Harmonizing International Competition Policy: An Analysis of Costs and Benefits

Index

Executive Summary

1 Antitrust or Competition Policy: Magna Carta of free enterprise
1.1 Evolution of Antitrust Regime: Antitrust 1.0, Antitrust 2.0 & Antitrust 3.0
1.2 The Great Antitrust Paradigm Shift
1.3 Contemporary Antitrust World
1.4 Aims of Competition Policy
1.5 Pillars of Antitrust Mechanism: The Efficiency Factor & The Fairness Factor
1.6 An Important Task: Create perfect blend of efficiency and fairness
1.7 An Overview of Antitrust Regulation of various countries
1.8 In a Nutshell

2 Global Markets need Global Governance
2.1 Puzzle: Whether there is need for unifying international competition policy ?
2.2 Need for Global Competition Laws
2.3 Enforcement Dilemma: Domestic Policies and Global Market
2.4 Need for Unifying Global Competition Policy
2.5 Need for International Dispute Settlement Mechanism
2.6 In a Nutshell

3 Benefits of unifying Antitrust Regulations
3.1 Transaction Cost
3.2 Ready availability of Expertise
3.3 Maximization of Consumer Welfare
3.4 Maximization of Global Welfare
3.5 Efficient Allocation of World Resources
3.6 Harmonization leads to increment in Productivity
3.7 Collective Efficiency vs. Collective Inefficiency
3.8 In a Nutshell

4 Unifying Competition laws: Areas of Harmonization
4.1 Unifying Substantive Regulations
4.2 Unifying Procedural Aspects
4.3 Unifying Level of Enforcement
4.4 In a Nutshell

5 Limitations of Harmonization
5.1 Political Reasons
5.2 Social Areas
5.3 Other Reasons
5.4 In a Nutshell

6 Conflict Areas
6.1 Conceptual Discord
6.2 National Welfare vs. Global Welfare
6.3 Economic Structure of Countries
6.4 Erosion of National Autonomy
6.5 Intergovernmental Disputes
6.6 Spillover Effects
6.7 Extending beyond Nation’s Jurisdiction
6.8 Enforcement Mechanism
6.9 Jurisdiction conflicts and Confusion
6.10 In a Nutshell

7 Other Modalities of Cooperation
7.1 Unilateral Approach
7.2 Bilateral form of Cooperation
7.3 Mutual Legal Assistance Treaty Agreements (MLATs)
7.4 Multilateral form of Cooperation
7.5 In a Nutshell

8 Various Initiatives
8.1 International Trade Organization (ITO)
8.2 General Agreement of Trade Tariff (GATT)
8.3 Organization for Economic Co-operation and Development (OECD)
8.4 At EU level
8.5 The UN Set
8.6 World Trade Organization (WTO)
8.7 International Competition Network (ICN)
8.8 In a Nutshell

9 Concluding Remarks
9.1 The Mystery of Antitrust 4.0
9.2 Their Remarks
9.3 My Observations

Appendix I to VIII

References

Executive Summary

Since the failure of the Havana Charter in 1947 till the success of the combined efforts of leading antitrust authorities against mighty Microsoft, the antitrust regime has witnessed several ups and downs. Auf jeden Fall the journey was not an easy one. Moreover now antitrust regime is standing at international crossroads and is wondering about its future direction.^[1] Today, at this crucial juncture the antitrust world is confronted with several dilemmas simultaneously. Choices are to be made between national welfare or global welfare, national autonomy or global regulations, the efficiency factor or the fairness view, national champions or global champions, collective efficiency or collective inefficiency, WTO or ICN, the US model or the EU model and so on.

It is widely believed among experts that to overcome these dilemmas, the world needs some truly unified international antitrust framework, which would enable the international community to achieve optimal product mix incorporating the best from all options and through such optimal product mix the global community can enjoy to a large extent advantages that competition policy has to offer. In this direction I have examined the feasibility and viability of unifying international competition policy in this work. Additionally, as the title suggests I have listed out advantages and disadvantages of such moves.

