Authors: Varun Singh and Soumya Sharma
Institution: Dr. B.R. Ambedkar National Law University, Sonepat
With each wave of COVID-19, the topic of crisis cartels becomes even more relevant. The economy and market shutdowns follow each wave. The coming waves will be no different. Which begs the question: Can the Indian economy, particularly the worst hit sectors such as aviation, tourism, real estate, etc., survive another economic shutdown? If not, what does it mean for their future?
Since the Competition Commission of India (CCI) issued its Advisory to Businesses in Time of COVID-19in April 2020, no Crisis Cartels have been formed yet. Crisis Cartels may refer to a form of concerted action where two or more enterprises join hands to face a calamity (such as the current COVID -19) head on. They may do so by price fixing, reduced supply or whatever means necessary in order to reduce the longing overcapacity in the sector.
Statutory Framework Regarding Crisis Cartels
The CCI, through Section 3(3) of the Competition Act, explicitly prohibits the formation of cartels. They are also regarded as the most anti-competitive practises to exist. The CCI even went as far as imposing a penalty of 63.17 billion INR in Re: Builders Association of India v. Cement Manufacturers’ Association & ors. (Cement Cartel Case),where 11 leading cement manufacturers were found to be forming a cartel.
So, how has the CCI approved the formation of cartels during such unprecedented times? How will this practise be beneficial in the long run? Well, for starters, the CCI, through its 2020 order, has not expressly approved the formation of crisis cartels. It says that the Competition Act, 2002 (“the Act“) has certain built-in safeguards against coordinated action, such as joint ventures and the application of the Rule of Reason by Section 19 (3), which when used correctly and proportionately during these times, wouldn’t be termed anti-competitive.
In contrast to this, the competition authorities of the European Union (EU) have tackled the problem in a very lenient manner.
Crisis Cartel framework in other jurisdictions
- The EU has released temporary antitrust regulations to deal with the current crisis, which allow for cooperation at a horizontal level upon prior permission from public authorities and explicitly allow coordination in the healthcare sector to ensure proper supply of medicines and vaccines.
- The Norwegian Competition Authority (NCA) also gave a three-month exemption from competition laws to the transport sector, which was later extended to the whole of 2020. However, all coordinated conduct had to be notified to the NCA.
- The Australian Competition and Consumer Commission (ACCC) has granted authorization to allow coordinated conduct among competitors if it results in the benefit of the public at large. They will also be required to submit regular updates to the ACCC regarding their conduct.
- The Canadian Competition Bureau has acknowledged that the COVID – 19 times may call for “rapid establishment of business collaborations of limited duration.” It has also set up a team with the sole purpose of assessing coordinated conduct, and enterprises are to provide information to it as to why their conduct is necessary and how the public will benefit from it.
Two wrongs make a right: Crisis Cartels of the past
In 1984, the EU held that there was significant overcapacity in the synthetic fibre market due to technological advances and needed urgent attention. After hearing the 10 fibre manufacturers, it allowed the existence of coordinated conduct among them for a period of 3 years in order to increase the capacity at the economic level. Provided, “the signatories shall refrain from communicating data on their individual output and deliveries of synthetic fibres to one another, either directly or through a trustee body or a third party.”
Although the competition authority of Greece fined 5 companies in the fish farming sector in 2010, it also said that such coordinated conduct would be accepted in a situation of longing overcapacity and not a mere cyclical one, since the market forces are enough for it.
Such agreements were found as early as the mid-eighteenth century and can be broadly classified into two types: state-induced, i.e., when the agreements included state intervention, and industry-only. Some instances of state-induced crisis cartels are as follows:
- Massachusetts’ Railroads, 1872-1896: Like any other industry, the railroad industry is also subject to strong competition and potential risks and losses. In 1872, there started a cartel between the industry players, which went on till 1896, but in 1897, the US Supreme Court ruled that the Commerce and Sherman Acts applied to railroads as well. Back then, cartels were advocated for by the regime due to the brief turmoil experienced by the industry in 1857. When the said crisis cartel was in place, the industry was running smoothly and meeting the demands of the market, but as soon as the agreements among the cartel were broken, railroads started expanding lines expeditiously, getting ahead of the demands of the market.
- The Great Depression in the US: When the Great Depression hit the country, it left 13 million people unemployed. And it had adverse effects on the agricultural sector too. As a result of that, the state has had to intervene on numerous occasions in order to stabilise the market. The US sugar industry also witnessed the government’s intervention, and a state proposed cartel arrangement was enforced. The arrangement worked at first, limiting the competition, be it domestic or international. The government also promised consumers fair prices and delivered on it. As a result of the cartel, sugar prices stabilized. But soon after that, the prices rose, and the consumers suffered because of that, as the manufacturing and product quality had suffered due to the cartel. This was clearly a lesson, that state intervention does not necessarily guarantee positive outcomes or the absence of negative outcomes.
The following are the instances of crisis cartels that only involved private competitors:
- Germany’s Potash Cartel Agreements of 1876 and 1883: In 1876, the industry players entered a price fixing agreement, because the sector had experienced turmoil for a while. After achieving the objective of the agreement, a lot of parties to the agreement pulled out, and the agreement stood void. The agreement while it lasted, brought prosperity to the Potash industry. As it bore fruit, it inspired another syndicate in the potash industry which was formed in the year 1919.
- International Steel Cartel (ISC), 1926-1933: This cartel was formed due to the deleterious effects of the First World War and the founding members were Belgium, France, Germany, and Luxemburg. The objective of this cartel was simple; to stop the import of steel, to stay within agreed market shares and decide upon product quotas. The great depression affected the demands in the market, and the cartel met its end as a consequence of it.
Cartels are therefore a result of human greed, but they can quickly become a necessity if the situation demands it, and the synthetic fibres case, as highlighted above, is an example of it. Cartels have always been hard to bust. Even when information has been received by the CCI, there is little to no evidence to show a degree of coordination among their actions. This is where the problem lies, allowing such a conduct during such unprecedented times is no doubt risky and should therefore be a last resort for any jurisdiction. Cartels have the ability to hamper supply, reduce quality of goods and overall uproot markets. But as we have seen so far, any nationwide calamity would have the same effect, if not worse on the markets. Crisis Cartels do the work opposite to that of a cartel and are specifically aimed to tackle the hardships provided the calamity, as was the case in the Great depression in the US. A well applied Crisis Cartel can serve as a saviour for the economy during extreme times and legislation regarding the same is desperately needed in India.
India could adopt a similar practise to that of the Canadian competition authorities and set up a commission where market players could file for approval of their coordinated conduct. It can set out criteria for which it will allow such conduct and lay out the maximum period of this conduct on a case-to-case basis. India can also learn from the ACCC and ask for regular updates of its approved crisis cartels and shut them down whenever it deems necessary. It can also release a notification laying down increased fines for people who try to exploit the current COVID-19 pandemic and form a cartel just to incur abnormal profits.
Such a framework regarding crisis cartels would be beneficial not just during COVID–19 but in any unforeseen circumstance in the future in which the economy of the country would be at risk.
 Competition Commission of India, ‘Advisory to Businesses in Time of COVID-19’ (CCI, 19 April 2020) < https://www.cci.gov.in/sites/default/files/news_ticker/Advisorytobusiness.pdf> accessed 10 December 2021
 Case No. 29 of 2010
 Synthetic Fibres, 84/380/EEC