A syndicate is generally a group of people or firms undertaking a joint business venture. When groups in the same or similar lines of business act in concert, they are also regarded as acting as a syndicate. Such syndicate is valid by law and facilitates business. Bangladesh government issue import license for import of certain products. These importers form syndicate open a combine single L/C to get better price and save cost of import.
The cartel itself was an understanding among the firms, a kind of unwritten and informal agreement. This cartel was preventing outsiders from entering the market and fixing prices for consumers. A higher price than the normal prices fixed by the cartel impacted the consumers and the poor ones very adversely.
Sometimes cartels also form for limiting or controlling supply of goods and services to the markets to create artificial scarcity, which will evident itself in increased prices. Cartel bodies regulate the supply and enterprises in concert, may create and maintain shortage of goods and services in the market, to shore up prices and consequently profits.
Section 2 (e) of The Competition Act 2012 defined “cartel” if any person or association of persons who, by explicit or implicit agreement, limit or control or attempt to limit or control over the production, distribution, sale, price or transaction of goods or services in order to establish monopoly in trade. The syndicate or cartel is an anticompetitive agreement between firms engaged trade of same and identical goods and services. Cartel member are from association of producers, sellers, distributors, traders or service providers who by agreement amongst themselves, limit, control or attempt to control the production, distribution, sale or price of, or trade in goods or provision of services. Moreover, members may agree on prices, total industry output, market share, allocation of customers, allocation of territories, bid-rigging, establishment of common sales agencies and division of profits or combination of these activities.
According to Bangladesh law, the agreement includes the understanding or consensus, formal or informal, written or unwritten, explicit or implicit, whatever it may be, and whether it may be enforceable by law or not, for purchase, sale, production, supply, distribution, control, or storage as the case may be, of goods or services. It also includes the followings, namely tie-in-arrangement, exclusive supply agreement, exclusive distribution agreement, refusal to transaction, and resale price maintenance.
According to competition laws in the world mentioned of “horizontal” and “vertical” agreements between firms. The former, namely the horizontal agreements are those among competitors and the latter, namely the vertical agreements are those relating to an actual or potential relationship of purchasing or selling to each other (often complain about syndicate between manufacturers, whole sellers and retailers). Vertical agreements are insidious, if they are between firms in a position of dominance.
It may be between competitors supplying substitute products or services. Wheet and potato are substitutes of rice. Under such an agreement, the agreed competitors may raise and fix their prices. The agreement shall be an instrument of exchange of information to make collusion easier.
Most competition laws around the world including Bangladesh declare that the following aspects are predominant among the causes of horizontal agreements. Agreements that fix prices are among the most serious forms of anti-competitive conduct. These agreements include any arrangements that directly or indirectly determine the purchase or sale price of goods or services. They also extend to agreements that limit or control technological development in production, supply, marketing or investment, thereby restricting innovation and fair competition. Such arrangements are commonly referred to as cartels and are designed to eliminate competition between participating businesses, often resulting in higher prices and reduced choices for consumers.
Closely related to price-fixing are agreements that involve bid rigging, also known as collusive bidding. These occur where tenders or bids are submitted as a result of joint activity or prior agreement between parties who should otherwise be competing independently. In such cases, the appearance of competition is created, while the outcome is pre-determined, undermining the integrity of procurement processes and leading to inefficient allocation of resources.
Another significant category of anti-competitive agreements involves the sharing of markets. These agreements include arrangements between competitors to divide markets or sources of production or the provision of services. Market sharing may take place through the allocation of geographical areas, specific types of goods or services, particular groups or numbers of customers, or through other similar methods. By dividing markets in this manner, businesses avoid competing with one another, which restricts consumer choice, distorts market conditions and prevents the operation of fair and effective competition.
However, only those agreements those are foreclosing (preventing, restraining, disallowing other enterprises to enter the market or develop business), exclusionary (abolishing from the market enterprises other than the parties of the agreements) and bid-rigging (conniving to enable one or all of the parties of the agreement to win bids for supply of goods or provision of services) in nature are forbidden per se by the law.
The other types of anticompetitive agreements (such as price-fixing, market-sharing, output-restricting) are only prohibited when the combined market share of all the parties to the agreements is significant around 40% above according to different laws in other countries (Bangladesh law and policy yet to fix the threshold).
Furthermore, except for those agreements that are prohibited per se, those agreements that are prohibited only if the combined market share of the parties to the agreements is 30 per cent or more on the relevant market are also subject to a rule of reason (a principle of reason that guides rational thinking in general and scientific inquiry in particular) treatment. They are might be exempted from the scrutiny of the law if they are found to be efficiency-enhancing, help to reduce costs and benefit consumers.
There are many categories of cartels depending on the structure of organization. There are two types of cartel private cartel (among the business enterprises) and public cartel (state sponsored). Organisation of Petroleum Exporting Countries (OPEC) is an example of international cartels, which have publicly entailed agreements between different national governments. The private cartels create monopoly, oligopoly, monopsony spot market etc.
The most discussed cartels are Hard-Core cartels (illegal). These are customer cartels, specialisation cartels, territorial cartels, quota cartels, and price cartels. Others are import/export cartels, rationalisation cartels, recession cartels, and co-operative marketing.
Shipping Conferences is part of the international sea transportation system is the agreement on freight rates, passenger fares over different shipping routes. Allocation of customers, loyalty contracts and open contracts are some of the policies amongst the shippers that have been practiced for years. In some jurisdictions, these are statutorily exempted from being scrutinised under the Competition Law. But the position is increasingly changing. Bangladesh law does not exempt shipping sector in the law.
The author is a legal economist & CEO of Bangla Chemical.
