(by Andreas Stephan) The Anglo-Australian mining giant has refused to include its large new mine in Saskatchewan, in Canada’s long standing potash export cartel. In 2010 the Canadian government blocked BHP Billiton’s attempted takeover of a Canadian Potash corporation of the export cartel, on the grounds that it would not provide a “net benefit” to Canada. The firm’s present decision has resulted in a , forcing it to operate within the cartel for a limited period. This development raises important questions about export cartels and the behaviour of government.

It is extremely rare for the competition policy debate to include accolades for the behaviour of businesses. A number of multinational firms are clearly taking their obligations under competition law seriously, having adopted stringent internal compliance training and auditing programmes. External engagement by their senior compliance officers and counsel is also helping to strengthen competition culture, and encourage others in the business community to keep their ship in order. However, it takes a fair amount of guts for a firm to refuse to take part in State sanctioned price fixing, which has the potential to increase their profits.

Export cartels are exempted from competition rules in Canada, as they are in most jurisdictions. Since 1972, exports of Potash from Canada have been controlled by Canpotex (Canadian Potash Exporters). Potash are mined salts which are used in the production of fertilisers. Canada is one of the very few major exporters in the world. It has been alleged that the cartel in the real price of potash. Moreover, the steep prices maintained by the cartel have with agrarian economies. Many have had no choice but to buy less fertiliser, with the inevitable consequence of poorer crop yields and higher food prices.

There is some disagreement about how damaging export cartels might be [See contrasting views in Florian Becker, The Case of Export Cartel Exemptions: Between Competition and Protectionism 3 J. Competition L. & Econ. 97 (2003) and D. Daniel Sokol, What Do We Really Know About Export Cartels and What is the Appropriate Solution?, 4 J. Competition L. & Econ. 967 (2008)]. In many cases, they merely help domestic firms access new international markets, with competitive pressures exerted by the existence of other export cartels. Where the product is mainly produced in one or two countries, however, the arrangement is clearly damaging. There is no political will to stop it because the harm is caused to foreign consumers and economies, not the domestic government’s own voters. Suppose we were to accept that export cartels are somehow less harmful. There is still something very troubling about governments sanctioning conduct in relation to foreign consumers, which would be treated as criminal within Canada, the USA, UK and an increasing number of other jurisdictions. Export cartels erode the moral message preached by competition authorities and ultimately undermine the legitimacy of heightened sanctions against cartels.

The decision by BHP Billiton is a brave one given the importance of maintaining a good relationship with the Canadian government. As Danny Sokol on his blog, the firm should be congratulated for refusing to participate in the export cartel. It would be sad if BHP Billiton ended up buckling to pressure from the Canadian government to reconsider its decision. We are also proud to note that BHP Billiton’s Principal Competition Counsel, Andrew McBride, is a graduate of the Law School here at the University of East Anglia.