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Editorial Last Updated: Jul 28, 2017 - 3:15:56 PM

BREXIT: The Single Market of Cartels
By Dr. Gary K. Busch 26/7/17
Jul 27, 2017 - 10:42:33 AM

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The European Union operates on the basis of a 'Single Market' in which all members can trade with each other without tariffs, quotas and non-tariff impediments. This European Single Market operates in the international marketplace as a bloc with a common trade and tariff policy for trading with others under the terms of a negotiated treaty or by World Trade (WTO) rules. When Britain voted to withdraw from the European Union in the Brexit vote of June 2016, an important aspect of the withdrawal was the need to sever its ties with the Single Market. This fact was established early in the withdrawal process as the European Union Commission stated that there could be no British access to the Single Market if Britain didn't accept the principle of free movement of peoples (e.g. unrestricted European immigration) and subservience to the jurisdiction of the European Courts of Justice. As two of the most important aspects of the Brexit vote were the restoration of British sole jurisdiction over British law and British government control of immigration policy and its borders, it was clear that Britain would not be permitted to participate in the Single Market. With the triggering of Article 50, starting the clock ticking on the two-year anticipated period of negotiation between Britain and the EU on the terms of its withdrawal from the EU, there has been a campaign of fear and despair by the Remainers, and some of Britain's biggest businesses, who portray the leaving of the Single Market by Britain as an existential economic disaster waiting to happen. This is not only patently untrue but displays either a staggering ignorance about how the Single Market actually functions, or a more cynical policy of reaping the benefits of 'Highest Common Denominator' of European pricing and the continuation of he almost universal control of business by cartels operating within the EU.

Fines Imposed 1990-2017

The fines Imposed in Recent Years 2013 to 2017

That is twenty-seven billion Euros so far from a Commission that is slow, unreliable and reluctant to keep the barriers on competition in place. A recent study at Oxford reports "One of the most contentious and high-profile aspects of EU competition law and policy has been the regulation of those serious competition or antitrust violations now often referred to as 'hard core cartels'. Such cartel activity typically involves large and powerful corporate producers and traders operating across Europe and beyond, and comprise practices such as price fixing, bid rigging, market sharing, and limiting production in order to ensure 'market stability' and maintain and increase profits."[i]

Antitrust violations are very common within the EU. Most EU citizens have no idea how widespread and pernicious these cartels can be. A key defining principle of doing business within the EU is that many, if not most, European industries operate outside the rules of free competition. Most operate as cartels; groups of businesses in the same industry which meet and establish prices and working relationships. They set high prices for the goods they produce, sure in the knowledge that their cartel will prevent any other company underbidding them on price. There are EU cartels for steel, sugar, milk, transport, cement, food production, pharmaceuticals, electrical goods, paper and paper products, computers, cars, construction, mobile phones, vacuum cleaners and scores of others. This both raises prices and inhibits innovation.


They are widespread, costly and ubiquitous


These fines involve some of the EUs largest companies.

The European Competition Commission has published some of the background to these cases. They are cartels which nobody seems to notice.

Some Recent Convictions (using the Commission's own words

Steel Abrasives

Some of the cases involve companies one might not think to reference as a cartel. In May 2016, the Commission found that Italian abrasives producer Pometon S.p.A. breached EU antitrust rules by participating in a cartel to coordinate steel abrasives prices in Europe for almost four years. The Commission has imposed a fine of  6 197 000.The Commission has found that for almost 4 years, Pometon participated in a cartel and had contacts on a bilateral and multilateral basis to coordinate prices of steel abrasives in the whole European Economic Area (EEA).

The cartel concerned steel abrasives, which are loose steel particles used for cleaning or enhancing metal surfaces in the steel, automotive, metallurgy and petrochemical industries. They are also used for cutting hard stones such as granite and marble.

