Competition Law and Development

D. Daniel Sokol, Thomas K. Cheng, Ioannis Lianos, D. Daniel Sokol, Thomas K. Cheng, Ioannis Lianos

• Editore: Stanford Law Books
• Anno: 2013
• ISBN:
  9780804787925
• Edizione: 1
• Argomento: Law
• Categoria: Antitrust

The vast majority of the countries in the world are developing countries—there are only thirty-four OECD (Organisation for Economic Co-operation and Development) countries—and yet there is a serious dearth of attention to developing countries in the international and comparative law scholarship, which has been preoccupied with the United States and the European Union. Competition Law and Development investigates whether or not the competition law and policy transplanted from Europe and the United States can be successfully implemented in the developing world or whether the developing-world experience suggests a need for a different analytical framework. The political and economic environment of developing countries often differs significantly from that of developed countries in ways that may have serious implications for competition law enforcement.

The need to devote greater attention to developing countries is also justified by the changing global economic reality in which developing countries—especially China, India, and Brazil—have emerged as economic powerhouses. Together with Russia, the so-called BRIC countries have accounted for thirty percent of global economic growth since the term was coined in 2001. In this sense, developing countries deserve more attention not because of any justifiable differences from developed countries in competition law enforcement, either in theoretical or practical terms, but because of their sheer economic heft. This book, the second in the Global Competition Law and Economics series, provides a number of viewpoints of what competition law and policy mean both in theory and practice in a development context.

1

Economic Development and Global Competition Law Convergence

David J. Gerber

Global convergence seems to many to be the best, perhaps the only, available strategy for reducing the conflicts, costs, and uncertainties that the current transnational competition law regime imposes on global economic activity. The failed attempt to include competition law in the World Trade Organization in the early 2000s has led many to conclude that multinational coordination regarding competition law has little or no chance of success and that therefore convergence is the only available strategy for improving the legal framework for transnational markets. This convergence strategy is based on the idea that the countries of the world (or at least most of them) will voluntarily move toward a central model of competition law and that this process will reduce the costs, uncertainties, and risks associated with the current jurisdictional system.¹

This chapter examines a fundamental assumption on which the global convergence strategy is based—namely, that a large number of countries outside the United States and Europe will voluntarily adopt a specific conception of competition law that we will here call the “economics-based model” of competition law (EBM).² This view of competition law relies on a specific form of economic analysis as the basis for competition law. The EBM has been developed primarily in the United States,³ and thus the issue is whether a model of competition law created in a highly developed country with a large, open market can attract widespread acceptance and emulation by decision makers in a large number of countries that are not highly developed economically and that do not operate in a large, open market. The entire convergence strategy is built on this assumption, because it can achieve its stated goals only if there is widespread participation by developing countries. This assumption has received little systematic attention, at least until recently,⁴ but its central importance calls for closer scrutiny of its conceptual and empirical foundations.

The chapter reviews some of the support for this assumption. Specifically, it explores the basis for expecting developing countries to converge toward the EBM. It identifies some of the incentives for decision makers in developing countries to follow this model and some of the factors that may influence those decisions.

Two themes are central to the analysis. The first is that claims for convergence as global policy are often built on inadequately supported assumptions about the participation of developing countries. The second is that there is a fundamental tension between the goals of economic development and the strategy of global competition law convergence.

Concepts and Assumptions

Two concepts that are central to this analysis call for clarification. “Developing countries” refers here to countries in which levels of economic development are low by international standards. This definition is obviously loose, but two factors sharpen its contours. First, my concern here is with economic development, as distinguished from social, political, or other forms of development. And second, I use a country’s level of per capita income as the measure of economic development.⁵ There are other measures of economic development, and for many purposes they may be more appropriate than the “growth” standard that I use here.⁶ In most contexts, however, economic development continues to be primarily measured by per capita income levels and I follow that usage here.

Clarifying the concept of convergence is particularly important, not only because it is the focus of this chapter but also because there is much confusion about its use. The term “convergence” is often used loosely to refer to the reduction of differences, but without clarifying which differences are involved, in what ways they are reduced, and between which actors they are reduced, the term is too vague to be useful and it is often misleading. The core meaning of convergence, and the one we will use here, refers to a process that reduces the distance between individual points and a central point (the all-important convergence point).⁷ Here the convergence point is a competition law model with a particular set of characteristics, and convergence is a process that leads other systems increasingly to resemble that model.⁸

As used here, convergence refers to a specific type of process with two main characteristics. The first refers to the “what” of the process. Our concern is with the decisions of state decision makers and with the incentives that shape those decisions.⁹ “Decision” here includes not only or even primarily the formal decisions of legislatures or courts, but all decisions that relate to the enactment, application, and implementation of competition law. The second element refers to the “how” of the process. I include only decisions that are made independently and voluntarily—i.e., those that are neither the subject of an obligation (created by agreement or otherwise) nor subject to coercive pressures from external sources.

