WORLD TRADE
ORGANIZATIONWT/WGTCP/W/200
12 August 2002
(02-4386)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM KOREA
The following is the final text of a paper received from the Permanent Mission of Korea
which was circulated as an advance copy for the Working Group's meeting of 1-2 July 2002.
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HARD CORE CARTELS AND VOLUNTARY COOPERATION
I. INTRODUCTION
1. By submitting this paper, Korea seeks to rais e some conceptual issues that may help to
identify and clarify specific elements to be inco rporated in a multilateral framework on competition
policy, without prejudice to any further developments in Korea's position.
2. In doing so, this paper discusses hardcore cartels under four headings: definition and scope,
obligations of the Members, flexibility, and modalities for voluntary cooperation.
3. In particular, this paper focuses on the means of voluntary cooperation for regulating
international hardcore cartels.  Special characteristics of international hardcore cartels demand
cooperation among Members, but at the same time make cooperation extremely difficult.  The topic,
therefore, is worth a closer examination.
II. HARD CORE CARTELS: SOME CONCEPTUAL ISSUES AND POSSIBLE
ELEMENTS FOR A MULTILATERAL AGREEMENT ON COMPETITION POLICY
A. DEFINITION AND SCOPE
4. It has been argued in the past that regulations on cartels should be included in the multilateral
framework on competition policy, for their negative impacts are clear and also significantly affect
international trade. 1
5. According to the OECD's R ecommendation of the Council Concerning Effective Action
Against Hard Core Cartels (the Recommendation),2 the hardcore cartel is defined as:
" … an anti-competitive concerted practice, or ant-competitive arrangement by
competitors to fix prices, make rigged bids (collusive tenders), establish output
                                                     
1 Contribution of the European Community and its member States "A Multilateral Framework Agreement on
Competition Policy" (WT/WGTCP/W/152);  Contribution of Japan "Observations on the Possible WTO Framework on
Competition" (WT/WGTCP/W/119);  Contribution of Korea "A  Multilateral Framework on Competition Policy: Issues and
Suggestions" (WT/WGTCP/W/133).
2 OECD Council. 1998. Recommendation of the Council Concerning Effective Action Against Hard Core Cartels
(C(98)35/FINAL).WT/WGTCP/W/200
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restrictions or quotas, or share or divide markets by allocating customers, suppliers,
territories, or lines of commerce; the hard core cartel category does not include
agreements, concerted practices or arrangements that (i) are reasonably related to the
lawful realization of cost-reducing or out put-enhancing efficiencies, (ii) are excluded
directly or indirectly from the coverage of a Member country’s own laws, or (iii) areauthorized in accordance with those laws.  However, all exclusions and authorizations
of what would otherwise be hard core cartels should be transparent and should be
reviewed periodically to assess whether they are both necessary and no broader than
necessary to achieve their overriding policy objectives …"
6. According to this definition, the term hardcore ca rtel refers to the worst form of cartel, the
anti-competitive effect of which cannot be denied in any circumstances.  Collaborative activities that
lower costs or improve efficiencies are thus excluded.  An example could be a consortium or a jointventure for basic research at pre-commercial level.  The cartels that are legal under a Member’s
domestic laws, or cartels that have been legally authorized are also excluded.  The example would be
the authorized trade association or export cartel composed of small-size firms, which collaborate to
reduce transaction costs while having little significant anti-competitive effects.
7. In the meantime, the UN's Set of Principles and Rules on Competition (Set) also provides
unbinding recommendation on cartels.
3  The Set itself does not use the word "hard core cartel", but
still defines cartels under Section B (i) as "… formal, informal, written or unwritten agreements or
arrangements among enterprises …" that "limit access to markets or otherwise unduly restrain
competition, having or being likely to have adverse effects on international trade, particularly that of
developing countries and on the economic development of these countries."  As such examples,Section D, Article 3 suggests the following:
(a) Agreements fixing prices, including as to exports and imports;
(b) collusive tendering;
(c) market or customer allocation arrangements;
(d) allocation by quota as to sales and production;
(e) collective action to enforce arrangements;  e.g., by concerted refusals to deal;
(f) concerted refusal of supplies to potential importers;
(g) collective denial of access to an arrangement, or association, which is crucial to
competition.
