WORLD TRADE
ORGANIZATIONWT/WGTCP/W/201
12 August 2002
(02-4388)
Working Group on the Interaction
between Trade and Competition PolicyOriginal: English
COMMUNICATION BY CANADA
The following is the final text of a paper received from the Permanent Mission of Canada
which was circulated as an advance copy for the Working Group's meeting of 1-2 July 2002.
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PROVISIONS ON HARD CORE CARTELS – A STARTING POINT
1. This note seeks to stimulate discussion regarding the feasibility and desirability of using the
OECD Recommendation on Hard Core Cartels (Recommendation of the Council Concerning
Effective Action Against Hard Core Cartels referred  to in this note as the "Recommendation" or the
"OECD Recommendation") as a starting point for considering potential WTO provisions in the samearea.
2. Our discussions in the Working Group recognize that there is a shared concern with regard to
international cartel activity.  The 1997 Annual Re port of the World Trade Organization highlighted
the growing salience of international cartels for the multilateral system, noting: "There are some
indications that a growing proportion of cartel agreements are international in scope.  Distortionary
cartels in the international marketplace undermines the operation of a liberalized trade system and
competitive domestic markets."  Indeed, this concern is reflected in the Doha Ministerial Declaration.
I. WHY CONSIDER MULTILATERAL ANTICARTEL PROVISIONS?
3. If many nations already prohibit certain cartels and the OECD and UNCTAD have worked
steadily to heighten awareness regarding the private cartel problem, why consider a multilateral
agreement in this area?  What would be the value-added of a WTO agreement in this area?  It has
been argued that there are at least three benefits:
- First, not all WTO Member nations have competition regimes in place and, hence, in
many nations there are no legal prohibitions on private cartels.
- Second, a WTO agreement would affirm a multilateral consensus regarding the harmful
effects of hard core cartels and the interests of member countries in combatting thesecartels.
- Third, a WTO agreement would give notice to global cartels that there are fewer safe
havens for their activities.WT/WGTCP/W/201
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II. DIMENSIONS OF THE CARTEL PROBLEM
4. The World Bank in 2001 issued a background paper entitled "Private International Cartels
and Their Effect on Developing Countries" by Margaret Levenstein and Valerie Suslow. The
Levenstein-Suslow paper examines the possible effects of recent private international cartels on
developing countries by looking at five case studies.  Many of the larger cartels have had an effect onmarkets worldwide.  Some tentative conclusions from the paper are:
− It is impossible to gauge the true number of international cartels in existence in the
1990s;
− The authors note that the lack of antitrust prosecutions by developing countries
themselves reinforces the paucity of information on these cartels in developing country
markets.
− The authors measured the overpayment by developing countries to cartel participants.
Levenstein-Suslow indicate that in 1997, developing countries imported US$81.1 billion
of goods from industries which had seen a price-fixing conspiracy during the 1990s.
These imports represented 6.7% of imports and 1.2% of GDP in developing countries.
They represented an even larger fraction of trade for the poorest developing countries,
for whom some of these cartelized products is estimated to have represented 8.8% of
imports.
− There are a variety of techniques that cartels use to block entry into their industries.  This
is a critical observation pointing  to the dual effects of cartels: diversion of scarce
resources or foreign currency reserves because of overpayments and the negative effects
on competition in general and on the industrial, technological and export capabilities of
local firms and producers.  These effects can create serious problems for both developedand developing countries.
5. Other sources also provide convincing evidence regarding the extent of the damage caused by
hard core cartels.  The OECD report entitled "New Initiatives, Old Problems" (23 March 2000)
reported on US estimates of the economic effects of cartels.  It is estimated that the average illegalgain from price fixing is 10% of the selling price, but, the generalized harm to consumers may amount
to 20% of the volume affected by the cartel.
III. RECENT ANTI-CARTEL ENFORCEMENT TRENDS
6. The 1990s witnessed a major shift in enforcement attention given to hard core cartels.  Over
the course of that decade important initiatives were taken: stronger national enforcement measures bymajor developed country authorities, the introduction of corporate leniency programs and in some
jurisdictions, a reduction in the number of permitted exceptions under national anti-cartel statutes.
7. A major milestone occurred in 1998, when OECD Members adopted the Recommendation.
This was the first detailed international statement of consensus on anti-cartel enforcement.  It was
developed in response to a clear competition law and policy challenge related to the growing evidenceregarding the harm to consumers from these cartels.  The Recommendation was negotiated by
antitrust officials to strengthen enforcement.
