THE need for introducing a multilateral anti-trust law within the framework of World Trade Organization (WTO) is being felt afresh in cartels-hit countries. This development is emerging against the backdrop of domestic laws' limitation to reign in alleged international cartels.

Both these issues are particularly relevant to potash cartel that has rocked both the US and India. On 27 June 2012, t he U.S. Court of Appeals for the Seventh Circuit in Chicago revived a case against seven international firms that allegedly acted as potash cartel on 27 June 2012.

The case's final outcome would reflect the adequacy of Foreign Trade Antitrust Improvements Act (FTAIA) to deal with international cartels.

As put by International Law firm, Latham & Watkins, in a client alert dated 18 July 2012, "The FTAIA establishes that the Sherman Act (the US anti-trust law) applies to foreign conduct that (1) is import commerce or (2) has a "direct, substantial, and reasonably foreseeable"effect on domestic or export commerce. Though it had previously held - consistent with a majority of other Circuits — that the FTAIA presented a jurisdictional bar, the Seventh Circuit overruled its earlier decision in United Phosphorus, Ltd. v. Angus Chemical Co. , 322 F.3d 942 (7th Cir. 2003), and now holds that the FTAIA sets forth a substantive element of an antitrust claim."

The domestic law's applicability to foreign cartels would also be tested in India. Competition Commission of India (CCI) has to take call on a preliminary information memorandum (PIM) filed by an Indian consumer protection advocacy institution, CUTS International, on 25 August 2012 to institute a suo motu investigation into the operations of the Potash Cartel under the Competition Act, 2002.

India has had been having a troubled relation with potash cartel. In April 201, The Fertiliser Association of India (FAI) had stated that Indian industry would take a holiday from application of imported potash for the present. The holiday ended in August after hard bargaining with Potash Cartel. This year, no Indian company as yet contracted any import of potash. It is proving to be a battle of nerves with potash giants curtailing production for want of orders from India but not showing willing to cut prices.

CUTS has urged CCI to launch an investigation under Section 19 of the Competition Act 2002 for an act taking place outside India that has or is likely to have an appreciable adverse effect on competition in India vide Section 32 of the Competition Act (the "effects doctrine") against the global potash cartel.

These provisions were put on the Statute by Indian law makers after the Supreme Court ruled in July 2002 that CCI's predecessor, Monopolies and Restrictive Trade Practices Commission (MRTPC) lacked powers to issue orders to foreign cartels.

In a judgment delivered in July 2002 on two similar clubbed cases including the one against US soda ash cartel, The Supreme Court ruled: "The competition law in the form of MRTP as it stands today does not contain any provision, which can give it jurisdiction to interfere merely with cartel formation. Formation of cartel which takes place outside India is outside the territorial jurisdiction of the MRTP."

Cuts' PIM against potash cartel is a test case for efficacy of Competition Act 2002.

CCI's power to consider cases against foreign cartels has been discussed at length by two lawyers from a leading Indian law firm, Nishith Desai Associates, in article captioned ‘Extraterritorial Application of the Competition Act and Its Impact published in January 2012 issue of Competition Law Reports.

The Article says: "Although the CCI is well empowered under Section 32, till date there have been no regulations or rules introduced to govern the manner or the time frame within which the regulator is required to act in matters beyond Indian territorial limits."

FAI, on the other hand, is unsure about the applicability of Indian Competition Act on foreign entities for their overseas dealings. Neither FAI has as yet offered to help CUTS in potential litigation against Potash Cartel nor has the latter approached the former.

Focus on the applicability of domestic laws on overseas cartels is relevant because WTO provides an uncertain regulatory framework to tackle cartels that deal in natural resources such as potash and crude oil.

If WTO had a categorical regulation against international natural resource cartels then Organization of Petroleum Exporting Countries (OPEC) would have been sued by several oil importing countries.

Indeed, A Report from the Office of Senator Frank R. Lautenberg on this subject issued in July 2004 itself admitted the limitations of WTO framework.

The report captioned ‘ Busting Up The Cartel: The WTO Case Against OPEC' thus concluded "OPEC's practices are in violation of WTO rules prohibiting quantitative restrictions on exports. Although there are exceptions that OPEC could attempt to cite, the applicability of these exceptions is tenuous."

Global negotiations on hard core cartels and multilateral framework for competition policy have not taken place since July 2004 when WTO's General Council decided that the interaction between trade and competition policy would no longer form part of the Work Programme set out in the Doha Ministerial Declaration.

Referring to this development, CUTS says: "Unfortunately, to this date, lesser developed countries have been paying heavy costs for the cross-border impact of anti-competitive practices that countries are commonly seen to indulge in. Several studies substantiate this stance. As a result of price fixing conspiracies during the 1990s developing countries paid approx. $ 20-25 billion in excessive prices."

