COMMISSION DECISION of 19 December 1984 relating to a proceeding under Article 85 of the EEC Treaty (IV/26.870 - Aluminium imports from eastern Europe) (Only the Dutch, English, French, German and Italian texts are authentic) (85/206/EEC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Economic Community,

Having regard to Council Regulation No 17 of 6 February 1962, First Regulation implementing Articles 85 and 86 of the Treaty (1), as last amended by the Act of Accession of Greece, and in particular Articles 3 and 5 thereof,

Having regard to the notification of 1970 pursuant to Article 4 of Regulation No 17,

Having regard to the Commission Decision of 16 August 1978 to initiate proceedings in this case,

Having given the undertakings concerned the opportunity to make known their views on the objections raised by the Commission, pursuant to Article 19 (1) of Regulation No 17 and to Commission Regulation No 99/63/EEC of 25 July 1963 on the hearings provided for in Article 19 (1) and (2) of Council Regulation No 17 (2),

After consultation within the Advisory Committee on Restrictive Practices and Dominant Positions,

Whereas:

I. THE FACTS 1. The agreements 1.1. Introduction

The arrangements concerned in these proceedings confined the sales of primary and eventually other aluminium by the foreign trade organization of the USSR, Poland, Hungary, Czechoslovakia and the German Democratic Republic to a group of western primary aluminium producers. In return for the purchase by the western parties of primary aluminium ingot, the foreign trade organizations undertook, with a few limited exceptions, not to sell aluminium (whether ingot, scrap, secondary or semi-manufactures) to other prospective purchasers in the western world, from 1963 to 1976. The operation of the agreements involved the entire primary aluminium industry of the EEC and most of that of western Europe, and involved the policing of exports to the EEC, the EFTA countries, the United States of America and South America and the diversion of certain tonnages of ingot from the EEC to Turkey and Japan.

From 1963, first an English company, Brandeis Goldschmidt and Co. Ltd, and later its Swiss subsidiary, Brandeis Goldschmidt and Co. AG (3), entered into a series of purchasing agreements with (1) OJ No 13, 21.2.1962, p. 204/62. (2) OJ No 127, 20.8.1963, p. 2268/63. (3) Unless separate reference is needed, these two companies are hereinafter referred to without distinction as "Brandeis Goldschmidt". the foreign trade organizations Raznoimport (1), Impexmetal (2), Metalimpex (3), Kerametal (4), and Intrac (5). Eisen und Metall Aktiengesellschaft, a West German company, also entered into a purchasing agreement with Intrac. A corresponding series of sales agreements was concluded with the Brandeis companies and Eisen und Metall on the one side and certain primary aluminium producers on the other, providing for the resale of all the quantities delivered under the purchasing agreements. Ancillary to these were certain agreements and concerted practices.

1.2. The parties 1.2.1. The western parties to the arrangements, whether directly through purchases from the Brandeis companies or Eisen und Metall, or indirectly through receipt of deliveries of eastern metal without a contract with the nominal buyers, are set out for convenience in Annex 1. All are producers of primary aluminium, most being integrated vertically to a greater or lesser extent (5.1).

1.2.2. The two Brandeis companies are traders in non-ferrous metals and Brandeis Goldschmidt Ltd is a full member of the London Metal Exchange (LME).

1.2.3. The eastern European parties are those foreign trade organizations charged with the export of aluminium. Each has a legal personality separate from the State in which it is domiciled (6).

1.2.4. The European Primary Aluminium Association (EPAA) has legal personality under the laws of the Federal Republic of Germany. The EPAA was founded in 1969 for the purpose, according to its constitution, of furthering the common interests of the primary aluminium industry. The EPAA has as its registered office the Aluminium Zentrale in Düsseldorf. At the time the association was founded, all its members, listed as founder members in Annex 1, were purchasers of aluminium under the Brandeis agreements. The only western producers party to the Brandeis agreements which were not also members of the EPAA were Nippon Light Metals (NLM) and Alugasa. NLM was not a European company and did not produce primary aluminium in Europe, and Alugasa was a subsidiary of an existing member (Pechiney-Ugine-Kuhlmann (PUK)). Both were ineligible for membership under Article 5.1 of the constitution of EPAA.

1.3. The negotiations and agreements for total quantities 1.3.1. Between November 1962 and February 1963 it was agreed in principle between BACO, Swiss Aluminium, Montecatini, VAW and PUK that it was desirable to ascertain the likely terms on which Raznoimport would be prepared to sell its export quota of virgin aluminium exclusively to the western European aluminium producers (7). The meeting at which Brandeis Goldschmidt was authorized to approach Raznoimport was summarized in a note by Brandeis Goldschmidt. A meeting between Brandeis Goldschmidt and Raznoimport took place on 6 February 1963 ; Raznoimport was interested in principle and further negotiations led to the conclusion of an agreement in May 1963 in Moscow between Brandeis Goldschmidt as buyer and Raznoimport as seller.

1.3.2. Although only BACO, Swiss Aluminium and PUK were present at the exploratory meetings with Brandeis Goldschmidt, the latter "understood that these companies also represented most other substantial western producers" (8). In its submission to the UK Registrar of Restrictive Trade Practices in 1968, BACO indicated that Brandeis Goldschmidt had been employed to sound out the Russians by BACO, Swiss Aluminium, Montecatini, VAW and PUK and identified other big western producers which had (1) Vsesojuznoje Importno-Exportnoje Objedinenije "Raznoimport" (USSR). (2) Centrala Importowo-Eksportowa "Impexmetal", Przedsiebiorstwo Panstwowe (Poland). (3) Metalimpex Hungarian Trading Company for Steel and Metals (Hungary). (4) Kerametal Foreign Trade Co. Ltd (Czechoslovakia). (5) Intrac Handelsgesellschaft mbH (DDR). (6) Raznoimport's separate identity is confirmed in its constitution. Section 13 of the Principles of Civil Legislation (Law of the USSR No 525 of 8 December 1961) provides that the State is not liable on the obligations of State bodies which have legal personality.

Impexmetal is a public corporation (przedsiebiorstwo panstwowe) having under Polish law a separate personality from the Polish State.

Metalimpex as a foreign trade company has a legal personality separate from the State and is liable on its obligations to the extent of its assets (Article 31 (1), (2) and (3) of the Hungarian Civil Code).

Kerametal is regarded under Czechoslovak law as an entity separate from the State and, by section 11 of Law No 119 of 1948, is liable on its obligations to the extent of its assets and the State will not be liable on Kerametal's obligations.

Intrac has, as its full name implies, limited liability.

(7) The genesis of the arrangements was first revealed to the Commission in January 1979. The text is taken almost verbatim from particulars supplied by BACO in 1968 to the UK Registrar of Restrictive Trade Practices. The BACO response was put on the special (non-public) section of the UK register. (8) Letter to the Commission dated 7 January 1980. "indicated their willingness to participate in the arrangement". These were said to be Alcan UK, VMW, Endasa, Elkem, Gränges and ASV. Certainly, as will be seen below, all these companies bought eastern metal from Brandeis Goldschmidt in 1963.

1.3.3. The agreement with Raznoimport was renewed in 1964, to the end of 1965, in 1966 to the end of 1967 and in 1968 to the end of that year. Gradually other foreign trade organizations appeared as sellers and were accommodated in the same way by Brandeis Goldschmidt. The agreements were also extended to products other than ingot over a period. The period of each new seller's contract was made to conform to the date of termination laid down in the then current Raznoimport contract. By 1967 there were four foreign trade organizations which were sellers and one more which was a potential seller, and the tonnages of metal they hoped to sell in 1968 and beyond had increased. It became the practice from 1967 onwards to precede the conclusion of the individual "Brandeis contracts" with negotiations upon total quantities and prices at what came to be called (by the big western parties) "eastern metal conferences". The texts of the Brandeis agreements had by then become reasonably standardized and what was at issue was total tonnage, price and price variation, and derogations from existing contracts.

1.3.4. Table 1 shows the total tonnages contracted for, until 1968, by adding the individual tonnages from the "Brandeis agreements", and from 1968 to 1976 those from the "eastern metal conferences". The surplus available from the foreign trade organizations tended to lessen with time and there were difficulties in the western market place, so that the eastern metal conferences after the first were all concerned with tonnage or price adjustments.

1.3.5. At the eastern metal conferences the chairmanship was shared by Raznoimport and Swiss Aluminium. The first (Budapest) conference was attended on the western side by Swiss Aluminium, PUK, Alcan, BACO and Brandeis Goldschmidt. But other undertakings (1) took eastern metal from Brandeis Goldschmidt in 1968, which indicates that they accepted the results of that first conference.

1.3.6. After the EPAA was formed in 1969 it was used as a forum for discussing the operation of the Brandeis agreements and for resolving issues from time to time arising under those agreements. On several occasions the general meeting of the EPAA was asked to give full powers to the negotiators at the next eastern metal conference ; despite this the agreements reached at those conferences were reported to the EPAA membership and their ratification of the agreements was sought. Swiss Aluminium, having been appointed in 1963 as coordinator and "spokesman" of the western producers, became the first chairman of the EPAA. The negotiating team for the eastern metal conference after the first appears to have consisted of the EPAA executive committee for the time being.

1.3.7. The negotiations with the foreign trade organizations were throughout the joint wish of the western European producers, as is shown by the active participation of some and by those others who supported the negotiation by taking up eastern metal and (later) by taking up membership of the EPAA.

1.4. Analysis of the operational agreements

The Brandeis agreements 1.4.1. For various reasons the tonnages originally contracted for were reduced ; final deliveries are shown in table 1. Price is dealt with in section 4.

1.4.2. The essence of all the agreements was to prevent supplies of aluminium from coming on to the western markets, and particularly western European markets, except through the Brandeis agreements. The record of the first meeting, made by Brandeis Goldschmidt, stated:

"The Russians would have to guarantee that only this (contractual) quantity would be exported to the western world from Russia or from any other eastern country ... The period of commencement should be as soon as possible after the present Russian commitments on barter deals, etc., have been fulfilled ... with the understanding that the Russians should conclude no further deals at the moment."

Brandeis Goldschmidt confirmed this to Raznoimport at the meeting on 6 February 1963:

"We (Brandeis Goldschmidt) explained to you that we were in principle interested in buying the entire production of aluminium produced by you and the Socialist Republics for export to western markets provided that you would guarantee that no quantities other than those bought by us would be sold direct or under barter deals to those markets." (1) ASV, Endasa, Elkem, Giulini, Holland Aluminium, VAW, VMW, NLM, Gränges and Montedison.

