Diamonds Are Forever? Implications of United States Antitrust Statutes on International Trade and the De Beers Diamond Cartel
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Montpelier: Diamonds are Forever?COMMENTS Implications of United States Antitrust Sta DIAMONDS ARE FOREVER? IMPLICATIONS OF UNITED STATES ANTITRUST STATUTES ON INTERNATIONAL TRADE AND THE DE BEERS DIAMOND CARTEL Diamonds are forever-or at least they should be, given the over-inflated prices Americans pay for them. Many Americans hold diamonds in high esteem, cherishing them as symbols of love and affection. Perhaps this explains why Americans are willing to pay far more for diamonds than they should. On the other hand, perhaps the real reason is the diamond cartel and the inability of the United States Government to apply the antitrust laws for the protection of the American public as they were originally intended. Americans typically end up purchasing a diamond that they mistakenly believe has high extrinsic value, and for other reasons that cannot be rationally explained. The American people sought to prevent these types of situations from occurring almost a hundred years ago when they enacted the first antitrust statute. ' Now, the average lay person may not even know the legal definition of "antitrust," which very likely only elicits the notion that the government "protects" consumers by restricting monopolies.2 No doubt people would be surprised to discover that they are paying inflated prices because the United States Government has been unable to enforce the spirit of the antitrust laws against the large, powerful international diamond cartel. Indeed, the business of importing and selling diamonds in the United States is but one example of the failure of United States antitrust laws against international cartels. The United States will become more dependant on international trade for its economic growth and survival as the global economy becomes more pervasive.3 That trade must be fair, not only to foreign countries, but also to the United States. By studying and understanding the lack of control United States antitrust statutes have on the diamond industry, the United States will be in a better position to solve not only the diamond problem, but also the problem of other monopolistic industries. 1. See W.W. THORNTON, A TREATISE ON COMBINATIONS IN RESTRAINT OF TRADE § 7, at 10 (2d ed. 1928). 2. A monopoly is "[a] privilege or peculiar advantage vested in one or more persons or companies, consisting in the exclusive right (or power) to carry on a particular business or trade, manufacture a particular article, or control the sale of the whole supply of a particular commodity." BLACK'S LAW DICTIONARY 1007 (6th ed. 1990). Two or more monopolistic producers acting in concert comprise a cartel, i.e. "[a] combination of producers of any product joined together to control its production, sale, and price, so as to obtain a monopoly and restrict competition in any particular industry or commodity." Id. at 215 (6th ed. 1990). 3. See, e.g., Michael E. Porter, Changing Patterns of International Competition, 28 CAL. MGMT. REV. 9 (Winter 1986). 277 Published by CWSL Scholarly Commons, 1994 1 California Western International Law Journal, Vol. 24, No. 2 [1994], Art. 6 278 CALIFORNIA WESTERN INTERNATIONAL LAW JOURNAL [Vol. 24 Part I of this Comment discusses the origins of antitrust laws, the introduction of those laws in the United States, and the international application of antitrust laws by the United States. Part II explores the organization and nature of the diamond cartel in order to formulate goals for this area of law. Part III presents past and current applications of American antitrust statutes on the diamond cartel. Finally, Part IV discusses solutions and impediments to the diamond monopoly problem. I. THE ANTITRUST LAWS4 Antitrust laws have existed for at least a thousand years, dating as far back as the year 483.1 One famous case that questioned the legality of monopolies arose in 1602 in what Lord Coke reported as "The Case of the Monopolies," the case of Darcy v. Allen decided by the King's Bench of Great Britain.6 The case discussed several early theories as to why monopolies and cartels should be eliminated: they harm competitors, deprive others of the ability to practice a trade, and injure the public by advancing higher prices and poorer quality.7 A. Antitrust Laws in the United States Theories similar to those expressed in Darcy v. Allen began to develop in the United States in the second half of the 19th century because of rising concern over abusive practices by corporate giants.' The American law on antitrust and restraint of trade soon followed from English common law. 9 4. The efficacy and wisdom of the antitrust laws has long been questioned. See, e.g., ROBERT H. BORK, THE ANTITRUST PARADOX: A POLICY AT WAR WITH ITSELF (1978). This Comment does not directly enter that debate. Since the antitrust laws currently exist, the focus is on how those laws can and should be applied against sophisticated foreign companies who deal in the United States market. 