fair-trade laws

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Fair-trade laws protect businesses and governments from companies or countries attempting to dump goods into a marketplace at low prices or with unfair subsidies. Initially, fair trade was primarily a domestic issue; after World War II, fair-trade laws developed into a key tenet of international trade relations.

The U.S. and other governments provide financial assistance, or subsidies, to companies to aid in the production, manufacture, or exportation of goods. Subsidies run the gamut from cash payments to companies to loans granted at below market rates to stimulate sales in other countries. When governments determine that an unfair subsidy has been granted, they can offset the subsidy through higher import duties, thus keeping competition open between foreign and domestic companies.

Domestic Fair Trade

In the United States, fair-trade laws were first enacted in California in 1931 to protect small retailers and druggists. Soon, most states had enacted similar legislation. These laws were frequently contested; in 1936, the U.S. Supreme Court agreed to hear Old Dearborn Distributing Company v. Seagram Distillers Corporation. The Court ultimately ruled that state fair-trade laws were legitimate means of protecting manufacturers. In 1937, the Miller-Tydings Amendment to the Sherman Antitrust Act of 1890 exempted fair-trade laws from antitrust legislation.

In the 1950s, fair trade was hotly contested among various corporations and in the court system, particularly at the state level. By 1956, eight state supreme courts had ruled against fair-trade statutes, making the laws meaningless in some areas. Manufacturers were no longer able to dictate the retail price at which their goods could be sold, which was at the heart of fair-trade laws. Supporters of fair trade redoubled their efforts at the state and national level in the 1950s and 1960s, but by mid-1975, fair trade had been eliminated in 25 states.

Fair-Trade in the Global Economy

Global fair-trade laws are enacted to ensure that U.S. businesses are protected in the world marketplace against unfair foreign pricing and government subsidies, which distort the flow of goods between nations. In the United States, the Import Administration (part of the International Trade Administration) within the Department of Commerce enforces laws and agreements. When a U.S. industry suspects that it is being hurt by unfair competition, either through products being dumped at a reduced cost or by an unfair subsidy, it can request that measures be taken against the offender. The process begins with a petition filed with the Import Administration and the U.S. International Trade Commission.

The General Agreement on Tariffs and Trade (GATT) governed international trade from 1948 to 1995, when it was subsumed by the World Trade Organization (WTO). The idea that global trade broke down in the 1930s as a result of the Great Depression and rise of totalitarian regimes was the impetus behind GATT. The administration of President Franklin D. Roosevelt pushed for the expansion of foreign trade and used a series of agreements to set up reciprocal trade with other nations. Initially, twenty-three nations participated in GATT. Roosevelt's successor, President Harry S. Truman, also supported global trade and forced the United States into signing GATT.

After World War II, government officials wanted to set up an international trade organization to regulate and expand world trade. After failing to win congressional ratification of such an organization in 1948, subsequent administrations adhered to GATT through executive agreement. GATT negotiations between the late 1940s and the mid-1980s lowered tariffs, reduced trade barriers, eliminated trade discrimination, and called for settling disputes through mediation. During the Uruguay Round (1986–1994), the idea for the WTO came to life. In 1996, the WTO became the first international trade organization to be ratified by the U.S. Congress. The WTO oversees international trade and has the legal authority to settle disputes between nations. At the turn of the twenty-first century, 124 nations belonged to the WTO.

Large corporations have been the strongest advocates of free trade, arguing that global competitiveness will raise wages and benefits for all workers as markets expand. In June 1991, the administration of President George H. W. Bush began talks with Canada and Mexico to achieve a trilateral trade agreement. In late 1992, the agreement was signed by Bush and later lobbied for by the administration of President Bill Clinton. The North American Free Trade Agreement (NAFTA) took effect in 1994. NAFTA eliminated tariffs for the three nations, reduced barriers to trade and investment, and exempted businesses from many state, local, and national regulations.

Many of the largest corporations in Mexico, Canada, and the United States lobbied aggressively for NAFTA. They reasoned that creating the world's largest free trade entity would bring prosperity for all three nations. Critics, however, chided NAFTA for its lack of protection for workers, small business, and the environment.

In the early twenty-first century President George W. Bush unveiled an ambitious trade agenda, including agreements with Chile and Singapore, the thirty-five democracies in the Western Hemisphere, and a global free-trade accord with the more than 140-member nations of the WTO. Bush set off a wave of protest, however, when he pushed for unilateral authority to negotiate trade agreements without amendments (known as "fast track").