In 1974, as a result of the Eastern Metal Conference in Venice, the quantity of ingot to be taken up by Brandeis Goldschmidt was reduced (which suited the western producers because there was a glut at the time) but the price per tonne for the remainder was increased. The foreign trade organizations were forbidden to sell their resulting surplus in the prohibited countries even though they promised to sell at the Brandeis price.

The agreements made from 1967 with Impexmetal contain a provision permitting the export of 1 524 tonnes of primary aluminium for processing into semi-manufactured products by "members of the Buyer's Group" (i.e. the western producers).

1.4.3. From the beginning the parties adopted the drafting device whereby the eastern European seller undertook "not to sell to other countries" and to list excepted countries. The exceptions were limited.

Other products than primary aluminium were soon added to the list of those that could not be sold "in other countries". The first agreement expressly permitted the sale of semi-manufactures by Raznoimport but, in its 1964 agreement, Raznoimport agreed to restrain exports to the United Kingdom of aluminium sheets. Table 2 shows schematically the product limitations introduced, including restrictions upon barter deals, which had been mentioned from the beginning but were not contractual until 1968.

Where countries were included in the territories open to sales by the foreign trade organizations, but which might be thought to be of central interest to the western producers, there were often contractual limitations designed to protect the western producers (see table 3).

1.4.4. In 1964, in the second contract with Raznoimport, the clause which came to be known as "the spirit of the agreement" clause was introduced:

"Should it become apparent during the period 1 July 1964 to 30 June 1965 that exports of aluminium from other sources become of such importance that they interfere with the spirit of the agreement, the sellers and the buyers have the right to renegotiate terms ..."

The "spirit of the agreement" was never defined, but it was never intended to cover what would normally be considered as grounds of frustration of contract because this was already dealt with in the first (1963) contract. (The "frustration" clause, which explicitly included "prohibition of import or export", was relied upon in 1973 by Impexmetal and by Intrac when their governments forbade exports.) In the 1964 Raznoimport contract, quoted above, the contingency which would "interfere with the spirit of the agreement" appears to have been the export of tonnages by some other foreign trade organizations ; in connection with the 1968 agreement with Raznoimport a supplementary letter from Brandeis Goldschmidt confirmed an agreement whereby Bulgarian exports would be deducted from the tonnages due to be bought from Russia. The "spirit of the agreement" formula was also used either to stop or to restrict sales of aluminium (other than ingot), or to ensure that such quantities as were permitted contractually to be exported were sold at prices which would not endanger the aluminium market and the agreement. From 1968 onwards the formula was used to cover the contingency that aluminium might be sold on the LME and that the quota on aluminium cable might be exceeded.

The Eisen und Metall agreements

1.4.5. Brandeis Goldschmidt had had an agreement with the East German foreign trade organization Intrac since 1965. On 20 March 1971 Eisen und Metall made an agreement with Intrac for the import of aluminium from the German Democratic Republic ; the agreement was stated to be within the framework of the agreement which had been made by Brandeis Goldschmidt with Intrac (contract No EG 7000) and the contractual quantity was increased to 75 000 tonnes, with yearly quotas from 1971 to 1975 being increased correspondingly. It was agreed that deliveries would take place within the framework of the Berlin agreement on trade between the Federal Republic of Germany and the German Democratic Republic ; by clause 7 Intrac undertook not to export primary aluminium nor semi-manufactures to the Federal Republic of Germany apart from the contractual quantities. The agreement with Intrac lapsed at the end of 1973 through force majeure.

1.5. Negotiations for the fourth series 1.5.1. It had been the intention of all the parties that a fresh agreement should be negotiated to run from 1 January 1976 to 31 December 1980, but the Copenhagen conference succeeded only in extending the existing contract for six months in order to buy negotiating time. The foreign trade organizations wished to be free to sell to the United States and Japan and to send aluminium into western Europe for processing without asking the permission of the western producers first. They also wished to send aluminium into the formerly forbidden territories if this were part of barter deals.

1.5.2. These proposals were described by BACO as "ridiculous changes" and, in another telex, BACO stated that "the USA must be covered by the agreement because of ease of switching by merchants back into the European market". Alcan UK and ASV both suggested that the USA should not be a "free country" and that exports of semi-manufactures should be limited to 10 000 tonnes. BACO and ASV felt that even this quantity of semi-manufactures should be taken by the western producers only.

1.5.3. The differences between the western producers and the foreign trade organizations could not be resolved and the negotiations came to an end in July or August 1976.

1.6. Brandeis/western producers 1.6.1. Brandeis Goldschmidt made corresponding sales contracts with western producers, using serial numbers in which the letter prefixes represented the country of origin. A summary of those agreements is set out in Annex 2. Originally, the text of these agreements reproduced all the material terms of the agreements made by Brandeis Goldschmidt with the foreign trade organizations, and in particular set out in full the restrictions imposed on the supply by the foreign trade organizations of primary and secondary aluminium, scrap and semi-manufactures. Later certain amendments were made, the history of which is set out in 7.2.

1.6.2. Until 1968 the agreements were made with Brandeis Goldschmidt and Co. Ltd. The 1968 series of agreements, and those made in 1971, were concluded with Brandeis Goldschmidt and Co. AG, a wholly owned Swiss subsidiary of Brandeis Goldschmidt and Co. Ltd. By a letter to the Commission dated 7 January 1980, Brandeis Goldschmidt and Co. Ltd explained that "the agreements were made by Brandeis Goldschmidt and Co. AG instead of Brandeis Goldschmidt and Co. Ltd, from 1968 onwards, to eliminate the necessity of registering the agreements with the Registrar of Restrictive Trade Practices".

(The registrar had called for details of the agreements because they had not been registered with him.)

2. The operation of the agreements 2.1. EPAA membership

At the time the EPAA was founded, all its founder members were purchasers of aluminium under the Brandeis agreements. When new members joined the EPAA they were invited by Swiss Aluminium to take up a quota of the aluminium purchased under the Brandeis contracts. The invitation was expressed in terms which made it clear that participation in the Brandeis arrangement was a duty owed by a member of the EPAA to the other members.

2.2. Allotment to western producers 2.2.1. The aluminium purchased under the Brandeis agreements was distributed among the participants in a ratio corresponding to each participant's share of sales in western Europe. The ratio was calculated by Swiss Aluminium on the basis of information on sales of aluminium which each participant was required to disclose to that company. Included in sales were sales of primary aluminium to third parties, deliveries of primary aluminium to subsidiary companies and deliveries in Europe to US producers by way of swap transactions. The sales information requested related to the last calendar year before the request and quotas were assigned for the following year (the quota for 1971 was, for example, established by reference to sales figures for 1969, disclosed after a request was sent in September 1970).

2.2.2. From this information a quota was established for each participant. New members of the EPAA which had not previously produced primary aluminium were to estimate their production for the following year. This procedure was adopted in 1970 for Anglesey Aluminium, Kaiser-Preussag and Metallgesellschaft and in 1973 for Alsar.

2.2.3. This procedure was operated throughout the life of the agreements. Swiss Aluminium informed each company of its prescribed quota by circular letter (up to 1970) or (after 1970) by circulation of "eastern metal distribution" lists.

2.2.4. Since the lists fixing the quotas were circulated to all EPAA members, each member was made aware of the amounts of eastern metal purchased by the others. In the event that any EPAA member disputed the amount of its quota, or that of any other member, Swiss Aluminium would investigate and ask for explanation of other EPAA members.

2.2.5. The tonnages of metal bought since 1971 from Brandeis Goldschmidt are shown on a contract and annual basis in table 4.

2.2.6. While the basic framework of the whole arrangement from 1963 to 1976 was one of agreements made between Brandeis Goldschmidt and the foreign trade organizations with corresponding agreements between Brandeis Goldschmidt and the western producers, some western producers, notably VAW, RTZ and BICC, took part without signing a standard-form Brandeis agreement. Primary aluminium sold under the Brandeis agreement was also swapped between participants. A quota reserved for Japan under the agreement made by Brandeis Goldschmidt with the foreign trade organizations was purchased by NLM under agreement No RU 1. This quota amounted to around 7 % of the total purchased under the Brandeis agreements.

2.2.7. When the Eisen und Metall agreement superseded the Brandeis agreement with Intrac, VAW agreed to take up the entire quota of 75 000 tonnes from Eisen und Metall, and VAW made a further agreement with Alusuisse Deutschland GmbH, Kaiser Preussag Aluminium GmbH, Metallgesellschaft AG and Gebrüder Giulini GmbH, by which the aluminium purchased from Intrac was distributed among the five West German aluminium producers. For the second half of 1973 Alusuisse agreed to take up the shares of the supplementary quota attributed to Giulini, Kaiser-Preussag and Metallgesellschaft. Intrac withdrew from the agreement in 1973 because exports of primary aluminium had been prohibited by the Government of the German Democratic Republic.

2.3. Restrictions on resale of eastern metal 2.3.1. The aluminium ingot sold under the Brandeis Goldschmidt and Eisen und Metall agreements carried the cast mark of the relevant producer. Third parties would therefore be able to recognize its origin unless the aluminium were remelted. There was therefore an understanding among the western producers that eastern metal should not be sold to third parties unless it had been remelted and its origin could no longer be recognized.

2.3.2. Alcan contended during the hearing that it would have been uneconomic to remelt the ingot for sale as primary unalloyed remelt ingot, while the replies of Swiss Aluminium, VAW and VMW indicated that remelting would have resulted in an increase in cost of around 4 %. This refers to remelting specifically for the purpose of changing one set of marks of origin for another. Evidence was given at the oral hearing before the Commission that, if added to a pot of virgin aluminium as it left the production cells, the eastern metal could be melted at no additional cost because on leaving the furnace the temperature of the aluminium is about 970 °C, while aluminium melts at about 630 °C.

2.3.3. Most of the western producers deny that this restriction was in any way an "obligation". Alcan, however, does admit that "during the currency of the agreements Alcan certainly thought that there was an understanding of this kind". Swiss Aluminium referred to it in a letter at the time as a "gentlemen's agreement" or an "understanding":

"... we would like to point out also that it is the understanding among the EPAA members that eastern metal should not be sold to third parties unless it has been remelted and its origin can no longer be recognized."

