Competition policy in the World Trade Organization

Diploma Thesis, 2006

92 Pages, Grade: 1,00


Table of Contents

Table of Abbreviations

1. Introduction

2. Competition Policy
2.1. Economic Background
2.2. Objectives of Competition Law

3. Elements of Competition Law
3.1. Cartelization
3.2. Vertical Restraints
3.3. Abuse of Dominant Position
3.4. International Mergers
3.5. Parallel Imports

4. National Competition Law
4.1. Competition Culture
4.2. National Regulation
4.3. International Cooperation

5. International Competition Law
5.1. Regional Agreements
5.2. Multilateral Regulations
5.2.1. The Havana Charter
5.2.2. The UNCTAD Principles on RBPs
5.2.3. OECD Recommendations and Guidelines

6. Current Competition-Related Regulations in the WTO
6.1. Governmental Measures
6.1.1. Tariffs
6.1.2. Quantitative Restrictions
6.1.3. Tariff Like Measures
6.1.4. Subsidies
6.2. The GATT
6.2.1. Art. I GATT, the MFN
6.2.2. Art. II GATT, Market Access
6.2.3. Art. III GATT, Non-Discrimination and National Treatment
6.2.4. Art. XI GATT, Quantitative Restrictions
6.2.5. Art. XXIII:1 GATT, Non-Violation Nullification and Impairment
6.2.6. Case Study: The Kodak-Fuji Case
6.3. The General Agreement on Trade in Services (GATS)
6.4. The TRIPS
6.5. Other Competition-Related Regulations in the WTO

7. Future Perspective of an International Competition Law Agreement
7.1. Competition and Trade
7.2. Developing Countries and Competition Law
7.3. Approaches on the Issue of International Competition Law
7.3.1. A Multilateral Agreement on Competition Law A Harmonization Agreement The “TRIPS Approach”
7.3.2. The “WTO Approach”
7.3.3. The “National Law Approach”

8. Conclusion


Table of Cases and Reports

Table of Abbreviations

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1. Introduction

Over the last decades the General Agreement on Tariffs and Trade[1] (GATT) and later the World Trade Organization[2] (WTO) has successfully removed or lowered governmental trade barriers. However, as markets became more open and public protection for domestic markets was reduced, private barriers to market access became an effective tool of protectionism, undermining and impeding the progress of free trade and hence interfering with the subject matter the WTO deals with.

These private restrictive business practices hardly fall within the jurisdiction of the WTO, as it is restrained to public trade barriers or governmental measures only. Private actions are subject of competition law. Competition laws have been imposed in most countries legislations, however different approaches have been made to direct anti-competitive conduct, which potentially causes friction or conflicts of jurisdiction and application of law when it comes to international competition law cases.

The basic issue of competition policies is to keep each competitor under the pressure of having to produce at the lowest possible cost in conjunction with the highest possible quality, in order not to be eliminated by the other competitors. Competition policies aim to keep this status of competition alive and fair, and prevent competitors from eliminating each other.[3]

There are several approaches of how to deal with international anti-competitive conduct. The most prominent approaches are either multilateral competition law agreements or extraterritorial enforcement of national competition law. In the latter approach, a country may enforce its competition law against any infringement that has effect on the domestic market,[4] hence international cartels can in no way escape jurisdiction. However this aggressive single-handed application of national competition law could easily be used as a tool to protect the domestic economy. On the other side, competition authorities will find it difficult to gain sufficient evidence abroad, hence despite this far reaching application of law many infringements will remain unpunished.

A multilateral agreement on the other side might only be a toothless compromise of the different competition law cultures that is unable to provide appropriate remedies against anti-competitive conduct. In contrast to other fields of law that have been largely harmonized through multilateral agreements, such as intellectual property rights, no comparable agreement exists so far in competition law.

First attempts for a multilateral framework on competition have been made after the Second World War. At the Bretton Woods Conference in 1944 the United States and the United Kingdom proposed plans for the International Trade Organization (ITO). The Havana Charter[5], the ITO’s proposed founding document, was intended to govern almost every aspect of international trade, going much further than the WTO today. Unfortunately this charter was never adopted due to non-acceptance of the United States.[6]

What remained was the GATT, originally intended as an interim agreement until the Havana Charter was ratified by the signatories. The GATT does not address competition itself, but states basic principles that, as side effect, deal with competition issues and can be interpreted in a way to become a remedy against anti-competitive conduct. However these practices must be closely linked to governmental measures in order to fall within the jurisdiction of WTO law.[7]

To counteract this unsatisfactory lack of international competition law, the WTO established the Working Group on Interactions of Trade and Competition Policy at the Ministerial Conference in Singapore 1996. The WTO working group was set up to search for interactions of trade and competition and to determine the necessity of an international competition law for trade-related aspects. The idea is to complement existing international trade law with an international competition law.[8]

Globalisation of business activities causes several legal problems that make it necessary to discuss this issue from an international point of view. Short-sighted national interests often counteract global economic integration. Divergent views of exporting and importing economies lead to different structures and aims of competition laws. The actual political and economic environment is a considerably challenging premise for finding a common basis for discussion and consensus in negotiation.[9]

The WTO provides a forum capable of overcoming national welfare driven policies through broad negotiations. Hence a multilateral framework based on the principles of non-discrimination and transparency supported by the WTO might be an appropriate tool to overcome frictions caused by diverging national competition policies, and therefore be capable of preventing international anti-competitive behaviour.