5. THORNTON, supra note 1, § 20, at 32 ("In A.D. 483 Emperor Zeno issued to the Praetorian Prefect of Constantinople the following edict: 'We command that no one may presume to exercise a monopoly .. ."). 6. Id. § 23, at 36 (identifying Darcy v. Allen, 11 Co. Rep. 84b, 77 Eng. Rep. 1260 (K.B. 1602)). 7. Id. at 37. 8. 21 CONG. REC. 2462 ("Can it be that with this vast power Congress can not protect the people from combinations in restraint of trade that are unlawful by every code of civil law ad opted by civilized nations?") (statement of Sen. Sherman). See also WILLIAM R. ANDERSEN & C. PAUL ROGERS Ill, ANTITRUST LAW: POLICY AND PRACTICE § 1.02, at 8 (1985) ("The statute's popular name, 'The Antitrust Law,' signifies the congressional purpose to declare unlawful the large and powerful business organizations which wielded essentially unchecked economic power . ." (quoting E. KINTNER, FEDERAL ANTITRUST LAW, 125-29, 240-42 (1980)). 9. THORNTON, supra note 1, § 34, at 77. https://scholarlycommons.law.cwsl.edu/cwilj/vol24/iss2/6 2 Montpelier: Diamonds are Forever? Implications of United States Antitrust Sta 1994] U.S. ANTITRUST STATUTES AND INT'L DIAMOND TRADE 279 Realizing the need to enact and enforce antitrust laws in the United States,' 0 the United States Government responded to public concern in 1890 by enacting the Sherman Antitrust Act," which prohibited the existence of monopolies and cartels within the United States. Additional antitrust statutes have since been enacted to augment perceived gaps in the Sherman Act, and to regulate anti-competitive economic activity within the country.' 2 The Department of Justice summarized the purpose of the various United States antitrust laws as follows: The U.S. antitrust laws are the foundation of our broad national commit- ment to competition based on efficiency-to providing consumers with goods at the lowest price that efficient business operation can justify,3 and to allowing enterprises to compete on the basis of their own merit) A private party can bring an antitrust claim to recover treble damages if it is "injured" in its business or property."' The United States Government can also enforce the antitrust laws in criminal and civil proceedings through the Department of Justice (DOJ) and the Federal Trade Commission (FTC)."' With respect to international trade, the United States International Trade Commission is also empowered to act specifically when imports threaten to violate the Sherman Act.' 6 10. 21 CONG. REC. 2457 (1890) ("It is to arm the federal courts within the limits of their constitutional power that they may co-operate with the State courts in checking, curbing, and controlling the most dangerous combinations that now threaten the business, property and trade of the people of the United States.") (statement of Sen. Sherman). 11. Enacted July 2, 1890. THORNTON, supra note 1, § 78, at 1. Currently 15 U.S.C.A. §§ 1-2 (1993). 12. E.g., the Clayton Act of 1914 (prohibited acquisitions of companies that would lessen trade), the Federal Trade Commission Act of 1914 (directed FTC to oversee competitive behavior), the Robinson-Patman Act of 1936 (outlawed price discrimination), and the Celler- Kefauver Act of 1950 (prohibited acquisitions of company assets that would lessen trade). 13. DEPARTMENT OF JUSTICE, ANTITRUST GUIDE FOR INTERNATIONAL OPERATIONS 2 (1977). 14. ANDERSEN & ROGERS, supra note 8, § 2.01, at 47. 15. Id. The importance of antitrust laws to the United States can be seen in the organizational structure of the agencies. The DOJ is composed of several major divisions, one of which is the Antitrust Division, whose first assigned task is, "[g]eneral enforcement, by criminal and civil proceedings, of the Federal antitrust laws and other laws relating to the protection of competition and the prohibition of restraints of trade and monopolization." 28 C.F.R. § 0.40 (1993). Similarly, one of the major divisions of the FTC is the Bureau of Competition, which is "responsible for enforcing Federal antitrust and trade regulation law under section 5 of the Federal Trade Commission Act, the Clayton Act, and a number of other special statutes which the Commission is charged with enforcing." 16 C.F.R. § 0.16 (1993). 16. 19 U.S.C. § 1337 (Supp. 1993). Section (a)(1) allows the Commission to act when unfair methods of competition and unfair acts in the importation of articles into the United States threaten to "restrain or monopolize trade and commerce in the United States." 19 U.S.C. § 1337(a)(1)(A)(iii) (Supp. 1993). Published by CWSL Scholarly Commons, 1994 3 California Western International Law Journal, Vol. 24, No. 2 [1994], Art. 6 280 CALIFORNIA WESTERN INTERNATIONAL LAW JOURNAL [Vol. 24 B. InternationalApplication of United States Antitrust Laws Founded on the Interstate Commerce Clause of the United States Constitution, 7 the Sherman Act was enacted in 1890 to eliminate monopo- lies and their detrimental effects in the United States.8 However, not all goods sold in the United States were manufactured within its borders; therefore, the question remained as to whether the laws should be applied to foreign companies operating outside of the United States that exported goods into the country.