Competition Law (International)

From Max-EuP 2012

by Dietmar Baetge

1. Introduction

The purpose of competition law (antitrust law) is to protect competition against restrictions by corporations. Whereas classical, liberal, economic thinking, following Adam Smith’s famous allegory of the ‘invisible hand’, believed in the self-regulatory powers of the markets, it has nowadays become common knowledge that an entirely unregulated market is constantly exposed to the threat of self-destruction. Hence, governmental protection is required and competition law fulfils a vital function within a market-based economy. Traditionally, national competition laws have only been concerned with protecting competition within the territorial borders of the respective country. Foreign activities only arouse their interest when having a significant effect on the domestic market. In an increasingly globalized world with transactions that cross countries and continents, however, competition law’s national focus inevitably leads to problems which are typified by either too much or too little regulation. Over-regulation may occur in cases of transactions that fall under more than one of the over 100 national competition regimes currently in place. Major transnational mergers, for instance, often need to be notified to dozens of national competition authorities, which all consider the review under the terms of their own national competition rules. Simultaneously, the uncoordinated coexistence of national antitrust regimes bears the risk of under-regulation since it may encourage private actors to take advantage of varying protection levels. It has become apparent that smaller, economically less potent states, lacking sufficient resources to effectively fight anticompetitive practices, suffer more from international cartel agreements (prohibition of restrictive agreements and exemptions) than rich industrialized nations. Awareness of these problems has grown amongst political decision makers, who, as a consequence, have intensified efforts to promulgate international competition rules.

2. International competition rules

In the past, there had already been a number of attempts to create a truly international competition regime. The most famous example was the Havana Charter of 1948, which included an entire chapter of rules on anticompetitive behaviour by corporations. Shaped by liberal free-trade policies, the Charter was thwarted by opposition in the US Congress and never came into effect. Whereas the Havana Charter had been drafted as a binding legal instrument, the UN Restrictive Business Code of 1980 consists of non-binding soft law. The code, prepared under the auspices of UNCTAD, was part of a broader project by developing countries to establish a new international economic order. Its primary focus is on restraints of competition that may impair world trade. The influence of the code on competition practice has, however, remained very limited.

Over the past 15 years interest has shifted towards the World Trade Organization (WTO). Various WTO instruments already include competition rules, but contrary to the failed Havana Charter these provisions do not yet form a consistent body of laws. The TRIPS agreement, for example, regulates compulsory licences and cooperation among governments where there are transnational restraints of competition. In addition, supervisory duties for monopolies and state trading enterprises have been established by GATS (General Agreement on Trade in Services). The sector specific regulations of the telecommunications industry have been the most important innovation. A WTO panel established at the request of the United States found that the Mexican government had violated these provisions by favouring the largest domestic provider of telecommunication services over foreign competitors (Mexico – Telecoms, Report of the Panel from 2 April 2004, Doc WT/DS204/R). Another important case concerned the unhindered access to the Japanese market for photographic film. The United States had asserted an infringement of the GATT (General Agreement on Tariffs and Trade) rules, which the panel rejected for lack of evidence. The panel did not, however, rule out the possibility that, in cases where government authorities were involved, certain anticompetitive behaviour may actually breach GATT (Japan – Film, Report of the Panel from 31 March 1998, Doc WT/DS44/R).

3. Cooperation agreements and regional treaties; network of competition authorities

Due to existing gaps in the international protection of competition, governments and national competition authorities are looking for alternatives. Cooperation agreements are often concluded to solve the problems associated with excessive and insufficient regulation. There are approximately 50 of these mostly bilateral agreements currently in force, the agreement between the United States and the EU being the most important one. The aim of all these agreements is to contribute to a closer collaboration among competition authorities and thus to lead to a more effective suppression of cross-border restraints of competition. Inspired by the non-binding OECD (Organisation for Economic and Co-operation Development) Recommendations on Restrictive Business Practices Affecting International Trade, the agreements provide for mutual notification requirements, consultations, exchange of information as well as administrative and technical assistance. They also include the principle of ‘comity’. In its negative form the comity principle asks every competition authority to consider the interests of its counterpart and, if necessary, to refrain from taking action. In its positive form, comity allows a national competition authority to request its counterpart to take appropriate measures in case an anticompetitive practice with adverse consequences emanates from its territory. Not all cooperation agreements provide for positive comity. A major disadvantage of cooperation agreements is that they leave national antitrust laws’ focus on the protection of domestic markets unchanged. Moreover, considering the vast number of national competition law regimes, creating a worldwide cooperation network through bilateral agreements alone does not seem a valid option.

Beside the WTO and cooperation agreements, regional competition regimes form a third category of international antitrust rules. Reflecting the general trend towards the regionalization of international trade, their number has significantly increased over the last decades. The European Union is the prime example of a regional competition regime within a common market. Other examples of regional organizations with antitrust rules include MERCOSUR, NAFTA, and the Andean Community. Since private restraints of competition also have the potential to impede trade and investment, free trade agreements increasingly provide for antitrust regulation as well.