Concerning the issues discussed at the WTO, the main focus of the working group is on the anti-competitive practices that may distort international trade in a way it is inconsistent with WTO law. However, critics of a competition law agreement in the WTO argue that such an agreement would be predominated by market access issues and neglect other aspects of competition policy, such as efficiency and consumer welfare. The free market and trade driven ideas of the WTO would not match with competition policy.[10]

Supporters of a competition law agreement in the WTO emphasise the success the WTO has had in other fields of law, like the continuous reductions of governmental trade barriers, the extensive possibilities for negotiation even in other fields of the WTO forum and effective structures of the WTO, especially the Dispute Settlement Body (DSB).[11]

The focus of this thesis will be on possible approaches and problems of addressing international competition law. First it will analyze the objectives and elements of competition law, and what may appear when competition is taken to an international level, and how do national competition cultures have impact on international competition law. With the discussion of solutions for international competition law as the primary goal, the thesis will further analyze the already existing competition-related regulation in the WTO legal system, and their potential application on private anti-competitive conduct. The wording of some WTO provisions and decisions of the DSB give reason for a closer look on WTO law from a competition law perspective.

Finally this paper will make an outlook into the future of international competition law. Legal science has produced many proposals how to approach the issue, either with, or without the help of the WTO. However, the scope of this paper restrains to analyze only the most prominent and feasible ones.

2. Competition Policy

2.1. Economic Background

The objective of competition policy varies across countries and cultures, however, the common ground and basic objective of competition policies throughout legislations is to promote, maintain and protect the competitive process or free competition.[12] Competition occurs where firms strive for the consumers favour to acquire market power and strengthen their competitive position compared to their competitors. The elements used in competition can, or rather should, be only those, which the consumer values, such as low prices, quality or service.[13]

This orientation on the consumer’s needs and favours leads to a social welfare generating effect of competition. In fact, only where the firms face competitive pressure, the individual strategic behaviour of firms and consumers will be consistent with general welfare. The fear of being driven out by other competitors forces firms to allocate their resources most efficiently through lowered production costs, technological development and innovation. Hence competition fosters economic efficiency. In order to keep each competitor under the pressure of having to produce at the lowest possible cost in conjunction with the highest possible quality, they must be prevented from eliminating each other or continuously decreasing their numbers otherwise, for example through mergers.[14]

As stated above, competition policy is not only used to protect the weak from exclusion by the powerful, but to promote social welfare and economic efficiency. The efficiency-oriented approach was first made in the 1970s by the “Chicago school” and marks the emergence of “modern antitrust”.[15] Economic efficiency can be divided into three categories: allocative efficiency, productive or static efficiency and dynamic efficiency. Allocative efficiency concerns the exchange and distribution of resources to meet consumer demands. Productive efficiency strives for lowest production costs for a certain output. Dynamic efficiency fosters innovation in technology, products and processes to meet the constantly changing consumer taste.[16] The “Chicago school” had a very lenient attitude towards mergers and vertical restraints, as long as they worked efficiently, and it has barely any per se prohibitions. The “post Chicago school” advocates tougher competition law enforcement and broader understanding of competition policy objective, taking other values into consideration that may outweigh considerable welfare losses.[17]

Competition policy aims for perfect competition. However, perfect competition in practice is for many reasons not possible. The most inevitable reason for imperfect competition is the consumer, who would have to act totally rational in choice, be perfectly mobile, and perfectly informed about all offers on the market in order to detect inefficiencies and reward the most efficient competitor with market share. Secondly legal barriers may shield firms from competition, such as patents, product standards (e.g. quality standards, or security standards), or long-run contractual relationships with suppliers, and finally competition may be distorted or even eliminated through natural monopolies. A natural monopoly occurs when a single firm can supply the market at lower costs than two or more competing firms could. In this case a monopoly would be more efficient than any form of competition. High fix cost of production or small and foreclosed markets furtherance the emergence of natural monopolies.[18]

Even though there might be no more efficient alternative, imperfect competition leads to a misallocation of recourses that produces a deadweight loss. The extra production costs caused by this misallocation are passed on to the consumer and result in a decrease of consumer surplus, which is not necessarily transferred to the producer, but eliminated through inefficient resource allocation. However, there is no single, uniform solution for imperfectly competitive markets. Especially with natural cartels the question whether governmental intervention is needed must be analysed on a case-by-case basis.[19]

The exclusive efficiency and welfare approach, as supported by the „Chicago school“, is of course only one, quite narrow understanding of competition policy. National competition policies differ largely, as some policies include an economic freedom approach.[20] The freedom to compete, the freedom of trade and choice, the freedom of individual action and access to markets are the basic ideas behind competition policies and can be regarded as the economic equivalent of a democratic constitutional system.[21] Thus, the discussion of competition issues is not only efficiency and rationality driven, but can also be a socio-political discussion considering the most fundamental freedoms of a democratic society.

