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Competition

 

Fordham Corporate Law Institute

New York

22-23 October 1998

 

Antitrust and Trade Policy – Round Table

Proposed answers to Professor Jenny’s questions

 

By Jonathan Faull

I am grateful to Professor Jenny for his searching and pertinent questions. They are the right ones, and have to be answered if the international community is to make real progress in finding competition policy responses to the challenges of the global economy.

One should not be surprised by Professor Jenny’s acute insight into these issues. His career as a distinguished academic and senior competition official in France and his international roles as a member of the Group of Experts set up by European Commissioner Karel Van Miert to report on international aspects of competition policy and as Chair of the Competition Law and Policy Committee of the OECD and of the Working Group on Trade and Competition of the World Trade Organisation make him uniquely qualified to organise and lead discussion of these issues.

1. Is there a need for new tools or regulations to promote competition in today’s newly globalised markets?

There is no body of international competition law under which agreements or mergers can be approved or forbidden worldwide. The scope for conflicts of jurisdiction, decision and remedy grow as the world economy globalises. The result is uncertainty and expense for companies and the prospect of chaos as the taste for extraterritorial adventure spreads.

Individual countries should develop their own competition laws based on agreement on core principles.

Collectively the international community should create a framework in which countries’ competition authorities can cooperate and coordinate their activities. The tools (e.g. comity, positive comity) can be developed from those already contained in bilateral agreements (e.g. EC-US), OECD Recommendations.

 

2. Underlying this question are a number of sub-questions  such as:

3. Is there evidence that cross-border anti-competitive practices (or concentrations) are preventing the trading community from reaping the gains from trade liberalisation to a significant extent?

Yes, the experience of the European Community over the last 40 years shows clearly that anti-competitive activities by commercial enterprises can distort trade and undermine the benefits of dismantling tariff and non-tariff Governmental barriers.

 

 

These anti-competitive activities can be:

  • horizontal restrictive practices (between competitors sharing markets, sources of supply, etc.)
  • vertical restrictive practices (relating to foreclosure caused by supply arrangements, distribution, licensing, etc.)
  • abuses of dominant position
  • mergers creating or strengthening dominant positions.

More widely, trade friction is caused by private activities with which the GATT/WTO provisions are not currently designed to deal. Kodak/Fuji is the most recent and striking example, but there are many others that are dealt with bilaterally less publicly. Countries with an active competition policy often handle cases involving practices with cross-border trade effects.

Friction is also caused by attempts to stretch competition law extraterritorially (exploring, challenging and many would say violating the frontiers of international law) by extending rules designed to deal with problems arising in the domestic territory, affecting domestic consumers, to issues arising elsewhere and allegedly affecting exports or foreign investment.

4. Which practices cause the most severe problems from the standpoint of trade and from the standpoint of competition?

It is impossible, and would be wrong, to seek to rank problems in this way. Mergers, abuses of dominant positions, horizontal market sharing cartels and vertical restraints foreclosing market access may all cause severe problems for competition and for trade between Member States.

In a global economy in which domestic markets are open to international competition, are contested or at least contestable by imports, what affects competition is often likely to have an impact on trade. It is therefore not surprising in the European Union context that it has long been settled law that an anti-competitive arrangement affecting most or all of the market in a Member State ipso facto affects trade between Member States.

5. To what extent (and under which conditions) can the traditional tools of domestic competition policy and law be applied (and are applied) to fight such practices by countries which have such policy and laws?

Enforcement of competition law to keep the process of competition open and healthy helps to make markets contestable. A market free of anti-competitive activities of the sort outlined in the answer to 3 above is one that can take its place in the world trading system. However, the focus of competition law on domestic markets and consumers and the territorial limits of fact-finding and remedies make it increasingly difficult for competition authorities to work alone in the global economy. Cooperative instruments are needed to create networks of competition authorities in a way, which, while respecting international law on jurisdiction, combines the ability to investigate and remedy competition problems and helps to avoid conflict.