When, in a telex to Swiss Aluminium on 9 November 1973 under contract No RU 18, Alsar specified Rotterdam as the port of discharge, an employee of Swiss Aluminium put a manuscript note on the copy received:

"Does Alsar know that eastern metal cannot simply be resold, but must be remelted in their own works?"

This remark was no doubt prompted by the notoriety of Rotterdam as a centre for the free market in aluminium. Swiss Aluminium, in the course of its reply to Alsar, said:

"This metal should not be sold to third parties unless it has been remelted before. You would of course be free to sell it directly to another western producer, should you wish that."

These and other documents show, and the Commission finds as fact, that there was an understanding, the purpose of which was to prevent its resale to outsiders in its original form.

2.3.4. The parties allege that remelting was a technical necessity since many customers did not have remelt facilities of their own. However not all potential customers were in this position : users of scrap, outside the ranks of the integrated producers, use ingot of 99,5 % purity as a sweetener and there would be no necessity for traders, in particular, to remelt. With many EPAA members it was never likely that they would sell eastern metal in its original condition. The understanding not to resell to third parties without remelting was in general respected.

It was accepted that onward sales could be made to other EPAA members of their subsidiaries without remelting and only VMW and VAW appear to have sold small quantities in 1973 and 1974 to third parties without remelting. In 1976 VMW asked if its quota of aluminium from Russia could be supplied without marks, in a so-called "neutral" form, but received a negative answer from Raznoimport.

At the hearing VMW was asked why it had made this request and replied that, as eastern metal bought by VMW was generally sold to third countries outside the common market, it would have been easier for VMW if remelting had not been necessary.

This shows that for some, at least, there was no technical necessity to remelt. Had there been such a necessity there would have been no need for any understanding nor of any policing of that understanding.

2.3.5. Most of the aluminium ingot sold under the Brandeis arrangements was, at the buyers' request, of 99,5 % purity. The western parties maintain that this was in general too low to be marketable and the Commission accepts that the market is limited. For this reason the western producers had an interest to remelt, for in this way it could be upgraded by being added to metal of a higher purity by making use of the difference between the melting temperature of aluminium and the higher exit temperature from the cells. Only to this extent could it be said that there was any technical necessity to remelt.

2.3.6. The parties stated that the remelting arrangement was of use in the enforcement of the Brandeis arrangements, since it ensured that no branded eastern metal appeared in western markets. By this means the adherence of the foreign trade organizations to their obligations not to export to western countries could be verified.

2.4. Sales between EPAA members 2.4.1. In some instances the quotas allotted to certain western producers included amounts to be taken up by other western producers under arrangements between the producers concerned. Arrangements of this nature were made between Alcan and VAW and between Swiss Aluminium, RTZ and BICC.

2.4.2. Although VAW was one of the companies which had agreed in 1963 that Brandeis Goldschmidt should negotiate with Raznoimport, the first recorded agreement made by VAW with Brandeis Goldschmidt was concluded in 1967 for the purchase of aluminium from Impexmetal. In its reply to the statement of objections, VAW stated that "it first participated in the concerted purchases of eastern aluminium in June 1968". In reply to a question at the hearing, the representative of VAW declared that, "with respect to the participation of VAW, it is correct and unequivocal that we only joined the concerted action after the decisive discussion in 1968 and not before. We did not enter into any obligations before and made no agreement". Neither of these statements was a wholly accurate account of the participation of VAW in the Brandeis agreements. The evidence shows that VAW, having been one of those companies appointing Brandeis Goldschmidt to negotiate the first agreement with Raznoimport in 1963, was a participant in those agreements from their inception. The precise method by which VAW participated in the Brandeis agreements from 1963 to 1968 was first disclosed to the Commission by Alcan in a letter of 23 January 1980. This makes it clear that Alcan accepted VAW's allocation of eastern metal under the arrangements with Raznoimport in 1963 and 1964, with Metalimpex in 1964 and 1966 and with Intrac in 1965 and 1966. In return for Alcan's agreement to accept an allocation of eastern metal on its behalf, VAW usually agreed to purchase from Alcan corresponding tonnages of aluminium products. In practice, however, such purchases were not always called for by Alcan, or the matter was dealt with in some other way by VAW. According to Alcan's reply VAW was unable to participate directly in the Brandeis contracts because imports of eastern aluminium into the Federal Republic of Germany were at that time prohibited or very strictly limited.

2.4.3. The quota assigned to Swiss Aluminium from 1971 onwards included amounts to be purchased by RTZ and BICC. The quotas for the ultimate purchasers corresponded to their respective shares of, initially the estimated production, and subsequently the sales of Anglesey Aluminium Ltd, calculated by reference to the percentage of the share capital in Anglesey Aluminium held by RTZ and BICC (1).

2.4.4. The participation of RTZ and BICC appears to have been arranged in this manner in order to avoid the provisions of the UK Restrictive Trade Practices Act. Anglesey Aluminium Ltd had agreed in December 1970 to accept an obligation to take up aluminium under the Brandeis agreements, as a result of becoming a member of the EPAA but, in January 1971, RTZ indicated that there were "legal and technical problems" relating to its participation, that it had consulted BACO at length and "we are attempting find formula that will not offend the UK Trade Practices Court" and asked whether Swiss Aluminium would be prepared to make the agreement with RTZ and assume its commitment in the "master agreement". This was done.

2.4.5. The eastern metal distribution list for 1974 shows that the quota assigned to Alcan Canada included a third-party share. The amount of eastern metal taken up by Alcan included not only the amount proportionate to the sales of Alcan companies in Europe but also an amount proportionate to the share of Kaiser Aluminium and Chemical Corporation in the sales of Alcan Booth Industries Ltd (in which at all material times Kaiser held a 25 % shareholding).

2.4.6. In 1968 Mosal A/S, the jointly owned subsidiary of Elkem and the Aluminium Company of America (Alcoa), signed a purchasing agreement with Brandeis Goldschmidt. In 1971 a similar agreement was made by Elkem, but the quota allotted under this agreement was calculated by reference not only to Mosal's "sales in western Europe" but also to sales in western Europe made by Alcoa. While it was Elkem which signed the Brandeis agreement in 1971, over 60 % of the quota allotted was related to sales made by Alcoa, either directly or through Mosal.

2.4.7. The above long-term arrangements involving Alcan, VAW, Swiss Aluminium, RTZ, Kaiser, BICC, Elkem and Alcoa were not the only instances in which eastern metal passed through the hands of one western metal producer to another. In addition, ad hoc sales and swaps of eastern metal were made from time to time between EPAA members in the course of their daily trading.

3. The enforcement of the agreements 3.1. Introduction

The object and effect of the series of agreements made between Brandeis Goldschmidt, the western aluminium producers and the foreign trade organizations can be seen from the manner in which they were implemented and enforced and acts which were regarded as infringements.

3.2. Throughout the duration of the whole Brandeis arrangements, steps were taken by the western producers to enforce the terms of the restrictions that the foreign trade organizations had entered into.

3.3. Enforcement of the 1963/64 and 1964/65 agreements 3.3.1. The agreement made in 1963 between Raznoimport and Brandeis Goldschmidt expressly permitted the supply by Raznoimport of aluminium semi-manufactures. In 1964 a UK independent dealer, Non-Ferrous Stockholders, made a contract for the import of up to 10 000 tonnes of aluminium sheet. The UK Government had recently placed aluminium sheet on the "open general licence" list as a result of a trade agreement between the UK Government and the Government of the USSR, and Non-Ferrous Stockholders sought to avail itself of the opportunity for trade thereby presented. However, on learning of the Non-Ferrous Stockholder's contract, Alcan UK, BACO and Swiss Aluminium jointly prevented the performance of it by obliging Raznoimport to undertake not to export aluminium sheet to the United Kingdom.

An Alcan UK telex message dated 1 May 1964 to Alcan International Ltd explained that:

"Re : (Alcan SA's) telex of 30 April (BACO) now takes view that we must use present position arising from metal negotiations to insist on complete cancellation of sheet contract between Russians and Non-Ferrous Metals. His opinion, with which we agree, is that even 2 000 tonnes a year of Russian sheet would have serious influence on stability of UK and Continental markets and that every possible step must be taken to prevent this ... (BACO) will refuse (BACO's) signature to metal contract unless Russians undertake in writing to refrain from any, repeat any, exports of semis to western Europe ... Request your advise of line to be taken at meeting in Zurich (1) Anglesey Aluminium was originally held as to 43 % by RTZ and as to 27 % by BICC. By 1975 these had become 33 % RTZ and 19 % BICC. BICC ceased to be a shareholder in December 1975. The remaining shareholder was Kaiser Aluminium and Chemical Corporation, which became the majority shareholder at the end of 1975 with 66,6 % of the share capital. Monday when understand Alcan SA and Alcan UK represent group ..."

By letter dated 18 May 1964 Raznoimport undertook not to export more than 3 000 tonnes of aluminium sheet to the United Kingdom during the period May 1964 to December 1965.

3.3.2. By the "spirit of the agreement" clause, which first appeared in 1964, Metalimpex undertook to "handle ... sales of semi-manufactured aluminium products in the spirit of this agreement". By this the parties meant that sales of semi-manufactures were to be held at their pre-existing levels. A BACO memorandum dated 15 September 1965 records that:

"A condition of the contract required the Russians to limit their export of aluminium semis to the United Kingdom to 3 000 tonnes during the period of the contract. This 3 000 tonnes would be additional to the 2 000 tonnes already ordered but not delivered. The Hungarians effectively agreed to limit their semi sales in the United Kingdom to the then prevailing level (about 660 tonnes per annum)."

3.4. Enforcement of the 1968 to 1970 agreements 3.4.1. A letter dated 22 July 1970 from Swiss Aluminium to Brandeis Goldschmidt shows that infringements of the 1968 to 1970 series did take place, and that steps were taken by the EPAA members to remedy such infringements. The letter sets out the infringements in tabular form, a copy of which is reproduced in table 5. This letter also shows that the main remedy used by EPAA members to deny any advantage to the foreign trade organizations for deliveries in excess of the agreed quotas was to deduct any such excess from the quota for the following year.