8. A number of considerations led to the adopt ion and issuance of this Recommendation,
including the recognition that hard core cartels are the most egregious violations of competition law
and that they injure consumers in many countries by raising prices and restricting supply.  Thus,
goods and services become completely unavailable to some purchasers and unnecessarily expensiveWT/WGTCP/W/201
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for others.  Effective action against hard core cartels is particularly important from an international
perspective because their distortions of world trade cements market power, waste and inefficiency.
9. The OECD Recommendation underscored the polic y consensus in favour of anti-cartel
enforcement.  This consensus was premised on the following economic rationale:
(a) Hard core cartels lack any relationship to productive functions.
(b) These cartels diminish social welfare, create allocative inefficiency and transfer
wealth from consumers to the participants in the cartel by reducing output below
market-driven levels.
(c) Such restraints are harmful over the long run.  The use of cartels to avoid the rigors of
competition can result in the creation of artificial, uneconomic and unstable industrystructures, lower productivity gains and sustained higher prices.
IV. ELEMENTS OF THE OECD RECOMMENDATION
- A hard core cartel is one of the following forms of conduct – price fixing, output
restriction, bid rigging and market division, which are not further defined in theRecommendation.  Exclusions under Members’ laws are permitted.
- The Recommendation encourages OECD Member countries to adopt competition
laws that effectively prohibit and deter hard core cartels.
- The Recommendation constitutes a non-binding, commitment.  It is built on a
common approach to the prohibition of  hard core cartels.  It does not pursue or adopt
a set of common standards.
- The Recommendation urges OECD Members to ensure that their competition laws
provide "effective" sanctions at a level "adequate" to detect and remedy hard core
cartels.  These terms are not spelled out.
- There is no binding dispute settlement mechanism.  Consultations regarding
cooperation issues are provided for, but have not been used to date.
- International co-operation is a core objective.  Instruments and details are left to each
Member to work out.
- The Recommendation’s institutional design is premised on the principle of national
autonomy of each enforcement authority.
V. FROM THE OECD TO THE WTO?
10. Could the OECD Recommendation provide WT O Members with a starting point for
considering a WTO approach to hard core cartels?  In substantive terms, the Recommendation is the
only highly articulated multilateral instrument on this form of conduct.  As such it merits close
examination.  We focus below on key concepts or themes in the Recommendation which mightprovide some lessons for a WTO approach.  We do not pursue an article-by-article analysis.WT/WGTCP/W/201
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VI. INSTITUTIONAL MODELS
11. The Recommendation was adopted by the OECD and, therefore, was inevitably shaped by the
logic and purpose of that institution.  The OECD Competition Committee (CC) is the chief forum for
the regular exchange of views on competition policy issues by antitrust enforcement officials.  The
Committee pursues a soft convergence approach to antitrust issues.  This approach involves structuredinternational activities through which national laws and enforcement are made more congruent
through the exchange of experiences.  This process relies on contact and cooperation between national
enforcement officials.  Even where formal agreements or recommendations do exist, they are
tantamount to reference points for ongoing activities.
Are there elements of the OECD model which could be usefully adapted to the WTO work on cartels?
VII. LEGAL FRAMEWORK
12. The OECD Recommendation is built on the explicit and initial prerequisite that every
Member should enact a sound competition law with appropriate scope:  "Member countries should
ensure that their competition laws effectively halt and deter hard core cartels."
13. On the basis of the Recommendation, legal provisions on hard core cartels need to be
embodied in a general competition statute. The statute would need to contain effective sanctions andenforcement procedures and provide for a national enforcement authority with sufficient powers.
Additionally, exceptions need to be transparent and reviewed periodically.
14. While  "Member countries should ensure that their anti-cartel laws effectively halt and deter
hard core cartels", the Recommendation does not take a position as to whether a national law should
be based on per se rules or a rule-of-reason approach.  Nor does the Recommendation attempt toimpose a civil or criminal law framework with regard to enforcement, sanctions and fines.  These
matters are issues to be decided by national authorities.
Does the Working Group accept the Recommendation’s starting point- i.e., enacting a national legal
framework and establishing an enforcement authority?
VIII.  DEFINITIONS
15. The Recommendation identifies four forms of conduct deemed to constitute hard core cartels
but does not define these, at least not in detail. Instead, it relies on the national law of each OECD
Member to provide precise meaning.  Thus, at th e extreme, one might argue that the Recommendation
has 30 different definitions set out in the national laws of its 30 Members.  In addition, sectoral
exemptions, indeed varying national exemptions, may exist under each Member’s law.  There was no
effort to harmonize these exemptions, nonetheless the value of transparency and periodic reviewshould be acknowledged.
16. During the course of the negotiations on the OECD Recommendation, an attempt was made
to develop more detailed definitions.  This approach was abandoned as potentially leading to the
development of "common standards".  Common st andards imply a harmonized approach, while the
needs and circumstances of different Member nations are not identical.  Also, a harmonized orcommon standards approach might have provided a basis for determining whether a Member’s law
conforms to the Recommendation.  This was not the direction or outcome sought by the Members.
