Extraterritorial Antitrust

The Sherman Antitrust Act And U.s. Business Abroad

James B Townsend

• Publisher: Routledge
• Year: 2019
• eBook ISBN: 9780429727535
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

This book, the first unbiased investigation of the effects of extraterritorial antitrust on U.S. business abroad, examines the influence of the Sherman Antitrust Act on the market-entry strategy of U.S. multinational corporations and assesses the interaction of public interest and the law.

1
Introduction

Purpose of the Study

This study focuses on the nexus of the general areas of international business and business-government relations. The matter considered lies in the field of antitrust legislation, where case decisions are frequently nebulous and consequent interpretations of the law may be as frustrating as they are puzzling. More particularly, this study scrutinizes the Sherman Antitrust Act and its influence on U.S. business abroad in the form of the international operations of U.S. multinational corporations (USMNCs).

The study therefore examines the extraterritorial aspects of the Sherman Act. Although it is held that the Act is essential to the maintenance of competition in the domestic commerce of the United States, its relationship to U.S. foreign commerce is a different picture painted against an entirely different background. Relatively few of the cases of the Act pertain to foreign trade, and its application to specific acts abroad has fittingly been described as "relatively obscure." Applicable literature is sparse and has been characterized as being in a state of confusion. Moreover, the matter of antitrust extraterritoriality usually is merely an addendum to a general discussion of antitrust.¹

The entire field of antitrust has generated few black and white distinctions, but has produced infinite shades of gray. Feelings among students, practitioners, critics, and supporters of antitrust, however, tend to be expressed in harsh tones. Each opinion provokes an equally fervid counteropinion. The only true agreement lies in disagreement. Indeed, the applicability of receive the same treatment in economic transactions.'¹ The book is composed of four sections. The first contains four purely theoretical essays. Section two is made up of three chapters that employ the neoclassical theory of discrimination to explain the apartheid system of South Africa and the changes that discriminatory practice has undergone over time in that country. In section three, five essays deal with the question whether economic sanctions - trade and investment boycotts are likely to be efficient weapons for combating racial discrimination, notably in South Africa. The last chapter of the book examines how the apartheid system has turned from being a growth engine to being an obstacle to growth, and how this has created pressure for change in terms of racial policy.

Economic discrimination has been discussed mainly in two contexts: men versus women and whites versus blacks, mostly in contemporary society.² However, this does not mean that discrimination in economic life is a modern phenomenon. It is quite easy to provide evidence to the contrary: slavery, the caste system, feudalism, the medieval guilds, exclusion of foreigners from various kinds of trades, etc. Human history abounds with examples of unequal treatment.³

Nevertheless, the economics of discrimination is a relatively recent branch of economic theory. It began with the British Equal Pay Controversy in the 1890s and continued during World War I - with controversy over the reasons for observed wage differences between men and women - and extended to the development of monopsony theory in the 1930s and Gunnar Myrdal's An American Dilemma, published in 1944, in which discrimination is viewed as one of the central components of a cumulative process that created a 'Negro problem' in the United States.⁴

These contributions were mere forerunners, however, to the modern theories, sparked off by the publication in 1957 of Gary Becker's The Economics of Discrimination.⁵ Becker dealt with three different types of discrimination: by consumers against commodities produced by certain groups, by employers against certain employees, and by one category of workers against another. His analysis was carried out in terms of a 'taste' for discrimination on the part of the discriminating group, i.e. this group is prepared to forego pecuniary income because it dislikes the members of another group. Becker also contributed another innovation to the analysis of discrimination: He divided society into two groups, 'whites' and 'Negroes'. These two groups, in fact, constitute perfectly segregated societies with different relative endowments of labor and capital. White may be difficult, but to recognize one, as Justice Stewart said of obscenity? is not necessarily dependent on exact definition.⁸ It has been said that the MNC "has something in common with happiness or misery. No one can define it, but you always know when it is there."⁹ The most useful definition, and the one adhered to in this study, is that of "a company managing scattered foreign operations with a single corporate strategy from one central nerve center."¹⁰ This parallels the description of the MNC as a company of global market outlook in which "basic decisions with respect to marketing, finance, production, and research are made on the basis of the alternatives open to it anywhere in the free world,"¹¹ or as an integrated worldwide operation with strongly centralized decision making.¹²

"Extraterritorial application" may be defined as the employment of U.S. domestic antitrust statutes in considering the business operations of U.S. enterprises outside the territorial limits of the United States. The study excludes domestic antitrust except where a decision or principle may have an extraterritorial aspect. Therefore, the terms "antitrust law" and "antitrust policy" may generally be taken to refer only to the body of extraterritorial legalities.