CUTS made this and other contentions at a Roundtable of the Intergovernmental Group of Experts on Competition Law and Policy (IGE) held in Geneva under the aegis of United Nations Conference on Trade and Development (UNCTAD).

UNCTAD has called for establishment of an international intelligence network to collect information required for pinning down international cartels. It has made this and other suggestions on cartels in the concept note for the Roundtable on ‘ Cross - border Anti Competitive Practices: The Challenges for Developing Countries and Economies in Transition'.

Before discussing impact of potash cartels on countries such as India and China, one needs to understand cartels in the context of global commerce.

As put by WTO background Note dated 20 June 2002 on hard core cartels,

"Export cartels fix prices or outputs in the participating firms' export markets but not in their home markets. Import cartels aim to regulate the price or other terms of goods or services that are imported into the participating firms' home markets. In contrast, international cartels generally fix prices, outputs or other dimensions of competition across a number of national markets, often including but not limited to the home countries of the participating firms. Another distinguishing feature is that export cartels are exempted from the national competition laws of many countries, in some cases on a condition of public registration, whereas international cartels often are illegal and typically are carried on in secret unless and until they are investigated and disclosed. "

This conceptual clarity would imply that Potash Cartel operates both as export cartel and/or as international cartel.

Potash cartel is important for both the US and India as they are among the top four largest consumers and importers of potash. The other two are China and Brazil. India meets its entire demand through imports, whereas the US meets 85% of its potash requirements through imports.

When potash prices are manipulated and kept artificially high by cartels, it means farmers are being asked to pay more or use sub-optimal doses. In India, potash is not only under-applied, resulting in imbalanced use of nutrients and lower than optimal yields. As potash is subsidized, the cartel-managed prices force the Government to spend more on subsidies that actually benefit foreign suppliers.

In a presentation on Potash Cartels delivered in January 2012, Mr. Frederic Jenny, Professor of economics, Paris-based ESSEC Business School stated: "if we assume that India will need an average of 6.5 million tons of potash per year between 2011 and 2020, the overcharge it will pay each year will be on average CAD$ 1.183 billion (US $ 1.171 billion), if it also succeeds in getting an 18% discount, and could reach CAD$ 1.825 billion toward 2015 when the pressure of demand will be greatest."

Prof Jenny, who once chaired WTO Working Group on Trade and Competition, continues: "Thus, if the Indian government keeps on paying an annual subsidy of US$ 1.5 billion to make potash fertilizers more affordable for Indian farmers, from 80% to 100% of this subsidy will in fact finance the monopolistic rent that potash producers will enjoy on their sales to India, thanks to the restrictive practices of the potash producers."

Prof. Jenny adds: "If we assume that China needs to import an average of 4 million tons of potash per year between 2011 and 2020, which is a conservative estimate based on the imports in 2008, the overcharge it will pay each year will be at a minimum US $ 500,000,000, if it succeeds in getting a 30% discount from the cartel price (as it has recently), and could reach $ 1,144,000,000 annually."

Potash Cartel comprises two corporate entities. Canada's potash exporter, Canpotex Limited is owned by three Saskatchewan potash producers. It is also the world's largest potassic fertilizers exporter and enjoys exemption from Canada's Competition Act. One of the Canpotex owner and the world's largest Potash producer, extends its reach to global potash markets through a slew of joint ventures and strategic equity stakes in certain potash companies across the globe.

The second cartel constituent named Belarusian Potash Company (BPC) is a joint venture between Russia's Uralkali and Belarus' Belaruskali.

The fact that Potash cartels are sensing trouble from anti-trust laws is evident from a disclosure made by Uralkali in In its GDR prospectus dated 16 June 2011.

It stated: "Uralkali can therefore give no assurance that the BPC joint venture or any other matters relating to the Combined Group would not be determined to be in breach of Article 101(1) TFEU (Treaty on the Functioning of the European Union) or anti-monopoly laws in other jurisdictions, including the United States. Moreover, Uralkali can give no assurance that the European Commission, or other competition regulators, would not require the Combined Group and Belaruskali to cease joint selling through BPC, or would not impose fines in such circumstances for breaches of anti-monopoly laws."

It is worth noting here that Canpotex and Uralkali had once a joint marketing agreement that they terminated on 1 June 2003 against the backdrop of WTO talks on trade and competition policy.

Both Canpotex and BPC and their associates should realize that healthy long-term buyer-seller relationship pays in the long run. Instead of waiting for legal action under domestic laws of importing countries and hoping that international anti-trust law would not materialize, Potash cartel & OPEC and their ilk should realize that global food & energy security cannot be overlooked for long.