WORLD TRADE
ORGANIZATIONWT/WGTCP/W/194
28 June 2002
(02-3637)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM SWITZERLAND
The following communication, dated 26 June 2002, has been received from the Permanent
Mission of Switzerland with the request that it be circulated to Members.
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Provisions on Hard Core Cartels
Doha Ministerial Declaration Paragraph 25(ii)
As many other countries, developed and developing alike, Switzerland considers that hard
core cartels have a particularly pernicious effect on local markets and – in the case of agreements
impacting several economies – on international trade.  Switzerland thus considers it important to fight
against cartels, both domestic and international ones.  The Doha mandate takes up this issue for
further clarification and discussion in the WTO.
The purpose of this communication is to contribute to the on-going discussion on competition
matters in WTO by presenting the Swiss experiences in dealing with hard core cartels and, in line
with earlier Swiss communications (e.g. WT/WGT CP/W/151, p.2), by drawing some preliminary
conclusions for a possible multilateral agreement in this field.  This is preceded by some remarks onharmful effects of cartels – the starting point of any discussion on how to act against such anti-
competitive agreements, practices, etc.  We hope that our experiences, together with those of other
countries, will help those developing countries which are in the process of devising their own laws
and procedures.
I. HARMFUL EFFECTS OF HARD CORE CARTELS
Hard core cartels are usually defined as anti-competitive agreements, practices or
arrangements by competitors to fix prices, restrict quantities or allocate markets geographically
1.
The intention behind such an anti-competitive ag reement is to gain from a mark-up in prices
without putting extra efforts in the development of a product.  Hard core cartels thus harm consumers
by raising prices.  Furthermore, raw material and components from enterprises participating in such
practices are more expensive.
Generally these agreements can only be effective if either the vast majority of competitors of
the relevant market is part of it or if every (potential) competitor trying to enter the relevant market
can be effectively hindered to do so (e.g. by a boycott).  By limiting competition that would normally
prevail between competitors, undertakings avoid the pr essure that would lead them to innovate.  This
                                                     
1 For further elements of an international understanding about hard core cartels, see the Recommendation of the
Council of the OECD concerning Effective Action Against Hard Core Cartels (Adopted on 25 March 1998).WT/WGTCP/W/194
Page 2
loss of innovation restricts supply and impairs efficien cy.  In the long term, hard core cartels not only
lead to a loss of competitiveness but also reduce employment opportunities.  Furthermore, there is no
legitimate economic or social benefit that would justify the losses that hard core cartels generate.
Although the extent of the harm done by an international cartel is difficult to quantify,
prosecuted cartel cases in countries with a competition law have disclosed that cartel mark-ups overthe competitive price may reach 65 per cent.
2  Empirical evidence shows that damage inflicted by
hard core cartels is not negligible;  one estimate is that one set of 14 investigated cartels affected
products representing 7% of developing countr y imports, or 1.2% of developing countries’ GDP. 3  As
cartels are more and more international, it has been shown that developed and developing countries
alike are affected by them.  The fact that hard core cartel operators keep their agreements secret shows
their awareness about their harmful and unlawful conduct.
II. TREATMENT OF HARD CORE CARTELS IN SWISS COMPETITION LAW
The article in the Swiss Federal Act on Cartels and other Restraints of Competition (Acart)4
relevant for cartels reads as follows:
"Article 5:  Unlawful Agreements
1. Agreements that significantly affect competition in the market for certain goods or
services and are not justified on grounds of economic efficiency and all agreements
that lead to the suppression of effective competition are unlawful.
2. An agreement is deemed to be justified on grounds of economic efficiency:
(a) when it is necessary in order to reduce production or distribution costs, improve
products or production processes, promot e research into or dissemination of
technical or professional know-how, or exploit resources more rationally; and
(b) when such agreement will not in any way whatsoever allow the enterprises
concerned to eliminate effective competition.
3. The following agreements among actual or potential competitors are presumed to lead
to the elimination of effective competition when they:
(a) directly or indirectly fix prices; or
(b) restrict the quantities of goods or services to be produced, bought or supplied;
or
(c) allocate markets geographically or according to trading partners."
Article 5(3) contains the presumption that th e mentioned horizontal agreements (which are
agreements between competitors) lead to the elimination of effective competition.  Because the
presumption does not refer to the question whether an agreement is lawful or not, it can be rejected by
the proof that competition continues to exist despit e the agreement.  When this proof can in fact be
delivered by the undertakings concerned, the agreement will fall under Article 5(1) and can possibly
be justified on grounds of economic efficiency under Article 5(2).
                                                     