6. a. To what extent (and under which conditions) can new tools such as cooperation agreements, exchange of information between competition authorities, positive and negative comity principles be applied to fight such practices ?

Cooperation agreements, exchange of information between competition authorities and positive and negative comity principles are very important in the enforcement of competition law.

There is close cooperation between national competition authorities and the Commission in the European Union itself and between the Commission and other authorities (the EFTA Surveillance Authority, the US DoJ and FTC, the Canadian Bureau of Competition, the competition authorities of the candidate countries of Central and Eastern Europe and many others). Cooperation agreements providing for discussion and meetings are useful in themselves since they create a dynamic of common interest and a network of personal contacts. Agreements to exchange information are limited in most cases by rules prohibiting sharing of confidential data. The US authorities have statutory powers to conclude reciprocal agreements to exchange confidential information but in Europe there is considerable reluctance to negotiate such an agreement at present. The Commission shares non-confidential data with other authorities. Only where specifically authorised to do so by the undertakings concerned does it exchange confidential data too: this occurs in merger cases. The Commission complies scrupulously with the rule of negative or traditional comity. The European Community has concluded a special positive comity agreement with the USA, believing it to be an essential instrument in a world of economic interdependence and a robust alternative to extraterritorial extravagance.

b. How effective can these means actually be and what are their limits?

They can be very effective. Their limits are the political will of individual parties in a bilateral relationship, groups of countries in a regional integration context or the world community at the World Trade Organisation to conclude the necessary agreements and implement them properly.

 

 

 

7. Is convergence (or harmonisation) of national competition laws and policies a prerequisite to fight trans-border anti-competitive practices through the traditional means above-mentioned? Is convergence (or soft harmonisation) a desirable goal?

Full convergence or harmonisation is not necessary, but agreement on common principles and objectives certainly is. The EU-US relationship shows that different laws and occasionally different policy emphasis do not prevent cooperation. Within the European Union, where a process of soft or voluntary harmonisation is under way, the business community welcomes similarity of rules throughout what is after all a single market. Decentralisation and burden sharing between Community and national authorities and the accession of new Member States are also facilitated by harmonisation.

 

8. How much consensus is there about what practices are anti-competitive? If there is no consensus on what is anti-competitive, particularly on vertical anti-competitive practices, how useful can cooperation agreements, exchange of information, positive and negative comity principles be to eliminate practices which restrict trade?

A considerable degree of consensus about some basic issues of competition policy is necessary for international cooperation to succeed. Understanding of legitimate differences is also needed, e.g. the EC’s stance on vertical restraints based on market integration imperatives, the particular requirements of developing countries. Comity requires that account be taken of another country’s interests and policies. Of course, the more similar those interests and policies are to one’s own, the harder and less acceptable it will be to act against them. Positive comity on the other hand needs actual agreement about law and policy, because it is only if the country on whose territory the anti-competitive activities occur shares the concerns expressed to it by the country whose interests are affected by those activities that the former will be able to act to the satisfaction of the latter. For example, there would be no point in our asking the US authorities to deal with an anti-competitive activity in the US which would be illegal in Europe but is perfectly lawful in the USA.

Discussions so far in the World Trade Organisation’s Working Group on trade and competition in Geneva show a heartening degree of interest among nearly all nations of the world in the development of competition policies and a large number of countries which have already enacted competition laws and seek to attain similar goals in implementing them. The interest of developing countries in competition policy is particularly welcome and is reflected in important work being pursued in parallel in UNCTAD.

9. a. Is the promotion of competition law and policy in countries which do not have one worthwhile or is it counterproductive  because such laws and policies can be misused (or used strategically) ?

