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CJI/Doc.106/02 CARTELS in the SPHERE of COMPETITION LAW in the AMERICAS (Presented by Dr. João Grandino Rodas) Table of Content

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CJI/Doc.106/02 CARTELS in the SPHERE of COMPETITION LAW in the AMERICAS (Presented by Dr. João Grandino Rodas) Table of Content CJI/doc.106/02 CARTELS IN THE SPHERE OF COMPETITION LAW IN THE AMERICAS (presented by Dr. João Grandino Rodas) Table Of Contents INTRODUCTION. 1.1 Cartels. 1.2 International Cartels. 2. RELEVANT LAW. 2.1 Americas. 2.1.1 Argentina. 2.1.2 Canada. 2.1.3 Brazil. 2.1.4 Chile. 2.1.5 Colombia. 2.1.6 Costa Rica. 2.1.7 Jamaica. 2.1.8 Mexico. 2.1.9 Panama. 2.1.10 Peru. 2.1.11 United States of America. 2.1.12 Venezuela. 2.2 Europe. 2.2.1 European Union. 2.2.2 France. 2.2.3 Germany. 2.2.4 Italy. 3. CROSS REFERENCE. 3.1 UNCTAD. 3.2 OECD. 3.3 Doctrine Remarks and WTO. 3.4 Discussion to date at the FTAA Competition Group. 4. CONTRIBUTION TO FTAA DISCUSSION INTRODUCTION 1.1 Cartels A cartel is an association by agreement among a group of companies that is designed to prevent competition. Illegal cartel activity includes price-fixing, bid- rigging, and allocation of volume, markets or customers. It is general knowledge that cartels harm consumers and have pernicious effects on economic efficiency. A successful cartel raises prices above the competitive level and reduces output. Consumers choose either not to pay the higher price for some or all of the cartelized product that they desire, thus forgoing the product, or they pay the cartel price and thereby unknowingly transfer wealth to the cartel operators. Further, a cartel shelters its members from full exposure to market forces, reducing pressures on them to control costs and to innovate. All of these effects adversely affect efficiency in a market economy. It is difficult to quantify the effects cartels have on the market. It would require comparing the actual market situation under the cartel with that which would exist in a hypothetical competitive market. Competition officials usually do not undertake to make such a calculation, both because it is difficult to do and because their laws usually do not require it. When an estimate of harm is necessary, however, most officials employ a proxy, which is the unlawful gain accruing to the cartel members from their activity. In its simplest form, this estimation is the product of the cartel “mark-up” above the competitive price and the commerce affected (in units) by the cartel agreement. Even this calculation can be difficult, as it requires an assessment both of the amount of “affected commerce” and of what the “competitive” price would have been without the agreement. The 1998 Recommendation of the Organisation for Economic Cooperation and Development (OECD) Council Concerning Effective Action Against Hard-Core Cartels (“Cartel Recommendation”) noted in its preamble that “hard-core cartels are the most egregious violations of competition law and…they injure consumers in many countries by raising prices and restricting supply, thus making goods and services completely unavailable to some purchasers and unnecessarily expensive for others.” The preamble notes further that hard-core cartels “create market power, waste, and inefficiency in countries whose markets would otherwise be competitive.” The Recommendation calls on OECD members to provide for “effective sanctions, of a kind and at a level adequate to deter firms and individuals from participating in such cartels.” The 2000 Cartel Report of the OECD noted that an important step in enhancing anti-cartel enforcement is “overcoming the knowledge gap concerning the harm done by hard-core cartels.” Improving public knowledge about the nature of this conduct and the harm that it causes would bolster popular support for more effective action against it. The Report also called for further work on sanctions against cartels, recognizing that the principal purpose of such sanctions is deterrence. 1.2 International Cartels Cartels are universally recognized as the most harmful of all types of anti- competitive conduct, especially by OECD. Moreover, they offer no legitimate economic or social benefits that would justify the losses that they generate. Thus, they are condemned in all competition laws; in some countries they are classified as a crime. Sophisticated cartel operators know that their conduct is unlawful and so they conduct their business in secret, sometimes taking great pains to keep their agreements from the public and from law-enforcement officials. More recently, however, competition agencies have begun to uncover and prosecute large international cartels, whose participants are multinational companies headquartered in different countries. Several of the international conspiracies had devised complex price fixing schemes, which were augmented and made more transparent for their members by market allocation agreements, either in the form of quotas or territorial agreements. In some cases involving both domestic and international cartels, the cartel operators had designed elaborate mechanisms to enforce the agreement and punish cheating. 