In the beginning I have dealt with evolution of competition policy since its origin in a nutshell. My aim is to explain the dynamic character of competition policy. I have also described the gradual change that has occurred in the ideology of competition policy over last 100 years. Primarily, Competition policy addresses economic issues and hence depends on economic structure of a country. After giving a short history of competition policy, I have formally started with the introduction of competition policy. Economic development in today’s world is unevenly distributed and accordingly the aims and objectives of antitrust regime of individual nations also differ. With the help of various case laws and other incidental literature I have made an attempt to illustrate how these differences are influenced by time, places and circumstances. A thorough understanding of these differences is according to me, essential to understand reasons for differences in antitrust area worldwide. Only after diagnosis of the problem area, one can find better remedies. Toward the end of chapter 1, I have elaborated on two basic foundation concept of competition policy, namely the efficiency and the fairness. Thereafter, I list out concrete aims and objectives of some contemporary antitrust regime of some of the major economies.

Chapter 2 begins with analysis of the major question; whether there is need for unifying international competition policy? After describing global scenario in brief, I proceed with discussion on global remedies such as: global governance, global laws, global competition policy and so on. I have also discussed various dilemmas faced by antitrust regime and also a vacuum created by absence of a globally valid competition policy.

Assuming that the world succeeds in getting a unified antitrust regime, in chapter 3 I have listed out the advantages that can be enjoyed under such a scenario, such as reduction in transaction cost, increment in consumer welfare, efficient allocation of resources etc. Advantages of a unified antitrust policy are immense. Hence I admit the list is essentially not an exhaustive one.

Chapter 4 deals with areas of harmonization. Effective unification of international competition policy call for coordinated efforts and requires substantial changes in domestic rules and regulation. In addition to substantial changes in domestic legal provisions and procedural requirements, harmonization also calls for effective domestic enforcement.

Prima facie antitrust regime is part of economic policy. However very often governments around the world use antitrust regulation as an instrument to realize social goals, achieve political targets and other aims. These factors cause distortion in effectiveness of antitrust provisions. As the social and political circumstances around the world substantially differ, national governments are forced to have country specific antitrust remedies. This adds to heterogeneity of antitrust regime worldwide and consequently renders the task of unification of international competition policy almost impossible. In chapter 5 I have dealt with these aspects very briefly.

Plurality of economic, political, social and other circumstances around the world have strong influence on national antitrust policies and also contribute to contradictions and conflicts. “(…) efforts to advance harmonization or “convergence” of national rules regulating competition can reach their full potential only if two sets of preconditions—economic/commercial and political—exist to support such harmonization or convergence.”^[2] In chapter 6 I have dealt with possible conflict areas. At times due to strong conflicts, harmonization seems impossible. Hence extra efforts on the part of authorities are needed to deal effectively with these conflict areas.

At present, feasibility of a unified international competition policy is under doubt. However a small beginning in form of cooperation among antitrust authorities could go a long way in harmonization process. Bilateral agreements between the EU and the US are good examples. In chapter 7 I have dealt with other possible modalities of cooperation between antitrust authorities, namely unilateral approach, bilateral agreements and multilateral forum.

Efforts for harmonization of competition laws began as early as in 1948. Till date there are several binding and non-binding arrangements made in the direction of harmonization. The WTO and the EU for effective coordination in antitrust area have launched recently new initiatives. International Competition Network, a forum for active interaction among antitrust officials, even though non-binding in nature is doing considerably good work. I believe such confidence building initiatives among nations would help in arriving at some amicable solutions, agreeable to all nations. Chapter 8 focuses on various such initiatives taken in the direction of harmonization.

In the concluding chapter, I elaborate further on need of having a unified antitrust regime under a contemporary scenario. Recommendations and views of experts are also presented. At the end I discuss my views about feasibility of having a truly unified antitrust regime in foreseeable future and other possible alternative measures that might help in achieving harmonization in future.