Promotion of competition law is both worthwhile and necessary. No doubt laws can be and are misused or used to underpin a national industrial policy which is inimical to international trade between Member States and competition. That is why each country’s process should be open, transparent and fair, with provision for judicial review. It is also why discussion and dialogue are so important bilaterally and multilaterally in order to foster understanding of competition policy.

b. Is it not true that if (developing) countries want to adopt a competition law that they will misuse they will do so even if there is no attempt to promote the adoption of domestic competition laws in a multilateral context ?

It should not be assumed that developing countries are more prone to misuse their law than any other category of country. Promotion of competition law provides for opportunities to discuss frankly the merits of competition policy among all the different types of country in the world. Adoption of laws is certainly not the end of the process: it is rather part of the beginning, as the EU’s experience internally and more recently with the candidate countries in Central and Eastern Europe shows.

10. a. To what extent could (or should) the existing GATT and GATT related obligations be used to fight cross-border anti-competitive practices ?

All GATT/WTO rules should be applied to the full, but the current rules were not designed for, and do not reach, many anti-competitive practices. See Kodak/Fuji and other disputes about trade barriers allegedly caused by private arrangements.

b. To what extent are these principles inconsistent with (or insufficient to establish) a sound competition law and policy?

The issue is not whether those rules are inconsistent with competition law and policy; it is rather that the international community has not yet developed competition law and policy. There are arguments about the economic soundness of certain GATT/WTO rules or certain national measures taken pursuant thereto, and some of those arguments are sometimes made in terms similar to those advanced in support of competition policy, but consideration of consistency requires two sets of rules and one of them is simply not there yet. This is a question for a future Fordham conference about the results of the World Trade Organisation Millennium Round!

11. a. Is not the Telecom agreement proof that in the context of the WTO, there is a possibility to impose obligations related to competition policy on signatories?

Yes. However, our experience suggests that competition policy should be coherent and consistent across all sectors of the economy.

I do not doubt the possibility of reaching agreement within the World Trade Organisation on competition policy obligations: the question is whether there is sufficient political will today (or soon) to commence negotiations.

 

 

 

b. Why should such obligations be limited to the Telecom sector?

There is no reason why they should be so limited. Of course, the telecommunications sector has enormous international ramifications, but so do many others (air and maritime transport, information technology, the entertainment industries, to name but a few.......)

12. Should the WTO members have an obligation to adopt a domestic competition law (even if they remain free to decide what kind of law they want to have) in order to increase transparency and non discrimination in the treatment of domestic and foreign firms ?

Transparency and non-discrimination would not be enough if each country chooses the "kind of law" it wants to have. Domestic laws should conform to internationally agreed principles.

13. What lessons can be learned from the Boeing-Mc Donnell Douglas case and the Kodak-Fuji case from the standpoint of the relative merits of competition law and trade agreements to solve cross-border competition problems.

From Boeing, the benefits of cooperation and the limits of what is likely to be possible internationally. The European Union and the US discussed the case in detail and understood each other’s positions very well. Conflict was ultimately avoided. However, if the European Union prohibits a merger which the US decides not to challenge, no World Trade Organisation dispute settlement system likely to see the light of day for many years could decide over their heads whether or not the merger could go ahead.

Since Kodak/Fuji, the limits of current World Trade Organisation rules and system should be apparent to everyone. In today’s economy, decisions made by companies are often as important as what Governments are doing in influencing the flow of trade, if not more so. More work is needed urgently to respond to the process of economic globalisation which we see every day in international agreements, alliances, joint ventures, mergers, cartels and abuses of dominant position. Just as the Member States of the EU realised long ago that many competition problems are simply too big to be dealt with in the framework of an individual country’s laws and policies, so it is today even for the EU or, for that matter, the USA, Japan or any other large economy one wishes to mention.

Of course, it is still the case that the conditions in which competition takes place are still greatly influenced by Governments. However, as tariff and non-tariff barriers come down and Governments privatise and withdraw from many economic activities, it is increasingly what companies do that matters. Recent experience with US attempts to deal with alleged problems of access to the Japanese film market shows that what Kodak and Fuji do or do not do is more relevant to the fate of that part of world trade than what the US and Japanese Governments do.