Convergence as Global Competition Policy

This chapter focuses on convergence as policy—i.e., as a strategy for achieving particular goals. Here the policy goal is to reduce law-based distortions on global markets, and the method for achieving it is to reduce disparities among the norms of competitive behavior on such markets. It is a response to the inherent weaknesses and limitations of the international jurisdictional system. That system and its inherent limitations frame thinking about competition law at the global level, and we need to review it briefly.

The current legal structure for dealing with transnational competitive restraints is jurisdictional. In it, public international law grants each state authority to take particular types of action with respect to private actors. These international law principles have evolved over centuries for the purpose of avoiding conflicts among states.¹⁰ Our focus here is on one form of jurisdiction that is referred to as “prescriptive” or “legislative” jurisdiction.¹¹ It refers to the authority of a state to apply its laws to those who engage in certain forms of conduct. Note that this jurisdictional system authorizes unilateral state action. It does not provide for collaborative legal relations.

Many of the tensions and problems within the jurisdictional system are rooted in the evolution of these jurisdictional principles. Prior to World War II, international law principles generally authorized a state to apply its laws only to its own nationals (nationality principle) or to conduct that occurred within its territory (territoriality principle). In this arrangement, the potential for conflicts over jurisdiction was limited. Individuals and corporations seldom had more than one legal “nationality,” and relevant conduct seldom occurred in more than one place. Since World War II, however, the so-called effects principle has been added as a basis for jurisdiction. It authorizes a state to apply its norms to those who engage in conduct that has certain kinds of consequences within that state. According to it, any state that is significantly affected by the conduct may be entitled to regulate it. This has greatly increased the potential for conflicts arising from concurrent regulation of the same conduct by multiple states, and this, in turn, has increased the costs, complexities, and risks of transnational business operations.

The globalization wave that began in the 1990s has brought the weaknesses and limitations of the system into high relief through the combined effect of two forces. One is the increasing globalization of markets.¹² Markets have become more global because geographical and political barriers to operating on many of them have eroded. The other is increased reliance on competition laws to protect markets. The number of countries with competition laws has expanded dramatically, as have the resources supporting application of such laws, and this has further increased the probability of jurisdictional conflicts among states as well as the complexity, cost and uncertainty of operating on transnational markets. This reliance has intensified pressures on the jurisdictional system and focused attention on disparities in the rules of conduct on those markets. It has become increasingly obvious that such differences create significant burdens and costs for businesses that may be subject to the laws of more than one jurisdiction.

Reactions to this burden on global economic activity have led in two directions. One was initially centered in Europe, where in the 1990s leaders of the European Commission seized on the opportunity presented by the newly created World Trade Organization (WTO) and sought to include a competition law regime in the WTO.¹³ The effort received some support, but many developing countries opposed it, although their reasons appear to have had little to do with the merits of the basic idea.¹⁴ U.S. representatives also failed to support it.¹⁵ After several years of discussions, the WTO decided not to put competition law on its agenda.

A second response has been a convergence strategy, which emerged during the WTO discussions relating to competition law and was seen by many as an effort to provide an alternative to including competition law in the WTO. It has been strongly supported by U.S. interests, who in 2001 gave this support institutional form by sponsoring the creation of the International Competition Network (ICN), which many view as a vehicle for convergence.¹⁶ I have elsewhere discussed in detail the evolution of convergence as policy and there is no need to recount that story in full here.¹⁷ The main point is that the turn to convergence as a global strategy has been conditioned by the specific circumstances of the period in which it emerged.

The process of convergence is inseparable from its content—the convergence point toward which the process is intended to lead. The content of the process shapes perceptions and evaluations of the process, just as perceptions and evaluations of the process shape ideas about its content. Those who have promoted convergence as a global competition law strategy have typically had a relatively clear picture of what they think the convergence point should be. In order to evaluate the relationship of developing countries to the convergence process, we must therefore look more closely at what that convergence point is assumed to be.

