NO HEADLINE (March 21, 1994)

A recent preliminary agreement among the world’s leading aluminum-producing nations could mark a watershed in the management of commodity markets.

The purpose of the agreement, reached in Brussels, was to win support for a series of production cuts aimed at addressing the world’s surplus of aluminum. (Significantly, former Soviet republics were among the participants.)

Understandably, those government parties involved in the negotiations stressed that producers who are subject to anti-trust legislation — notably the U.S. and Europe — would consequently be announcing cuts in an entirely individual and uncoordinated way.

Nevertheless, any cut announced in the next six months will likely be viewed as the direct outcome of the recent round of talks and probably, therefore, part of a cartel. What remains to be seen is whether the anti-cartel lobby will demonstrate its usual zeal in hounding producers who take extreme measures to defend themselves.

“Cartel” is a dirty word. This is understandable, considering that it has come to denote exploitation of defenceless consumers by a few powerful producers or suppliers of services.

However, a study of recent cartel-like activities suggests that this historic definition needs to be reviewed, as the motives have been defensive rather than aggressive.

The post-Second World War perception — that a cartel is a cartel only if the producers themselves create it — should be reconsidered. If exactly the same actions to restrict supply or support prices are undertaken in the framework of an intergovernmental agreement, then the ambitions of the cartel-busters are trumped.

It should be emphasized that the most recent instances of cartel-like activity are designed to protect producers who are close to economic ruin under the established economic perimeters . . .

So why would the latest decisions in Brussels prove a watershed? The answer will lie in the actions of the trust-busters. At some time, taking a broad view of many commodities and products, they have to realize that every instance of inter-producer collusion is not necessarily evidence of a cartel designed to exploit consumers. In the case of aluminum, the producers are looking to defend themselves from extinction in the face of implacable market forces.

— From a recent issue of United Kingdom-based “Metal Bulletin.”