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Cartels, Subsidiaries, and International Law

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Company X, a US company sets up Company Y, a subsidiary holding company in the Cayman Islands.

Company Y in the Cayman Islands entered into a cartel agreement outside of the US.

The United States government has brought suit against bother company X and Y for violating the US Sherman Antitrust Act.

Company X answered that it was not a party of the cartel agreement and it doesn't affect the US market. Company Y answered that it is not subject to the jurisdiction of the US courts.

1. Are Company's X and Y correct?
2. Explain

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Basically, there are 2 questions here:

1. What is the responsibility of a Parent to a Subsidiary?

2. What is the nature/effect of the cartel and does the Sherman Anti-Trust act apply to Foreign Corporations?

(I'm not sure if you need sources or if you want to learn some more about this, so I added some links and tried to quote some good web material for you)

1. The Supreme Court tested the responsibility of a Parent Organization for their respective subsidiary. The test basically comes down to - Who controls the actions of the subsidiary? Are their actions dictated by the Parent? Are they made to follow certain procedure? Or are they fully independent? (kind of self-explanatory eh?)

So, in this case you could argue either way. Since the information provided seems limited, you could argue that the sub was set-up specifically by the parent to do its business with other countries and is ultimately controlled by the Parent - or that they are independent. Your call.

2. Ok, ...

Solution Summary

Understanding international and domestic law influence on cartels and subsidies. Application of Sherman Anti-Trust Act as part of a 2 fold test. Examples and web resources provided for more information.

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See Also This Related BrainMass Solution

International Law: Subsidies and Cartels

Goliath, Inc., a United States producer of gem quality sapphires, set up a subsidiary holding company in the Cayman Islands (Junior, Ltd.) to control all of Goliath's non-United States subsidiaries.

Junior then entered into a cartel agreement with producers of sapphires in those countries (other than the US) where sapphires are found. The cartel agreement allocated markets and set prices for all sapphires sold outside of the United States.

The United States government has now brought suit against both Goliath and Junior for violating the US Sherman Antitrust Act. Goliath answers that it was not a party to the cartel agreement and that the agreement does not affect the US market for sapphires. Junior answers that it is not subject to the jurisdiction of the US courts. Are Goliath and Junior correct? I tried to look at this from both perspectives, but I need some more thoughts on this case.

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