Press Campaign 2010 1st WCD (2010)

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Air cargo transport cartels harm economies
Shanghai Daily, China, December 08, 2010

By Pradeep S Mehta

AIR cargo transport cartels are a major problem worldwide – resulting in overcharges and hampering economic development – and the first World Competition Day on Sunday (December 5) raised awareness of the need to break up cartels.

Sunday was the 30th anniversary of the adoption of the UN international standard for competition laws. They are officially known as the UN Set of Multilateral Principles and Rules for the Control of Restrictive Business Practices, better known as the UN Set on Competition Policy.

Many countries already celebrate National Competition Days, including European Union member states, Brazil and Zambia. The events were used to raise awareness and rally the general public around the issue of air cargo cartels, which have been causing serious harm to consumers and the economy.

The EU slapped one of its biggest fines in history on 11 airlines, totaling 799.4 million euros (US$1.1 billion) for running a global cargo cartel, which coordinated action on surcharges for fuel and security between 1999 and 2006.

The prosecution by the EU was not the first for most of the airlines, since earlier the US Department of Justice had also found that some of the world’s biggest airlines had conspired between 2000 and 2006 to fix cargo prices. In 2009, three cargo airlines in the US agreed to pay fines totaling US$214 million for the same crime. In this case, 15 airlines were prosecuted and a fine of US$1.6 billion was imposed. In addition, three senior air cargo industry executives agreed to serve jail terms.

Cartels in the air cargo industry should be of concern to all stakeholders as they seriously undermine economic development and poverty reduction in developing countries. A study done for the International Air Cargo Association and Air Cargo Forum by John Kasarda and others in 2006 showed that the air cargo industry transports almost 30 percent of all international trade, with an annual value of US$2.7 trillion.

The study also showed that Korean Air, Lufthansa, Singapore Airlines, Cathay Pacific and China Airlines were the largest combination passenger-cargo carriers in terms of capacity. American Airlines and United Airlines were found to be providing substantial cargo service even without use of dedicated freighters, while airlines such as Lufthansa, Air France and KLM had broad geographic coverage, servicing more than 50 countries, and British Airways offered cargo service to over 100 countries.

It is, therefore, very alarming to see that almost all the major players in the air cargo market were part of a cartel, and one shudders at the impact in terms of overcharges that consumers across the globe suffered due to the cartel. The air cargo transport industry also specializes in high value to weight products (such as minerals), perishable goods, emergency deliveries and products requiring high security.

Most of these products find their way into the value chain of most finished products; hence “cartelizing” their transport has serious multiplier effects on the prices of the final products. Developing countries are not spared from the impact of the cartel since there is significant air cargo trade in these regions, part of which is handled by members of the cartel. The proportion of exports shipped by air from less developed regions such as Africa and some parts of Asia exceeds 10 percent.

Thus, competition authorities in developing countries also need to join in and prosecute such international cartels once they are discovered. Hamstrung by limited resources and perhaps their own weak laws, competition authorities in developing countries should innovate and use various means to address anticompetitive practices.

This could include initiating and enlarging informal cooperation between authorities in the countries targeted by the cartel.

The author is the secretary general of the NGO CUTS International – Consumer Unity and Trust Society – and chairman of INCSOC.

This article can also be viewed at: http://www.shanghaidaily.com/

Condemning air cargo cartels on World Competition Day

Federal Antimonopoly Service, Russia, December 06, 2010
The Financial Express, Bangladesh, December 06, 2010
FCEPIC, Esan University, Lima, Peru, December 05, 2010
SCPEC, The Republic of Armenia, December 05, 2010 (In Armenian)

Condemning cartels

The News, Pakistan, December 05, 2010

Why we must bust those air cargo cartels

The Financial Express, India, December 01, 2010

By Pradeep S Mehta

On December 5, 1980, UN adopted the international standard for competition laws under what is called the UN Set on Competition Policy. This Set has guided a large number of developing countries to draft and adopt new competition laws. From about 30 countries in 1995, today over 120 countries have adopted a new law or improved their existing competition law, and few more are in the queue.

Recently, the Set was reviewed at UNCTAD’s 6th review conference in the midst of enthusiastic delegates from over 100 developed and developing countries. This was also the 30th anniversary of the Set. To mark this anniversary, a proposal to observe December 5 as the World Competition Day was mooted by the International Network of Civil Society on Competition (INCSOC), an international coalition spread across 66 countries. A large number of delegates at the conference agreed to celebrate the World Competition Day in their own countries. It was also agreed that the Day be used to raise awareness and rally common people around the issue of air cargo cartels, which have been causing serious harm to consumers and the economy.

While cartels are most pernicious of all anticompetitive practices and are very difficult to detect and investigate because of their inherently secretive nature, the task gets more difficult in the aviation industry because it operates across borders. However, once one airline was caught, it had a domino effect around the world.

A bit late, but the EU did act on it by slapping one of its biggest fines in history on eleven airlines totalling 799.4 million euros ($1.1bn) for running a global cargo cartel, which manifested itself through coordinated action on surcharges for fuel and security between 1999 and 2006. Those penalised included Air France-KLM, British Airways, Cargolux, SAS, Singapore Airlines, Air Canada, Qantas, LAN Chile, Martinair and Japan Airlines. Lufthansa was pardoned because they spilled the beans.

