Volume 42 | Number 3 Summer 2007
The Agricultural Exemption in Antitrust Law: A Comparative Look at the Political Economy of Market Regulation
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In Memory of Shlomo Lubin
I. Introduction
Using comparative law as an aid to the legislator can be a very enlightening exercise, in particular when countries with no experience in a particular field try to learn from those with more experience than themselves. However, it can also lead to unfortunate outcomes if the comparison is not done meticulously—viewing the particular foreign law that is being imitated within its full legal context and social, political and economic circumstances. Legal transplantation from a “donor” jurisdiction with a regulatory environment and market structure that is very different from that of the “recipient” jurisdiction is a recipe for rejection, as has been learned the hard way by many well-meaning law reformers. Sometimes the reference to foreign laws is only used as a convenient justification for the adoption of inefficient or unjust laws in order to conceal the real lobbying efforts and narrow interests that are behind them. This seems to be the case with the agricultural exemption in Israel’s competition law.
Indeed, special exemptions of the agricultural sector from the full application of competition rules can be found in many jurisdictions. Most developed countries consider agriculture as a special sector of the economy requiring intensive intervention by means of regulation, such as quota systems, price support mechanisms and protection from imports. These policies are felt strongly in the international trade arena, where agriculture has always been considered—at least by the developed countries—as a “special case” not amenable to the regular liberal trade rules.1 The refusal of these countries to open up their agricultural sectors to more international competition, especially for produce from developing countries, has caused the long impasse in the current Doha Round of multilateral trade negotiations within the World Trade Organization. Along with these policies, the developed countries also grant exclusions or partial exemptions to their farmers from domestic competition law.2 Economic, as well as non-economic rationales (such as the need to preserve rural communities), are claimed to preclude regulation of the agricultural sector by means of market mechanisms, and to mandate government regulation of this sector. Inelastic demand, unpredictable and seasonal supply, and the inability in many cases to store the produce for long time, call for government intervention and special market organization. Thus, it is argued, rules founded on and aimed at free and unobstructed competition cannot be applied to the agricultural sector and hence the need to exempt this sector from antitrust laws. In the United States (U.S.), the special exemption for the agricultural sector was enacted as early as in 1922—the Capper-Volstead Act.3 In the European Community (EC), the exemption is included in the Treaty Establishing the EC, in Article 36 (ex Article 42), ever since its inception in 1957.4 In the United Kingdom (UK), the Restrictive Trade Practices Act of 1956, which was quite influential in the legislation process of Israel’s first competition law in 1959, was also subject to such an exemption.5
Considering these circumstances, it was only natural that Israel’s first competition law—The Restrictive Trade Practices Act, 1959 would also include such an exemption. Indeed, in the course of the deliberations of the proposed act in the Knesset (Israel’s parliament), when the agricultural exemption was criticized by the opposition, it was defended by the ruling party through reference to its existence in other jurisdictions as well.6 “If other economies, much more developed than our own and with longer experience with competition law, have chosen to exempt their agricultural sector from the rules on restrictive agreements – why shouldn’t we do the same?” was in essence the striking argument of the ruling party.
As striking as it may be, the facts are somewhat different. As I will show, none of the agricultural exemptions in these foreign jurisdictions is nearly as wide as that adopted—and what is worse, as that maintained until today—by the Israeli legislature. I will argue that in fact what most probably stood behind the adoption of this wide agricultural exemption were strong economic interests of the Labor Movement, which at the time dominated the agricultural sector. As in the EC, the exemption was part of a general agricultural policy that favored heavy involvement of the government in this sector and protection of certain farmers’ interests, often at the expense of consumers. What is surprising, however, is that even after this policy has changed and regardless of the fact that the agricultural sector has been quite liberalized and opened up to private market forces, the exemption has remained and managed to withstand several attempts to abolish or amend it.
This paper will discuss the agricultural exemptions in the jurisdictions of some of the major developed economies—namely, the U.S., the EC and the UK—against the backdrop of their respective market structures. It will then discuss Israel’s agricultural exemption and its history and compare it to those discussed in the previous sections. It will show how political forces and narrow economic interests shaped the wide scope of the exemption and allowed anti-competitive practices to prevail way into the new era of an open market-based economy. I will then discuss the possible rationales for a special exemption for the agricultural sector and its desirable limits and mechanics. Based on this normative analysis, amendments to the existing exemptions will be proposed.