2. RELEVANT LAW1 2.1 Americas 2.1.1 Argentina In Argentina, there was a significant development on the policy level with the introduction of the Law for the Defence of Competition 25.156 (Ley de Defensa de la Competencia). This law was designed to modernize the National Commission for the Protection of Free Competition (CNDC) by specifically defining illegal anti- competitive practices as any practice that limits, distorts or restricts competition or is an abuse of a dominant market position. It also provided the CNDC with clearer guidelines on the formation of mergers and a monetary level at which such reviews were compulsory. Law 25.156 also established the National Court for the Defence of Competition, which was given the power to resolve conflicts and administer punishments in case of law violation. This and other aspects of institutional strengthening were the key aspects of this new law. 2.1.2 Canada Canada has only main statute governing all aspects of competition law, the Federal Competition Act ('the Act'). The Act is administered and enforced by the Commissioner of Competition who serves as the head of the Competition Bureau, a unit of the Ministry 1 Report on Developments and Enforcement of Competition Policy and Laws in the Western Hemisphere - Tripartite Committee Organization of American States Trade Unit and “www.gettingthedealthrough.com” of Industry. The Criminal Matters Branch of the Competition Bureau, consisting of approximately 30 officers, investigates all matters relating to cartels and conspiracies. In order to take jurisdiction over activities occurring outside Canada, a Canadian court will have to find that it has both subject matter or substantive jurisdiction with respect to the alleged offence and personal jurisdiction over the accused person. Section 45 of the Act forms the core of Canadian cartel law. This provision states that: every one who conspires, combines, agrees or arranges with another person, (i) to limit unduly the facilities for transporting, producing, manufacturing, supplying, storing or dealing in any product; (ii) to prevent, limit or lessen, unduly, the manufacture or production of a product or to enhance unreasonably the price thereof; (iii) to prevent or lessen, unduly, competition in the production, manufacture, purchase, barter, sale, storage, rental, transportation or supply of a product, or in the price of insurance on persons or property or; (iv) to otherwise restrain or injure competition unduly, is consequently guilty of an indictable offence and liable to imprisonment for a term not exceeding five years or to a fine not exceeding ten million dollars or to both. Conspiracies are not per se illegal in Canada. Rather, the Act prohibits only those conspiracies that have serious - "undue" - competitive effects, as determined under a "partial rule of reason" analysis. There is no statute of limitations for Section 45 offences.As with most other criminal offences, a conviction under the Act requires the Crown to prove beyond reasonable doubt both the actus reas (illegal acts) and the mens rea (guilty mind) of the offence. The actus reas is established by demonstrating that (i) the accused was a party to a conspiracy, combination, agreement or arrangement, and (ii) the conspiracy, combination, agreement or arrangement, if implemented, would likely prevent or lessen competition unduly. In determining whether the agreement would or did cause an "undue" lessening of competition, the court will consider the structure of the market and the behaviour of the parties. Proof of the mens rea of the offence is also a two-part test. First, the prosecutor must demonstrate that the accused subjectively intended to enter into the agreement and had knowledge of its terms. Second, the prosecutor must establish, using an objective test, that a reasonable businessperson would have or should have known that the likely effect of the agreement would be to cause an undue lessening of competition. While Section 45 investigations traditionally have focused on price fixing, the section is broadly worded and potentially catches many forms of cooperation amongst competitors, including behaviour such as joint ventures and strategic alliances. The Act also prohibits Canadian corporations from implementing directives from an affiliated corporation for the purpose of giving effect to conspiracies entered into outside Canada (Section 46), bid-rigging (Section 47) and both horizontal and vertical price maintenance (Section 61). The issue of substantive jurisdiction over conduct taking place outside of Canada has not been specifically canvassed in a contested criminal proceeding under the Act and, as a result, some uncertainty remains
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