How to Avoid Creating a Cartel in Your Trade Association

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Table of Contents

• What do Industry Associations Do?
• What is Cartel Conduct?
• Where Do You Start? 
• What Types of Cartel Conduct Can Trade Associations Promote?
• Key Takeaways

Many instances warrant forming an industry or trade association. Recently, a client engaged us who faced complex product safety compliance obligations. For product safety standards, their product is considered both jewellery and a child’s toy. So getting her competitors together to pool their knowledge and resources seemed the logical initiative for our client to pursue. In doing so, she could obtain professional product safety testing and compliance advice from appropriately qualified and experienced consultants. Below, we look at starting industry associations, and how to do so without engaging in prohibited cartel conduct under Australia’s Competition and Consumer Act (CCA).

What do Industry Associations Do?

Industry associations, no matter how small or informal, can serve the interests of both the industry and consumers in the following ways:

• Raising industry standards;
• Developing industry codes of conduct;
• Conducting research;
• Sharing knowledge; and
• Providing education and lobbying for reform.

However, if you are banding with your competitors on a regular basis, some subjects need to remain strictly off limits.

What is Cartel Conduct?

The Competition and Consumer Act 2010 (Cth) (“CCA”) prohibits cartel conduct by competitors including all contracts, arrangements and understandings between competitors that contain cartel provisions. Cartel provisions include provisions relating to:

• Price-fixing;
• Restricting outputs in the production and supply chain;
• Allocating customers, suppliers or territories (also known as market sharing); or
• Bid rigging, also known as collusive tendering.

The CCA provides that contravention attracts civil and/or criminal penalties.

The arrangements and understandings competitors arrive at trade association meetings can appear casual. It is then important to conduct the industry association meeting in a relatively formal manner and follow a predetermined and circulated agenda that doesn’t include reference to cartel provisions.

Where Do You Start? 

The first place you should begin to assure compliance is with the Association’s constitution that includes the rules of joining and being a member. These cannot have entry criteria that are too restrictive as these may be interpreted as raising barriers to entry to the industry, trade or profession and consequently, illegally restricting competition in the relevant market/s.

The rules themselves operate as an agreement between the members, so it is important they do not contain any cartel provisions. If the associate wants to set down an industry code of conduct, it is still important to check that it doesn’t stray into areas such as price fixing. For example, recommending ways to structure or derive prices. 

What Types of Cartel Conduct Can Trade Associations Promote?

You should remain wary that Trade Association meetings can facilitate bid rigging or collusive tendering. This form of cartel conduct combining price-fixing and market sharing takes many forms. But, it’s mostly designed to corrupt and thwart a competitive bidding process and defraud the procurer by ensuring that an agreed tenderer gets the job. In this way, prices are effectively raised.

Key Takeaways

If you are considering starting or running a trade association, you will be responsible for ensuring that you properly educate your members about these matters. As fines for breaches of these provisions can reach $10 million, and include criminal penalties, it pays to have a competition and consumer lawyer give your industry or trade association the once over!

Questions about starting an industry or trade association? Get in touch on 1300 544 755.