Nations will continue to argue for and against free trade and protectionist policies. Since World War II, the global economy has become increasingly important for nations of all sizes. Powerful countries, like the United States, have taken steps to formalize global trade, but these issues are burdened with controversy. For example, China entered the WTO in December 2001, after fifteen years of negotiations, despite the country's poor record on human rights. The desire to gain access to the world's largest emerging economy by corporate and government officials overrode longstanding and legitimate environ-mental and human rights concerns.

Bibliography

Eckes, Alfred E., Jr. Opening America's Market: U.S. Foreign Trade Policy since 1776. Chapel Hill: University of North Carolina, 1995.

Kunz, Diane B. Butter and Guns: America's Cold War Economic Diplomacy. New York: Free Press, 1997.

Miller, Henri, ed. Free Trade Versus Protectionism. New York: Wilson, 1996.

—Bob Batchelor

State statutes enacted in the first half of the twentieth century permitting manufacturers to set minimum, maximum, or actual selling prices for their products, and thus to prevent retailers from selling products at very low prices.

Manufacturers have an interest in establishing and maintaining good will toward their products. This means assuring consumers that the manufacturers' goods are quality products. Good will is promoted by advertising and other sales efforts. Manufacturers in the early 1900s believed that commanding minimum retail prices was necessary to preserve good will, and that uncontrolled price-cutting by retailers would be detrimental to good will. Specifically, manufacturers feared that consumers would become skeptical if a particular retailer began to sell for a lower price a product that had had a relatively consistent price over the years: the lower price would undercut any claim by the manufacturer that the higher price was necessary to maintain the product's quality, and purchasers at the higher price would feel cheated.

The Great Depression following the stock market crash of 1929 started a movement toward state involvement in product price controls. State lawmakers believed that allowing manufacturers to dictate resale prices to retailers would help stabilize price levels and markets.

In 1931, California became the first state to pass fair-trade laws. These laws made it legal for a manufacturer to enter an agreement whereby the purchasing retailer, the signor, could resell a product only at a prescribed minimum price. In 1933, California amended these laws to make such an agreement binding on nonsignors. The amendments made minimum-price agreements enforceable against any retailer who had knowledge of another retailer's agreement with the manufacturer.

The setting of minimum resale prices, which state fair-trade laws legalized, was precisely the sort of vertical price-fixing that the federal Sherman Anti-Trust Act of 1890 (15 U.S.C.A. § 1) had been intended to prohibit. While the courts wrestled with the conflicting state and federal laws, Congress passed first the Miller-Tydings Act (50 Stat. 693 [Aug. 17, 1935]), which amended the Sherman Act to exempt state fair-trade laws, and then the McGuire Act (66 Stat. 632 [1952]), which allowed states to pass fair-trade laws making minimum price agreements enforceable against nonsignors as well.

After the enactment of Miller-Tydings and McGuire, state fair-trade laws and federal antitrust laws were no longer in conflict, and as many as forty-five states enacted fair-trade laws. As time passed, though, state courts whittled away at the fair-trade laws, often finding them to be in violation of the state's constitution. The perceived importance of allowing manufacturers to set minimum prices deteriorated as it became evident that the laws were harming the free market. In 1975, Congress, with support of the Ford administration, passed the Consumer Goods Pricing Act (Pub. L. No. 94-145), which repealed the Miller-Tydings and McGuire Acts, putting state fair-trade laws back within the prohibitions of the Sherman Act.

Today, the computer and electronics industries face retail price-cutting issues. Volume discount retailers sell name brand computers and electronics at prices far below those initially established in the market. With fair-trade laws off the books, retailers and the market determine at what prices goods will be sold.

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Resale price maintenance is the practice whereby a manufacturer and its distributors agree that the latter will sell the former's product at certain prices (resale price maintenance), at or above a price floor (minimum resale price maintenance) or at or below a price ceiling (maximum resale price maintenance). These rules prevent resellers from competing too fiercely on price and thus drive down profits. Some argue that the manufacturer may do this because it wishes to keep resellers profitable, and thus keeping the manufacturer profitable. Others contend that minimum resale price maintenance, for instance, overcomes a failure in the market for distributional services by ensuring that distributors who invest in promoting the manufacturer's product are able to recoup the additional costs of such promotion in the price they charge consumers. Some manufacturers also defend resale price maintenance by saying it ensures fair returns, both for manufacturer and reseller and that governments do not have the right to interfere with freedom to make contracts without very good reason.