1 Antitrust or Competition Policy: Magna Carta of free enterprise

The Apex Court of United States in a very rare occasion has honored antitrust framework or competition policy with near constitutional status. The Court described Competition Policy as “ Magna Carta of free enterprise” and “ as important to the preservation of economic freedom and our free enterprise system as the Bill of Rights is to the protection of our fundamental personal freedom”.^[3] Although, such comparison appears slightly rhetoric, the importance and effectiveness of antitrust framework in protecting consumers against anticompetitive actions and thereby ensuring social welfare cannot be undermined. Recent successes of antitrust authorities against software juggernaut Microsoft and against other international cartels such as vitamin cartel are some of the shining examples. “Competition is a public good and society cannot expect the victims of anticompetitive conduct to protect themselves.”^[4]

In this section, I briefly deal with evolution of competition policy or antitrust regime as called in the US^[5], since enactment of first antitrust regulation in Canada in 1889. Thereafter, I explain some basic fundamental concepts of competition policy. In the last section of this chapter various aims and objectives of competition policy are dealt with.

1.1 Evolution of Antitrust Regime: Antitrust 1.0, Antitrust 2.0 & Antitrust 3.0

The first antitrust regulation was enacted in Canada in 1889. A year later, celebrated antitrust regulation Sherman Act was enacted in US. In US, antitrust laws are usually described in general terms and hence they provide possibility for several different interpretations. To mention a few, Sherman Act prohibits agreement in restraint of trade (Article 1) and monopolization (Article 2), FTC Act prohibits unfair practices and Clayton Act (Article 7) goes against acquisitions likely to lessen competition substantially or tend to create a monopoly. In the absence of further explanations these statues give more liberty to courts in interpretations. On various occasions courts have taken liberty to interpret the laws according to prevailing political and social circumstances. These decisions are strongly influenced by ideologies and power of their proponents, at the prevailing time. As a consequence it appears that these statues can pursue a plethora of perspectives and goals.

Since enactment of Sherman Act in 1890, there have been paradigm shift in ideology and thinking of antitrust experts. In later part of this chapter I deal with these aspects. History of antitrust regime could be easily divided in three distinctive phases, namely;^[6]

- Antitrust 1.0
- Antitrust 2.0
- Antitrust 3.0

1.1.1 Antitrust 1.0

Antitrust 1.0 era began with the enactment of Sherman Act and this era can also be described as the Classical Era.^[7] Forefathers of the Sherman Act and presiding Judges, who decided early antitrust matters in the US under the provisions of this Act, did not differentiate between classical economic values and political values. For them these values were closely connected.^[8] Hence in those days the Sherman Act was more or less equated with social legislations, introduced only for betterment of society in general. By and large, the efficiency aspects were ignored.

Justice Peckham differentiated between ordinary contracts – ‘a lease or purchase by a farmer, manufacturer, or merchant of an additional farm, manufactory or shop the sale of goodwill of a business with an accompanying agreement not to engage in similar business…[or an] agreement entered into for the purpose of promoting the legitimate business of an individual or corporation’ and agreement in restraint of trade under the Sherman Act.^[9] According to him “ The ‘corporate aggrandizement’ of trusts and combinations is ‘against the public interest’ even if generates cost reductions that lower price, because ‘it is power of the combination to raise [price]’ and the trust may ‘driv[e] out of business the small dealers and worthy men whose lives have been spent [in that line of commerce].’^[10] Originally the Sherman Act was more understood as an instrument to protect economic liberty, security of property and competitive process, free from artificial interference.^[11] Hence, maintaining individual business opportunity, economic efficiency, national prosperity, justice, and social harmony were some of the original aims of competition policy. Needless to mention, that these aims were primarily guided by the fairness principle.

Slowly and gradually experts of antitrust regime realized that the economy was changing. Innovations of new technologies have enabled industry to produce more through automation. Firms are taking advantage of economies of scale and economies of scope.^[12] Induction of railways and other forms of transport facilitated procurement of raw materials from remote areas at a cheaper cost. Geographical reach for finished products also expanded substantially.