2.2. Objectives of Competition Law

By implementing a competition policy, a government sets the frame in which business may happen. Ubi jus, ibi commercium. Without a well working competition authority backed by a reasonable competition policy, commerce is likely to be controlled by monopolies or cartels that don’t allow foreign competitors to access the market, or let new domestic competitors emerge. Hence a well-operated competition policy is also prerequisite for foreign direct investment (FDI). Competition policies might work as FDI incentives by favouring domestic competitors over foreign ones. It is very common to grant immigrated competitors exceptions on the formation of export cartels and therefore make their market more attractive for FDIs. A competition of competition laws however would certainly have a negative impact on world economy and trade, as it would cause a race to the bottom of competition standards.[22]

The actual competition policy a state imposes on its economy is a set of regulations and measures that establish the playing field for producers to compete. Competition law is only one part of competition policy, others concern actions to privatize state-owned enterprise, deregulate activities, firm-specific subsidies, and policies discriminating foreign producers or products. Competition policy is concerned with providing conditions that assure free competition, competition law rather punishes violating parties.[23]

Many of these measures are already being regulated by the WTO, hence the WTO already follows a competition policy, and in fact almost all provisions of the WTO affect competition. The distinctive factor between the current WTO regulations and competition policy is that the latter applies to private actions as well as governmental actions, whereas WTO only applies to governmental actions. Attempts to make competition authorities of WTO member states responsible for anti-competitive behaviour of domestic firms, like in the Kodak-Fuji case[24] have failed so far. Here scholars argue that it would be expedient to expand the scope of WTO law, either with new forms of interpretation or an agreement about competition law.[25]

Another objective of competition policy that is of special interest for an international competition policy framework is the promotion of trade and integration within an economic union or free trade area. The European Community (EC) is probably the best example for how competition policy can play a major role in market integration. EC competition law strictly prohibits all kinds of measures, governmental or private that divide the community’s market, and thus has served as a motor of integration.[26] It is little surprising that the EC has strongly suggested to integrate an international competition policy agreement in the WTO in expectation of a furtherance of global market integration. However it may be doubted whether an implementation of competition policy in the WTO has a similar impact on global economy.[27]

The protection of small and medium sized businesses is another objective stressed by the EC. This objective lies in conflict with the efficiency driven Anglo-American approach on competition suggested by the Chicago school.[28] Other objectives of competition policy are preserving the free enterprise system and maintaining fairness and honesty in competition.[29] Depending on the particular competition cultures these objectives are more or less reflected in the state’s competition policy. Looking towards a multilateral competition agreement, they are of little relevance and help.

3. Elements of Competition Law

Most of the elements of international competition law can be found in national competition law as well. However, the rationale and incentive for regulating these measures on an international level differs from those of national competition authorities. This chapter will take a closer look on private restrictive business practices (RBP) from an international competition law perspective.

The 1980 United Nation Conference on Trade and Development (UNCTAD) Principles on RBPs[30] define RBPs as:

“acts or behaviour of enterprises which, through an abuse or acquisition and abuse of a dominant position of market power, limit access to markets or otherwise unduly restrain competition, having or being likely to have adverse effects on international trade, particularly that of developing countries, and on the economic development of these countries, or which, through formal, informal, written or unwritten agreements or arrangements among enterprises, have the same impact.”[31]

However, there is no consensus among scholars whether, and to what extent private measures are capable of impeding international trade and market access. While the majority of scholars would answers this question affirmatively, some scholars argue, that private RBPs are unable to foreclose markets, or at least no causal link could yet have been established between private RBPs and market foreclosure.[32]

Others argue that these practices can only have market-foreclosing effect, when they are backed by governmental measures restraining market access themselves. Hong Kong has brought this to the WTO’s Working Group’s attention, suggesting to further concentrate on governmental market access barriers and market distortions of competition and therefore take the basis on which private anti-competitive conduct can happen.[33]

Private RBPs are not governed by the WTO or any other international organisation. Their prosecution is entirely left to the national competition authorities, though organizations like the Organization for Economic Cooperation and Development (OECD)[34] or the UN[35] provide competition authorities with guidelines and recommendations, and offer assistance in establishing and enforcing competition laws and policies. The inability and unwillingness of national competition authorities to effectively tackle certain kinds of private RBPs gives reason to consider and discuss the establishment of an international competition framework.

3.1. Cartelization

There are two kids of cartel agreements, import cartels and export cartels. Import cartels are agreements between domestic competitors aiming to coordinate the importation of certain products. These agreements are “hard core cartels” and concern either price, quantity or consumer allocation. Import cartels have the effect that all importers become price takers, as there is only one price, for which the products can be imported. Quantity restrictions and agreements on consumer allocation lessen competition and raise prices in the domestic market. Hence they harm domestic consumers.[36] Because the domestic consumers have to bear a considerable amount of the costs of import cartels, they are widely prosecuted by domestic competition authorities. This is different in the case of agreements that do not harm domestic competition, but foreclose the market or provide other competitive advantages and hence strengthen the domestic industry without direct consumer welfare losses. Such agreements are acceptable internally, but cause frictions from an international perspective.