3.4.2. Throughout the running of the Brandeis agreements there were recurrent shortages of aluminium scrap in the EEC and other countries of western Europe. It was never the policy of any of the western European countries concerned to restrict the importation of aluminium scrap. During 1968 and 1969 the UK secondary smelters made repeated representations to the UK Board of Trade to alleviate a shortage of scrap, in the course of which the Association of Light Alloy Refiners and Smelters pointed out that in 1965, when Russia had been a major supplier of scrap to the UK market, imports from Russia had amounted to 15 000 tonnes. This source had "completely dried up".

On each occasion the primary smelters in the United Kingdom maintained that there were adequate supplies of primary aluminium to replace scrap. Primary aluminium was more costly than scrap for the secondary smelters.

3.4.3. The complaints about breaches of the eastern metal agreements and action taken in 1970 to enforce the agreements are summarized in table 6, which partly overlaps table 5.

The action taken in 1970 to enforce, in respect of deliveries to the EEC, the restrictions contained in each of the agreements between Brandeis Goldschmidt and the foreign trade organizations may be set out in more detail.

Raznoimport

3.4.4. A complaint was made by Brandeis Goldschmidt on 12 August 1970 at the delivery of 1 000 tonnes of primary ingot to Rotterdam for the account of a metal dealer Messrs Panchaud Frères SA. When Raznoimport indicated that it had received no reply to a letter on this matter to Panchaud Frères Brandeis Goldschmidt replied:

"We ... have noted that you have not yet received a reply from Messrs Panchaud Frères SA regarding the 1 000 tonnes of Russian aluminium shipped to Rotterdam outside the Basle agreement.

However, as we have supplied conclusive evidence that this material was virgin aluminium ingots of Russian origin shipped from Russia, we shall deduct this tonnage from the fourth-quarter allocation."

3.4.5. Complaints were also made by Endasa concerning the supply to a Spanish cable maker, Echevarria Hermanos SA, of 152 tonnes of aluminium ingot of USSR origin. The complaint, contained in a letter dated 13 November 1970, was addressed to the EPAA in Düsseldorf, and stated:

"We confirm (our) telex about the importation of aluminium ingot from USSR.

The Spanish import licence No 7.155.023 has been issued to the Spanish cable manufacturer "Echevarria Hermanos SA" covering 152 234 kg of aluminium ingot at a cif Spanish port price equivalent to US $ 0,21 per lb (1) and country of origin of the said metal is shown to be the USSR."

Swiss Aluminium replied by telex dated 20 November 1970: (1) This price was noticeably lower than the price then ruling under the Brandeis agreements (US $ 566 per tonne).

"(Your letter) 13 November 1970 to EPAA. Please address all letters re eastern metal to Zürich."

and called on Endasa to provide further details. It was eventually established by Swiss Aluminium that the consignment in question had been originally destined for the United Kingdom under the Brandeis agreements, but had been re-shipped by the western producer concerned.

Impexmetal

3.4.6. An offer made to Swiss Aluminium for 1 000 tonnes of Polish aluminium prompted a letter dated 9 July 1970 from Swiss Aluminium to Brandeis Goldschmidt in the following terms:

"This offer constitutes a violation of our agreement. In order not to disrupt the market, Swiss Aluminium have decided to purchase this metal rather than letting it be offered to independent aluminium users.

This quantity which is exactly 1 000 tonnes will be deducted from the 1970 quota, to be supplied by Impexmetal to the group. To allow you to prove the case to Impexmetal, Warsaw, we are sending you herewith the original certificates of analysis issued by Huta Aluminium "Konin".

... In consequence of the above, the total quantity to be taken from Impexmetal this current year is to be reduced to 15 085 long tons. Kindly advise Impexmetal accordingly."

3.4.7. Swiss Aluminium also complained of the activities of a British metal trader in selling Polish aluminium to Argentina. A telex message dated 2 December 1970 to Brandeis Goldschmidt stated:

"Have reliable information that British Metals Corporation offered, in Argentina, Polish metal at US $ 523 per tonne, deliverable in 180 days. This is against clause 2 (price not lower (1)). Request withdrawal of offer - if sale is made we will deduct."

3.4.8. On 4 December 1970 Swiss Aluminium made a further complaint to Brandeis Goldschmidt:

"Hungarian or Polish metal - Our subsidiary Satral, Belgium, received offer from Landa Metals for 200 tonnes at £ 198 per tonne. All these offers seem to become a habit and have a bad effect on the price level. Please ask suppliers to stop this nonsense now."

The message was conveyed to both Impexmetal and Metalimpex.

Metalimpex

3.4.9. By letter dated 20 May 1970 to Brandeis Goldschmidt, Swiss Aluminium sought the withdrawal of a quotation for Hungarian aluminium to Alfa Romeo SpA. The letter was in these terms.

"We have been informed that the Hungarians, presumably Metalimpex, have offered to supply to Alfa Romeo, in 1971, 4 000 tonnes of aluminium alloy (Al Si 9), and that moreover they already supplied 200 tonnes in 1969.

Both actions constitute a violation of the present contract since the deadline for a new contract is 31 October 1970, and before that date no quotations for next year can be allowed.

Please be good enough to protest against this and ask for a withdrawing of the quotation. The 200 tonnes supplied last year will be deducted next year ..."

3.4.10. Apart from the 200 tonnes supplied in 1969, Alfa Romeo SpA purchased no further quantities from Metalimpex or any other foreign trade organization.

Metalimex/Kerametal

3.4.11. In January 1970 a Slovakian company, Kerametal Ltd, became responsible with Metalimex for the supply of aluminium under the Brandeis agreements. It is not clear whether the new company, Kerametal, had sought to be released from the restrictions of the Brandeis agreements, but Brandeis Goldschmidt, after a meeting in July 1970, reminded Kerametal that:

"Concerning secondary aluminium, semis, alloys and the other virgin aluminium discussed, we regret that section 2 of the agreement cannot be in any way amended or deviated from."

Intrac

3.4.12. In early 1970 Intrac disclosed to Brandeis Goldschmidt that it had contracted for the sale of 2 200 tonnes of aluminium wire, and 3 750 tonnes of primary ingot to the Federal Republic of Germany. Intrac itself proposed the deduction of the 5 950 tonnes from its total of 8 990 tonnes to be supplied under the Brandeis agreement. Brandeis Goldschmidt replied on 27 January 1970 that:

"... Our friends do not agree with your sale of aluminium wire and resultant deduction of aluminium ingots. (1) The Brandeis price at the time was US $ 566 per tonne, cash against documents.

We refer in this respect to your letter dated 26 June 1968.

Our friends insist that you should cancel the contract for wire and deliver the ingots. We realize your difficulties of cancelling an existing contract although it should never have been concluded. In order to find a solution we propose that you deliver the 2 000 tonnes of ingots this year and the quantity will be deducted from an eventual contract for 1971.

Please confirm, as otherwise we really think major unpleasantness will arise."

Intrac replied that it did not understand how "unpleasantness" could arise if Intrac deducted the amounts in question from the quotas it was to sell under the Brandeis agreement. To this argument Brandeis Goldschmidt replied:

"... If you look at the contract Brandeis Goldschmidt, Basle, has with you there is no doubt that the sale of 2 000 tonnes is prohibited. You take the position that in 1968 material was sold by DIA and was later deducted by us and that this was a precedent. The sale in 1968 was an infringement, we protested and we deducted because you confirmed in your letter dated 26 June 1968 that no further sales would be made by DIA. In other words we treated this transaction as an exception but under no circumstances give you or DIA the right to make further sales and later deduct the equivalent tonnage from your contract with Basle.

You must agree that should we give you these rights it would make a nonsense of the contract which you have with Basle, as it would give you an option to sell either semis or ingots, when the market is in your favour, at a price better than the agreement price, deducting the tonnage later ... In any case please deliver the 2 000 tonnes ingots as called forward as we cannot change our programme, and we will deduct in 1971."

Brandeis Goldschmidt supplied Swiss Aluminium with copies of the telex messages exchanged with Intrac concerning the 2 000 tonnes of aluminium and undertook to keep Swiss Aluminium informed. Brandeis Goldschmidt informed Swiss Aluminium on 6 May 1970 that:

"The parcel was reduced to 500 tonnes only and made into a conversion contract and not a direct sale."

3.4.13. The activities of Intrac continued to be the subject of complaint. On 27 May 1970 Swiss Aluminium informed Brandeis Goldschmidt that:

"Have just learnt from the Federal Republic of Germany that the German Democratic Republic is offering 5 000 to 7 500 tonnes for 1971 and following years. Please protest strongly to Intrac, as everybody is bound to the agreement and no such action shall take place before 31 October 1970, provided a new agreement cannot be reached by that date."

Brandeis Goldschmidt raised this matter with Intrac. The latter explained that the "talks" concerned were only "informative in case we would not come to an agreement". It was also disclosed that Intrac had sold 3 000 tonnes to the Federal Republic of Germany and proposed to deduct this quantity from the quota for 1971:

"... They (Intrac) told us that they have sold for the end of this year 3 000 tonnes to the Federal Republic of Germany, and the reason they gave us was that it concerned some involved financial transactions and they had to sell this material ... they themselves mentioned that ... this quantity should be deducted for 1971."

This information produced a spirited reaction from Swiss Aluminium. By letter of 25 June 1970 Swiss Aluminium declared:

"We were rather alarmed on receiving your letter of 12 June 1970 and have contacted VAW in order to find out to whom this metal might have been sold.

Unfortunately they have not been successful. Nevertheless we feel strongly that we should not accept the statement by Intrac and that you should demand that they withdraw from their sale.

We cannot allow that running contract is broken intentionally with a simultaneous offer to deduct this quantity from a future contract, should there be one. The purpose and spirit of this contract is that eastern metal is sold to the western European producers, and not to independent aluminium users. Further, there remains the question of the price."

In consequence of this complaint Brandeis Goldschmidt sent the following letter on 29 June 1970 to Intrac:

"With regard to the 3 000 tonnes which you have sold for delivery end 1970 to the Federal Republic of Germany, our friends are most perturbed by this news and demand that you withdraw this sale as this contravenes the Basle agreement and also is completely against the spirit of the agreement."