Wide geographical reach, technological innovation and efficient use of modes of transport led to emergence of large corporations and rise in market concentration. Many observer felt need for more enforcement of antitrust regulations as market concentration was rising. They realized that the growth of large corporations was inevitable but sought to regulate them simultaneously. President Theodore Roosevelt promoted Trust busting and in 1914 Federal Trade Commission (FTC) was established.^[13] FTC an independent agency was entrusted with the task to regulate unfair trade practices with active cooperation with Department of Justice, a government agency responsible for enforcement of antitrust laws in US at the federal level.^[14] Another group had their reservations concerning antitrust. They thought that antitrust regime was creating unnecessary obstacle in the way of progress by blocking growth of large and efficient producers. Antitrust experts took positive note of such reservations and willingly accommodated them also. Subsequently, in 1911 in Standard Oil decision a compromise was found, which incorporated both perspectives.

The Standard Oil Case (1911)^[15]

In this case the Apex Court upheld the use of Sherman Act to break the monopoly and found that conduct of the Standard Oil has witnessed a “ a purpose to maintain the dominancy over the oil industry, not as a result of normal methods of industrial combination, but by new means of combination which were resorted to in order that greater power might be added had normal methods been followed…” This speaking order actually benefited large-scale enterprises in the long run. This judgment established a new legal parameter: the rule of reason. This decision made clear that Sherman Act prohibited only unreasonable restraints of trade.

Proponents of antitrust were disappointed and this led to the beginning of a new political debate. Eventually, this led to establishment of FTC and a new anti-merger law namely Clayton Act was enacted in 1914. The Clayton Act explicitly prohibits practices, such as price discrimination, which lessens competition and interlocking directorates among competing firms.^[16]

Appalachian Coals vs. United States: The New Deal^[17]

Again during the Great Depression of 30’s, classical antitrust ideology came under fire. Ability of unregulated marketplace to serve public welfare was questioned. This thought became transparent in Supreme Court decision in the New Deal, which permitted 137 coal producers to appoint an exclusive selling agent so as to counter and effectively deal with ‘destructive trade practices’ that drove down price. “ The Court found that this agreement was not unlawful since it was to be considered as a reasonable response to protect the market from destructive practices.”^[18] Several years later, as the circumstances changed; around the beginning of the structural era, the Supreme Court effectively overruled it. In 1938 Thurman Arnold was appointed as head of Antitrust Division of Justice Department. During his tenure as the head, he sought to increase the impact of the Sherman Act and conducted various new investigations and reached new enforcement levels through consent settlement. Under his leadership the antitrust division of DOJ “revealed numerous examples where monopoly and participation in international cartels had reduced the US military and economic capability for war.”^[19]

[...]

^[1] See Antonio F. Perez, P. 1

^[2] See Timothy M. Reif and Gary E. Bacher, P. 1

^[3] See United States vs. Topco Associates, Inc., 405 U.S. 596 (1972)

^[4] See Jonathan Baker, 2003, P. 1

^[5] The terms “antitrust regime” and “competition policy” are by and large synonymous. However the term “competition policy” includes aspects of state aid, industrial subsidies etc.. In the US these aspects form part of “industrial policy”. See Robert Feinberg, P. 1

^[6] See Jonathan B. Baker, 2001, P. 2

^[7] Id., P. 3

^[8] See Jonathan B. Baker, 2001, P. 3

^[9] See United States vs. Joint Traffic Association, 171 U.S. 505 (1898)

^[10] See United States vs. Trans-Missouri Freight Association, 166 U.S. 290 (1987)

^[11] See Jonathan B. Baker, 2001, P. 4

^[12] Economies of scale- reduction in per unit cost of production due to large production; economies of scope-reduction in per unit cost of production due (spare) capacity utilization

^[13] See Jonathan B. Baker, 2001, P. 5

^[14] See Massimo Motta, P. 6

^[15] See The Standard Oil Case, 221 US 1, 75 (1911)

^[16] See Massimo Motta, P. 5

^[17] See Appalachian Coals vs. United States, 288 U.S. 344 (1933)

^[18] See Massimo Motta, P. 7

^[19] See Denys Gribbin, P. 143