2 Result of a survey of more than 100 cartel cases in Working Party 3 of the OECD Competition Committee.
3 Margaret Levenstein and Valerie Suslow, Private International Cartels and Their Effect on Developing Countries
(Background Paper for the World Bank‘s World Development Report 2001, 9 January 2001).
4 For a comprehensive description of the Acart see Trade Policy Review of Switzerland, 2000 (WT/TPR/S/77, p.
53-55) and (WT/WGTCP/W/29).WT/WGTCP/W/194
Page 3
The objective of competition rules is to ensure effective competition.  In the case of a
horizontal agreement where e.g. producers fix the selling price, competition in the domestic market is
severely impaired or nullified and the proof of existing competition (e.g. that potential competitors
can exist in the relevant market)  will be almost impossible to deliver – in particular if the cartel
succeeds in keeping foreign competitors out.  The in tention of this agreement is to benefit from high
mark-ups and therefore the participants of the agreement try to prevent other competitors fromentering the market.  According to Swiss competition law, only those horizontal agreements are
qualified as "hard core cartels" which have the purpose to restrict competition.
The case is different with e.g. a specialization agreement on production, where small firms
without the financial resources to produce a good by themselves co-operate with foreign companies
(so called "co-operation agreements").  The intenti on of the firms in the latter example is not to
eliminate "outside competition" and such an a agreement would in all probability not  be consideredas a "hard core cartel".
Under Swiss cartel law a person harmed by an  unlawful restraint of competition may request
the removal of the obstacle or the cessation of the harmful practice, damages and reparations or
remittance of illicitly earned profits.  These actions will be judged by the competition authority as thecompetent authority to scrutinize the unlawful conduct of the undertakings concerned.  The removal
of the obstacle might be requested if the restraint is on-going, cessation of the harmful practice if it is
imminent.  Damages and reparations will be granted if the following can be proven:  damage,
unlawful conduct, a link between the damage and th e unlawful conduct and the intention of restraint
of competition.
With an eye on practice, one can record the following facts:  in 2001 the Swiss Secretariat of
the Competition Commission (Comco) completed 13 investigations of which 7 concerned unlawful
agreements falling under Article 5(3) Acart.  One case was closed with no action taken for lack of
evidence of an unlawful restraint while in another case the firm in question discontinued the allegedrestraint by itself.  Yet another case was closed by an amicable settlement between the competition
authority and the firms concerned.  In two cases the competition authority made a decision on the
unlawful agreement.  Two cases are still in progress.
Despite this record, it is envisaged to further develop the law.  The currently valid Swiss law
only foresees fines in the case of a violation of administrative decisions and amicable settlements.
Therefore a  mandate was given to a group of experts to revise the valid law.  The aim is inter alia  to
introduce direct sanctions for the harmful effects of agreements like hard core cartels.  The experience
of competition authorities in other WTO Member States has demonstrated that stiff fines are a great
deterrence to cartels by making the prospect of gain less likely.  Furthermore, the mandate contains a
proposal to introduce leniency based on the good experience e.g. in the EU, where fines can be
reduced or concessions made for companies revealing cartels or otherwise co-operating with thecompetition authority during the investigation of such  infringements.  Leniency programs result from
the awareness that the possibility of avoiding a fine weakens the loyalty under cartel operators,
especially if the fine is high.  In this respect, the two aspects of the proposed amendment to the Acart
are linked.  The ongoing revision of Acart, in particular with the intention to introduce direct
sanctions and a leniency program, is in that sense a step in the right direction
5 and in line with
ongoing and finished revisions of competition laws in the EU and in other European countries.
III. CONCLUSIONS
Although traditionally many cartels focused primarily on the domestic market hard core
cartels increasingly have international dimensions and affect several economies at the same time, thus
increasing the overall harm as well.  There is sufficient evidence to demonstrate that both developing
and developed economies suffer from the effects of such international cartels.  The potential negative
                                                     
5 See the annual report on Switzerland, 2001 – 2002, OECD.WT/WGTCP/W/194
Page 4
impact of such business practices was already recognized in 1948, when the Havana Charter for an
International Trade Organization declared the following practices, among others, subject to
investigations:  fixing prices, allocating or dividing any territorial market or field of business activity,
allocating customers, fixing sales quotas or purchase quotas, limiting production etc.6  Economic
globalization has created new challenges in combating anti-competitive practices of global activities
as competition law is only exercised within the confines of national territory;  curbing effects of hardcore cartels has indeed become a universal problem.
7
In such cases it is very difficult for a single competition authority (in particular for a small
one like in Switzerland) to successfully prosecute an internationally operating cartel that has an effect
in several economies.  Even with the possibility to decide on direct sanctions against hard core cartels,
the question remains how to obtain the relevant info rmation about the impact in other countries and to
establish whether the sanctions of the countries concerned exceed the gain of the cartel, as it should bein order to effectively apply deterrence.
All this leads to the conclusion that the authori ties should be able to co-operate in prosecuting
those infringements they consider as the most harm ful ones.  There are two ways to achieve this co-
operation:  by bilateral agreements or by a multilateral agreement.  Bilateral agreements demand time-consuming, often expensive negotiations and implementation measures.  Furthermore, multilateral
cartels may affect other or more countries than are covered by a bilateral agreement.  In a multilateral
agreement, no country will be excluded from the exchange of general information and its
implementation is likely to be less burdensome.
Switzerland supports the idea of creating a minimu m standard for fighting hard core cartels
and other restraints of competition in an international context without putting in doubt countries’
sovereignty to regulate and to fully apply their ow n competition law.  This should be complemented
with the possibility of co-operation (e.g. by exch anging information) in a multilateral framework in
order to improve the chances of dismantling hard core cartels.
__________
                                                     
6 Havana Charter, Article 46, Paragraph 3 (a), (b), (d).
7 Extracts from the concluding remarks by the Chairman of the OECD Trade Committee on “trade and competition” at the
OECD Global Forum on Trade (Workshop on the development dimensions of the Singapore Issues), held in Hong Kong, China, June 19
and 20, 2002.