The interface between trade
and competition policy
by
Barbara Casassus, Paris,
22 April 1998
Points of agreement, rather than divergences, should
be the focus of future discussions on the inter face between competition policy
and trade policy, according to several corporate executives.
In winding up a Feb. 21 seminar on this issue,
Douglas C. Worth, Managing Director of Hills & Co. in the U.S., insisted
that business attention would be captured if "less time were spent talking
about differences and more were spent focusing on a real commonality.'' Definitions
"could be fixed along the way,'' he noted. "I do not think we need
to have a long legal battle over every definition before we recognize the fact
that there are commonalities between the two policy sets.''
About 150 officials from government, business,
academia, and the bar attended the seminar--Competition and Trade Policy in
the Global Arena: An International Business Perspective.
Hosted by the International Chamber of Commerce
(ICC), the Organization for Economic Cooperation and Development (OECD), and
the Business and Industry Advisory Committee to the OECD, the seminar designed
to generate reactions to the ICC's draft report on the links between competition
and trade from the business perspective.
One participant noted that differences of view
are sometimes a question of semantics, where speakers use different terms for
the same concept or use the same term for different concepts. One case involved
competition policy convergence and competition policy cooperation, which, in
the end, were taken to mean adopting the best practices, he pointed out.
No consensus emerged over the basic questions dividing
advocates of trade policy and advocates of competition policy. Apart from convergence,
these included the value of antidumping regulation versus antitrust law, whether
public regulation or private sector practices are to blame for problems, the
role to be played by the World Trade Organization (WTO) in competition policy,
according to one delegate, who declined to be identified.
But among the points highlighted were the importance
for business of legal certainty and the speed of appraisal of transactions,
Peter Plompen, Senior Director of Legal Affairs for Philips Intern
ational in
the Netherlands, declared. "Some kind of international mechanism'' is necessary
to ensure that "discretion in applying competition policy judgments is
checked or controlled,'' he insisted.
Regional, Not Global, Perspective
The draft report was criticized strongly by one
of the presenters at the seminar. It "offers a distinctly North American
view, which will, I imagine, at least in part, be supported by the European
Commission,'' Stephen D. Walzer, Senior Solicitor of BAT Industries in the UK,
declared.
"It is, however, not supported in significant
areas by many in European industry, nor indeed by all North American commentators,''
he emphasized.
Competition policy, he stressed, reflects government
objectives. "In this sense, there can be no absolute standard internationally
of national competition law enforcement.''
An exemption in one country can be considered "an
objectionable concerted practice'' in another, Walzer pointed out. "It
has even been said that the grant of an exemption by a national antitrust authority
is likely to constitute a barrier to market access by favoring individual market
participants.''
Since market access is the goal of trade policy,
"it ought to be kept quite distinct from competition policy enforcement,''
he stated. The draft report's term "market contestability'' may be a "mere
economic tool'' that now may be "out of date.''
It would be dangerous to apply on an international
scale the precedent of considering market integration as a competition law offense,
he warned. "There is a world of difference between the compulsory powers
implicit in competition policy enforcement and the horse-trading negotiation
which usually characterizes trade policy.''
The two policies might converge in a global market,
but this does not yet exist, except in "very rare cases, for example large
civil aircraft.''
The adoption of national competition rules is not
"a universal panacea,'' he declared. Singapore and Hong Kong have rejected
the idea; those jurisdictions contend that "there is no discrimination
because the conditions are the same for everybody.'' There is "no objective
evidence that countries with competition laws are gaining some form of advantage
against those without this boon,'' he added.
As to convergence, he observed that cynics doubt
that it would cut transaction costs through better information exchange and
faster merger clearance. "Instead, industry would be likely to be left
with the burden of disparate, inconsistent competition laws and a high degree
of information exchange over its head.''
Reality of Convergence
Douglas E. Rosenthal, of the Washington, D.C.,
office of Sonnenschein, Nath & Rosenthal, disagreed with many arguments
advanced by Walzer, who appears to be aiming for a "standstill.'' The telecommunications
trade agreement included explicit antitrust principles and would have been "un
imaginable'' without "considerable interpenetration of trade and competition
ideas,'' according to Rosenthal, who formerly directed the Foreign
Commerce
Section of the Antitrust Division.