 

The World Trade Organisation, successor to the GATT, is where the world meets to deal with trade and related matters. More than a talking shop, it is a world body where decisions are taken, based on the rule of law, to ensure that trading rules accepted after negotiations are complied with. Following a suggestion made by the European Union, the World Trade Organisation now has a working group considering the relationship between trade and competition.

While it true that many countries today have competition laws on their statute books, it cannot be said that these laws are applied coherently and consistently everywhere. So the EU’s World Trade Organisation initiative seeks to persuade the rest of the world that we should contemplate agreement along the following lines. The agenda is modest and there are already grounds for confidence that it is attainable. We need:

  • A set of agreed core principles of competition law
  • A commitment to create accessible institutions to apply competition law, based on the rule of law
  • A mechanism for international cooperation between competition authorities
  • A system to settle disputes about a country’s compliance with World Trade Organisation standards (not appeals in particular cases).

Finally, I will take the liberty of adding a question of my own:

14. What is at stake here?

I have in the past been a little embarrassed about certain debates between Europeans here at Fordham, believing that such matters should be discussed "at home" (at least initially). This embarrassment is a tribute to Barry Hawk and the Fordham Corporate Law Institute, since so many vital discussions about European competition law have taken place here over the years.

It is, however, without compunction or hesitation that I bring the debate about the World Trade Organisation and competition here to the United States.

The world is changing. US antitrust law used to be the only show in town. I hope that what Europeans have done, written and said over the last 40 years has done enough to persuade our American friends that the antitrust world is at least bipolar. It may not have been until the Boeing/Mc Donnell Douglas merger case last year that some people in this country realised just how true this is. The EU-US relationship in the competition field has grown quickly into an excellent and successful model of bilateral relations between like-minded authorities.

But the world is still changing. Followers of the Fordham programme these last few years will have seen the emergence of many other nations taking an active part in the world antitrust debate. Washington and Brussels are not alone. We should not regret this, we should welcome it. There is great interest in competition policy in all the continents of the world. The news from Geneva’s multilateral world of the WTO and UNCTAD and from myriad bilateral and regional discussions is that there is enormous interest in competition policy, from all parts of the world, including those countries categorised as post-communist, emergent or developing. Competition policy is, I am tempted to say, an idea whose time has come.

It is time to look up from our desks and contemplate the world beyond our frontiers. We have often discussed here controversies about jurisdiction and the constraints of international law made in and for other times and circumstances. We must admit that we have not solved the problem of adapting laws made for domestic markets to the realities of modern world trade in goods and services; still less have we developed a system of antitrust laws fit for the challenges of the coming century. In addition to the globalisation of the economy and the particular challenges facing the European Union (economic and monetary union and a further, unprecedented enlargement), recent developments in the world economy pose a different sort of challenge.

The antitrust community has a role to play in responding to the recent economic crises in many parts of the world. If there is no crisis of capitalism in the Marxist sense, there seems to be a crisis of economic systems built on a certain notion of the free market but without the discipline, decentralisation and balance between private endeavour and public service that competition policy as we understand it in Europe seeks to promote. The very words used by analysts when describing features of the crisis economies illustrate the point: oligopoly, oligarchy, cronyism....

I am not making extravagant moral claims for competition policy, but I do suggest that, if properly implemented, it undermines some of the less savoury features of the economies whose bubbles are bursting. Of course, competition policy is no guarantee against recession, stock market crashes, corruption, fraud or organised crime. However, in a competitive market, the commercial decisions most likely to prove successful are those taken on the basis of economic analysis and judgment, not in pursuit of patronage, preference or preferment. We should be advocating a role for competition policy in reconstructing the economies in crisis. Then we can start to build a network of competition among authorities all over the word, united around common international standards, concentrating on the defence of competition in domestic markets and working together to bring competition to world trade as well.

 

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