Contents 1 United Kingdom law 2 United States law 3 See also 4 External links 5 Bibliography

United Kingdom law

Competition law
Basic concepts
History of competition law Monopoly Coercive monopoly Natural monopoly Barriers to entry Market power SSNIP test Relevant market Merger control
Anti-competitive practices
Monopolization Collusion Formation of cartels Price fixing Bid rigging Product bundling and tying Refusal to deal Group boycott Exclusive dealing Dividing territories Conscious parallelism Predatory pricing Misuse of patents and copyrights
Laws and doctrines
United States Sherman Antitrust Act Clayton Antitrust Act Robinson-Patman Act FTC Act Hart-Scott-Rodino Act Merger guidelines Essential facilities doctrine Noerr-Pennington doctrine Parker immunity doctrine Rule of reason Europe UK competition law Irish competition law Australia Trade Practices Act 1974
Enforcement authorities and organizations
International Competition Network List of competition regulators
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In Dunlop Pneumatic Tyre Co Ltd v. Selfridge & Co Ltd [1915] AC 847, an English contract law case, the House of Lords held that Dunlop (a tyre manufacturer) could not enforce an agreement between a tyre dealer and a tyre buyer to pay a £5 penalty if the tyres were sold below its floor price. The decision was based on privity of contract.

In 1955 in the UK, the Monopolies and Mergers Commission's report Collective Discrimination - A Report on Exclusive Dealing, Aggregated Rebates and Other Discriminatory Trade Practices recommended that resale price maintenance when collectively enforced by manufacturers should be made illegal, but individual manufacturers should be allowed to continue the practice. The report was the basis for the Restrictive Trade Practices Act 1956, this specifically prohibited collective enforcement of resale price maintenance in the UK. Restrictive agreements had to be registered at the Restrictive Practices Court, and were considered on individual merit. In 1964 the Resale Prices Act was passed, which now considered all resale price agreements to be against public interest unless proven otherwise. However, practices such as the Net Book Agreement continued to prevent discounting in some market segments.

In relation to competition, Article 81 and Article 82 of the EC Treaty are paramount over all member states' national laws relating to competition. The ECJ and the Commission have both held that Resale Price Maintenance is generally prohibited. UK law must apply this interpretation when dealing with inter member-state agreements between undertakings.

United States law

On June 28, 2007, the Supreme Court overruled Dr. Miles, discussed below, holding that such vertical price restraints as Minimum Advertised Pricing are not per se unlawful but, rather, must be judged under the "rule of reason." Leegin Creative Leather Products, Inc. v. PSKS, Inc., Slip Op. No. 06–480 (Decided June 28, 2007).[1] This marked a dramatic shift on how attorneys and enforcement agencies address approach the legality of contractual minimum prices, and essentially allowed the reestablishment of resale price maintenance in the United States in most (but not all) commercial situations.

In Dr. Miles Medical Co. v. John D. Park and Sons, 220 U.S. 373 (1911), the United States Supreme Court affirmed a lower court's holding that a massive minimum resale price maintenance scheme was unreasonable and thus offended Section 1 of the Sherman Antitrust Act. The decision rested on the assertion that minimum resale price maintenance is indistinguishable in economic effect from naked horizontal price fixing by a cartel. Subsequent decisions characterized Dr Miles as holding that minimum resale price maintenance is unlawful per se - that is, without regard to its impact on the marketplace or consumers.

During the Great Depression in the 1930s, a large number of U.S. states began passing fair trade laws. These were intended to protect independent retailers from the price-cutting competition of large chain stores by authorizing resale price maintenance. Since these laws allowed vertical price fixing, they directly conflicted with the Sherman Antitrust Act, and Congress had to carve out a special exception for them with the Miller-Tydings Act of 1937. This special exception was expanded in 1952 by the McGuire Act (which overruled a 1951 Supreme Court decision that gave a narrower reading of the Miller-Tydings Act).

The fair trade laws became widely unpopular after World War II and so the Miller-Tydings Act and the McGuire Act were repealed by the Consumer Goods Pricing Act of 1975.

In 1968 the Supreme Court extended the "per se" rule against minimum resale price maintenance to maximum resale price maintenance, in Albrecht v. Herald Co., 390 U.S. 145 (1968). The Court opined that such contracts always limited the freedom of dealers to price as they wished. The Court also opined that the practice "may" channel distribution through a few large, efficient dealers, prevent dealers from offering essential services, and that the "maximum" price could instead become a minimum price.

In 1997, the Supreme Court overruled Albrecht, in State Oil v. Khan, 522 U.S. 3 (1997).