There was no inconsistency in the start within
10 days by the European Commission of investigations into a stainless steel
cartel and antidumping allegations, although such an occurrence leaves a "frightful
mess,'' he said.
Rosenthal remarked that the Asian crisis has shown
that a true world financial market exists and that the International Monetary
Fund (IMF) rescue package for Indonesia includes the commitment to introduce
a competition policy.
The debate over whether to strengthen competition
in trade through bilateral arrangements or within the WTO is a "false dichotomy,''
Rosenthal cautioned. It can "be pursued in both ways and will be,'' he
added. With a commitment to promote consumer welfare, "why shouldn't we
seek to reconcile these two policies in the WTO?''
Herwig Schlogel, Deputy Director General for Trade
Policy in Germany's Economics Ministry, concurred with Rosenthal's assessment.
The WTO system should be used because it has an agreed, functioning set of rules,
including a dispute settlement system, he pointed out.
That does not rule out a later debate over whether
competition policy should replace trade policy, or vice versa, he continued.
Either way "could be quite relevant,'' but the issue is not on the agenda
at the moment, according to Schlogel, who is Co-Chair of the OECD's Joint Group
on Trade and Competition.
Role for WTO
Worth, who is Vice-Chair of the ICC's Commission
on International Trade and Investment Policy and chairs the BIAC Trade Commission,
endorsed a role for the WTO in tackling competition policy. "I say, damn
the obstructionists and full speed ahead,'' he declared. "We have a long
way to go.''
The WTO has developed the technical competence
to achieve integration and balance in trade rules and should be responsible
for standards that would "have the effect of wringing out of the global
marketplace much of the latitude for unassailable, arbitrary treatment of trade
and investment flows,'' he added.
Several speakers called for the WTO to proceed
slowly on competition policy. "We must be careful not to kill the goose
that is laying the golden eggs,'' David Wakeford, International Trade Manager
at ICI Group Headquarters in the UK, warned. "Whilst there is without any
doubt a role for the WTO in defining a framework for the implementation of competition
policy, I believe that it is premature to develop a sophisticated multilateral
approach to competition,'' he suggested.
"When the global economy becomes more homogenous,
this is when trade and competition rules should be more seriously integrated
into the WTO activities.'' Until then, "the WTO should only be used to
establish principles and minimum standards for implementation of competition
law on a national or regional basis.''
Paul Victor, of the New York City office of Weil, Gotshal &
Manges LLP, summarized Chapter 6 of the draft report and recommended that the
WTO "move slowly" on competition policy.
The WTO lacks institutional experience in the antitrust
area and should not be used for
settling disputes over anticompetitive practices,
Victor maintained. The OECD "remains the most promising forum within which
to address the relationship between trade and competition policies as they interface
on market access questions.''
Anton van der Lande, Vice President of Public Affairs
International at United Parcel Service in Belgium, insisted that it is premature
to "achieve a body of substantive competition rules.'' But, he added, there
is "considerable value in moving towards such a goal,'' and the WTO should
agree on a broad competition framework.
This would include pledges by members to adopt
effective legislation covering mergers, monopolies, state aid, predatory pricing,
and cross-subsidization and to set up a domestic competition authority. In contrast
to the report, he contended that the WTO dispute settlement mechanism could
be used, but he added that it would continue to be accessible only to governments
and would be binding.
Frederic Jenny, Vice President of France's Competition
Council, dismissed the idea of conflict between bilateral or regional competition
policy agreements and a multilateral WTO pact.
Even if they overlap, the two are complementary,
depending on whether the practices have an anticompetitive effect abroad or
a market foreclosure effect, according to Jenny, who also chairs the WTO Working
Group on the Relationship between Competition and Trade Policy and chairs the
OECD's Competition Law and Policy Committee.
A basic problem in a dialogue between competition
and trade is the basic perception by business that competition policy and law
enforcement is not reliable, he pointed out. As a result, because of the rule
of reason, there is considerable skepticism about the development of competition
policy, bilateral agreements, or exchange of information because it is not known
how they will be used, he said.