Export cartels are agreements concerning price, quantity or consumer allocation of products that are exported into foreign markets. Like import cartels, export cartels are “hard core cartels” and are considered to be unlawful by their nature in almost all competition law systems. In contrast to import cartels, foreign consumers bear most of the costs of the agreement, hence domestic competition authorities are less anxious about prosecuting export cartels. Naturally, the authorities favour their own constituents over foreign ones in a way that they seek to promote domestic consumer welfare, even at the expense of foreigners. It is very common among many competition law systems to exempt anti-competitive conduct that does not take place in, or has no direct impact on the domestic market. By exempting export cartels from competition law, competition authorities aim to strengthen the exporter’s competitiveness on the international market. This of course causes many frictions and disputes among trading parties.[37]

Export cartels highly illustrate the necessity for international competition law (in what form so ever), as the overall harmful effect to consumer welfare is obvious, but due to national welfare considerations they will never be effectively tackled on a national basis only. For the prosperity of global welfare, national regulators are highly advised to expand to allow the national competition laws to take costs beyond national borders into account.[38]

3.2. Vertical Restraints

Vertical agreements are in general agreements between firms of different levels of production or distribution, the parties of the agreement do not compete with each other. Exclusive distribution contracts for instance oblige the retailer only to purchase products from a certain distributor. To vertical agreements the rule of reason applies, meaning that they are not unlawful as such, and do not necessarily harm competition or consumer welfare. Even if they have negative effects on competition, vertical agreements may be considered to be lawful if they outweigh negative effects by efficiency enhancing effects. Generally, vertical agreements are lawful, as long as they do not exclude other competitors from entering the market.[39] Especially with distribution networks, this might be the case. In a distribution network, where suppliers and distributors are bound to each other through long-term contracts, foreign or new competitors will find it difficult to enter the market, having barely the chance to get their products to offer to consumers. Even though distribution networks might impede imports, from a competition policy perspective they might be lawful, as long as they are efficiency enhancing and the domestic competitors face a vital competition among each other.[40]

Long-term distribution contracts that foreclose the market, like the Japanese keiretsu[41], are in the centre of the discussion on international competition law. The Japanese competition authority tolerates keiretsu, the government even encourages their establishment, as a well working keiretsu is highly efficiency enhancing. Other jurisdictions however, regard them to be market foreclosing and competition eliminating and expect the Japanese competition authority to take action against them.[42]

The most prominent case of market foreclosure through inflexible distribution networks that has been brought to a WTO Panel for market access reasons is the Kodak-Fuji case. In this dispute the US vigorously stressed the fact that the Japanese distribution system for photographic film and paper prevented foreign competitors from entering the market.[43] Whether this distribution system was efficient, and whether consumer welfare and efficiency could have been promoted by removing this distribution system was completely left aside.

Other competition related vertical restraints issues are the intellectual property rights resale price maintenance clauses. The tenor of all these regulations in the light of competition policy is: anything goes, as long as it is efficiency enhancing and not unreasonably distorting competition.

Vertical restraints, especially in connexion with long-term distribution arrangements, are one of the most disputed core issues in discussing international competition policy. Most exporting countries vigorously stress the negative impact of vertical restraints on trade and market access.[44] However, this market access driven perspective is only the half-truth. Countries whose market is foreclosed by vertical restraints stress the efficiency enhancing effect, and that reasons for the failure of market entry lie rather in the incompetence of the foreign competitors.[45]

3.3. Abuse of Dominant Position

Very similar to cartelization is the abuse of dominant position, the difference being that there is no agreement or parallel conduct. This offence is committed by only one competitor, who is in such a dominant position to be able to impose conditions on the competition that would not be possible in a balanced competition. This may concern abusive pricing policies, or the modalities of competition, such as restrictive licensing policies. However, there are only few firms that have such a dominant position on the global market to be able to impose those measures. It is rather cartelization that gives the joint firms enough market power for anti-competitive conduct.[46]

The abuse of dominant position adds fairness issues to competition law. While the concept of “the survival of the fittest”, suggesting that less efficient competitor is eliminated through fair competition, does not interfere with the aims and purpose of competition policy, the concept of “the strong prey upon the weak” rather suggests abusing the power to eliminate the weak. This is not what competition policies are aiming for. A competition led by the latter principle is neither fair nor free.[47]

In “national champion” policies, governments apply a lenient competition law regime to certain dominating domestic competitors, in order to provide a reliable domestic stronghold for international competition. Similar to protectionist application of competition law in the field of export cartels, these policies cause frictions in international trade. An international approach on the issue might be expedient.

3.4. International Mergers

Globalization leads to a constant extension of geographic radius of business. Hence more firms from different regions compete with each other on a new level. As larger markets can cope with larger corporations, mergers in succession to globalization are a natural process that enhances efficient recourse allocation. However, international mergers might reach the extent that is hampering competition. What could have been observed when markets became global is that the number of competitors quickly decreased through mergers to the same or even lesser number of competitors as in any other regional market. There are for example only two firms (Boeing and Airbus) left that are capable of building large aircrafts.[48]

International mergers are easier to identify than cartelization but similar in effect. However, mergers are even more dangerous than cartels in terms of market concentration, as they cause much more permanent structural deterioration. The dangers of international mergers lie not only in the newly gained market share that might provide the merged competitors with a dominant market position that could be abused, but also in the reoligopolization and continuing concentration of the market. With only few competitors left, cartelization, such as collusive agreements and parallel conduct, becomes more feasible and likely.[49]

From a corporate perspective, a merger brings a lot of costs and bureaucratic hurdles to take. Every country has its own competition authority governing mergers. As most competition authorities apply their law to any conduct that has impact on the domestic competition, international mergers are always multi-jurisdictional mergers, meaning that several competition authorities revise the same merger independently. This causes costs, uncertainties and delays for the merging firms. Frictions arise, when competition authorities disagree on the approval of a merger. In the Boeing – McDonnell Douglas merger[50], the European Commission was concerned about certain long-term contractual arrangements between Boeing and commercial airlines. The US Federal Trade Commission, however, had no such concerns and quickly approved the merger.[51] Interestingly enough, the only competitor of Boeing that is left is the European corporation Airbus, and critics argue that when the European Commission imposed conditions on the merger, it only intended to protect their domestic industry.[52] This example highlights that not only economic, but also political issues can play a major role when it comes to international merger control.