3.4.14. While this matter was being resolved, Swiss Aluminium made a further complaint that Eisen und Metall was offering aluminium from the German Democratic Republic to purchasers in the Federal Republic. A telex message of 23 June 1970 relayed the terms of Swiss Aluminium's complaint to Intrac:

"Eisen und Metall Gelsenkirchen offer 99,5 % East German aluminium at DM 212 (free customer). 500 tonnes in July, 200 tonnes in September and 100 tonnes in October. This is not part of free quota as this goes through VAW. The "Interzonenabkommen" allows imports of GDR aluminium for DM 22 million. The 5 000 tonnes (3 750 tonnes through Brandeis plus 1 250 tonnes free quota) are approximately DM 11 million. GDR may, therefore, according West German regulations, export another approximate 5 000 tonnes to the Federal Republic of Germany, but this would definitely constitute a violation of present contract. Therefore please ask Intrac to withdraw offer immediately."

Intrac subsequently denied that they had offered or supplied the tonnage in question to Eisen und Metall.

3.5. Enforcement of the 1971 to 1976 agreements 3.5.1. The enforcement efforts are summarized in table 7. They show the same pattern of vigilance in the market place and vigorous protest against alleged infringements of the agreements.

3.5.2. The complaints show that the western producers were prepared to resist, under the contract, activities by the foreign trade organizations which were permitted or at least not forbidden under the contracts.

3.5.3. In May 1971 Swiss Aluminium took the view that Raznoimport could not exhibit merchandise at an exhibition of export goods from the USSR to be held in Basle. In a reply dated 31 May 1971 Raznoimport undertook only to display high purity aluminium (99,9 %) and certain rolled products and stated they would not offer for sale any quantities of aluminium of any grade during the fair.

3.5.4. The export by Raznoimport and by Impexmetal of aluminium dross, containing 15 to 20 % aluminium, also drew a protest. Although Raznoimport replied that the export of aluminium dross was not prohibited by the agreement, Brandeis Goldschmidt maintained that the aluminium content of the dross should be deducted from the primary metal purchases. However, on other occasions, notably when Intrac wished to sell into the Federal Republic of Germany outside the Brandeis agreements and offered to deduct the amount involved from the following year's quota, Brandeis Goldschmidt refused.

3.5.5. During this period the western producers insisted upon prior authorization by them of conversion contracts (whereby aluminium from eastern Europe would be converted into semi-manufactures and re-exported to eastern Europe), or at least to have knowledge of the transactions in order to ensure that the Brandeis agreements were not being circumvented.

3.5.6. On occasion the western producers complained about offers of sales by eastern foreign trade organizations to the United States. This country was within the markets which were contractually out of bounds to the eastern European foreign trade organizations, and the complaints are of principal concern to the various local competition authorities. This shows the determination of the western producers to enforce the agreements, but they are also relevant to the EEC because there was always the possibility that the goods could find their way back to the EEC. This was recognized by the western producers.

3.5.7. During the abortive negotiations for an agreement in 1976, Raznoimport prepared a draft which added to the countries to be in bounds to Raznoimport, Japan, Canada, the United States and Thailand. Alcan UK stipulated that only Thailand should be "free" ; BACO went further, by stating in a telex to Swiss Aluminium (8 June 1976):

"... 4. The USA must be covered by the agreement because of ease of switching by merchants back into the European market ..."

3.5.8. Complaints were made in 1971 and 1972 concerning imports into Italy of Yugoslav aluminium, even though on one occasion the metal was clearly Yugoslav. Swiss Aluminium on that occasion wrote (letter of 17 January 1972) to Raznoimport:

"The metal which they sell in Italy is not bearing your marks, and it is therefore obvious that they use your metal internally and re-export their own (i.e. they can only re-export on the basis of their imports from the USSR ...). I see no other solution but that you curtail your exports to Yugoslavia as long as they dump their own metal in this manner in Italy."

3.5.9. At a meeting of a working group of the Hungarian-Italian Commission for Economic Cooperation, a joint government/industry body, held in Budapest from 31 January to 2 February 1972, the Hungarians were interested in the use of Italian technology to begin production in Hungary of aerosol cans. The Italian delegation had expressed an interest in using Hungarian aluminium slugs (a semi-manufacture) in payment for the know-how. When this came to the notice of Swiss Aluminium through its Italian subsidiary, Swiss Aluminium caused Brandeis Goldschmidt to intervene with Metalimpex, which agreed that slugs were covered by the Brandeis agreements (which imposed an annual ceiling of 1 016 tonnes on exports of semi-manufactures by Metal-impex).

3.6. Enforcement of obligation to take up eastern metal 3.6.1. Membership of the EPAA entailed an obligation to buy a prescribed quota of eastern metal. The observance of this obligation was supervised by members of the EPAA executive committee.

3.6.2. In 1974 Alsar informed Brandeis Goldschmidt that it was unable to take delivery of 1 210 tonnes, the balance of its 1974 quota. The EPAA executive committee (then composed of Swiss Aluminium, PUK, Montedison, Ardal, VAW and BACO) put pressure upon Alsar to take the consignment, but was willing to allow the consignment to be assumed by another member of the EPAA. When the Alsar quota was not taken up by any other EPAA member, Swiss Aluminium sent a telex to Alumetal, on 30 September 1974, requesting the assistance of that company to compel Alsar to meet its contractual commitments.

Alsar commented on this incident in the following statement given by its legal adviser at the hearing:

"... There was some reluctance on the part of Alsar ... It was obvious that starting with new plants and new financement Alsar was not very keen on assuming also part of the quotas from the Brandeis agreement. On the other side it was quite impossible, in a system which has been described as an oligopolistic system, to produce or to sell aluminium without having a friendly relationship with all the other producers, and the documents show that at first stage Alsar tried to be a member of EPAA without assuming the quotas, and in the end was more or less convinced to do so because it had a very fair and strong necessity to sell and distribute metal."

4. The price 4.1. Objective from the beginning

From the beginning the objective of the western producers was to prevent fluctuations of price. It was not the quantities imported : table 8 shows that only in Belgium and Luxemburg had the 1962 quantities increased significantly over previous years. In respect of the United Kingdom, imports had peaked in 1959 and, in 1962, were still below a threshold which had been agreed government-to-government up to October 1961.

4.2. The original group of western producers agreed, between November 1962 and February 1963, that "it would be desirable to ascertain the likely terms on which (Raznoimport) would be prepared to sell their export quota of virgin aluminium exclusively to the western European aluminium producers instead of disrupting western aluminium markets by selling the same at dumped prices to merchants or consumers in these markets (1)". The same point was put contemporaneously and somewhat more tactfully by Brandeis Goldschmidt to Raznoimport in the passage set out in 1.4.2. Brandeis Goldschmidt went on to say:

"In our opinion the advantages for you of our proposition are that in the first place you would receive a better return for your aluminium and you will also have an outlet for a fixed tonnage. As you undoubtedly know your aluminium is often offered because of barter deals at very depressed prices which tends to undermine the world price structure ...

Our idea would be to arrange distribution, as far as is possible, so that we serve the same merchants and consumers who have received your metal in the past with the minimum disturbance of the existing price structure."

In its report to the western producers on the first meeting with Raznoimport, Brandeis Goldschmidt stated:

"We considered it necessary during our negotiations to intimate to Raznoimport that we had the backing of certain producer interests. We explained that the main reason for our approach was to preserve the existing price structure which was just as much in their interests as in ours ..." (1) From particulars supplied by BACO in response to a notice issued by the UK Registrar of Restrictive Trade Practices under section 14 of the Restrictive Trade Practices Act 1956.

4.3. In the first contract (No 68/3326) Raznoimport was permitted to sell inter alia to Argentina and Sweden, but undertook to sell in those countries at "prices not lower than those mentioned in this agreement". Intrac later made a comparable agreement in respect of Sweden. By a letter dated 18 May 1964 Raznoimport amended its second agreement (No 68/4364, which had been substantially the same as the first) whereby, if it became free to sell billets, it would do so at prices which would not "undermine the spirit of the above agreement". Similar price clauses appeared in all later agreements with all the foreign trading organizations.

Where the possibility of exporting small quantities of semi-manufactures to the EEC was left open under the Brandeis agreements (such freedom existed only in the case of Raznoimport and Metalimpex), the parties agreed that:

"Lowering of prices of aluminium products would endanger the aluminium market and undermine this agreement, therefore sellers undertake to handle their sales of semi-manufactured aluminium products in the spirit of this agreement."

This commitment was not confined to the small quotas of semi-manufactures permitted to be sold in countries other than the excepted countries, but as a general commitment by Raznoimport and Metalimpex on all their export sales.

4.4. Some of the complaints made by the western producers about violations of the agreement show that the price was an exacerbating factor : Polish metal to Argentina (3.4.7). On 4 December 1970 Swiss Aluminium complained about an offer to its subsidiary in Belgium of 200 tonnes at £ 198 net which would, it said, have "a bad effect on the price level". A complaint about small imports of sheet into the United Kingdom from Russia in 1971 pointed out that the price according to the import statistics was between £ 171 and 177 less than the list price and undercut the stockholder price by about £100. A complaint about low prices was made later in that year involving exports from Yugoslavia.

4.5. Why the Russian prices in 1963 should have then worried the western producers is not obvious. In its reply to the Commission's statement of objections, Alcan indicated that in 1963 "the USSR was selling small but increasing quantities of metal in London at £ 20 or 25 a tonne below the Alcan export price (equal to a discount of 11 to 14 %)". There was nothing to support that statement. In that year the producers' list prices were being discounted. The United States National Bureau of Economic Research considered that at that time "large buyers ... could usually find aluminium at one or two cents below the list price". This represents a discount of 4 to 8 %. The Russians were not well established in the market and an additional discount given in a weak market would not be untoward. Furthermore, the quantities traded in the free market have always been marginal, which means that prices tend to be volatile, and in a weak market would drop further than would those of the established suppliers. Without more knowledge of transaction prices at the time, of both the Russians and the western producers, it is not possible to assess how low the Russian prices really were.

4.6. Some of the western producers argued that the Russian prices were unfair prior to 1963 and all implied that without the Brandeis arrangements the eastern European pricing would have continued to be unfair. The latter point is unprovable, but the arguments about the pre-1963 prices were far from conclusive. Elkem called them "political" prices because supplies were erratic and the eastern organizations intended only to collect western currency. It was not made dear why, if hard currency were the only objective, the eastern organizations were and would have continued to be content with getting less then they could. RTZ argued that the prices were unfair because the eastern Europeans enjoyed a monopoly position on the domestic markets and were in no fear of retaliation, so that they could with impunity sell excess quantities "at almost any price covering marginal costs". The true marginal costs and average costs of the eastern producers are known neither to the Commission nor to RTZ, so that an attractive argument comes to no more than an unprovable assertion.