Conversely, competition policy practitioners are
rather reserved about the use of the dispute settlement mechanism because it
cannot accommodate a rule of reason approach, which is central to economic analysis.
"This is an issue which is underlying the difficulty of discussion on trade
and competition, which should be taken up,'' he declared. "I believe you
can have rule of reason and predictability, even in market definition.''
Leonard Waverman, an economics professor at Toronto
University in Canada, insisted that there is no inconsistency in regional and
bilateral agreements. On the contrary, they could have a "very positive
impact.'' Pacts within Asia or Africa "without western intervention would
be a useful way of building consensus'' on policy, he added.
He dismissed the argument that the goal of antitrust
policy is consumer welfare. "This is misleading and economically incorrect,''
he asserted. "Competition policy is about total social welfare, both producer
and consumer surpluses.''
Speaking for developing countries, Gesner Oliveira,
President of Brazil's Administrative Council of Economic Defense (CADE), recommended
that the issues should be taken up at multilateral and regional level.
The WTO should draw up "basic core principles
for competition agencies.'' There could be more ambitious targets at regional
levels, he noted. In some cases already, compe
tition rules have replaced antidumping
rules, he added. An example is the Mercosur's Fort Elisabeth protocol.
As to domestic rules, Brazil has published its
rules on the Internet in English and Portuguese and has invited suggestions
for improvements from the business community. New proposals will be released
in about a fortnight, he stated. Another problem is the confidentiality of information.
"The vast majority of competition bodies are not yet prepared for more
ambitious competition agreements'' because the treatment of confidential information
is not rigorous enough, he added.
Prospects for Linkage
Calvin S. Goldman, of the Toronto, Ontario, Canada,
office of Davies, Ward & Beck, predicted that action on linking trade and
competition policy is still a long way off.
Goldman, who chairs the ICC Joint Working Party
on Competition and International Trade, which produced the draft report, asserted:
"A greater understanding of the linkages between the two policy fields
is necessary before specific concrete recommendations for going forward can
be made.'' However, he added, "in this ongoing process, international businesses
are concerned that business interests be addressed.''
Fabrice D'Aprile, Legal Counsellor, Trade and Economic
Affairs of the European Chemical Industry Council (CEFIC) in Belgium, maintained
it is too soon after the end of the Uruguay Round of GATT talks to reopen the
antidumping issue in the context of links between competition and trade policies.
Such a move could even be counterproductive, since
a number of countries are only now adopting anti dumping laws, he pointed out.
It also could undermine progress in other competition policy areas--such as
market contestability, restrictive business practices, and cooperation between
antitrust authorities.
But for Arne Rodin, Director of the Swedish Foreign
Affairs Ministry's International Trade Policy Department, governments are to
blame for "shying away'' from the debate, both within the WTO and to some
extent within the OECD.
Governments even have censored some studies on
the question but should "look at the possibility of including some ideas
from competition policy with antidumping rules.'' Meanwhile, fewer antidumping
suits would be brought if national competition and trade authorities cooperate
more closely and international competition policies are used more extensively,
he asserted.
One question to be answered by critics of antidumping
measures is whether they are really prepared for the antitrust process to be
a substitute for damages, according to Robert Lipstein, Managing Partner of
Lipstein, Jaffe & Lawson. "Are antidumping actions really all that
expensive compared to antitrust actions?''
Nisser pointed out that deep cultural differences
had led to the fact that many cases were brought in North America but few were
brought in the EU. Only 396 complaints were filed in 1996 in the EU, which is
"not very much,'' he acknowledged. Even after fines had been imposed by
the courts, "very rarely'' are claims for damages filed, he pointed out.
For complaints to work, they must be channeled
through the European Commission's Directorate General IV (DG IV), bu
t this requires
more manpower. DG IV does not have enough staff to cope with the extended merger
control mechanism, Nisser noted. "We really have a problem,'' he warned.
Lipstein also said that private enforcement would
be a prerequisite to eliminating antidumping laws. However, Debra Valentine,
General Counsel of the FTC, suggested that the definition of the proper plaintiff
to bring a private right of action should be limited. In the U.S., she explained,
the complainant has to prove harm to competition, which eliminates many frivolous
cases.