The issue of international mergers has barely been touched by the WTO Working Group. It might be expedient of the WTO to invest some more efforts in this field of competition policy, as it might be a suitable forum, especially regarding the WTO’s capabilities for dispute settlement.[53]

3.5. Parallel Imports

Intellectual property rights (IPRs) can also have a major impact on competition. IPRs grant the exclusive right to exploit an invention or any other subjects of IPRs, and hence produce dominant positions and impede competition. They are used as an incentive and reward for innovation. Competition law makes sure that these exclusive rights are not abused to unreasonably harm competition. Article 8.2 of the Agreement on Trade Related Intellectual Property Rights[54] (TRIPS) demands appropriate measures against the abuse of IPRs or practices that unreasonably restrain trade.

What might be regarded to be abusive is the prohibition of parallel imports. Parallel imports refer to the actual goods that have been distributed and then re-imported from a different jurisdiction other than that where the product was originally sold. Hence the producers face competition from their own products. Re-imported goods are also called “grey market goods”, as they lawfully bear the trademark of the producer, however, the distribution of the goods is inconsistent with the producer’s distribution contracts. The question is to what extent IPRs holder can control the distribution (vertical agreements) of their products to impede parallel imports in order not to be abusive of their IPRs. From the producer’s perspective, grey market goods deprive them of their exclusive right to sell certain products in a market, hence parallel imports undermine IPRs. From a consumer perspective, however, it generates intrabrand competition that leads to lower prices.[55]

The question is, whether IPRs should allow producers to control the distribution of their products on the basis of IPRs, or whether their IPRs are regarded to be “exhausted” the moment they pass the border.

The US, for example, applies the national exhaustion policy, allowing every producer to block their exported products at the border. The EU strictly prohibits any form of distribution agreements that prevents the free circulation of goods within the common market. There is no way a producer can control the distribution and prevent parallel imports from one member state to another, as it would divide the common market into national markets with great differences in price. This would certainly harm the process of European Integration. Similarly to the US, parallel imports from outside the common market can be blocked at the border of the EU.[56] The right to block grey market products from outside the common market has been established by the European Court of Justice in the Silhouette case[57] in 1998.

The TRIPS contains no regulation what so ever, that addresses the issue of parallel imports and exhaustion of IPRs. Article 8.2 merely requires member states to take appropriate measures to prevent abuse of IPRs that unreasonably restrain trade, but remains silently towards parallel imports. Neither does it addresses parallel import restricting clauses in distribution contracts to be abusive and unlawful, nor does it state that parallel imported good are unfairly traded and should be blocked at border.

4. National Competition Law

4.1. Competition Culture

In the absence of a multilateral agreement on competition, national competition law and bilateral cooperation agreements are used to solve international competition disputes. However, due to diverging competition laws, competition cultures, and economic and political interests, the application of national competition law on international cases sometimes is rather creating disputes than solving them. Bilateral agreements can certainly improve the collaboration of competition authorities and smoothen frictions arising from jurisdiction disputes. The agreements that have been established between major industrial states, like the EU and the US, or the US and Japan, have produced valuable success.[58] From a global perspective however, the number of bilateral agreements necessary to govern international competition goes far beyond anything feasible.

The 1998 WTO Working Group’s Report emphasizes the importance of a common “competition culture” in order to furtherance international cooperation in solving competition disputes.[59]

The oldest form of competition law is the American antitrust law. The Sherman Act[60], the US’ main source for antitrust law, was established in 1890 in response to the power and predatory behaviour of large trusts that were formed with the rise of the industrial revolution. A trust was a form of business organization, where a small control group held all stocks of competitors in the market, and lead the business in the interest of the firm-cluster. Because the initial targets of American competition law were exclusively these trust constructions, the American competition law is generally called “antitrust law”. The Sherman Act has an extremely general language, often only referring to the elastic criterion of “unreasonableness”, and has been interpreted in many different ways throughout history.[61]

Generally, it can be stated, that the US’ antitrust law was always, especially during the Chicago School period, rather efficiency driven and open towards high market concentration. It is more tolerant towards vertical restraints than most other jurisdictions, allowing everything that enhances efficiency and does not demonstrably harm consumers. Moreover firms in a dominant position have more freedom than for example in the EC. Even monopoly firms have the right to refuse to deal with certain entities, except under narrowly defined circumstances.[62] Whereas other jurisdictions contain several fairness and protective aspects, the American competition law is only concerned with keeping competition alive, tolerating as less governmental interference as possible. The reason for that rather lenient treatment of competition can be found in the fact that the immigrants to America were searching for freedom from any governmental intervention.[63]

The competition law of the EC takes a much broader approach on competition. It is not only concerned about efficiency, but takes other aspects like the protection of small and medium sized firms. A most interesting aspect of EC competition law is that it was and is used to break down national boundaries between its member states and complete the unification of the common market. It demonstrates the integrative effect that a common competition policy and culture has in a multilateral framework.[64]