4.7. Alcan alleged that the Russian prices were dumping and sought to prove this. Alcan based its calculation of the domestic market price for primary aluminium in the USSR on a work published by G.D. Kuznetsov (1). Using the prices quoted in that work, and converting them into US dollars at the prevaling official rate of exchange, Alcan was able to show that the Brandeis price was a dumping price, so that any sale at prices below (1) Tsenoobrazovanie v. Tsvetnoi metallurgii (Price Formation in non-Ferrous Metallurgy) - G.D. Kuznetsov, published Metallurgiya, USSR 1977. that level would have increased the margin of dumping. This argument depends entirely on which rate of exchange is used notionally to convert currencies which are not convertible. It was stated by Alcan's expert at the hearing, in reply to a question as to the commercial significance of the official exchange rate, that "... the domestic price system is so completely disarticulated from the external price system that the usual measures of purchasing power parity simply do not apply ..." (transcript, page 180). The Kuznetsov work, relied on by Alcan, also contained a comparison between western market prices and USSR domestic prices. It was confirmed at the hearing that those comparisons were not and could not have been based on the USSR official dollar/rouble rate of exchange (1).

The method which Alcan used in purporting to show dumping is not one which is used under the rules of GATT with respect to State-trading countries, partly because of the difficulty of relying on official rates of exchange. Public authorities, which alone are entrusted with the determination of dumping, have not used such a method, at least since adoption of legislation giving effect to the supplementary note (1955) to Article VI of GATT.

4.8. Pricing under the Brandeis agreements 4.8.1. All the western producers paid the same price for each grade of aluminium purchased from the foreign trade organizations under the Brandeis and Eisen agreements. In addition each purchaser paid a commission to Brandeis Goldschmidt in consideration of its services as agents. The rate of commission charged per tonne was the same for all purchasers.

4.8.2. Until the Zurich-Eastern Metal Conference (7 and 8 June 1972), the price was fixed by reference to the "price for Canadian/US and UK aluminium delivered works as published in the current issue of the "Metal Bulletin" in London", from which an agreed discount was deducted. The price published in the Metal Bulletin was in fact the Alcan list price. At the hearing, a director of Alcan explained that "Alcan was the largest producer of metal available for independent companies around the world. It was also the largest exporter of metal out of Canada. It therefore tended to be the company that published a price and probably one of the most competitive of the prices at that time because of the quantities we needed to sell. To give an example, in the United Kingdom, one-third of the metal shipped to the United Kingdom had to be sold to independent companies who were completely free to buy" (transcript, page 218 H).

The price between May 1972 and July 1973 was fixed at £ 186 per tonne from May to December 1972 and £ 191 per tonne thereafter. This latter price was raised to £ 215 per tonne from February 1973. At the Zurich Eastern Metal Conference of 16 to 18 April 1973, the parties agreed on a price of £ 232,50 per tonne or the UK list price minus 11 %, whichever was the higher. After the Brno conference (6 to 8 September 1973), a formula was adopted whereby the price in pounds sterling was to be converted into other currencies by reference to the average rates of exchange of "eleven member currencies".

4.9. List price formulae 4.9.1. As a result of the Paris Eastern Metal Conference held on 30 and 31 October 1973, the first such formula was introduced for the first half of 1974. It was the average of the list price of the largest producers (2) in the Netherlands, the Federal Republic of Germany, Spain, Italy, France, Japan, Austria, Switzerland, Norway, Sweden, the United Kingdom and Belgium less a discount of 7,25 %. The dissatisfaction of Raznoimport at the price it had been receiving during the latter part of 1973 (when the Metal Bulletin free transaction price was higher than most list prices) led to the adoption in May 1974 of the so-called "Venice formula" : 50 % at the average of 12 national list prices less a discount of 5 and 50 % at the mean Metal Bulletin price less a discount of 5 %. The "Munich formula" adopted for 1975 and 1976 was the same as the Venice formula, but without a discount.

4.9.2. In reply to a request for information from the Commission, pursuant to Article 11 of Regulation No 17, Brandeis Goldschmidt indicated that the list prices used to calculate the purchase price under the Brandeis agreements were "in principle checked with producers in the countries concerned". (1) The method used by Alcan leads to the conclusion that supplies from the USSR would have had to sell at prices at least some 40 % above western European prices in order to avoid the charge of dumping. (2) These producers were Holland Aluminium, VAW, Endasa, Alumetal, PUK, NLM, VMW, Swiss Aluminium, Ardal og Sunndal Verk, Gränges Aluminium, Alcan UK and Alcan respectively.

At the end of 1973 Brandeis Goldschmidt submitted the 12 list prices to Alcan (1) for confirmation. Thereafter the parties freely exchanged information on their prices wherever Alcan, as the primary source of information, expressed uncertainty.

4.10. Commission paid to Brandeis Goldschmidt

Throughout the running of the Brandeis agreements Brandeis Goldschmidt received a commission for every tonne of primary aluminium sold under the agreements. The amount of commission so received from 1970 is set out in table 9.

4.11. Comparison of prices 4.11.1. An exact comparison between the price paid under the Brandeis agreements and western market prices is difficult. The degree of vertical integration in the industry implies that most intermediate products are not sold, but transferred within a producing group. Again, sales of 99,5 % ingot are a minority of sales of primary aluminium products which include such important categories as rolling slab, extrusion billet, wire bar, etc. Furthermore, 99,5 % ingot cannot be used without remelting, since an ingot is not a re-usable form, unlike billet or rolling slab. Accordingly, the market is limited to purchasers having their own remelting facilities, or to traders for subsequent resale.

Furthermore, allowance must be made for: (a) duty;

(b) differences in conditions of supply;

(c) differences in purity (99,5 % and 99,7 to 99,9 %);

(d) differences in terms of payment.

4.11.2. Some of these matters were discussed in an exchange of letters between Metalimpex and Brandeis Goldschmidt in 1971. By letter dated 16 April 1971 Metalimpex queried the 11 % discount on the Canadian/UK list price (the price then agreed under the Brandeis agreements) in these terms:

"Regarding virgin aluminium ingot 99,5 %, the Canadian price indicated in the Metal Bulletin less 11 % allowance has been agreed upon during our discussions. This price formula has been accepted by us since we were told by our western partners - including your Company too - that they had met losses on the price of the former contract, i.e. the Canadian price, less sixteen and one-third pounds sterling (2), when selling the aluminium they had bought from the Socialist countries.

The allowance they had to grant to their clients exceeded even the price of the Canadian quaotation less 11 % on the contracted terms, in most of the cases cif port of the destination country.

As far as I can remember the full allowance of 11 % indicated by our western partners as being granted to their own clients on the Canadian price has been composed of the following factors: 1. duty generally amounting to 7 % is covered by sellers;

2. sales are effected on clients' premises and are covered by sellers;

3. 30 to 40 days financing fees are reimbursed by sellers instead of buyers.

... We would highly appreciate your confirming us the arguments - mentioned by you and accepted on our part, i.e. that the allowance granted to your clients on the Canadian price - according to experience of the past few years - amounted to 11 % and therefore the club insisted on the price of the new contract, envisaged for the following five years being fixed accordingly."

By letter dated 28 April 1971 Brandeis Goldschmidt replied in these terms:

"We refer to your letter dated 19 April, and to the discount of 11 % in the contract for aluminium which you have with Brandeis Goldschmidt and Co. AG, Basle. ...

Western producers sell aluminium: (a) duty paid;

(b) delivered works;

(c) generally 99,7 %;

(d) 60 days' payment.

Of course it depends on duties in each country but we would estimate that 11 % in many cases does not cover the abovementioned. As you know at the negotiations a discount of 15 % was mentioned as a more realistic figure. (1) Alcan UK explained that the reason why Alcan was asked to confirm the list prices was that "Alcan, with its international organization and wide knowledge of domestic market list prices (as set by local aluminium producers) was most readily able to verify the correctness of price calculations by Brandeis"- letter to the Commission of 14 October 1976. (2) This represented a discount of approximately 6 %.

On present market conditions we want to add that we do not think a contract would be concluded at a discount of 11 %."

(a) Duty

4.11.3. The Metalimpex letter referred to a duty payable by the buyers of 7 % on the eastern metal purchased. This level of duty was the amount payable on import into the EEC under the Common External Tariff (CET). The United Kingdom, before accession, did not levy duty on imports of primary aluminium so that western producers importing eastern metal into the United Kingdom (Alcan, BACO and to a lesser extent Swiss Aluminium, and PUK) did not have to meet this added cost of eastern metal.

(b) Differences in conditions of supply

4.11.4. The prices paid under the Brandeis agreements was a cif price mainly to a western European port. The price therefore contained no element to meet the cost of transport from that port to the buyers' smelter. The prices of western producers, however, were and are generally delivered prices, necessarily containing some cost element to provide transport to the works in question. It would therefore be natural to expect a producer's delivered price to be higher than the producer's cif price for an equivalent transaction involving a foreign sale.

The table produced by Swiss Aluminium for the Brno Eastern Metal Conference shows an allowance for "handling and inland freight" of 3,7 % for the Federal Republic of Germany, 3,2 % for France, 1,6 % for the Netherlands, 1,5 % for Belgium, 2,6 % for Italy, 1,7 % for the United Kingdom and 3 % for Austria and Switzerland. These allowances were deducted inter alia by Swiss Aluminium from "free delivered" prices in those countries, in order to calculate the "net price cif terms".

(c) Differences in purity

4.11.5. The grade purchased under Brandeis agreements was generally 99,5 % but shipments of 99,7 % were also made. In its reply Alcan indicated that "the general run of production of a modern smelter is likely to be of metal of between 99,7 and 99,9 % purity", and later:

"Comparing smelters installed since 1960 with those installed before that date, the following are among the principal improvements:

... (iv) The average quality of the metal produced from the reduction process has improved from around 99,65 % pure aluminium to the order of 99,75 to 99,8 % pure aluminium."

In its letter of 28 January 1970, referred to above, the Aluminium Company of Canada referred to 99,7 % ingot as being the "commercial grade".