The prosecution by the EU was not the first for most of the airlines, as earlier the US Department of Justice had also found that some of the world’s biggest airlines had conspired between 2000 and 2006 to fix cargo prices. In 2009, three cargo airlines in the US agreed to pay fines totalling $214 million for the same crime. In this case, 15 airlines were prosecuted and a total fine of $1.6 billion was imposed. In addition, three senior air cargo industry executives agreed to serve jail terms. This concerted practice to fix cargo rates started in 2001 and continued till February 2006. Before this, in 2008, four airlines, including Air France-KLM and Cathay Pacific, had to pay fines in the US totalling $504 million for their roles in a criminal conspiracy to fix surcharges on air cargo shipments.

The Japanese Fair Trade Commission, in 2009, was also reported to have notified more than ten companies that they would be fined about ¥10 billion for operating a cartel of international air cargo fees. This year, the South Korean Fair Trade Commission imposed a total fine of 119,544 million won (nearly $100 million) on 19 airlines for their conspiracy to levy fuel surcharges and continued to raise surcharge rates for air cargo to-and-from Korea between 1999 and 2007. South African and New Zealand authorities are also investigating similar cartels that affected their markets.

Cartels in the air cargo industry should be of concern to all stakeholders as they have a serious negative impact on efforts towards economic development and poverty reduction in developing countries. A study done for the International Air Cargo Association and Air Cargo Forum by John Kasarda and others, in 2006, showed that the air cargo industry is responsible for transporting about 29.9% of all international trade, with an annual value of $2.7 trillion. The study also showed that Korean Air, Lufthansa, Singapore Airlines, Cathay Pacific and China Airlines were the largest combination passenger-cargo carriers in terms of capacity. American Airlines and United Airlines were found to be providing substantial cargo service even without use of dedicated freighters, while airlines such as Lufthansa, Air France and KLM had broad geographic coverage, servicing more than 50 countries, and British Airways offered cargo service to over 100 countries.

It is therefore very alarming to see that almost all the major players in the air cargo market were part of a cartel, and one shudders at the impact in terms of overcharges that consumers across the globe suffered due to the cartel.

The air cargo transport also specialises in high value to weight products (like minerals), perishable goods, emergency deliveries and products requiring high security. Mostly, airlines are used by developing countries to transport either finished goods for resale or raw materials for value addition to produce finished goods. Most of these products find their way into the value chain of most finished products; hence, cartelising their transportation has serious multiplier effects on the prices of the final products.

Developing countries are not spared the impact of the cartel as there is significant amount of air cargo trade going on in these regions, a proportion of which is handled by members of the cartel. The proportion of exports shipped by air from less developed regions such as Africa and some parts of Asia exceeds 10%.

What is therefore apparent from this is that competition authorities in developing countries also need to be in a position to join in and prosecute such international cartels once they are discovered. Being hamstrung by resources and perhaps their own weak laws, competition authorities in developing countries should innovate and use various means at their disposal in handling international anticompetitive practices. This could include initiating and enlarging informal cooperation between authorities in the countries targeted by the cartel. The first World Competition Day on December 5 should be the D-Day for launching a global crusade.

The author is secretary general of CUTS International and chairman of INCSOC

This article can also be viewed at:
http://www.financialexpress.com/
http://www.thefinancialexpress-bd.com/
http://www.jang.com.pk/
http://en.fas.gov.ru/
http://competition.am/
http://cepic.esan.edu.pe/

FAS Russia supports the initiative to internationally establish the Global Competition Day
Federal Antimonopoly Service, Russia, December 06, 2010

On 5th December 2010, the international community for the first time celebrated the Global Competition Day. This day in 1980 the United Nations General Assembly adopted the United Nations Set on competition policy to establish the global framework for regulating violations of competition. Recently, at the 6th UN Conference marking the anniversary of adopting the UN Set, the International Network of Civil Society on Competition (INCSOC) proposed to observe this day for the first time in 2010.

Supporting this initiative at the national level will help establish the Global Competition Day internationally under the auspices of the United Nations. FAS Russia gladly responded to the initiative in order to increase public awareness on the issues of competition policy and enforcement.

This year the Global Competition Day focused on “air cargo cartels”, which many industrially developed countries have recently penalized by imposing multi-billion fines upon the main global air cargo carriers. Unfortunately developing countries have not initiated any single case (except the South African Republic) against the cartel members, although businesses and ordinary consumers in developing countries have incurred considerable damages from the cartel’s operations.

Specially to mark the Global Competition Day, Pradeep Mehta, the INCSOC Chairman and the Secretary General of CUTS International, a non-government organization which actively interacts with the world competition community, wrote an article about the global air cargo cartel.

In its turn, FAS Russia finds it necessary to inform the public about the situation with developing competition in air transportation markets for domestic Russian routes as well as the findings of the analysis of the market for air transportation between the CIS member-states, completed within the framework of the Interstate Council for the Antimonopoly Policy (ICAP).

ICAP has drafted proposals for developing competition on the market in question, which are approved by the Heads of Government of the CIS and currently are being implemented.

This news can also be viewed at: http://en.fas.gov.ru/

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© International Network of Civil Society Organisations on Competition