Veirano Advogados
  January 14, 2004 - São Paulo, Brazil

Fighting International Cartels by: * Maria Fernanda Pécora, ** Rodrigo L. Pupo ***Paulo Eduardo Lilla
  by Maria Fernanda Pecora

The globalization of markets, the opening-up of world trade, and technological development have allowed multinational corporations to gain ground, arousing concerns related to the defense of competition. Some nations and regional blocks, such as the U.S.A., the European Community and Brazil, possess legal provisions that foresee the application of national antitrust laws against anti-competitive practices which, while they occur in other jurisdictions, produce cross-border effects, harming the domestic market in these countries. Thus, international cartels; - understood as horizontal agreements among multinational competitors to fix prices, cut back on production or share out markets, are considered by many to be the forms of anti-competitive conduct most grave and harmful for international trade and the development of the world economy. What is involved is an agreement among multinational corporations who compete with one another, to wipe out the competition, preventing the entry of new companies into the market, to the detriment of consumers in multiple jurisdictions and damaging markets in several countries at the same time. Several cases of cartels have already been heard in the U.S.A. through the extra-territorial application of U.S. antitrust law, which has always created conflicts of jurisdictions and aroused the fury of various countries who have sought means to prevent such decisions from being enforced in their territories. In this scenario, countries have come to regard cooperation among antitrust authorities from different countries as an alternative to the unilateral application of laws for the defense of competition. In this way, several bilateral antitrust cooperation agreements have begun to be signed. To date, the best known is that entered into between the U.S.A. and the European Community. Through such agreements, the competition watchdog in a given country may voluntarily notify the authority of another country, whenever it rules on an infringement of the economic order or authorizes a business concentration that may lead to anticompetitive effects in this other country. This notification is known as negative comity. At a more advanced stage of cooperation, a country feeling itself harmed by an anti-competitive practice, occurring elsewhere, may notify this other country for it to take the appropriate measures, establishing what is known as positive comity. Cooperation among the antitrust agencies of different nationalities has become an ever more common practice, especially among the European Community, the U.S.A, Canada and Australia. However, even though Brazil has signed a cooperation agreement with the United States, its participation so far has been merely tentative. Proceedings have been opened against international cartels in lysine and vitamins, however, contrary to what has happened in the U.S.A. and Europe, there have been no convictions in Brazilian territory so far. International cooperation is fundamental for the success of anti-cartel measures. As cartels work in secret, direct collaboration by foreign antitrust authorities can ease the location of important proofs. Nevertheless, one sees that there is a new trend on the part of the Brazilian anti-trust authorities; - towards prioritizing repression of infringements of the economic order. The Secretary of Economic Law has constantly stated that there is nothing more prejudicial to the market, and consequently to consumers, than cartels. Even the Department of Public Prosecutions has been mobilized to act in fighting such practices. In the WTO, the “cartels” theme has been widely discussed as one of the topics to be part of a possible agreement on competition policy, although negotiations have yet to start. The possibility of laying down rules for competition within the scope of the WTO arose in 1996, at the time of the Singapore Conference, which discussed, besides competition, issues such as investments, government procurement and facilitating trade, currently known as the “Singapore Issues”. Thus, as far back as 1997 a Working Group was set up to discuss Interaction between Trade and Competition Policy, to develop studies on the possibility of implementing a multilateral agreement on antitrust cooperation within the realm of the WTO. According to studies by the working group, bilateral cooperation agreements, since they involve few countries, do not stimulate wide-ranging cooperation among antitrust authorities in the repression of practices such as hard core cartels – that’s how cartels are called at the WTO –, which may involve companies located in various different jurisdictions. Moreover, international cartels naturally tend to act strategically, exploiting the loopholes found in such agreements. Notwithstanding the divergences among nations as to the feasibility of rules for multilateral antitrust cooperation, the members of the WTO are unanimous in regarding hard core cartels as the practice most prejudicial to the flow of trade and investments, and consequently to economic development. According to studies by the Organization for Economic Cooperation and Development (OECD), in a period of one year, developing countries imported goods valued at US$81.1 billion from industries operating a cartel for price-fixing during the nineties. OECD data also shows that international cartels can create negative effects on emerging economies, preventing the entry of new local and foreign companies in the cartel-dominated markets. The WTO working group points out that the factors that contribute to the harmful effects of hard core cartels are the lack of effective antitrust laws and policies in many countries, the exceptions set up by laws or regimes of protection that shore up such practices, inefficiency in the application of the antitrust laws and the existence of government policies which, either implicitly or explicitly, permit or encourage anti-competitive acts. The upshot is that the development of multilateral cooperation to fight international hard core cartels depends on an agreement on competition within the WTO. However, following September’s deadlock, during the Organization’s conference in Cancun, Mexico, the “Singapore Issues”, among them competition, have wound up getting left off the agenda for the WTO’s negotiations. Until a multilateral agreement is achieved, Brazil can make bilateral agreements for antitrust cooperation with other countries; - not only to repress and punish hard core cartels that hurt domestic and foreign companies who invest in the country, consumers and the Brazilian market as a whole, but also to strengthen relations with the antitrust authorities in other countries, which may be beneficial for the development of our system for the defense of competition.