The Prohibition of Abusing a Dominant Position as a General Principle of International Law: Russia’s Biggest Honeypot in Ukraine

[Dr. Moritz von Rochow is a postdoctoral researcher at the Walther-Schücking-Institute for Public International Law at Kiel University and accredited lawyer, focusing on international environmental and development law as well as on the impacts of a digitalised global society.]

What if Russia would succeed to conquer Ukraine or at least large parts of its territory including major ports like Odessa? In this hypothetical scenario, which hopefully will never happen, Russia might acquire a market dominant position with regard to the world’s food supply, especially in Africa and the Middle East. Russia and Ukraine combined account for 30% of the world’s wheat exports. Countries like Egypt and Tunisia even acquire 80% of their wheat from these two countries. Similar numbers are true for Lebanon and drought-struck Morocco, not to mention Yemen, which the World Food Program supplies with grain from Ukraine and Russia. The fact that Ukrainian ports are currently inaccessible and that insurers are reluctant to insure passages through the Black Sea due to sea mines will lead to food insecurities in the short run. If Russia was to succeed, the global impact would be even worse in the long run. Being among the world’s major producers of fertilizer, Russia together with its “vassal state” Belarus could prevent North Africa and the Middle East from growing their own crops, slowly dragging them into dependency. Before the war these country’s fertilizer exports were dependent on the allowance to use European or Ukrainian port facilities, especially Klaipeda and Odessa. Just before the war, Lithuania and Ukraine have withdrawn this permission. Russia and Belarus account for 33% of the world’s potassium output (around 17 mio tons p.a.), only surpassed by Canada. Before the war ammonia was pumped through a pipeline, linking Russian Tolyatti and the port of Odessa. Regarding Ammonia output, Russia ranks second behind China, which recently halted fertilizer exports. Notably nitrogen fertilizers, such as Ammonia, cannot be produced without gas, on which Russia holds a strong position.

Much has already been published on Russia breaching International Ius ad Bellum and in Bello. This article will look at the legal consequences of Russia hypothetically acquiring a dominant position over the world’s food and fertilizer supply. Based on the International Law Commission’s most recent work on General Principles as Source of International Law, this article argues that the prohibition of abusing a dominant position qualifies as General Principle.

General Principles of International Law

In his First Report on General Principles of Law, the ILC’s special Rapporteur Marcelo Vázquez-Bermúdez concluded that there are two types of General Principles in the sense of Article 38 (1) (c) ICJ-Statute. They can either be derived from national legal systems or formed within the international legal system. The prohibition of abusing a dominant position is within the scope of the first category, but there is also evidence of this principle in the international legal system.

In his Second Report on General Principles of Law, Marcelo Vázquez-Bermúdez explains how to identify principles of the first category. The special rapporteur proposes a two-tier-method. As a first step, it needs to be determined whether there is such a principle common to the legal systems of the world at all. Second, it is necessary to assess whether this particular principle can be applied to the international legal system.

Prohibition of Abusing a Dominant Position is Common to the Legal Systems of the World

The prohibition of abusing a dominant position is common to the legal systems of the world. This post by no means is intended to insinuate that there might be some kind of binding global anti-trust law, applying to private entities. 1948’s Havana Charter proposed in its chapter V such globalised competition rules, as did the 2001 WTO Doha Declaration. With regard to abusive behaviour of private companies, anti-trust law remains fragmented. But still each state may on its own domestically prohibit the abuse of dominant positions. Within the European Union this rule is stipulated in Art. 101 TFEU. While there is an unanimous global understanding that an abusive market dominance should be prohibited, there are different approaches concerning how to assess such dominance: China and Korea assess market power by rebuttably presuming that a certain market share implies a substantial power. Hongkong, Australia and New Zealand as well as Russia set thresholds, too. The EU instead, follows a functional approach, assessing the degree of independence of the market player in question in relation to its competitors, customers and consumers. In the US, it is even sufficient that a restraint of trade or monopoly results from a certain conduct or business arrangement.

So even although there are different methods to establish a dominant position and different approaches to curtail such dominance, there is mutual understanding that market power – even if it is not illegal in itself – may not be abused. For example, depriving a competitor of necessary raw materials, is regarded as abusive behaviour in legal practice.

Transposition to the International Legal System

The ILC’s second criteria of its two-tier-test is whether this general principle can be transposed to the international legal system. This in turn shall only then be assumed if this general principle is compatible with fundamental principles of international law and if the conditions allow for adequately applying this principle in the international legal system.

Obviously, a prohibition of abusing market power in inter-state relations would contradict a state’s general discretion to behave as it wishes, having an impact on certain aspects of sovereignty. But then again, that applies to every norm of International Law. Thus, the scope of national sovereignty is reduced to a state’s domaine reservé. By accepting the binding force of general principles in Art. 38 I c ICJ-Statue, the states have deliberately waived those aspects of sovereignty, which contradict these principles.

It is noteworthy that there is evidence in international treaty-law that the prohibition of abusing market-power also applies to inter-state-relations: Any coastal state enjoys sovereignty over its maritime straits. At the same time it is forbidden under UNCLOS from hampering transit passage in any way and is by law required to give publicity to any danger to navigation. In its Wimbledon Case the PCIJ ruled that there was a general rule embodied in Art. 380 of the Treaty of Versailles granting full access to vessels of commerce and war to the Kiel Canal. As Germany is the only country that has control over this waterway it holds a dominant position. The same goes for the 1901 Hay-Pauncefote treaty on the Panama-Canal: “The canal shall be free and open to the vessels of commerce and of war of all nations observing these Rules on terms of entire equality, so that there shall be no discrimination against any such nation, or its citizens or subjects, in respect of the conditions or charges of traffic, or otherwise.”

Practical Consequences

As simple as it seems to see the prohibition of abusive behaviour as a General Principle of international law, the devil is in the details: As long as Russia does not acquire a full monopoly or at least a market share of more than 50% over certain goods and infrastructures, like fertilizer, wheat and crucial ports, it will be hard to establish an internationally agreed threshold for a dominant position. Also, the relevant market, its territorial scope and possible substitutes for the goods in question would be a matter of debate. In fact, it should be assessed if wheat can be substituted by other goods, e.g., rice. In that case, Russia would need to establish a dominant position on the food-market in general.

Nevertheless, one should keep in mind that anti-trust law regulates collusive behaviour, too. Shortly before Russia started its war against Ukraine, China began to import and hoard grains as well as to halt fertilizer exports. Right now, China stocks 159.000.000 tons of grain, which adds up to 51% of the world’s wheat-, 69% of maize- and 60% of rice-reserves. A victorious Russia could in a collusive action with China increase its influence in Africa and the Middle East, engage in land-grabbing by bringing down the local agriculture or induce a gigantic refugee influx to Europe, distorting the EU’s unity. We should keep in mind that 2011’s Arab Spring uprisings as well as 2015’s refugee crisis have been predominantly caused by food-insecurity.

However, the practical implications of accepting the prohibition of abusing a dominant position as a General Principle of international law reach far beyond the Russia’s war against Ukraine. One might think to also discuss the USA’s dominance on the US-Dollar as global anchor currency. 80% of international trade and 90% of foreign exchange transactions are settled in US dollars via clearing systems in the USA, using Clearing House Interbank Payments System (CHIPS) and the Fedwire system of the US Federal Reserve Banks. In the past, it was already common practice in the USA to block US dollar transactions and to use this mechanism for putting pressure on governments for foreign policy purposes. On a final note, there are always two ways of looking at things: what seems like abusive behaviour from one side, might seem like legitimate sanctions from the other side.