The fact that American competition law is based on the Common Law system, and the EC competition law is based on the Civil Law system does at first sight seem like a big difference. In fact, the EC competition law is stated in only very few and generally written Articles of the EC Treaty[65]. Though the decisions of the Commission have no precedent character as in a Common Law system, the EC competition law is refined by the Commission through case-bay-case decisions. Just like in Common Law, the cases are in the focus of research, when working with EC competition law.[66]

The relatively similar approaches of the US and the EC are the result of a common history and similar culture. Looking to other culture’s jurisdictions, the differences might appear to be much bigger. In East Asia for example, where Confucianism is the prevailing philosophy, competition is regarded to be harmony disturbing and harmful to the society.[67] Throughout East Asia, especially in Japan, it can be observed that competitors are closely cooperating with governmental institutions to impede international competition and protect local competitors, as it was the case in the Kodak-Fuji case.[68] Most competition laws, even though they were just recently established, like the Chinese competition laws, are rather disappointing and insufficient or poorly executed.[69]

4.2. National Regulation

Basically, there are two ways for national jurisdictions to address international competition disputes: the concept of territorial jurisdiction or strict territoriality and the concept of extraterritorial jurisdiction or “effects doctrine”. The first allows states to exercise their competition laws only over individuals and firms who violate the laws within their territory not regarding the nationality. Though the territorial jurisdiction is commonly accepted in public international law and provides sufficient grounds for the enforcement of domestic laws over foreign competitors, it is often not capable of dealing with international competition cases. Anti-competitive behaviour that has negative impact on the domestic competition but has been conducted elsewhere can not be charged applying strict territoriality.[70]

The “effects doctrine” provides jurisdiction over any firms’ anti-competitive behaviour that has effect on the domestic market and hence reaches much further than the concept of territorial jurisdiction. The extraterritorial application of competition law has produced some results in tackling anti-competitive conduct, leaving the competitors no shelter in foreign jurisdictions. However, the rather aggressive and single-handed nature of this doctrine provokes jurisdictional disputes and infringes state sovereignty.[71]

Besides state sovereignty concerns, extraterritorial application of competition law also raises fairness issues. It is much easier for economically and politically powerful countries to enforce their laws extraterritorially than for developing countries. Anti-competitive conduct that produces costs in less powerful countries will remain uncharged.[72]

Further, though companies without legal presence in the territory of the implementing country can be charged, the competition authority will find it difficult to gather sufficient evidence for a successful prosecution, when all documentary evidence is located abroad and hence only accessible with the cooperation of foreign evidence finding authorities.[73]

The “effects doctrine” has been imposed on most developed countries jurisdictions, most notable the US. Though the European Commission is reluctant to use the term “extraterritorial application of law”, it certainly adopted a policy similar to the “effects doctrine”. Due to the European Court of Justice’s Wood Pulp[74] decision 1988, the Commission stated that any anti-competitive conduct implemented on the common market will fall under the Commission’s jurisdiction. According to the EC, the “implementation test” is still covered by strict territoriality and hence recognized in public international law. However, the implementation test enables the Commission the claim jurisdiction even on anti-competitive conduct that has been committed outside of the EU’s territory, as long as it was implemented in the common market. Hence the European Commission is applying the EC’s competition law extraterritorially. The implementation test and the effects doctrine usually produce the same result.[75]

In theory, if every jurisdiction applied a reasonably harmonized competition law in a way it is not more favourable to any competitor, there would be no need for a multilateral agreement on competition law that contains a dispute settlement body, but rather a framework for cooperation and exchange on information. However, there are certain policies and regulatory actions applied by competition authorities that have unwelcome impact beyond its borders, simply because costs and benefits of these actions beyond its borders were not taken into consideration.[76] National competition authorities are not immune from pressure from above, resulting in decisions that put national interests before consumer welfare maximization.[77] This is particularly the case with export cartels and large-scale mergers.

Assuming that political leaders seek to maximize the national welfare, they favour their own residents over foreigners and promote local economic welfare even at the expense of foreigners by externalizing the costs of their policies. This assumption might be a little strong, but in the core of the matter certainly true. Political leaders are elected by their nation’s people and therefore naturally tend to advocate the interests of those they are indebted to. Hence it is primarily the local economy whose interests will prevail. Consequently different standards are applied on measures depending on whether they concern locals or foreigners, which leads to exemptions of these measures. The most prominent example for externalizing the costs of anti-competitive conduct is the above discussed export cartel.[78] The US Department of Justice stated in its 1988 International Guidelines[79] that “the Department is concerned only with adverse effects on competition that would harm U.S. consumers by reducing output or raising prices.”[80] The US made clear that US antitrust law would not follow US firms into foreign markets, and thus exempt any kind of anti-competitive conduct that concerns exports.[81]

Other examples can be found in merger law. In the early judgement of the US Supreme Court of 2.12.1912 in the Union Pacific/Southern Pacific Railroads case[82], the Surface Transportation Board (authority of competent jurisdiction to approve or block railroad merger in the US) finally had to exempted the merger from US antitrust law. This happened against the advice of the Department of Justice and the Department of Agriculture and Transportation that had severe concerns about the negative impact on competition this merger would have. In fact, the merger produced a near-monopoly situation in traffic from the Texas Gulf Coast to the border to Mexico, hence bearing a major part of the costs on Mexican traders and leaving them at the mercy of the newly created monopoly without the chance to interfere.[83]


[1] General Agreement on Tariffs and Trade, 30.10.1947, 55 UNTS 194 (1950).

