “Private International Cartels and Their Effects on Developing Countries”, background paper for the World Bank’s World Development Report 2001, Washington, D.C.
  • Connor, John M (2003), “Private International Cartels: Effectiveness, Welfare, and Anti-Cartel Enforcement”, Purdue University Working Paper No 03-12, Indiana, US.

©OECD Observer No 267 May-June 2008


Economic data

GDP growth: +0.6% Q4 2017 year-on-year
Consumer price inflation: 2.6% May 2018 annual
Trade: +2.7% exp, +3.0% imp, Q4 2017
Unemployment: 5.4% Mar 2018
Last update: 06 Jul 2018

E-Newsletter

Stay up-to-date with the latest news from the OECD by signing up for our e-newsletter :

Twitter feed

Suscribe now

<b>Subscribe now!</b>

To receive your exclusive paper editions delivered to you directly


Online edition
Previous editions

Don't miss

  • Watch the webcast of the final press conference of the OECD annual ministerial meeting 2018.
  • International co-operation, inclusive growth and digitalisation lead the themes of the 2018 OECD Forum in Paris on 29-30 May, under the banner of What brings us together www.oecd.org/forum. It is held alongside the annual OECD Ministerial Council Meeting on 30-31 May, chaired this year by France with a focus on multilateralism www.oecd.org/mcm.
  • Listen to the "Robots are coming for our jobs" episode of The Guardian's "Chips with Everything podcast", in which The Guardian’s economics editor, Larry Elliott, and Jeremy Wyatt, a professor of robotics and artificial intelligence at the University of Birmingham, and Jordan Erica Webber, freelance journalist, discuss the findings of the new OECD report "Automation, skills use and training". Listen here.
  • Do we really know the difference between right and wrong? Alison Taylor of BSR and Susan Hawley of Corruption Watch tell us why it matters to play by the rules. Watch the recording of our Facebook live interview here.
  • Has public decision-making been hijacked by a privileged few? Watch the recording of our Facebook live interview with Stav Shaffir, MK (Zionist Union) Chair of the Knesset Committee on Transparency here.
  • Can a nudge help us make more ethical decisions? Watch the recording of our Facebook live interview with Saugatto Datta, managing director at ideas42 here.
  • Ambassador Aleksander Surdej, Permanent Representative of Poland to the OECD, was a guest on France 24’s English-language show “The Debate”, where he discussed French President Emmanuel Macron’s speech at the World Economic Forum in Davos.
  • The fight against tax evasion is gaining further momentum as Barbados, Côte d’Ivoire, Jamaica, Malaysia, Panama and Tunisia signed the BEPS Multilateral Convention on 24 January, bringing the total number of signatories to 78. The Convention strengthens existing tax treaties and reduces opportunities for tax avoidance by multinational enterprises.
  • Rousseau
  • Do you trust your government? The OECD’s How's life 2017 report finds that only 38% of people in OECD countries trust their government. How can we improve our old "Social contract?" Read more.
  • Papers show “past coming back to haunt us”: OECD Secretary-General Angel Gurria tells Sky News that the so-called "Paradise Papers" show a past coming back to haunt us, but one which is now being dismantled. Please watch the video.
  • When someone asks me to describe an ideal girl, in my head, she is a person who is physically and mentally independent, brave to speak her mind, treated with respect just like she treats others, and inspiring to herself and others. But I know that the reality is still so much different. By Alda, 18, on International Day of the Girl. Read more.
  • Globalisation’s many benefits have been unequally shared, and public policy has struggled to keep up with a rapidly-shifting world. The OECD is working alongside governments and international organisations to help improve and harness the gains while tackling the root causes of inequality, and ensuring a level playing field globally. Please watch.
  • Read some of the insightful remarks made at OECD Forum 2017, held on 6-7 June. OECD Forum kick-started events with a focus on inclusive growth, digitalisation, and trust, under the overall theme of Bridging Divides.
  • Checking out the job situation with the OECD scoreboard of labour market performances: do you want to know how your country compares with neighbours and competitors on income levels or employment?
  • Trade is an important point of focus in today’s international economy. This video presents facts and statistics from OECD’s most recent publications on this topic.
  • The OECD Gender Initiative examines existing barriers to gender equality in education, employment, and entrepreneurship. The gender portal monitors the progress made by governments to promote gender equality in both OECD and non-OECD countries and provides good practices based on analytical tools and reliable data.
  • Interested in a career in Paris at the OECD? The OECD is a major international organisation, with a mission to build better policies for better lives. With our hub based in one of the world's global cities and offices across continents, find out more at www.oecd.org/careers .
  • Visit the OECD Gender Data Portal. Selected indicators shedding light on gender inequalities in education, employment and entrepreneurship.

Most Popular Articles

OECD Insights Blog

NOTE: All signed articles in the OECD Observer express the opinions of the authors
and do not necessarily represent the official views of OECD member countries.

All rights reserved. OECD 2018