Convergence as global competition policy has emerged in a context in which the EBM is generally viewed as the only politically viable convergence point. The main reason is that the United States is a central player in international commercial relations and U.S. officials have made clear that they would not accept a different conception of competition law as the convergence point. In addition, the EBM appears to be the only well-articulated and clearly identifiable “model” for competition law. There are other conceptions of competition law and other practices, but they are seldom conceptualized and developed in ways that would allow them to serve as models for global convergence. According to this strategy, most countries will gradually move toward a conception of competition law that was created in the United States and has been propagated primarily by its institutions, scholars, and lawyers. The reference here is not to the specific institutional arrangements of U.S. antitrust law, but to the central idea that economics should provide the normative framework for competition law.¹⁸

The EBM posits that a specific form of economics should define the substantive content of competition law—i.e., it should provide the criteria for determining whether conduct is consistent with competition law.¹⁹ There is some disagreement about the specific standards to be used in performing this function, but the key point is that neoclassical economics provides the standard for determining whether conduct is anticompetitive and also supplies the language and the methods necessary for that analysis.

This basic analysis has important enforcement implications. It insists that competition law should intervene in business decision making only if there is strong evidence that the conduct causes economic harm. It thus urges constraint in competition law enforcement and emphasizes the potential harms and risks from intervening in economic decision making. This leads to an enforcement focus on cartels (horizontal agreements among competitors) in part because the economic harm from such agreements tends to be demonstrable and quantifiable. It also discourages enforcement based on vertical relationships and unilateral conduct, because the harm from such conduct is often significantly more difficult to prove and far more dependent on the particular circumstances of the case involved. Economists can, with some confidence, identify the economic harm resulting from horizontal agreements, but the profession has less confidence (and sometimes even categorical denial) of competitive harm in other contexts.

Convergence as Global Policy: Standard Justifications

In order to analyze the incentives for a developing country to move toward this convergence point, we look briefly first at some of the standard claims for relying on convergence as the central strategy for global competition law development. We can then relate them to the concerns, incentives, and perspectives common in developing countries.

For purposes of this analysis, I distinguish between two types of claims supporting a convergence strategy. One refers to the process of convergence and disregards its content. The other focuses on the content of the process—the point toward which convergence is expected to move. These two types of justification are often intermingled, but failure to distinguish between them impedes analysis.²⁰

Process-based justifications for convergence fall into three main categories. One identifies the potential value of standardization; a second relates to network effects—i.e., the impact of convergence on the relationships among the participants; and a third refers to the feasibility of such a strategy.

Standardization-based claims posit that, ceteris paribus, an increase in normative similarity among competition law systems leads to more efficient markets. Where the norms of competitive behavior on a single economic market differ, firms must take these differences and their implications into account in making business decisions. This necessarily distorts their decisions, requiring that they take noneconomic factors into account in making economic decisions. For example, it may lead a firm not to make an investment that it otherwise would have made if competition law differences had not fragmented the market. Similarly, it may lead a firm to invest in one political unit, even though it would be more economically efficient to operate in another political unit within the same market.

These distortions also entail compliance costs. Firms must pay for the information and advice needed to evaluate the implications and consequences of differences among the normative frameworks for competition. These factors represent obstacles to efficient market operation and thus reducing such differences should reduce these obstacles and lead to more efficient markets. According to standard economic analysis, well-functioning markets direct resources to their highest and best uses—i.e., where they produce the most economic benefit and generate the lowest amount of waste. This, in turn, enhances economic growth and may reduce prices to consumers.

A second justification refers to what I call “network benefits,” those derived from participating in the process. The convergence process creates a common frame of reference for discussion and thus facilitates communication and encourages interactions among participants. This allows officials and others to learn from each other and may identify common problems and lead to agreement about “best practices” to deal with specific issues.

The third process-based claim refers to its low cost in relation to other strategies for responding to the limitations of the jurisdictional system. Participation requires very limited resources from the participants. They need not, for example, engage in long and costly negotiations. It also imposes limited opportunity costs, because there are no binding obligations that preclude a country from pursuing what its leaders perceive to be in their best interests.

A distinct set of justifications relates to the specific convergence point of the process, the point toward which competition law systems are expected to move. As noted above, it is widely assumed that the EBM is the only politically acceptable convergence point and thus its features provide justifications for the process.

One set of content-based claims posits that the EBM is just a better form of competition law.²¹ It is portrayed as a more rational and more clearly articulated model that is also less prone to creating economic harm, because it minimizes competition law interventions in market processes. If all states move to a “better” form of competition law, this change will benefit all participants and lead to a more efficient framework for international...