cartelisation in global markets for primary commodities, governance challenges and way forward...
Post on 28-Dec-2015
215 Views
Preview:
TRANSCRIPT
CARTELISATION IN GLOBAL MARKETS CARTELISATION IN GLOBAL MARKETS
FOR PRIMARY COMMODITIES, FOR PRIMARY COMMODITIES,
GOVERNANCE CHALLENGES AND WAY GOVERNANCE CHALLENGES AND WAY
FORWARDFORWARD
Pradeep S. Mehta • Aradhna Aggarwal • Natasha Nayak
CUTS International
Symposium on Trade in Primary Products and
Competition Policy22 September, 2011, Geneva
Motivation for the study?Motivation for the study?
Two fold:
First, high dependence of developing countries on primary sector exports; yet dominance of some countries in world wide trade of these products
Second, steep rise in commodity prices, impacting both the developing and developed world adversely
The reasons?The reasons?
Restrictions on the trade in commodities in the form of licensing, quotas, export restrictions, tariffs, packaging regulations and other non tariff barriers
Anti-competitive practices of international export cartels
We focus on the latter which is often overlooked
Export cartels?Export cartels?
“hard core” cartels comprise of private producers from at least two countries who collude to fix prices, establish output restrictions or quotas, or share markets
private export cartels where producers from one country engage in market allocation in export markets, but not in their domestic market
state-run export cartels
Is the presence of export Is the presence of export cartels in commodities cartels in commodities significant?significant?Not exactly known
Connor (2006): eight out of 283 known private international cartels in commodities during 1990-2005
This means only 3 percent of the total known international cartels
Other studies endorse this finding
Do cartels have a role in the Do cartels have a role in the primary sector trade?primary sector trade?
Not really, because: a majority of private cartels never come to
light,
the number of cartels do not reflect their impact on trade, producers and consumers,
cartels in the up/down stream industries can have serious impacts on primary products trade, and
there is sporadic evidence of cartels which might have long term effects
Can cartels succeed in the primary Can cartels succeed in the primary products sector?products sector?
Determinants of success
◦ Industry characteristics: concentration and entry barriers
◦ Product characteristics: product elasticity
◦ Frequency of business shocks
◦ Large buyers
Success of cartels in the primary Success of cartels in the primary sector…sector…
Incentives:◦ concentration of natural resources◦ extraction skills and infrastructure◦ low product elasticity etc.
De-stabilising factors:◦ large number of participants, ◦ possibility of entry barriers,◦ large buyers, ◦ bargaining issues◦ demand shocks etc.
Key role of large multinationals (such as de Beers), trade associations or even national governments
INTERNATIONAL AGREEMENTS AND INTERNATIONAL AGREEMENTS AND CARTELISATIONCARTELISATION
International Commodity Agreements (ICAs)
Interface between global trade rules and cartelisation: export restrictions, anti-dumping, TRIPs
Adverse effects on world trade
Need to be explored further
NATIONAL COMPETITION POLICY NATIONAL COMPETITION POLICY and EXPORT CARTELSand EXPORT CARTELS
Implicit or explicit exclusion from action against them by the home authorities
Critics: beggar thy neighbour policy
ECONOMIC CONSEQUENCES OF ECONOMIC CONSEQUENCES OF EXPORT CARTELSEXPORT CARTELS??
Ambiguous, both theoretically and empirically,
But, anti competitive practices adopted by them can have disastrous impacts (CUTS’ studies on Fertilisers, Coffee, Potash)
Need for ◦ case studies,◦ deeper studies with explicit counterfactual
analysis, and ◦ improvement in data quality
Effects of CARTEL in DOWNSTREAM Effects of CARTEL in DOWNSTREAM INDUSTRIES: CoffeeINDUSTRIES: Coffee
Consumers
Retailers
Roasters
International traders
Domestic traders
Smallholder/estate
30 grocers = 33% of global market
4 companies (Philip Morris, Nestle, Proctor & Gamble and Sara Lee) = 45% of global coffee market
4 companies (Neumann, Volcafe, ECOM, Dreyfus) = 39% of global market
25 million farmers and workers
Effects of cartels in upstream industry: CUTS’ study on fertilisersFertiliser price rise due to anti-competitive
practices in the potash market
Only 12 percent of the incremental fertiliser subsidy translated into higher consumption of fertilisers, the rest was due to price rise
Governance challenges:Governance challenges: Unilateral solutions
application of the “effects doctrine”: ◦ private actions for damages
but a prisoner’s dilemma
(a country prohibiting export cartels can always make itself better off by allowing them and a country that permits export cartels can make itself worse off by prohibiting them)
Governance challenges:Governance challenges: Few Multilateral solutions
◦ Strict disciplines on export restrictions
◦ WTO Remedies against injury caused by export cartels (Counter measures, reverse antidumping, safeguards)
◦ Formation of Countervailing Buyer Cartels
◦ Multilateral Agreement on Competition (with S&DT)
◦ Creation of an international competition authority
The way forwardThe way forward
Agreements on information sharing on cartels
Capacity building reforms
Technical assistance by the WTO
International Competition Fund (CUTS has been strongly advocating for such a fund)
Diversification of exports
Thank you for your attention
CUTS Internationalwww.cuts-international.org
top related