[2] Marrakesh Agreement establishing the World Trade Organization, 15 April 1994, 1867 UNTS 154 (1995).

[3] See Jenny, Frédéric, Globalization, Competition and Trade Policy: Issues and Challenges, in: Roger Zäch ed., Towards WTO Competition Rules: Key Issues and Comments on the WTO Report (1998) on Trade and Competition, (1999) p 3-42, 9 et seq.

[4] Also called “effects doctrine”, most prominently applied by the US Department of Justice and Federal Trade Commission.

[5] Havana Charter for an International Trade Organization, (18.3.2006)

[6] See Kennedy, Kevin C., Competition Law and the World Trade Organisation: The Limits of Multilateralism, (2001) para 3.001 et seq.

[7] See ibid. para 3.005 et seq.

[8] See Drexl, Josef, Trade-Related Restraints of Competition – The Competition Policy Approach, in: Roger Zäch ed., Towards WTO Competition Rules: Key Issues and Comments on the WTO Report (1998) on Trade and Competition, (1999) p 225-260, 226-227, 232 et seq.

[9] See Guzman, Andrew T., International Antitrust and the WTO: The Lesson from Intellectual Property, 43 Va. J. Int’l L., (2003) p 933-957, 938.

[10] See in general: Daniel K. Tarullo, Kevin C. Kennedy, Bernard Hoeckman, Peter Holmes.

[11] See in general: Andrew T. Guzman, Eleanor M. Fox, Roland Weinrauch, Eugenia Costanza Laurenza.

[12] See OECD & World Bank, A Framework for the Design and Implementation of Competition Law and Policy, (1998) p 2 et seq.

[13] See Weinrauch, Roland, Competition Law in the WTO: The Rational for a Framework Agreement, (2004) p 17-18.

[14] See Jenny, Globalization, Competition and Trade Policy, p 9 et seq.

[15] See Correa, Carlos M., Competition Law and Development Policies, in: Roger Zäch ed., Towards WTO Competition Rules: Key Issues and Comments on the WTO Report (1998) on Trade and Competition, (1999) p 361-394, 363 et seq.

[16] See Kennedy, Competition Law and the World Trade Organisation, para 1.10.

[17] See Correa, Competition Law and Development Policies, p 363 et seq.

[18] See Weinrauch, Competition Law in the WTO, p 19-21.

[19] See ibid. p 21-22.

[20] See Drexl, Trade-Related Restraints of Competition, p 227 et seq.

[21] See OECD & World Bank, A Framework for the Design and Implementation of Competition Law and Policy, (1998) p 2 et seq.

[22] See Nicoletti, Guiseppe, Golub, Steve S., Hajkova, Dana, Mirza, Daniel and Kwang-Yeol Yoo, The Influences of Policies on Trade and Foreign Direct Investment, OECD Economic Studies No. 36, 2003/1, (2003), p 2 et seq.

[23] See Hoeckman, Bernard and Holmes, Peter, Competition Policy, Developing Countries and the WTO, World Bank Paper, (1999) p 2 et seq.

[24] WTO Panel Report, Japan – Measures Affecting Consumer Photographic Film and Paper (Japan v United States) 31.3.1998, WT/DS44/R,

[25] See Laurenza, Eugenia Costanza, Breaking States' Monopolies in Addressing International Cartels - In Favour of a WTO Agreement on Competition, (2002) sec. 3.3, available on (8.12.2004).

[26] See Waller, Spencer Webber, The Internationalization of Antitrust Enforcement, 77 B. U. L. Rev., (1997) p 343-404, 352 – 353.

[27] See generally: Communication from the European Community and its Member Sates, 25.9.2000, WT/WGTCP/W/152 and Communication from the European Community and its Member Sates, 26.7.2001, WT/WGTCP/W/175,

[28] See Weinrauch, Competition Law in the WTO, p 25.

[29] See OECD & World Bank, A Framework for the Design and Implementation of Competition Law and Policy, (1998) p 4.

[30] UNCTAD Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices, 22.04.1980, TD/RBP/CONF/10,

[31] Ibid. para B(i)(1).

[32] See Tarullo, Daniel K., Norms and Institutions in Global Competition Policy, 94 Am. J. Int’l L., (2000) p 478-505, 483-485.

[33] See Petersmann, Ernst-Ulrich, Competition-oriented Reforms of the WTO World Trade System – Proposals and Policy Options, in: Roger Zäch ed., Towards WTO Competition Rules: Key Issues and Comments on the WTO Report (1998) on Trade and Competition, (1999) p 43-72, 60-62.

[34] E.g.: OECD Recommendation Concerning Effective Action Against “Hard Core” Cartels, 25.03.1998, C(98)35/Final,

[35] E.g.: UNCTAD Principles and Rules for the Control of Restrictive Business Practices.

[36] See Weinrauch, Competition Law in the WTO, p 64.

[37] See Guzman, International Antitrust and the WTO, p 939 et seq.

[38] See Fox, Eleanor M., The Problems of State Actions that Blesses Private Actions that Harms “the Foreigners”, in: Roger Zäch ed., Towards WTO Competition Rules: Key Issues and Comments on the WTO Report (1998) on Trade and Competition, (1999) p 325-340, 339 et seq.