The term "foreign commerce," frequently used in this study, includes exporting (and importing), licensing, and ownership abroad. Although common in the literature, these general headings lack specificity and thus create the impression that not all commercial eventualities are included, when in fact they are. Any business possibility imaginable can be placed under one or more of these headings and, unless the possibility has been specifically exempted by legislation, is subject to antitrust law. For example, licensing embraces manufacture, use, sale, patents, processes, skills, know-how, trade secrets, trademarks, copyrights, goodwill, and so on. Further, contract manufacturing, offshore assembly operations, and leasing are included in "foreign commerce" and fall under the antitrust laws. A lease that restrains trade violates Section 1 of the Sherman Act, and a lease that represents an attempt to monopolize violates Section 2. The same would be true in contract manufacturing and offshore assembly operations.

Competition, in the commercial sense, is "the effort of two or more parties to secure the business of a third party by the offer of the most favorable terms."¹³ Thus the question of whether a U.S. multinational corporation (USMNC) has been made less competitive essentially addresses opportunities in foreign commerce that were never seized, events that never occurred, or markets that were never entered. Singly or in combination, all such instances could be expected to affect the overseas market-entry strategy Of USMNCs.

Research Questions

The primary research question that devolves from the objectives above is

How has the overseas market-entry strategy of U.S. manufacturing multinational corporations been affected by the extraterritorial application of the Sherman Antitrust Act?

This primary question suggests two crucial subsidiary questions:

1. In what direct ways has the Act made the USMNC less competitive abroad?
2. In what indirect ways has the Act made the USMNC less competitive abroad?

The research question addresses the effect of the Sherman Act on the overseas market-entry strategy of USMNCs. The obvious components of the question are the law and the multinational corporation. The operative law is an expression of public policy. The unknown in the equation is the weight of the law on the competitiveness abroad of the USMNC. It is accepted that for every action, there is an equal and opposite reaction. Logically, then, the USMNC in some manner seeks to accommodate itself to the effect of the law. Since the effect is not known, it must be ascertained before the research question can be answered.

The question of market-entry strategy as defined by this study was general (qualitative) rather than specific (quantitative) and was couched in broad terms. The approach taken to answer the question had to be correspondingly broad, but not so broad as to obliterate or overlook what was meaningful. A crude analogy is that of a person who is ill. Before he can be treated in a specific way to restore his health, he must describe his feelings and his symptoms must be observed. His responses can be expected to be general in nature, while his symptoms will be more or less grossly discerned. Observation and response provide the basis for a diagnosis. Only then can meaningful treatment be undertaken.

Research Methodology

The research question required that inquiry be conducted in the form of a descriptive survey, research ex post facto in nature, using the vehicle of a nonquantitative pilot study. This combination was seen as the optimum means of considering a question general in aspect and broad in possibility. The overall qualitative approach was a choice reflective of the exploratory nature of the research, and standard research methods were used.

Descriptive research, as opposed to experimental, tries to answer the question, "What exists?"¹⁴ This type of research explores the present state of things by systematically eliciting the facts and characteristics of a population or area of interest. It literally describes events or situations in order to collect detailed information that speaks of existing phenomena, identifies problems, and makes comparisons and evaluations.¹⁵ The descriptive survey classifies, analyzes, and interprets information obtained from scrutiny "to abstract whatever generalizations are possible and necessary or desirable" for answering the research question.¹⁶

Since the principal data obviously had to be obtained from USMNCs, their large number gave serious pause when data collection was considered. An auditor is continually confronted with an analogous situation: the sheer volume of transactions before him precludes complete examination. Inferences must be made about all data from the portion of data separated out for analysis, and the portion chosen represents judgmental sampling, since items are chosen subjectively without regard for the statistical requirements of sample size, method of selection, or evaluation of results. Judgmental sampling is appropriate where an auditor is not required to project from sample results to the entire population.

A judgmental sample is selected as a matter of personal evaluation. It may even be superior to a probability sample in very small-scale surveys or in pilot studies that precede major surveys. Since judgmental samples are subject to bias, the validity of their results cannot be assumed with certainty.¹⁷ For this study it was immaterial that a judgmental sample cannot be used as a probability sample, because nonprobability sampling is valid for use in pilot studies. The size of the data collection problem dictated the selection of a nonquantitative pilot study as the collection vehicle.

Analysis shewed that the law could affect U.S. foreign commerce in the form of exports, licensing, and ownership. Precisely how was no better known than the cumulative effect of the law on the USMNC. The research question hinged completely on findings of effect, yet effects previously reported in the literature were almost hopelessly vague and nonspecific. Ascertaining effect would meet the principal objective of the study--that of determining whether the Sherman Act is a handicap in U.S. international trade. Ferreting out the effect of the law in the abstract on trade possibilities would contribute to a better understanding of extraterritorial antitrust, a corollary objective. Understanding both the law and its effect would indicate whether there is a valid basis for reexamining today's antitrust policy. The realization that law is public policy suggested that any reexamination should be considered only...

Table of contents

• Cover
• Half Title
• Series Page
• Title
• Copyright
• Contents
• List of Tables
• Preface
• 1. Introduction
• 2. Background
• 3. Review of Judicial Precedents
• 4. The Use of Judicial Precedents
• 5. Judicial Precedents and the Public Interest
• 6. Summary and Conclusions
• Appendixes
• Bibliography
• Table of Cases
• Index