Metal scrap, which is the main raw material for steel abrasives, is characterised by sharp price fluctuations as well as significant price differences between the EEA countries. To compensate for such fluctuations, the cartel participants set up together a specific surcharge (called the "scrap surcharge" or "scrap cost variance (SCV)") based on a common formula. In addition, the cartelists agreed not to compete against each other on price with respect to individual customers.

Canned Mushrooms:

In April 2016, The Commission fined Riberebro €5.2 million for participation in canned mushrooms cartel. The European Commission found that Spanish canned and fresh vegetable company Riberebro participated in a cartel to coordinate prices and allocate customers of canned mushrooms in Europe for more than a year and has imposed a fine of €5 194 000 on the company. The Commission adopted a settlement decision in June 2014 concerning the participation in this same cartel of Bonduelle, Lutece and Prochamp. Riberebro chose not to settle and consequently the investigation continued under the normal cartel procedure. The cartel concerned canned mushrooms sold in tins and jars (i.e. not fresh or frozen mushrooms) for private label sales in the European Economic Area (EEA). These sales are carried out via tender procedures to retailers and food wholesalers such as cash and carry companies, as well as to professional customers such as catering companies. The overall aim of the cartelists was to stabilise their market shares and stop a decline in prices. To achieve this, the cartel members exchanged confidential information on tenders, set minimum prices, agreed on volume targets and allocated customers among themselves. The cartel was a non-aggression pact with a compensation scheme in case of customer transfer and application of minimum prices which had been agreed beforehand. The Commission found that Riberebro participated in the cartel from 10 September 2010 until 28 February 2012.

Optical Disks

In October 2015, the Commission fined suppliers of optical disc drives € 116 million for cartel collusion. It fined eight optical disc drive suppliers a total of €116 million for having coordinated their behaviour in relation to procurement tenders organised by two computer manufacturers, in breach of EU antitrust rules.

Optical disc drives ("ODDs") read or record data stored on optical disks, such as CDs, DVDs or Blu-ray. They are used for instance in personal computers, CD and DVD players and video game consoles. The anticompetitive conduct subject to fines in this case concerns agreements to collude in procurement tenders for ODDs for laptops and desktops produced by Dell and Hewlett Packard (HP).

The eight suppliers engaged in the illegal practices covered by this decision, were Philips, Late-On, their joint venture Philips & Late-On Digital Solutions, Hitachi-LG Data Storage, Toshiba Samsung Storage Technology, Sony, Sony Optic and Quanta Storage.

The Commission's investigation revealed that between June 2004 and November 2008, the companies participating in the cartel communicated to each other their intentions regarding bidding strategies, shared the results of procurement tenders and exchanged other commercially sensitive information concerning ODDs used in laptops and desktops. They organised a network of parallel bilateral contacts that pursued a single plan to avoid aggressive competition in procurement tenders organised by Dell and HP.

Although the cartel contacts took place outside of the European Economic Area (EEA), they were implemented on a worldwide basis. Of the companies involved in the cartel, only Philips is headquartered in Europe. The remaining seven are headquartered in Asia. The duration of each company's involvement in the cartel varied and ranged from less than a year to over four years.

The companies were aware that their behaviour was illegal and tried to conceal their contacts and to evade detection of their arrangements. For example, they avoided naming the competitors concerned in their internal correspondence but used abbreviations or generic names.

The cartelists also avoided leaving traces of anticompetitive arrangements by preferring face-to-face meetings and ensured that the competitors' discussions were not revealed to customers. Some of them met in places where they could not be easily spotted, including in parking lots or cinemas.

Cargo Trains

In July 2015, the European Commission imposed fines of € 49 154 000 on Express Interfracht, part of the Austrian railway incumbent Osterreichische Undecane ("OBB"), and Schenker, part of the German railway incumbent Deutsche Bahn ("DB"), for operating a cartel in breach of EU antitrust rules in the market for so-called cargo 'blocktrain' services. The three companies fixed prices and allocated customers for their "Balkantrain" and "Sprain" services in Europe for nearly eight years.