8. Even though the two existing definitions on cartels do not largely differ in substance, the Set's
definition of cartels may cover broader scope than that offered by the OECD's Recommendation.  For
example, it does not explicitly provide for exemptions for those agreements and arrangements thatmay lower costs or improve efficiencies, or those that are legally authorized.  Furthermore, it
explicitly refers more to anti-competitive arrang ements such as collective refusals to a deal or
collective denial of access to associations.  In addition, the Set explicitly refers to exports and imports.
Of course, it should not be construed that the Set precludes other forms of cartels that is not included
in the list, nor that the Recommendation necessarily precludes certain forms or types of cartels,including export or import cartels.
                                                     
3 The UN Set of Principles and Rules on Competition (TD/RBP/CONF/10/Rev.2).WT/WGTCP/W/200
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9. In comparison, the definition in the Recommendation is more effect-oriented.  It calls for
regulation of cartels that have the same effects as blatant price fixing, while allowing exemptions for
those arrangements that have pro-competitive effects.  These exemptions and any changes made by
the governments are to be notified to the OECD in order to ensure transparency.
10. It may depend on the Members to decide which of the two definitions is more appropriate for
the WTO multilateral framework.  Whatever the form, the definition should be clear and applicable so
as to provide practical guidance to the regulations and obligations of the multilateral agreement.  In
this sense, the OECD Recommendation, developed later in time, seems to have certain merits in being
more focused on the effect of the cartel rather than on the particular forms of cartels, and yet simple in
the use of language.
11. The following is a non-exhaustive list of questions that the Working Group might address to
clarify the definition and scope.
- What kind of definition and concept should be adopted for the WTO Multilateral
Framework?
- How should the exemptions be allowed?  And if allowed how can the transparency be
ensured within the context of the WTO framework? E.g. should the exceptions bereviewed periodically so as to assess whether they are necessary and not broader than
necessary to achieve the overriding policy objectives.  Should they be subject to
policy review?
- What criteria should be used for authorizing a cartel? Should we work on setting
principles or leave it to each Member's discretion under the national laws?
B. OBLIGATION OF MEMBERS TO REGULATE HARD CORE CARTELS
12. Provided we have developed a definition and scope of hardcore cartels, their effective
regulations would require each Member to legislate at the minimum certain regulations prohibiting the
act and to have procedures or provisions for sanctions and remedies.  However, the multilateral rule
should not dictate the particular form of such provisions.  Each Member should be allowed to take
into consideration their own legal traditions, history, and other socio-economic environment, as long
as the basic principles and criteria are applied.
13. The Recommendation, for example, calls for the Member economies to "ensure that their
competition laws effectively halt and deter hard core cartels."  In particular, the following should be
provided for:
(a) effective sanctions, of a kind and at a level adequate to deter firms and individuals
from participating in such cartels;  and
(b) enforcement procedures and institutions with powers adequate to detect and remedy
hard core cartels, including powers to obtain documents and information and to
impose penalties for non-compliance.
14. While the Recommendation is addressed only to governments, the Set covers both enterprises
and states.  It calls for the enterprises to refrain from such practices that hinder competition, and at thesame time, calls for States to adopt "appropriate legislations and implement judicial and
administrative procedures for the control of restrictive business practices."
"States should base their legislation primarily on the principle of eliminating or
effectively dealing with acts or behaviour of enterprises" that restrict competition,WT/WGTCP/W/200
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including cartels.  In addition, "States should seek appropriate remedial or preventive
measures to prevent and/or control the use of restrictive business practices within
their competence when it comes to the attention of States ..."
15. Therefore, both the Recommendation and the Set contain similar rules against anti-
competitive cartel activities of the enterprises, ob liging the States to eliminate such activities and to
provide appropriate remedies.  The difference may be that the Set adds the obligation of the
enterprises, whereas the Recommendation only addresses government measures.
16. In this context, further questions could be raised for our discussions:
- Should we include the obligations of the enterprises?  The WTO rules in general
address government measures, and not the private activities of enterprises.
