INSTITUTIONAL ASPECTS OF INTERNATIONAL COMPETITION POLICY
Abstract
A global economy cannot be driven in a consistent way by national competition laws. Both the liberalization of markets and the revolution in information and communication have triggered an unprecedented degree of interrelations of national economies. This leads to the internationalization of restrictive business practices. Despite of the WTO efforts and some agreements inside it related with antitrust, global markets have no competition rules. There are a number of economic arguments addressed to take real steps in order to establish a global framework for competition policy. Currently, the international system of competition policy seems gradually ill-suited for dealing with transnational restrictive business practices. The issue is now which organizational form and what degree of decentralization would be optimal for a multilevel system of international competition policy. Depending on the goals of the project, different degrees of decentralization would be more or less desirable.
Key words: Competition, competition policy, globalization, regulation, international restrictive practices, multilevel system.
JEL classification: K21, L40, F02, F53
1. Introduction
A global economy cannot be comprehensively disciplined from national competition policy regimes. The present work is devoted to clarify the key issues surrounding the internationalization of competition policy, which has been so far restricted to the national borders of states or supranational blocs, such as the EU.
The progressive liberalization that the world economy is experiencing in recent decades has prompted that the interrelationship between national economies to be now deeper than ever. In this sense, the internationalization of economic activity inevitably leads to the internationalization of restrictive business practices, bringing competition policy at the international level. This process has been driven by the information and communication technology revolution, which has dramatically reduced costs and facilitated the exchange of information.
After this introduction, we try to highlight the need of a global competition framework in the second section. We analyze in some detail the current system that disciplines competition in international markets. Once defined the current model, we are able to reflect on the economic arguments for and against undertake decisive measures on competition policy at international level.
From the third section on, we assume that something must be done to address international restrictive practices. We will analyze the organizational aspects of an international competition policy regime. Thus, we take as a reference point the multilevel systems, such as the EU and we will see how it could be adapted to the stage of international competition policy. Therefore, we shall see the horizontal and vertical allocation of responsibilities is what will determine the proper functioning of the system, rather than its organizational design. The section ends with a discussion on the desirability of more or less decentralization in the multilevel system. After that, we summarize the main conclusions of our study.
2. The current international competition policy model
In this section, we will study how to address the current problems of transnational competition. An analysis of the status quo will allow us to understand the inconsistencies that cover the current international competition policy system. We review both the prevailing strategy for solving global competition issues and the standards or agreements related with competition within the World Trade Organization (hereinafter, WTO).
Present-day, competition cases with international dimension are addressed through unilateralism and cooperation between competition authorities of the nations affected, causing some problems. The inconsistency is obvious. As Palma (2008, p. 288) notes, global problems must be tackled with measures or institutions of the same level. This means to renounce, at least in part, to national sovereignty over the current model is built.
Public international law is the corner stone of this model. Without it, no country would be entitled to prescribe or enforce national competition rules to foreign companies. Therefore, we have a plethora of national competition authorities, some of them supranational, which should ensure the maintenance of effective competition within their respective borders; backed as well by public international law in order to address the problems of transnational competition affecting them.
In this scenario, emerges the "effects doctrine" that "states that national authorities are entitled to prosecute any restrictive business practice which affect competition in their jurisdiction, irrespective of their regional origin" (Klodt, 2001, p.878). This principle is rooted in the famous Alcoa[1] case (1945). In that dispute, the U.S. Supreme Court banned an international cartel by the Sherman Act, which until then, had only been applied at the national level. The cartel was made by non-American companies in Switzerland, which had allocated the aluminum import quotas in the US. Needless to say, the effects doctrine threatens to undermine national sovereignty.
It is not difficult to realize that the effects doctrine, rather than solving problems, stands as a major source of conflict, as the merger between Boeing and McDonnell Douglas demonstrated in 1997[2].
This violation of the territoriality principle is justified by the growing interdependence among countries and the degree of development of international trade. Without the application of the effects doctrine, and with the current lack of binding multilateral competition agreements, transnational companies could escape the national competition laws. Thus, under a strict application of the principle of territoriality, there is a risk that some jurisdictions become competition policy "havens".
Despite this, it is necessary to emphasize that these problems do not confer an absolute right to protect States from foreign conduct that they perceived as economically damaging. Such legitimacy only occurs under certain circumstances, and always under public international law. In this sense, a country cannot enforce their competition rules extraterritorially "without the presence of a direct, substantial and foreseeable anticompetitive effect" (Dabbah, 2010, p. 424).
In order to prevent such conflicts arise, the strategy that has been followed in recent years is the convergence and harmonization of national competition rules, in addition to cooperation among the different authorities.
Generally, convergence is understood by the growing similarity observed between the different systems of competition, a lax definition for our interests. More specifically, convergence refers to the movement from a state of difference to one of similarity; in this case, it is related to the characteristics of the various national competition rules. In turn, each feature acquires a relative importance in the operations concerning the system (Gerber, 2010, p. 282).
It is clear that the more similar the competition laws of the States, the less likely it is that discrepancies arise. However, here, the problem of goals disparity reappears between countries when they design their competition policy system.
The International Competition Network (hereinafter, ICN) is the key institution of this strategy. The ICN provides competition authorities a specialized and informal space that allows them to maintenance regular contacts as well as addressing practical problems of competition. This leads to a dynamic dialogue that serves to build consensus and convergence towards the principles of competition policy throughout the global community of antitrust.
Note that the ICN is a virtual office comprised of specialists in the field of antitrust, so it enjoys great flexibility and dynamism, acting independently with respect to other international organizations. Interestingly, due to its composition, the ICN is an attempt to separate the issues of competition policy from those of trade policy (Clarke and Evenett, 2003, p.101).
