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Valerie Suslow
  Valerie Suslow
 

International Cooperation Is Needed to Regulate Export Cartels

4/6/2005 --

The current patchwork of international antitrust laws enables export cartels to operate without coordinated oversight or prosecution for their anti-competitive international market activities.

ANN ARBOR, Mich.—Greater international cooperation is needed to regulate and prosecute export-cartel activity that undermines competition in international markets, say University of Michigan business school researchers Valerie Suslow and Margaret Levenstein.

At the same time, they say, measures must be taken to provide support for developing-country firms that cooperate in order to overcome export-market entry barriers and avoid otherwise unnecessary mergers, thereby increasing the healthy competitiveness of international markets.

"National antitrust laws that only ban activity harmful to domestic competition leave a vacuum in which export cartels can continue to operate with no obvious or practical institution to provide oversight or prosecution of their activities," said Suslow, associate professor of business economics and public policy at the Stephen M. Ross School of Business.

Compounding this problem, Suslow and Levenstein say, is the fact there is now less information about export-association activities because many countries have dropped their reporting requirements for cartels.

In a study of antitrust laws in 56 countries, forthcoming in the American University International Law Review, the researchers found both a lack of consistency across countries in how export cartels are treated and a lack of information on which ones have received exemptions and in what kinds of activities they have engaged.

Seventeen nations, including the United States, offer exporters an exemption from domestic antitrust laws, which in effect allows these firms to collaborate. Firms may use this exemption to engage in anti-competitive behavior in foreign markets, at the expense of other countries' consumers and producers, in a way that would be unlawful at home, the researchers say.

Thirty-three nations provide no exemption from antitrust laws for export activity, but exempt such activity implicitly because their competition laws apply only to anti-competitive conduct affecting the domestic market and do not mention activities affecting foreign markets, they say. Implicit exemptions, they add, mean there are no notifications of cartel activities, no ongoing oversight and no protection from foreign antitrust prosecution—something Microsoft Corp. and Intel Corp. have encountered in recent times.

According to Levenstein and Suslow, at least 10 countries over the last decade have rewritten their antitrust laws, moving from explicit exemptions for exporters to the more passive policy of addressing only the domestic market. Three of the 56 countries surveyed have no statutory exemption and three have no substantive antitrust laws.

The United States adopted the earliest export exemption to its antitrust laws in 1918 in an effort to help U.S. firms present a stronger, more united front against powerful foreign cartels and to overcome the high fixed costs of exporting. Despite concerns that firms in export associations would collude on increasing domestic prices, the Webb-Pomerene Export Trade Act was passed by Congress and remains in effect today. Congress expanded upon these antitrust exemptions when it passed the Export Trading Company Act of 1982, which was intended to address the growing U.S. trade deficit and restrictive U.S. antitrust policies on American firms competing abroad.

Increasingly, a growing number of policy-makers argue that export cartel exemptions should be abandoned and replaced with cooperative, international antitrust enforcement, according to Suslow and Levenstein. This would help to eliminate trade frictions and to encourage competitiveness, they say.

"International cooperation provides an alternative that, if wisely implemented, could limit the negative effects of collusion on international markets without forcing mergers among small firms, especially in small or developing countries," said Levenstein, adjunct associate professor of business economics at the Ross School and executive director of the Michigan Census Research Data Center at the U-M Institute for Social Research.

"A stronger policy would put the burden of proof on export associations to show they need to cooperate to participate effectively in international markets and that their activities do not undermine competition. This could provide flexibility in reflecting the different needs and developmental levels of various countries without abandoning the principles of competition."



For more information, contact:
Bernie DeGroat
Phone: (734) 936-1015 or 647-1847
Email: bernied@umich.edu