- How much flexibility should we allow in introducing domestic regulations?
- How can we periodically review the legislation and enforcement mechanism
(including exemptions provided) in the WTO?
17. In particular, the last point, that is the periodic review of the domestic legislations,
enforcement, and measures, is very important, if we are to make the multilateral disciplines effective
and transparent.
18. At the least, a peer review procedure is necessary in order to improve the regulations against
hard core cartels, to learn from each other's experiences, and contribute towards a common
understanding and interpretation of competition laws among Members.  The concrete forms and levelof the review need further discussions, but it goes without saying that securing transparency through
periodic notification of domestic rules and measures (including exceptions) is a prerequisite for
effective review.
C. FLEXIBILITY
19. Flexibility is another important element in the multilateral regime on competition policy,
especially for those Members that have not yet fully adopted competition rules and have relatively
less experience in their enforcement.
20. There may be various ways for providing such fl exibilities with regard to the regulations of
hard core cartels, such as:
(1) Transitional period for developing countries that have not yet established competition
laws to adopt such disciplines.  During the transitional period, technical assistance and
capacity building for the adoption of such legislative process, as well as for the
enforcement process at a later stage should be provided.
(2) Allowance for regional arrangements where national competition laws would not have
sufficient economies of scale or effectiveness.
(3) Exceptions allowed for special economies, for example, mono-crop economies, or
economies dependent on a very few commodities or goods.
(4) A possible exemptions for a certain number of R&D cartels or cartels made up of small
business, which do not have significantly negative impact on competition
(5) Exemption for certain export or import cartels, if necessary.WT/WGTCP/W/200
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D. INTERNATIONAL CARTELS AND THE MODALITIES FOR VOLUNTARY COOPERATION
21. Other than the basic obligation of each Member to adopt the basic framework of competition
policy as provided, there is one more important obligation that may be introduced in the multilateralframework:  voluntary cooperation.
22. The basic modality of voluntary cooperation in the Recommendation is based on positive
comity, but also requires Members to engage in consultations over issues relating to cooperation.  It
provides for information-sharing, subject to protection of commercially-sensitive and confidential
information, and within the limitations set by national laws.
23. The Set has similar provisions for consultation mechanism and information sharing.  The Set
provides that if the Members involved so agree, they may prepare a joint report on the consultations
and submit it to the Secretariat.  Adoption of this procedure would help towards accumulating
experience in voluntary consultations.
24. The particularly difficult nature of cartel investigation stems from the fact that the
investigation must proceed in a secretive manner so as not to lead to the destruction of evidences.
When it comes to international cartels, the jurisd ictional issues further complicate the situation.
25. The secret nature of investigation makes it difficult to obtain voluntary cooperation from
another jurisdiction.  While cartel investigation relies greatly on voluntary cooperation of informants
from the inside, nationals of another jurisdiction may be under different rules with respect to
imparting confidential information.
26. Another problem stems from the different level and degree of enforcement and damage
recovery.  If the Member with a lower degree of enforcement has the jurisdiction, what actions can a
company or consumers of another country harmed by the cartel do?
27. Given such difficulties in international cooperation, several issues should be further discussed,
such as:
- Considering these factors, what kind of cooperation may be required to yield substantive
results?
- Is positive comity sufficient for effective regulation of international cartels?
- How can the jurisdictional issues be addressed under the WTO rules?  Can certain
principles be introduced?
- How can the WTO be of use to coordinate cooperation?
28. The foremost important issue with regard to enhancing international cooperation would be
how to set up criteria or principles on the jurisdictional issues.  Given the fact that countries that try to
enforce their laws face such jurisdictional disputes, it would be important to review which
jurisdictional principle could be established as a means to enhance such international cooperation.
III. CONCLUSION
29. Provisions on hardcore cartels are the first and the key element for a multilateral framework
that we should examine in this Working Group, and the existing definition of cartels, including
OECD's definition of hard core cartel and the UN Set provide useful resources for our discussions.WT/WGTCP/W/200
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28. The paper has raised more questions than answers, but the questions may be the starting point
for our in-depth discussions for shaping the poss ible form of the multilateral disciplines on
competition policy.
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