[39] See Weinrauch, Competition Law in the WTO, p 64.

[40] See Tarullo, Norms and Institutions in Global Competition Policy, p 483 et seq.

[41] The Japanese keiretsu system is a system of vertical integration among manufacturers, their suppliers and banks, reinforced by cross-ownership of shareholdings.

[42] See Kennedy, Competition Law and the World Trade Organisation, para. 3.041.

[43] See Cunnane, Joseph, Dispute Settlement Mechanism: From GATT to WTO: Case Study, Perspective from the European Commission, (1999) p 1 et seq.

[44] See Eastman Kodak, Japanese Barrier on Imported Photographic Film and Paper, an Overview and Summary of the US Submission to the WTO Dispute Settlement Panel, (1997) p 6 et seq.

[45] See WTO Panel Report, Kodak-Fuji, para. 4.06 et seq.

[46] See Tarullo, Norms and Institutions in Global Competition Policy, p 480.

[47] See Iyori, Hiroshi, Competition Culture and the Aims of Competition Law, in: Roger Zäch ed., Towards WTO Competition Rules: Key Issues and Comments on the WTO Report (1998) on Trade and Competition, (1999) p 127-136, 135.

[48] See Wolf, Dieter, International Mergers, in: Roger Zäch ed., Towards WTO Competition Rules: Key Issues and Comments on the WTO Report (1998) on Trade and Competition, (1999) p 205-211, 205-206.

[49] See ibid. p 206 et seq.

[50] European Commission, Boeing/McDonnell Douglas, 30.7.1997, Case No IV/M.877.

[51] See Weinrauch, Competition Law in the WTO, p 91 et seq.

[52] See Hoeckman and Holmes, Competition Policy, Developing Countries and the WTO, p 8.

[53] See Wolf, International Mergers, p 210-211.

[54] See Marrakesh Agreement establishing the World Trade Organization, Annex 1C: Agreement on Trade-Related Aspects of Intellectual Property Rights, 15 April 1994, 1869 UNTS 299 (1995).

[55] See Kennedy, Competition Law and the World Trade Organisation, para 4.091 et seq.

[56] See ibid. para 4.096 et seq.

[57] See European Court of Justice, 16.7.1998, C-355/96, Silhouette International Schmied / Hartlauer Handelsgesellschaft, Rec.1998, I-4799.

[58] See Kennedy, Competition Law and the World Trade Organisation, para 2.037 et seq.

[59] See Iyori, Competition Culture, p 127 et seq.

[60] Sherman Act 1890, 15 USCS 1.

[61] See Lowenfeld, Andreas F., International Economic Law, (2003) p 342 et seq.

[62] See Fox, Eleanor M., Towards World Antitrust and Market Access, 91 Am. J. Int’l L., (1997) p 1-25, 23.

[63] See Weinrauch, Competition Law in the WTO, p 46-47.

[64] See Waller, The Internationalization of Antitrust Enforcement, p 352 – 353.

[65] Treaty establishing the European Economic Community, 25.3.1957, 298 UNTS 11 (1958).

[66] See Tarullo, Norms and Institutions in Global Competition Policy, p 490.

[67] See Weinrauch, Competition Law in the WTO, p 48.

[68] See Cunnane, Dispute Settlement Mechanism, p 1 et seq.

[69] See Fox, Towards World Antitrust and Market Access, p 13.

[70] See Laurenza, Breaking States' Monopolies, sec. 4.1.1.

[71] See ibid.

[72] See Weinrauch, Competition Law in the WTO, p 93-95.

[73] See Tarullo, Norms and Institutions in Global Competition Policy, p 491.

[74] European Court of Justice, 27.9.1988, Ahlström Osakeyhtiö and others v Commission of the European Communities, Joined cases 89, 104, 114, 116, 117 and 125 to 129/85.

[75] See Kennedy, Competition Law and the World Trade Organisation, para 2.005 et seq.

[76] See Fox, State Actions, p 328 et seq.

[77] See Tarullo, Norms and Institutions in Global Competition Policy, p 497.

[78] See Guzman, International Antitrust and the WTO, p 938 et seq.

[79] US Department of Justice, Antitrust Enforcement Guidelines for International Operations, 17.11.1988, 55 Antitrust & Trade Reg. Rep. 1391 (1988).

[80] Ibid. Footnote 159.

[81] See Fox, Towards World Antitrust and Market Access, p 10 et seq.

[82] United States Supreme Court, Union Pacific/Southern Pacific Railroads, 2.12.1912, 1912 U.S. Lexis 2131.

[83] See Fox, State Actions, p 330.

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Competition policy in the World Trade Organization
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Insgesamt stellt die Arbeit die wesentlichen Aspekte des Themas umfassend und gut strukturiert dar. Die Arbeit besitzt eine für eine Diplomarbeit erstaunliche Tiefe der Auseinandersetzung mit der Forschungsfrage, die sich auch in den zahlreichen eigenen Gedanken und Kommentaren zeigt. Auch in technischer Hinsicht ist die Arbeit in Ordnung. Besonderes Lob verdient die umfangreiche Literaturliste.
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Mag. Arnulf Gressel (Author), 2006, Competition policy in the World Trade Organization, Munich, GRIN Verlag,


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