For Allan Fels, Chair of Australia's Competition
and Consumer Commission and Co-Chair of the OECD's Joint Group on Trade and
Competition, allowing private rights of action would give foreign companies
greater assurance that they would receive the same treatment as domestic firms.
"They would feel more secure,'' he predicted.
OECD countries' competition laws provide that there should be no discrimination,
so that Australia has asked the BIAC to see whether this is reflected by the
facts, he observed.
On market access, Fels reported that a search for
cases where a "genuine'' market access problem has not been solved by competition
policy in the broad sense, beyond antitrust law, had produced very few examples.
He added that he welcomes the fact trade policy is anti-competitive had been
recognized in the debate, that trade liberalization could be frustrated by failure
to enforce competition policy, and that anti competitve regulation could get
in the way of trade liberalization.
On the subject of antidumping, Dieter Wolf, President
of Germany's Federal Cartel Office, said that it would be "quite an achievement''
if the antidumping rules adopted the antitrust definition of what constitutes
a market. He was "skeptical'' about the theory that antidumping and antitrust
laws have a similar impact on price discrimination.
Antitrust law is applied by independent authorities
or the courts, whereas antidumping measures often are applied in a "political
background and lack transparency and legal certainty.''
The WTO offers opportunities for countries without
competition laws to become "better acquainted with the idea of protecting
competition,'' but it is a "broad forum'' and therefore does not preclude
the need to "continue with extended and enhanced bilateral agreements,''
Wolf said.
As to the question of market access and presence,
Douglas A. Gregory, Senior Advisor for International Trade and Investment at
IBM Canada, asserted that effective access implies that competition policy principles
come after barriers to entry have been addressed by international trade or investment
initiatives. But these "principles'' do not necessarily mean that antitrust
laws, even though "many, particularly in the legal profession, jump to
this misconclusion.''
Carl Nisser, of Advokatfirman Nisser in Belgium,
called for the OECD to "give a head start'' on convergence of competition
laws and policies among the major trading blocks. North America, the European
Union, and Japan represent 65% of world trade, he pointed out.
He urged the adoption of common definitions. If
the OECD could set definitions that are accepted by the WTO, "at least
we would be talking about t
he same thing,'' he said. This would give "legal
certainty'' that foreign investors are to be treated the same as domestic companies,
he added.
On the issue of convergence, Robert C. Weinbaum,
of the General Counsel's Office of General Motors Corp., in Detroit, Mich.,
rejected fears that it would lead to greater cooperation among governments.
This is "putting the cart before the horse,''
according to Weinbaum, who chairs the American Bar Association's Section of
Antitrust Law. By contrast, he added, "cooperation will lead to convergence.''
The world is moving towards a "network of
cooperation among different states,'' where the less sophisticated look to the
more sophisticated for help, whether their laws are the same or not, he explained.
Initially, convergence may be "primitive'' but eventually will become substantive,
involving agreement on such fundamental issues as what constitutes a cartel,
he predicted.
For Michael J. Reynolds, of the Brussels, Belgium,
office of Allen & Overy, cooperation within the EU is improving, although
business still wants the thresholds for merger control by the Commission to
be lowered. Making life more difficult is the fact that more countries are adopting
national compulsory merger control and filing requirements, he pointed out.
The Netherlands is one example.
Even minor procedural improvements, such as the
common filing form adopted by the United Kingdom, France, and Germany, "can
have a considerable effect on business,'' he insisted.
As to delays in hearing privates actions, Reynolds
noted that a German company is suing the European court for damages as a result
of the time it was taking to hear its appeal against a decision of the European
Commission. He did not identify the company.
Although the draft report calls for a framework
to address the concerns of business over the interface between competition and
trade policy, this may take too long for some, Gregory indicated. "Recent
actions have clearly demonstrated that some members of the business community
are not likely to be willing to wait until the debate is fully exhausted,''
he declared.
(Reprinted with permission from Antitrust &
Trade Regulation. Report, Vol. No. 1850, pp. 221-225 (5 March 1998). Copyright
1998 by The Bureau of National Affairs, Inc. (800-372-1033) http://www.bn.com)