Does the absence of a common and detailed definition in the Recommendation present a desirable
methodology for a potential WTO approach?  Should any WTO anti-cartel initiative recognize the
need for certain exemptions in national laws on hard core cartels?WT/WGTCP/W/201
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IX. SCOPE
17. The difference in treatment between hard core cartels and other cartels can generally be
explained on the basis of differing presumptions regarding their effects on competition.  On the basis
of this logic, the Recommendation states that hard core cartels excludes those cartels recognized by
Members as resulting in "cost-reducing or output-enhancing efficiencies".  In some jurisdictions, thislogic extends to export (marketing) cartels, which are sometimes assessed on a case-by-case basis to
ascertain their potential effects on competition.
Should any WTO competition initiative address hard core cartels as per the OECD Recommendation?
Does the OECD Recommendation reflect the extent of the current multilateral consensus with regard
to the desirable scope of any WTO anti-cartel initiative?
X. BARRIERS TO ENTRY
18. Discussions of the WGTCP have illustrated that there are a number of anti-competitive
practices which can have an impact on trade.  It has been clear that hard core cartels are of particular
interest for their impact on trade since they can distort the price of key products, preclude new
entrants and segment markets on a geographic basis.  They present not only a traditional antitrust
concern posed by anti-competitive business practices, but also a significant trade concern.  From thetrade perspective, the excluded exporters’ home economy may be hurt by the limitations placed on
their businesses.
19. The Preamble of the Recommendation states: "effective application of competition policy
plays a vital role in promoting world trade by ensuring dynamic world markets and encouraging the
lowering or reducing of entry barriers to imports".  In terms of a practical response, theRecommendation implicitly endorses the tenet that th e most effective way to redress private restraints
which restrict market entry is to empower competition authorities to take enforcement action.  After
all, the more competition that exists in a domesti c market, the greater the benefit to consumers and to
all suppliers, whether domestic or foreign.
20. The Recommendation while sensitive to a multiplicity of policy concerns, including the trade
dimension, does not address the question of how to weigh diverse concerns.  It leaves to each Member
to frame a coherent body of rules and enforcement practices.
XI. ENFORCEMENT COOPERATION
21. The major set of issues covered under the Recommendation relate to enforcement
cooperation.  The Recommendation recognizes that Members have a common interest in preventing
hard core cartels and encourages Members to cooperate in enforcing their laws against such cartels in
accordance with the principles of comity, taking into consideration the following:
(a) consistency with a country’s laws, regulations, and important interests;
(b) safeguards to protect commercially-sensitive and other confidential information;(c) freedom to decline a request for assistance or to limit or condition cooperation;(d) potential for non-binding consultations over issues relating to co-operation.
22. Cooperation under the Recommendation is premised on a common interest among Members
to prevent hard core cartels.  Members are urged to enter into bilateral or multilateral enforcementcooperation agreements.  The Recommendation does not create any expectation that nationalWT/WGTCP/W/201
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discretion will be restrained through future initiatives.  Thus, the OECD recognizes that nations are
likely to have more success by exchanging views and working together on specific matters than by
negotiating detailed multinational rules.
How could the WTO agreement on competition policy take into account some of the basic precepts
underpinning the OECD approach to cooperation?
XII. DEVELOPING COUNTRIES
23. The Recommendation was developed among countries with diverse economic philosophies
and competition institutions.  Nonetheless, the OECD  adopted a unified set of provisions applicable to
all OECD Members across different legal systems and competition experiences.  This is achieved
through the use of a "common approach" methodology.  The common approach is less detailed and
more flexible than standards.  It sets out a list of criteria or objectives to be considered.  It does notindicate how these criteria would be applied or what  precise weight should be assigned to particular
elements of the criteria.
24. The "common approach" is further supplemented by a continuous exchange of experiences
and a peer review process.  These supplementary processes are designed to achieve ever greater
coherence and convergence with regard to the "common approach".  It provides Members with anopportunity to discuss practical issues related to the process of refining, integrating and customizing
the common approach to best suit their respective national systems.  The common approach
methodology may hold lessons today for the WTO comm unity which is grappling with the challenge
of developing a competition framework for its highly diverse membership.
Would the OECD’s common approach provide a suitable methodology for negotiating a single set of
provisions on hard core cartels in the WTO, applicable to all Members regardless of their situation?
Would this approach provide a basis for addressing the needs of developing countries, i.e. common
substantive elements (e.g. requirement for a legal framework, scope, definitions, etc.) but variable
implementation provisions (e.g. a longer phase-in schedule)?
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