A new forum for competition policy without legal personality which was founded in 2001 on the initiative of the United States is the International Competition Network (ICN). ICN membership comprises solely antitrust agencies; currently, approximately 100 agencies representing all continents are members. The structure of the network is informal by design. ICN has no permanent seat, staff or budget. For this reason it is also called a ‘virtual’ network. Member authorities did not want ICN to have any ‘rule-making function’, that is, to enact binding laws. Nevertheless, it is its purpose to promote convergence among national competition regimes, inter alia, by promulgating so-called ‘best practice’ recommendations. Considering their non-binding character, these recommendations can be understood as instruments of a ‘soft’ competition law harmonization. So far, a number of ‘recommended practices’ have been passed, including a recommendation on merger control that sets very ambitious standards for national merger control procedures. Additionally, the network helps the antitrust authorities in both developing countries and transitioning economies to strengthen competition in their respective jurisdictions (competition advocacy).

4. Future reform and perspectives

The status quo of international competition law is unsatisfactory. Combating international restraints of competition is still predominantly a matter for national governments. Based on the widely accepted effects doctrine, countries are entitled to apply their antitrust laws to anticompetitive acts committed abroad if they have an effect on the domestic market. But in reality, not all countries are able to take advantage of the effects principle by enforcing their laws extraterritorially. Gaps in the protection of competition are therefore inevitable as are jurisdictional overlaps resulting from the parallel application of national rules. The idea advanced by some commentators that one of the leading antitrust jurisdictions (United States, EU) could serve as a ‘world antitrust policeman’ has recently been ruled out by the US Supreme Court in the Empagran case as being irreconcilable with comity principles (124 S Ct 2359 [2004]). Hence further development of the multilateral competition system appears to be the best way forward. However, as failed reform efforts in the past show, from a political point of view a multilateral solution will also be the most difficult one to achieve.

Proposals on how to shape the future international antitrust regime are abundant. The most ambitious project is the Draft International Antitrust Code (DIAC). The DIAC, advanced by a group of legal academics, aims at codifying international competition law. Although it was formally drafted as an international treaty, the DIAC closely resembles a competition act in structure and content. Many elements of the code derive directly from intellectual property law. Most noteworthy are the provisions detailing the so-called international procedural initiative. The initiative calls for the foundation of an international antitrust authority entrusted with the task of supervising the application of the code’s competition rules by national authorities. The international antitrust authority would have the right to file lawsuits with national courts and specialized international antitrust panels. The right to apply the code to individual situations would, however, be reserved to national competition agencies and courts. Other proposals call for the establishment of a constitutional competition order. Under these proposals only certain basic principles would be integrated into the existing world trade system by means of either a plurilateral or a multilateral treaty. The proposals are informed by the idea that private anticompetitive practices can be as damaging for international trade as trade barriers erected by governments.

Efforts to reform the current system have also reached the WTO. At the request of the European Union, a WTO ministerial conference held in Singapore in the mid-1990s decided to add competition policy to a list of topics to be discussed within the global trade regime (so-called ‘Singapore issues’). At the same time, a now defunct working group on the interaction between trade and competition policy was established. The Doha ministerial conference of 2001 went even further in announcing the possibility of future negotiations within the WTO framework. In addition, at Doha, Member States for the first time acknowledged the obligation to provide assistance to developing countries faced with the task of implementing effective competition policies at home. Notwithstanding the conclusions reached at Doha, negotiations have not yet been formally opened. On the contrary, after the subsequent failure of the conference in Cancún, governments decided to exclude competition policy from the topics of the current Doha world trade round. The outright rejection of the Singapore issues by developing countries was as much to blame as the hesitant attitude of the United States which was worried about their sovereignty in antitrust matters. Nascent protectionist tendencies make the conclusion of any multilateral agreement seem currently rather uncertain. In the long run, however, a global competition order based on the notion of global welfare seems to be the only viable solution.

Literature

Wolfgang Fikentscher and Ulrich Immenga (eds), Draft International Antitrust Code (1995); Eleanor Fox, ‘Toward World Antitrust and Market Access’ (1997) 91 American Journal of International Law 1; Jürgen Basedow, Weltkartellrecht (1998); International Competition Advisory Committee to the Attorney General and Assistant Attorney General for Antitrust (ICPAC), Final Report (2000); Kevin C Kennedy, Competition Law and the World Trade Organization (2001); Jürgen Basedow (ed), Limits and Control of Competition with a View to International Harmonization (2002); Maher M Dabbah, The Internationalisation of Antitrust Policy (2003); Josef Drexl (ed), The Future of Transnational Antitrust—From Comparative to Common Competition Law (2003); Dietmar Baetge, Globalisierung des Wettbewerbsrechts (2009); Ulrich Immenga, ‘Internationales Wettbewerbs- und Kartellrecht’ in Münchener Kommentar zum Bürgerlichen Gesetzbuch, vol 11 (5th edn, 2010).

Retrieved from Competition Law (International) – Max-EuP 2012 on 27 January 2022.

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