Kuhne+Nagel of Switzerland, which is one of the largest transport and logistics companies in Europe, also took part in the cartel but was not fined as it was granted immunity for revealing the existence of the cartel.

'Block trains' refers to a rail shipping system to transport cargo from one hub to another without wagons being split up or stored on the way. This saves time and money for customers from a wide range of industries, those with large volumes to transport. In principle, blocktrains are economically more efficient than traditional rail cargo transport, notably for single commodity shipping. The 'blocktrains' covered by the cartel, named "Balkantrain" and "sop train", were jointly operated by Kuhne+Nagel, Express Interfracht and Schenkel. "Balkantrain" ensures the connection between Western and Central Europe with Southeast Europe. "sop train" connects Central Europe with Romania.

In order to limit competition between them, the companies agreed on several restrictive practices:

  • they agreed and allocated existing and new customers as well as setting up a customer allocation scheme including a 'notification system' for new customers;
  • they exchanged confidential information on specific customer requests;
  • they shared transport volumes contracted by downstream customers;
  • they coordinated prices directly by providing each other with cover bids in respect of customers protected under their customer allocation scheme and coordinated sales prices offered to downstream customers.

Truck Cartel

On 19 July 2016, the European Commission (the Commission) found that truck manufacturers MAN, Volvo/Renault, Daimler, Iveco and DAF were found by the Commission to have colluded by manipulating truck prices for 14 years and by passing-on to their customers the costs of compliance with stricter EU emission rules. For these breaches, the Commission imposed a record fine of €2.93 billion. MAN avoided a fine by informing the commission of the cartel.

Additional Cartels in 2016

Cartels expanded in 2016-2017. The Commission fines included, inter alia:

  1. The European Commission has fined Automotive Lighting and Hella a total of €26 744 000 for participating in an automotive lighting cartel, in breach of EU antitrust rules. Valeo was not fined as it revealed the cartel to the Commission. All companies admitted their involvement and agreed to settle.
  2. The European Commission has readopted a cartel settlement decision against the envelopes manufacturer Printeos (formerly known as Tompla) and has imposed a fine of €4 729 000 for its participation in a price fixing cartel.
  3. The European Commission has re-adopted a cartel decision against 11 air cargo carriers and imposed a fine totalling € 776 465 000 for operating a price�fixing cartel. The Commission's original decision was annulled by the General Court on procedural grounds. The companies fined in 2010 were Air Canada, Air France-KLM, British Airways, Cargolux, Cathay Pacific Airways, Japan Airlines, LAN Chile, Martinair, Qantas, SAS and Singapore Airlines. A 12th cartel member, Lufthansa, and its subsidiary, Swiss International Air Lines, received full immunity from fines.
  4. The European Commission has fined Behr, Calsonic, Denso, Panasonic, Sanden and Valeo a total of € 155 million for taking part in one or more of four cartels concerning supplies of air conditioning and engine cooling components to car manufacturers in the European Economic Area (EEA).
  5. The European Commission has fined Campine, Eco-Bat Technologies and Recylex a total of €68 million for fixing prices for purchasing scrap automotive batteries, in breach of EU antitrust rules.
  6. Timab and its parent company CFPR of the Roullier Group were held jointly and severally liable for a fine of €59 850 000 for their participation in the Animal Feed Phosphates cartel for over ten years. They were the only parties who chose not to settle the case. Altogether, the cartel participants were fined €175 647 000. Their aim had been to share a large part of the European feed phosphates sales by allocating sales quotas and coordinating prices, as well as coordinating sale conditions when and to the extent necessary for those purposes
  7. The European Commission has fined Sony, Panasonic and Sanyo a total of €166 million. The companies and Samsung SDI coordinated prices and exchanged sensitive information on supplies of rechargeable lithium-ion batteries, used for example in laptops and mobile phones, in breach of EU antitrust rules
  8. The European Commission has fined Credit Agricole, HSBC and JPMorgan Chase, a total of € 485 million for participating in a cartel in euro interest rate derivatives.
  9. Theuropean Commission has found that MAN, Volvo/Renault, Daimler, Iveco, and DAF broke EU antitrust rules. These truck makers colluded for 14 years on truck pricing and on passing on the costs of compliance with stricter emission rules. The Commission has imposed a record fine of € 2 926 499 000.
  10. The European Commission has found that Italian abrasives producer Pometon S.p.A. breached EU antitrust rules by participating in a cartel to coordinate steel abrasives prices in Europe for almost four years. The Commission has imposed a fine of € 6 197 000.

