On supplier cartels and input import

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: Steel companies have formed a cartel in India and keep their prices higher than the international level. Their quality is poor as well. In Punjab, we have tried to import steel, but there are several problems in doing so. I would be grateful if you could tell us if their cartel could be broken. How should we cope?

—Wonder Handtools, Jalandhar

The question you have raised is very important, but does not have a straight answer. The future competitive challenge for SMEs would be greatly defined by their ability to fight and correct market distortions. This needs to be seen by industry as well as policy makers in the larger dimension of the new world trading environment. Earlier, in the closed economic environment, imports were restricted thanks to QRs. Small firms competed with small (no entry barriers, but there was reservation) and large ones were kept out (entry barriers with strict licensing).

Today, small companies have to compete with large enterprises, not only Indian, but also foreign. Being small has some advantages— flexibility, ability to customise and quick response time—that help them cope with competition. But if factor markets do not function efficiently, the advantages of large size far outweigh any advantages inherent in a firm’s small size.

Under such conditions, small companies incur a much higher cost for finance, energy and inputs, besides the cost of compliance with the regulatory environment. Policymakers are somewhat sensitive to the issues of finance and energy, but have not been able to appreciate the impact of cost and availability of raw materials.

The primary producers of raw material in this case, steel, are large capital-intensive global enterprises. There have been numerous instances when these producers formed cartels and influenced global prices. Therefore, most developed countries have established strict anti-trust laws or competition policies to reign in cartels and anti-competitive behaviour.

However, national laws have increasingly proved ineffective against international cartels. That is why a multilateral competition policy in WTO was considered.

Incidentally, India has been one of the most vociferous critics of competition policy in WTO! Here, it is widely perceived that during the past two-three years, the steel markets were distorted by cartel formation, which manipulated demand and supply to create temporary scarcity and used anti-dumping duties against cheap imports to make these expensive. Though steel is used by large industries too, they are not affected much, as they are allowed to enter into long-term contracts by steel producers. The issue in question could be addressed as

listed below:

One, by having a strong and functional Competition Commission of India. A competition policy is in place, but the commission is yet to be made functional. Small industry associations will have to pool resources to file cases and be ready to fight long battles there.

Two, by making special efforts to help create large trading houses (through fiscal incentives), which could import into India and sell inputs such as steel, copper, aluminium and raw materials such as plastic to small user-industries.

Three, having realised the importance of curbing the anti-competitive activities of cartels, India has already opted for a competition policy. The activities of these cartels at a global level are much more damaging. These cartels cannot be controlled by one nation and need to be restrained and penalised through a multilateral agreement. The benefits of such an agreement would not only result in improved market access for Indian products, but also help reduce the prices of raw materials where cartels operate. India should have a relook at its stand on having a competition policy in the WTO.

Four, the process of anti-dumping needs to be made more transparent and participatory. The interests of consuming industries have so far been neglected in India. This bias needs to be corrected.

For the past two years, we have been facing shortages of electrode wire rods, used for manufacturing of welding electrodes. Prices of the input have also shot up. We want to import these to cope with our problem. Could you advise us where we could source the material from?

— Naveen Jain, UP Welding Electrode Manufacturing Association, Modinagar

You could source this material from China. The best way would be to send one of your representatives to the Canton Fair (http://www.cantonfair. org.cn), which is organised twice every year. The dates are April 15-20 and October 15-20.

Alternatively, you could also try to post your query at http://www.alibaba.com. Try to source the material directly from the manufacturer. It is advisable to get pre-shipment inspection done by international agencies such as SGS, Bureau Veritas, etc to ensure quality and quantity.