As cartels go global, competition regulators face a challenge to keep up
28 August 2017. By Mari Eccles.
The decision by a court thousands of miles away to impose a small fine on a cartel member wouldn't normally pique the interest of European antitrust observers.
But the Australian Federal Court's ruling last month to fine Italian cablemaker Prysmian A$3.5 million ($2.8 million) has done just that.
That's because it has illustrated how ambitious the EU's competition authority has become in its pursuit of global cartels. Three years ago, it levied fines totaling 302 million euros ($356 million today) on Prysmian and other members of a cable cartel — taking a much broader approach than the Australian regulator and imposing total fines more than 125 times bigger.
What the case shows is that the European regulator was willing to look outside its own jurisdiction when assessing the total impact of a cartel. Other national authorities, in this case, did not. Japan and South Korea took a similar approach to Australia in 2010 and 2011, respectively, when they levied comparatively modest fines on cablemakers with a tight focus on their home markets.
The European authority has drawn fire for its sweeping approach, whether it's dealing with cartels, state aid or abuse of market dominance — and some critics accuse it of hitting non-European companies the hardest.
Barely a press conference passes without the commission's competition chief, Margrethe Vestager, having to respond to queries about anti-American bias after imposing heavy fines on US tech giants Google, Apple and Intel. Vestager denies any discrimination.
Some of the Asian companies implicated in the power cable cartel are now challenging their European fines in court. They say the commission has no authority to pursue them for those elements of their conduct which, they argue, had no effect on the European market.
The cartel at the heart of the EU and Australian rulings saw manufacturers of underground cables carve up the global market for almost a decade from 1999. European and Asian producers agreed to stay out of each other's home markets, and then divided up the rest of the world.
European members of the cartel also split the continent's markets among themselves. This aspect has proven to be the most contentious in the European courts, where the Japanese and Korean companies argue that the commission has gone beyond its jurisdictional powers in also holding them responsible for this part of the cartel.
The EU's approach certainly contrasts with that of Australia. Despite acknowledging their involvement in a global cartel, the A$3.5 million fine the Adelaide court slapped on Prysmian was levied only in relation to its involvement in an Australian scheme.
The differing responses demonstrate the problem enforcers are facing. As cartels go global, how do regulators keep up? And how do they do so without encroaching on each other's territory?
Parts of the same cartel have faced probes in several other jurisdictions including Japan, Korea, the US and Brazil. The latter's antitrust watchdog, CADE, is still investigating the manufacturers. The Australian ruling references three companies central to the EU case: Prysmian, France's Nexans and Japan's Viscas.
The EU regulator justified its fines on the Asian companies by arguing that both components of the cartel — the global part and the European part — amounted to a global arrangement that had one "overall aim." It did, however, apply a small increase to European producers' fines in recognition of their further involvement in the European part.
But the suggestion that the commission "overreached", firstly by fining Asian producers for the Europe-only aspect, and secondly by including worldwide conduct as under the scope of its ruling, is something that was heard often during the court hearings in Luxembourg.
And Viscas went further, arguing that by basing the fines on companies' global turnover, rather than European turnover, as the commission usually does, the Brussels-based regulator had chosen a fining system that unfairly punished the Asian manufacturers.
By contrast, the Australian decision to steer clear of the cartel's international dimensions will surely have been welcomed by the companies involved.
The investigation by the Australian Competition and Consumer Commission focused entirely on the manufacturers' collusion on a scheme in the state of New South Wales and the Federal Court halved the ACCC's suggested fine on Prysmian after finding the conduct had occurred over a "relatively short period of time," for a few months in 2003. Nexans escaped a fine entirely.
Yet the same international dimension confronted by the EU regulator was also present, with the Adelaide court finding that the anticompetitive conduct in Australia formed part of the so called "A/R configuration" — the global part of the cartel. In short, investigators were aware of the cartel's international dimension but chose not to pursue it under Australian law.
A global affair
Other rulings from around the globe have also tended to mirror the Australian approach. Japan's antitrust regulator fined three cablemakers for bid-rigging in 2010, but it only investigated Japanese companies and looked only at domestic conduct.
And the following year, Korea's Federal Trade Commission fined a group of largely Korean cablemakers for four instances of cartel behavior, with fines of 56.5 billion Korean won, or 42.1 million euros ($50.25 million), a large sum but significantly less than the EU fine.
Regulators are aware of the cross-border problem, and enforcers have begun to forge partnerships with their counterparts in other countries in a bid to strengthen their response. The European Commission has already signed cooperation agreements with competition regulators in Switzerland, while deals with Canada and Japan are in the works.
But these agreements will only go so far, allowing regulators to share information during the investigation process. When it comes to enforcement on an international scale and calculating fines, only the EU has been able to hold a whole global cartel to account. It's up to the courts to decide whether it did so proportionately and fairly.
With additional reporting by Rodrigo Russo, Toko Sekiguchi and James Panichi.