Cartelization: A glamorized word for collusion

We are known all over the globe as friendly and hospitable. Though such trait is admirable, its downside, however, is inexplicably outrageous. Our yielding nature has been a thorn as we give in so easily even to the most unethical proposition. Such submissive attitude is more often abused by people who are too selfish and too wanting to rule, dictate and dominate. Sadly, these are characteristics that happen to be requisites for a cartel to exist.

A cartel simply means an agreement among firms or companies, mostly manufacturers and distributors. Basically, these are firms that agree to coordinate production for the primary purpose of controlling prices. Cartels normally happen when there are too few players in the market for a particular product. Members in a cartel may agree on concerns like production output, allocations, price fixing, sharing of profits, bid rigging or a combination of these. Obviously, therefore, by mere definition, cartel is simply the glamorized jargon for collusion. The principal motive for such collusion is to increase individual member's profits by reducing or eliminating competition. Competition laws in highly developed countries forbid cartels. Identifying and breaking up cartels has been an integral part of their competition laws. However, despite their sophistications, they still encountered difficulties in proving the existence of a cartel, as firms are usually too careful in not documenting their agreements to collude on paper.

Some cartels are popular and their selfishness is more pronounced. One of these cartels is the Organization of Oil Exporting Countries (OPEC). Selfishly, they’ve been feasting on the world’s money for many decades by regulating production and dictating prices. Their only downside so far is the economic turmoil that is obtaining today principally due to the absence of demand. The country’s major oil distributors are undeniably forming a cartel too. Their greed was so evident in the rapidity by which they increase prices and the sluggishness in reducing them.

Undeniably, apart from the more popular oil cartel, collusions exist even in the smallest of business deals. The biddings, for instance, of office supplies in most government units are obviously rigged. Winners are rotated among themselves. Bidding participants, however, make profits as the winning bidder compensates them for throwing or giving in.

The same is true and even more rampant in bigger projects. As we all know, the World Bank just released debilitating news about the debarment of seven firms and an individual for “engaging in collusive practices under a major Bank-financed roads project in the Philippines”. The World Bank’s investigating team “uncovered evidence of a major cartel involving local and international firms bidding on contracts under phase one of the Philippines National Roads Improvement and Management Program, known as NRIMP 1”. They “closely analyzed the procurement process the firms participated in and conducted numerous interviews before closing the investigations and initiating sanctions proceedings against the entities”.

Had this anomaly not been uncovered by the World Bank, majority of the Filipinos should not have heard this project. To refresh our countrymen, the LGU Assistance Portal posted that the “National Roads Improvement and Management Program will ensure the preservation of the national roads system through three phases: design, initiation, and operation. This project covers Phase 1 of the Program, and will establish a well-functioning preventive maintenance program, re-design the road management program, and promote overall policy and institutional reforms.” It further emphasized that there are two main components of the program. First is the civil works which covers infrastructure development and maintenance.   Second component is the institutional strengthening, including the planning of financial and human resources for business improvement, a road maintenance fund, and independent organization for policy and institutional reforms. For all these undertakings, the site further noted that the government’s loan payable to the World Bank is a staggering US$150 million. NRIMP 1, supposedly covers road projects in Luzon (Benguet, Mr. Province, Laguna, Quezon, La Union, Bulacan, Tarlac, Albay, Cavite, Camarines Norte), Visayas (Negros Occidental, Negros Oriental, Cebu) and Mindanao (Zamboanga del Sur, Bukidnon, Surigao Del Norte, Surigao del Sur, Davao Oriental, Davao del Sur, Davao del Norte).

Despite all the lobbying of politicians and the unnecessary use of the august hall of congress in sanitizing these fallen bidders, the World Bank never reconsidered its blacklisting and permanent debarment of the erring contractors. Consequently, these firms will no longer be allowed to participate in the bidding on future World Bank-financed contracts. 

Due to the haste by which congress cleansed the colluding bidders, it might be useless to suggest as to how we should avert these malpractices again. However, if they should care to learn from other countries’ sophistication, they should take a look at the European Union’s competition law which explicitly forbids cartels and related practices in its Article 81 of the Treaty of Rome. Article 81 reads: “1. The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which: (a) directly or indirectly fix purchase or selling prices or any other trading conditions; (b) limit or control production, markets, technical development, or investment; (c) share markets or sources of supply; (d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; (e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.

Just like the EU, we should craft laws that could prevent collusions. Learning from the EU and our sad experiences, we must institute statutes that regulate on the amount of fines for each type of cartel and a leniency policy by which if a firm in a cartel is the first to denounce the collusion agreement, it should be freed of any responsibility.

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