4.11.6. The prices established by the Metal Bulletin for "Canadian, US and UK delivered" ingot show that a premium was normally payable for ingots of higher purity (1). The amount of such premium was around 4 % on the 99,5 % ingot price (the Metal Bulletin "certain other transactions" prices record a premium of a similar size for the higher purity ingot (minimum 99,7 %)). Whether such a premium would be charged to a customer or waived would naturally depend on the state of the market. Alcan in its reply referred to the matter in these terms : "Suppliers may waive or reduce such premia as a form of what is ... effectively price competition". At the hearing BACO indicated that "it was not common practice among the producers to charge any premium for 99,7 % metal "and that "premiums normally start only if you go to 99,8 % or beyond".

4.11.7. While a premium for 99,7 % purity may not in fact have been charged by certain western producers, the Brandeis agreements provided for a premium to be paid on shipments of 99,7 % purity aluminium, and the premium was paid on such shipments. At the hearing BACO described this matter as a "concession" made "in part of the give and take of a commercial negotiation".

(d) Differences in payment terms

4.11.8. In its reply Alcan indicated that "the terms for payment represent an important element in any contract for the supply of aluminium and the grant of extended payment terms is often used as an effective competitive weapon, despite the cost to the supplier ... Suppliers on occasion offer a discount for prompt payment". Alcan itself recalled having given a discount of 2 % for prompt payment.

4.11.9. The terms of payment offered by western producers to customers were in 1971 around 60 days, but according to Swiss Aluminium longer terms of up to 120 days were granted in 1973, while Alcan stated that its standard terms were net (1) No reference is made here to the "super-purity" 99,99 % grade, which is understood to form a particular market. monthly account, giving an average of 45 days credit. According to Alcan these terms were extended as necessary to meet competition.

4.11.10. The Brandeis agreements provided for payment in cash against documents. "Payment is to be effected three days after receipt of telegraphic advice of the bank in the suppliers country that the documents were received from the sellers and dispatched to the buyers". In other words no credit was given nor was any discount given for prompt payment.

4.11.11. These terms caused some surprise to RTZ and BICC which joined the group of buyers in 1971. The reaction of RTZ is evidenced in the following exchange of correspondence between the two companies, which were both at the time shareholders in Anglesey Aluminium Ltd and buying its allotted quota of eastern metal through Swiss Aluminium.

BICC stated in a letter to RTZ Aluminium dated 2 November 1971:

"... We have now received from Swiss Aluminium Ltd their confirmation of our order for 800 tonnes of 99,5 % Russian aluminium. Having already made some direct comments to you about the terms, which I think are absolutely deplorable, I am intrigued to see that the acknowledgement states £ 228,91 per tonne cif Weston Point, plus expenses.

As you know, I have had no part in these negotiations whatsoever and references such as this leaves our situation wide open to charges which may not have already been defined ... What does annoy me is the terms of payment where I think we have been too hasty by far in accepting three days from date of invoice ...

I think that payment three days after date of invoice is an insult to any buyer's professional ability and I am still mystified as to how this came to be accepted."

RTZ Aluminium replied on 22 June 1972 in these terms:

"We, like you, have been in dispute with Swiss Aluminium over interest charges on Russian metal shipments.

We have been taking a pretty hard line with them up until now ; however, they have squealed so hard that we have finally come to accept that they are only acting as agents in this matter and, rightly or wrongly, feel they are performing some service for the industry as a whole.

Why they ever agreed to such prompt payment terms in the first place I shall never know."

BICC replied on 26 June 1972 in these terms:

"Having given this matter much thought I am still of the opinion that we should not accede to their requests, as we have always felt that the contract generally is just about the worst we have ever come across and certainly to suggest prompt payment for any aluminium is just about the most ludicrous thing I have heard for a very long time ..."

4.11.12. All the factors set out in (a) to (d) must be taken into account in any comparison of the prices paid under the Brandeis agreement with those obtained by western producers. The latter have argued strongly that they did not generally and intentionally pay a "premium" to the foreign trade organizations, in the sense of a price noticeably above their own prices achieved in similar transactions. The prices which have been disclosed are close to the Brandeis levels, and the producers concerned have argued that the Brandeis prices were "very much in line", or "comparable" with the prices they achieved in western markets. At the hearing PUK set out to show that the Brandeis prices were "at arm's length" by comparing those prices with PUK's transaction prices (transcript pages 431 to 437). However sales of 99,5 % primary ingot are not, given the integrated structure of the industry, a major component of total aluminium sales. (In the case of PUK, for example, sales of ingot to independent users amounted by volume to around 5 % of all aluminium sales.)

4.12. Contemporaneous views of the buyers 4.12.1. Whatever the western undertakings now argue about the price they paid, at the time some of them appeared discontented. Apart from the exchange of correspondence already quoted (4.11.11), and despite the contention of Alcan during the proceedings that the Brandeis price was itself a dumping price, statements made by the western producers throughout the running of the Brandeis agreements indicate that they did not regard the aluminium bought under those agreements as being cheap. The western producers remarked on the high price they were expected to pay, as may be illustrated in the following passages relating to the period 1963 to 1970.

4.12.2. At a meeting held on 20 July 1967 between the Board of Trade, Alcan and BACO, the two companies are recorded as stating:

"Every tonne extra taken from the Soviet bloc meant a tonne less which the western group could supply from their own sources and represented an increase in the "danegeld" (1) that the western group aid to maintain a relatively stable market (2)."

4.12.3. A similar reference was made to the price paid under the Brandeis agreements in BACO's note on the Rome Eastern Metal Conference on 21 to 23 January 1970:

"Both the USSR and Romania clearly believe that they are in a position to increase the "danegeld" for protection against market disruption. The existing contract of 95 500 tonnes is already more than the East would be able to sell under free conditions and at a much better price."

4.12.4. At the Zurich Eastern Metal Conference held on 9 and 10 September 1970 there was considerable discussion on the discount on the Canadian/US and UK delivered works price as published in the Metal Bulletin. At the previous Eastern Metal Conference PUK had argued for an increase in this discount to 10 %. The Brandeis price had at that time been set at the Metal Bulletin published list price with a discount of £ 16 per tonne, or 6 %. At the Zurich Conference Swiss Aluminium, PUK, Alcan, BACO and Ardal og Sunndal Verk had pressed for a discount of 11,5 %. The foreign trade organizations were not willing to grant a discount of this size. BACO's note of the Zurich conference indicates that BACO thought "that the eastern group will come back with a counter offer of 10 % discount with perhaps a small concession on payment terms". BACO considered that a discount of 10 % still did not represent a price lower than those ruling in the West. "In any event at this level the price of eastern metal into western fabricating plants is likely to be above those charged from other sources in the West". There was eventual agreement on a discount of 11 % on the price for Canadian and UK aluminium delivered works as published in the Metal Bulletin.

4.12.5. Alcan had also considered the price paid under the 1968 to 1970 agreements to be a burden. In a letter from the Aluminium Company of Canada Ltd, dated 28 January 1970 to Alcan UK, it was stated:

"1,75 cents discount is extremely low for anyone purchasing even the quantities of the present agreement and when cash on surrender of shipping documents is required it makes it even more onerous. Indeed such discounts and credit terms must provide the Eastern bloc with a hot-metal return of something in the neighbourhood of 24 cents per lb, which is certainly far in excess of what we and presumably other western producers are able to obtain (3)."

In a further letter from the Aluminium Company of Canada to Alcan UK, dated 23 March 1970, reference was made to the above letter in these terms:

"In one of my previous letters I drew attention to the fact that the 1,75 cents off the UK list, coupled with cash with documents, was, to say the least, a burden and that we should push for a much lower price."

4.12.6. Documents prepared by Swiss Aluminium for the Brno Conference (7 and 8 September 1973) and by PUK for the Copenhagen Conference (December 1974) all tried to show that the prices paid under the Brandeis agreements were generally above the market price, but these documents were designed to be produced to the eastern foreign trade organizations and may contain an element of pleading (4).

4.13. Other price comparisons 4.13.1. There were occasions, notably in 1972 and 1973, when the Brandeis price was higher than the statutorily controlled list prices of the United Kingdom and Italy. There is also evidence that Norwegian producers sold primary aluminium in Germany at below the Brandeis price.

4.13.2. Moreover, from documents supplied by BICC Ltd at the hearing, it is clear that when that company resold parts of its quota under the Brandeis (1) A tax first levied in England in the ninth century to provide protection of England against the Danes. Under Ethelred the Redeless (978 to 1016) "it was the normal way of buying off the Danes" (G.M. Trevelyan - A Shortened History of England). (2) In assessing the probative value of this, it should not be forgotten that the undertakings concerned were out to make a case to the UK Board of Trade. The same cannot be said for the documents the undertakings exchanged between themselves and which they did not intend any outsider should see. (3) At this time, eastern metal imports into the United Kingdom did not incur an import duty. (4) The Swiss Aluminium document compared Brandeis prices with the Metal Bulletin "certain other transactions". The latter is an average of prices quoted by dealers, often on small consignments, and it may therefore be a reflection of a marginal market. For this reason, the "certain other transactions" price was challenged subsequently by the western producers as not being an accurate representation of real market prices. Yet in 1971 that Metal Bulletin price was regarded by Alcan and BACO as a reliable indication of the price in the United Kingdom of aluminium from eastern Europe. agreements on the free market it incurred substantial losses. In 1972 the loss was up to 20 % on the Brandeis price, while in 1975 the average loss was around 11 %. Most striking is the fact that on sales of eastern metal to RTZ, its partner in Anglesey Aluminium, which was also taking a quota of eastern metal under the Brandeis agreement, BICC incurred a loss of 20 % on the Brandeis price.

4.13.3. In a letter, dated 17 February 1971 to the Department of Trade and Industry, Alcan declared:

"We have had reports of Romanian sales and offers of aluminium at the 20 to 21 cents per lb level (for 99,5 % ingot) (i.e. about £ 190 per tonne) which the Metal Bulletin publishes as the current index for "certain transactions" and we regard these reports as confirmation that the Metal Bulletin still gives a reliable indication of the price in the United Kingdom for eastern metal."

The Alcan list price at the time was 27,85 cents per lb, so that the Romanian metal was selling at an apparent discount of 25 to 28 % (1).