On 24 July 2017, the European Competition Commission announced that five German car manufacturers are being investigated for their involvement in a potential cartel. German carmakers faced charge that they colluded illegally for decades, further damaging the industry'[s image and exposing it to massive financial risks. These German carmakers Volkswagen, Audi, Porsche, BMW and Daimler had secretly worked together from the 1990s onwards on huge areas of car development, construction and logistics - including how to meet increasingly tough emissions criteria in diesel vehicles.

Cartels Off The Hook

These are just a few of the cases brought by the Competition Commission. However, the fact that these cases were brought and fines levied does not mean that these fines were actually imposed or collected. The EU clearly recognises that cartels are the leitmotiv of European business and have prosecuted some cases, but that does not mean that the cartels are deterred or fined.

When these cases were heard and a fine imposed the EU allowed for a mitigation of the penalty. It reaches a 'settlement' with the cartels reducing the fines and limiting the liabilities of the companies found to be operating cartels. Recent settlements include cartels in the following cases: DRAMs, animal feed phosphates, washing powder, glass for cathode ray tubes, compressors for fridges, water management products, wire harnesses, Euro and Yen interest rate derivatives, polyurethane foam, power exchanges, bearings, steel abrasives, mushrooms, Swiss Franc interest rate derivatives and bid-ask spreads, envelopes and parking heaters.

The Commission has established variations to its antitrust legislation which permits a policy of leniency. Some companies are let off entirely because they co-operate with the Commission; others have their liabilities reduced by 75% plus an additional 10% for later co-operation. Some are let off because the fine would 'destroy' the company. Others are let off because it would be better for consumers if their products remained in the market. All in all, EU competition and anti-trust policy is largely for show and for giving the lobbyists a reason for collecting their large fees; a useful sham. They can also deduct these fines from their income as a business expense.

What Does This Mean For Brexit?

For decades, British business has operated hand-in-glove with the European cartels European prices are among the highest in the world. Europeans trade with each other because no one else in the world can afford to pay European prices. It has been a cosy relationship, operating with a nudge and a wink from the responsible authorities. British business prefers a rigged market to free competition. That is, mainly, big businesses. Small and medium businesses will thrive in a free competitive market where their technology and skill can give them an advantage in the world's markets. The fact that these big businesses operate in a cartel environment also has meant that they have an oligopolistic control over their suppliers. Because of their size and power, they can, and have, dictated the prices they will pay to their suppliers and contractors. In a free competitive international market, these suppliers can offer their wares to a much broader client base. In short, Brexit is a wonderful opportunity for every company except those locked into the 'orderly markets' of the European cartels. It is better for the smaller and medium-sized companies and very much better for the British working men and women who are not worrying about large plant closures, layoffs and diminished wage prospects.

It is wonder that the Remainers, the Remoaners and their ilk threaten gloom and doom. Their cosy cartels are threatened and they will do anything to delay the inception of a free market. The politicians follow the money and moan along with the dying cartels. Shame on them all.

[i] Christopher Harding, Julian Joshua, "Regulating Cartels in Europe "Oxford Studies in European Law 2016

Source:Ocnus.net 2017

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