Several decades after Dr Miles, scholars began to question the assertion that minimum resale price maintenance, a vertical restraint, was the economic equivalent of a naked horizontal cartel. In 1960, Lester G. Telser, an economist at the University of Chicago, argued that manufacturers could employ minimum resale price maintenance as a tool to ensure that dealers engaged in the desired promotion of a manufacturer's product through local advertising, product demonstrations, and the like. Without such contractual restraints, Telser said, no frills distributors might "free ride" on the promotional efforts of full service distributors, thereby undermining the incentives of full service dealers to expend resources on promotion. Six years later, Robert Bork reiterated and expanded upon Telser's argument, contending that resale price maintenance was simply one form of contractual integration, analogous to complete vertical integration, that could overcome a failure in the market for distributional services. Bork also argued that non-price vertical restraints, such as exclusive territories, could achieve the same results.

Some scholars^{[by whom?]} subsequently questioned Telser's theory, arguing that, by itself, minimum retail price maintenance cannot ensure that dealers will engage in an optimal level of promotion. These scholars argued that minimum price served as a contract enforcement mechanism, guaranteeing compliant dealers a stream of rents if they adhered to a manufacturer's promotional directives. However, some^{[by whom?]} contended that the promotional efforts resulting from minimum price and other vertical restraints could actually reduce economic welfare by encouraging undue product differentiation and the resulting market power. Others^{[by whom?]} claimed that manufacturers could achieve the same objective by less restrictive alternatives.

In 1978, the U.S. Supreme Court held that non-price vertical restraints, such as vertically imposed exclusive territories, were to be analyzed under a fact-based "rule of reason." In so doing, the Court embraced the logic of Bork and Telser as applied to such restraints, opining that, in a "purely competitive situation," dealers might free ride on each others' promotional efforts.

In 1980, the U.S. Supreme Court held that the repeal of Miller-Tydings implied that the Sherman Act's complete ban of vertical price fixing was again effective, and that even the 21st Amendment could not shield California's liquor resale price maintenance regime from the reach of the Sherman Act. California Liquor Dealers v. Midcal Aluminum, 445 U.S. 97 (1980). Thus, from the 1975 enactment of the Consumer Goods Pricing Act to the 2008 Leegin decision, resale price maintenance was again no longer legal in the United States.

See also

• Competition policy
• Competition regulator
• Price fixing
• Suggested retail price
• In the Japanese resale price maintenance system for music and print publications, saihan seido, the typographic symbol Ⓨ marks the first date for the fixed price and Ⓧ marks the last date.

External links

• Barak Orbach's RPM Project
• Nippop Article | Saihan Seido - Japan's Resale Price Maintenance System
• "Gadgets for Sale … or Not", Sean Cooper, slate.com, Dec. 22, 2006

Bibliography

• Bork, Robert H. (1966), "The Rule of Reason and the Per Se Concept: Price Fixing and Market Division", 75 Yale L. J. 373

• Easterbrook, Frank H. (1984), "Vertical Arrangements Under The Rule of Reason", 53 Antitrust L. J. 135

• Goldberg, Victor (1979), "The Law and Economics of Vertical Restraints: A Relational Perspective", 58 Tex. L. Rev. 91

• Grimes, Warren (1992), "Spiff, Polish and Consumer Demand Quality: Vertical Price Restraints Revisited", 80 California Law Review 815

• Klein, Benjamin and Murphy, Kevin M. (1988), "Vertical Restraints As Contract Enforcement Mechanisms", 31 J. L. & Econ. 265

• Lopatka, John and Blair, Roger (1998), "The Albrecht Rule After Khan: Death Becomes Her", 74 Notre Dame Law Review 123-79

• Marvel, Howard (1994), "The Resale Price Maintenance Controversy: Beyond The Conventional Wisdom", 63 Antitrust L. J. 59

• Meese, Alan (1997), "Price Theory and Vertical Restraints: A Misunderstood Relation", 45 UCLA L. Rev. 143

• Meese, Alan (2004), "Property Rights and Intrabrand Restraints", 89 Cornell L. Rev. 553

• Orbach, Barak (2007), "Antitrust Vertical Myopia: The Allure of High Prices", 50 Arizona L. Rev. 261

• Pitofsky, Robert (1983), "In Defense of Discounters: The No-Frills Case for a Per Se Rule Against Vertical Price Fixing", 71 Geo. L.J. 1487

• Pitofsky, Robert (1984), "Why Dr. Miles Was Right", 8 Regulation 27

• Roszkowski, Mark (1992), "Vertical Maximum Price Fixing: In Defense of Albrecht", 23 Loyola University of Chicago Law Journal, 209

• Roszkowski, Mark (1998), "State Oil Company v. Khan and the Rule of Reason: The End of Intrabrand Competition?" 66 Antitrust Law Journal 613-640

• Telser, Lester G. (1960), "Why Should Manufacturers Want Fair Trade", 3 J. L. & Econ. 86

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