If 99,5 % aluminium ingot from other countries of eastern Europe, apart from Romania and Yugoslavia, had been sold in the free market in the United Kingdom or other countries of western Europe and the Community, it does not seem probable that it would have been more expensive than Romanian metal. The western producers were aware that the foreign trade organizations were able to compete on price with Romanian metal. At a meeting held on 3 September 1970 the Alcan representative was reported by the Board of Trade to have said that "the Romanians had been hiding behind the skirt of the agreement, and that the Russians, who objected to this on the grounds that if they were free to do so they could more than match the Romanian competition, might very well use this as a strong argument for not making a further agreement". The removal of Romania's eastern European competitors effected by the Brandeis agreements was moreover said by BACO to have enabled the Romanian suppliers to raise their prices.

5. Effect of the agreements 5.1. Industrial background 5.1.1. In the commercial production process, primary aluminium passes through three stages from or to metal : bauxite, alumina and primary aluminium. Primary aluminium is subsequently worked into a wide variety of semi-finished and ultimately finished products. Scrap which arises from such production processes can, if not excessively contaminated, be re-used as clean production scrap in the production of primary metal by primary producers. In other cases, such as the re-cycling of aluminium products, scrap is used to produce secondary metal. Secondary aluminium, having a necessarily lower degree of purity than primary aluminium, is used particularly in the production of foundry casting alloys. Such alloys typically contain about 85 to 90 % of aluminium.

5.1.2. The established integrated primary aluminium producers have always controlled much of the western world's bauxite capacity. In 1977 six companies owned 57,7 % of world capacity excluding the USSR, Hungary, Romania and the People's Republic of China. The primary aluminium producers also controlled much of the western world's alumina capacity. In 1975 the same six companies had 63,3 % of western world capacity.

5.1.3. Primary aluminium is obtained by electrolytic reduction of alumina. The electrolytic reduction process is a prodigious consumer of electricity. In the USA for example, the aluminium industry consumed, in 1974 to 1975, over 4 % of US supplies of electricity. A smelter of 100 000 tonnes annual capacity consumes approximately the same quantity of electricity as a town of 400 000 inhabitants. It is not surprising that the location of primary smelters is strongly influenced by availability of cheap and abundant supplies of electricity. As a general rule hydro-electric power is the cheapest source of electricity and that from oil-fired power stations (especially since 1973) the most expensive. The proportionate reliance on the various sources of fuel in certain countries in 1974 is set out in table 10.

5.1.4. The cost of energy to the various aluminium producers varies widely. In 1973 the OECD estimated the range to extend from less than 0,2 cent to around 0,7 cent per kWh. In 1977 the cost range was estimated to be from 0,4 to 1,8 cents. With consumption of electricity ranging from around 17 000 kWh per tonne produced at older smelters to around 13 000 kWh in more modern plants, a 0,1 cent difference in energy cost is equivalent to a difference of US $ 17 to 13 in the final cost of primary aluminium. (1) The Brandeis price at the time was US $ 566 per tonne, a discount of 7,8 %.

5.1.5. From a report prepared in 1976 by a leading Canadian financial analyst (1), it appears that Alcan's energy costs incurred in Canada are the lowest in the western world:

"Alcan's Canadian power costs range from one to 20 cents per pound below various worldwide competitors, an advantage that should widen over coming years ..."

Principally, for this reason, Alcan has been the price leader among the western producers.

5.1.6. The first primary aluminium producer in western Europe was PUK, followed by Swiss Aluminium and BACO. VAW began production shortly after, followed by Montedison. Each of these producers has been fully integrated since entry into production (i.e. each has its own bauxite and alumina production).

5.1.7. Since the Second World War there have been no undertakings embarking on the production of primary aluminium in western Europe without a partnership or association with the established producers, through a joint venture or otherwise, or an arrangement of some nature to secure access to bauxite or alumina. A number of new entrants have withdrawn from the partnerships by which they had entered into primary aluminium production, leaving the field to the integrated-producer partner.

5.1.8. The relative positions of the leading producers of primary aluminium within the EEC and western Europe are summarized in table 11. Seven producers, namely Swiss Aluminium, PUK, Alcan, VAW, BACO, Montedison/Alumetal and ASV accounted in the period under consideration for around 75 % of primary aluminium production in western Europe.

5.1.9. In the early 1960s, new producing countries, such as Greece, Ghana, Iceland, the Netherlands and Cameroon entered world trade in aluminium, reducing the share in world trade of the USA, Canada, Norway and France, which until then were practically the only western exporters of primary aluminium. A considerable proportion of the trade in primary aluminium takes the form of deliveries by producers to their integrated subsidiaries located in other countries. Exports from Greece and Cameroon are made mainly to France ; PUK holds a controlling interest in the primary smelters in those countries. Exports from Ghana (Kaiser 90 %, Reynolds 10 %) are made to Japan, the United States and the United Kingdom.

5.1.10. Canada, Norway and the USSR are the world's leading exporters of primary aluminium. The world's leading producer of primary aluminium, the USA, has in recent years been a net importer of primary aluminium. The EEC has long been a net importer of primary aluminium, although, within the Community, France and the Netherlands have been net exporters.

5.1.11. Virtually every primary aluminium producer is also engaged in the production of semi-manufactures, while many produce finished products and remelt new and old scrap for the production of secondary aluminium. The scale of these operations is such that most primary aluminium is used for further processing or fabrication by those undertakings which produced the original primary ingot. By the early 1970s it appeared to certain members of the industry that the degree of vertical integration was around 80 %. These estimates are estimates for the entire industry.

Individual members of the industry will be more or less highly integrated than others. In addition the estimates are averages for all groups of aluminium products, whereas some groups of products are subject to higher degrees of vertical integration than others. Generally speaking the rolled-products sector (plate, sheet, strip and foil) is more highly integrated than the extruded and drawn-productions sector (rods, sections, tubes and wire) which is in turn more highly integrated than the castings sector.

5.1.12. The high degree of vertical integration produces two important economic effects. The first is that independent producers of semi and finished products are obliged to seek their supplies from producers who are also their competitors in the manufacture of these products, unless they have access to other sources. The second is that the market for intermediate products such as bauxite, alumina and primary aluminium is either non-existent or is marginal by comparison with the market for semi and finished goods. It is accordingly difficult to establish a market price at which these intermediate products are effectively transferred. The least highly integrated sector, castings, is particularly dependent on supplies of secondary metal (i.e. scrap) or upon ingot and so it is in this sector that supplies of ingot at the relatively low purity of 99,5 % are needed.

5.1.13. The assumption is made (it is also made by the industry) that the non-integrated part of the secondary and semis market is 20 % of total consumption of primary aluminium in Europe. (1) Greenshield report of February 1976, described by Alcan as "fair and substantially accurate".

5.2. Effect on the market of the Brandeis agreements 5.2.1. The quantitative effects of the various provisions of the Brandeis agreements are summarized in table 12.

Primary aluminium

5.2.2. The western producers were reluctant to buy, and did not in fact buy, all the primary ingot which the foreign trade organizations considered they could offer. On virtually every occasion when a new series of Brandeis agreements was being negotiated, the primary ingot first offered by the foreign trade organizations was considerably greater than the amount eventually agreed upon.

The agreed amounts were frequently reduced at the request of the western producers at later Eastern Metal Conferences. At the Budapest Eastern Metal Conference held on 28 and 29 October 1971 the "western group" achieved a 20 % reduction in the quantities to be delivered in 1972, while at the Brno Conference on 6 to 8 September 1973 the quota for the second half of 1973 was reduced from 67 000 to 53 000 tonnes. Similarly, at the Venice Eastern Metal Conference held 15 and 16 May 1974, the contractual quota remaining to be delivered under the 1974 allotment (60 600 tonnes) was reduced by one-third, and the western producers refused to allow the foreign trade organizations to sell the deducted tonnage in western markets, although a compromise was eventually reached whereby the foreign trade organizations were permitted to sell only to Japan and Turkey. The contractual tonnages for the first half of 1975 were again reduced by 30 % at the Munich Eastern Metal Conference held 14 and 15 November 1974.

5.2.3. Table 13 sets out the differences between the tonnages orginally agreed and those actually sold under the Brandeis agreements. The table also sets out the differences between the first offers of the foreign trade organizations and the amounts actually sold. In both cases the differences are considerable. No doubt the opening offers of the foreign trade organizations contained an element of bazaar bargaining, but no evidence was adduced during the proceedings to show that the foreign trade organizations could not have supplied the quantities of primary aluminium which they first offered. Particularly in the case of the USSR and Hungary, production capacity was expanded considerably during the Brandeis agreements, while in Czechoslovakia and the German Democratic Republic production has fallen well short of rated capacity.

The refusal of the Governments of the German Democratic Republic and of Poland to permit the export of aluminium in 1974 and 1975 had no effect. The contractual quantities available for the western producers were already more than they wanted to take and they were negotiating hard even to the extent of paying more per tonne - to reduce the quantities taken while still ensuring that the surplus did not reach their markets by other routes.

5.2.4. On the assumption (5.1.3) that the non-integrated part of the secondary and semis market is 20 % of total consumption of primary aluminium in Europe, the effect upon the non-integrated market can be seen from table 12.

5.2.5. In 1971 Alcan and BACO made an application to the UK authorities for the imposition of anti-dumping duties on Romanian aluminium. At that time Romanian imports into the United Kingdom were around 8 000 to 9 000 tonnes per annum, according to Metallgesellschaft statistics. BACO's application, which was supported by Alcan, referred to the fact that "nearly 90 % of the UK market (with a consumption of nearly 400 000 tonnes) was tied by financial links or long-term contracts", and that accordingly "the Romanian imports represent a substantial tonnage in relation to the relatively limited non-integrated market".

The Romanian sales represented around 20 % of untied consumption in the United Kingdom. The BACO application stated that in the absence of these sales, "in all probability, the company would have been able to obtain a return some £ 10 per tonne higher than that currently realized". At the time the average price received by BACO for sales to independent purchasers was £ 236,85 per tonne, which represented a discount of 8 % on the Alcan list price of £ 257,20 per tonne. The effect of the Romanian sales was therefore in BACO's view to reduce prices by 4,2 %.

At the same time the imports into the United Kingdom of eastern European primary aluminium under the Brandeis agreements were around 14 000 tonnes per annum.

5.2.6. The Commission is not concerned with the effect on prices within the United Kingdom at that time. It is reasonable to assume however that eastern metal, free of the Brandeis constraints, would have had a parallel effect upon the then Community.

The figures indicate by analogy the probable effect on the price in the then EEC if the Brandeis tonnages had reached that market without the Brandeis restrictions.

The market for secondary aluminium and scrap

5.2.7. The markets for primary and secondary aluminium are related.