The overall objective of the ICN is to develop recommendations for best practices in antitrust. These recommendations are adopted by consensus at the Annual Conference. Moreover, ICN aims to improve governance by promoting multilateral cooperation between competition agencies and creating a common competition culture promoting convergence between the policies of national and regional competition[3].
The problem is that the recommendations emanating from the ICN are not binding, allowing each country to decide independently whether they comply with each of the proposals. However, countries will be required to informally implement them through pressure from other members. Otherwise, those competition authorities that do not follow the common consensus guidelines will be hardly credible on further negotiations.
Some authors[4] argue that, although the strategy outlined solves some of the problems posed by transnational competition, it becomes insufficient to address, in a structural way, international competition policy. Empirical evidence supports this idea. Cases such as Boeing or General Electric led to transatlantic trade crisis.
This is unsurprising if we consider that the current model governing international competition, which is based in the extraterritorial application of sovereignty under the effects principle; cooperation between authorities; and the harmonization and convergence of national competition laws, has been built in an improvised way and putting patches.
Despite not to have an international competition policy, global markets have some competition regulations thanks to the WTO[5]. While it is not a comprehensive agreement, we can find rules that rub, more or less clearly, the field of competition policy in some documents of the WTO. Below, we will review the most relevant aspects of these agreements, including the basic principles underlying them.
2.1. Interaction between WTO rules and competition policy
The Agreement on Government Procurement (hereinafter, AGP) is, to date, the only legally binding WTO agreement that specifically addresses public procurement. It is a multilateral treaty administered by a Committee on Government Procurement and it is made by WTO Members. The Agreement was negotiated during the Uruguay Round (1986- 1994) and entered into force in 1996, later to be renegotiated and adapted in March 2012[6].
The preamble to the AGP recognizes the need for an effective multilateral agreement on government procurement. In this field, it is considered essential to have transparent measures, conducting procurement impartially and avoid conflicts of interest and corruption.
Article V.1 of the last amendment to the agreement[7] prohibits that the contracting entities to adopt or apply technical specifications, as well as to undertake assessment procedures with a viewto or withthe effect of creating unnecessaryobstacles to international trade. In the same direction, paragraph 4 of the same Article provides that the entities “shall not seek or accept, in a manner which would have the effect of precluding competition, advice which may be used in the preparation of specifications for a specific procurement from a firm that may have a commercial interest in the procurement”.
Likewise, the importance of ensuring that all procurement is carried out in accordance with the principles of non-discrimination and transparency is emphasized in Appendix E of the AGP. The aim is to assure that such procurement secure the best value, while the optimal degree of international competition is reached. In this way, we avoid that national actors benefit from the tender.
While AGP is oriented to the behaviour of governments, like most provisions of the WTO, the following arrangements regulate, somehow, the behaviour of private economic agents. In particular, the Agreement on Safeguards (hereinafter, AS) concerns "emergency" measures in response to increased imports of certain products, when such imports cause or threaten to cause serious injury to the corresponding domestic industry of the importing member[8].
Article 11.1.b of AS reflects the consensus among Members to avoid adopting or maintaining any voluntary export restraints, orderly marketing arrangements or any other similar measures on imports or exports. Among these "similar measures", we can find the following: “export moderation, export-price or import-price monitoring systems, export or import surveillance, compulsory import cartels and discretionary export or import licensing schemes, any of which afford protection”. Clearly, these provisions row in the same direction as the competition rules.
More directly related to anticompetitive private conduct, the Agreement on Trade-RelatedAspects ofIntellectual Property Rights (hereinafter, TRIPS) refers to the abuse of intellectual property rights, without specifying the types of abusive behaviour. The TRIPS is an attempt to reduce the differences in regulating intellectual property rights on a global scale, subjecting them to common international standards.
Among the basic principles underlying the TRIPS, non- discrimination (equal treatment for domestic and foreign agents) reappears, as well as the treatment of the most favoured nation[9] and transparency. The objective of TRIPS is “the protection and enforcement of intellectual property rights should contribute to the promotion of technological innovation and to the transfer and dissemination of technology, to the mutual advantage of producers and users of technological knowledge and in a manner conducive to social and economic welfare, and to a balance of rights and obligations”[10]. Again we see how the WTO agreements are related to the objectives of competition policy; both fully coincide in this case.
Besides prohibiting the abuses in this area, as well as the resort to practices which unreasonably restrain trade or restrict the international transfer of technology[11], TRIPS contains a complete section[12] on “Control of anti-competitive practices in contractual licenses”. Here again, the cases in which such licenses should be pursued are described.
The Reference Paper on Telecommunications Services gives explicitly details of anticompetitive behavior. This agreement, signed in 1997, establishes the regulatory framework for the basic telecommunications services and it reflects the consensus among Members to take measures to prevent anti-competitive practices of large corporations that have traditionally provided services in this field. Such anti-competitive practices include:
1. engaging in anticompetitive cross-subsidization;
2. using information obtained from competitors with anti-competitive results; and
3. not making available to other services suppliers on a timely basis technical information about essential facilities and commercially relevant information which are necessary for them to provide services[13].
Furthermore, we can find some agreements oriented to state intervention as a power, understood in a broad sense. Members have agreed to control behaviors that can affect international competition. This control can be both government and judiciary, allowing private agents to enforce the agreements before national courts. This shows the determination of members for creating a competitive environment (Otero García-Castrillón, 2001, p.17).
In the first case, concerning the government control, subsidies play a leading role. These are regulated by the Agreement on Subsidies and Countervailing Measures (hereinafter, ASCM). In this document, subsidies is meant as any financial contribution by a government or public body within the territory of a Member, or where there is any form of income or price support, conferring a benefit.