The international competition network: prospects and limits on the road towards international competition governance

Abstract

The establishment of the International Competition Network (ICN) opens up a new avenue towards an international competition policy regime. This article describes the underlying transmission mechanisms and governance modes of the ICN and connects them to the insights of modern economic theory. Based on the results, the prospects and limits of the ICN concerning conflict resolution, procedural efficiency, political economy fit and the conflicting areas of harmonization and decentralism of rules and policies are derived. It is shown that the ICN offers considerable merits, such as increasing procedural efficiency and facilitating consensus building. However, some problems of international competition governance, such as the focus on national interests and the scope for substantial conflict, are unlikely to be resolved within the ICN. Additionally, the attitude of the ICN towards future harmonization or preserving of institutional diversity remains unclear.

Keywords:

• International Competition Network
• World Trade Organization
• global governance
• international institutions
• competition policy
• international cartels
• cross-border mergers
• international antitrust

Notes

The fundamental characteristics and working properties of such a competition of competition laws, a derivate of institutional competition, are often not thoroughly analysed. Kerber and Budzinski (2004) demonstrated that significantly different concepts of regulatory competition have to be distinguished in order to derive benefits and disadvantages of competitive antitrust regimes. For example, one must consider that the application of the effects doctrine significantly reduces the scope for direct types of competition of competition laws, implying that the internal logic of the ‘anarchic’ system might be contradictory – at least if it is based on an extensive application of the effects doctrine (Kerber & Budzinski 2004).

See, among many, Immenga (1994), Fikentscher and Immenga (1995), Fox (2003), Drexl (2003) and Guzman (2004).

In particular, cartels were viewed as an effective instrument against the threat of deflation which was inherent in the contemporary gold standard currencies. However, concerns about the negative market effects of cartels started to become popular in the early 1900s. Nevertheless, it took more than four additional decades until anticartel policies were implemented in Western Europe.

On these developments generally see Wells (2002: 4–89). For the Canadian development see Legault (2002).

The OECD efforts started in 1967 and its Competition Law and Policy Committee intended to provide periodic examinations of national competition policy systems, to produce collective reports on substantive issues in competition law (such as predatory pricing or franchising) and to consensually implement policy recommendations. However, the ongoing unsuccessfulness of the latter two goals eventually forced the OECD to drop them (Jenny 2003a).

The UNCTAD enacted a Restrictive Business Practices Code in 1980. A comparative overview on international networks of national competition policies is provided by First (2003). On the history of attempts towards international competition policy regimes generally see Wells (2002).

The proposal was strongly influenced by the Draft International Antitrust Code (DIAC 1993) provided by the Munich Group of academic antitrust experts (predominantly consisting of legal scholars; see Fikentscher & Immenga 1995).

WTO Ministerial Declaration 14 Nov. 2001, WT/MIN (01)/DEC/1 (20 Nov. 2001). See also Clarke and Evenett (2003), Fox (2003) and Jenny (2003b).

With the Doha Declaration it becomes unclear whether substantial harmonization still lies at the heart of the WTO path. Complaining about ongoing ‘misconceptions abound (even in learned journals) regarding the nature and likely scope of a possible WTO agreement on competition policy’ (Jenny 2003b: 620), WG chairman Frederic Jenny (2003b: 622) emphasizes that ‘these current proposals have very little in common with calls for development of a detailed multilateral “code” on competition policy … or related calls for the establishment of an international competition law enforcement agency …’, but, instead, ‘are less ambitious than elements that were proposed in the past. … They do not aim at a comprehensive ‘harmonization’ of competition law …’, instead much ‘emphasis would be placed on voluntary cooperation … and the exchange of national experience’. However, both Clarke and Evenett (2003) and Fox (2003) seem to be far less strict in excluding substantial harmonization from the future WTO path.

Stewart (2004) argues, however, that competition policy was not the decisive issue which caused the failure. See also Drexl (2004).

Contrary, jurisdictions with important domestic markets like the USA and the EU generally are able to enforce their competition rules against multinational enterprises by threatening them with the restriction of market access.

More precisely: four academics, of which two are well known antitrust experts (political scientist Merit Janow and legal scientist Eleanor M. Fox), additionally one labour economist (emeritus John T. Dunlop) and one professor of business administration (David B. Yoffie); five lawyers and legal practitioners; three industry lobbyists; one representative of the Markle Foundation. It has to be noticed that no antitrust economist is among the ICPAC members which seems a little bit odd since the USA, in most international antitrust discourses, puts heavy weight on (industrial) economic expertise and evidence.

However, one of the most prominent ICPAC members, Eleanor M. Fox, disagreed with this conclusion (ICPAC 2000: 303–305).

For a general analysis of this phenomenon, see Keohane (2002) and, with respect to competition policy, Gerber (2003) Stephen (2004) and – also in respect to the ensuing argumentation – Wood (2004).

There are a number of interesting analogous features to the International Organization of Securities Commissions (IOSCO) and a comparative analysis of the ICN and the IOSCO would be worth a research project. However, due to the scarcity of space this has to be done in a different paper.

Ulf Ba¯ge (Federal Cartel Office Germany) is currently the chair of the Steering Group. His predecessors were Ugarte from September 2003 until September 2004 and Finckenstein from 2001 to 2003.

This includes the international competition authorities of the EU, the European Trade Free Association (EFTA) and the Andean Community. The number of member agencies is far higher because many jurisdictions have more than one competition agency.

See, for example, Böge & Müller (2002) and the contrary opinion of Vickers (2003). In the course of the modernization process, the EU has reformed the merger regulation. This includes an evolution of the standard for prohibiting mergers with the implementation of the newly created SIEC Test (‘Significant Impediment to Effective Competition’). Instead of ‘A concentration which creates or strengthens a dominant position as a result of which effective competition would be significantly impeded in the common market or a substantial part of it shall be declared incompatible with the common market’, the new Art. 2 (3) EU Merger Regulation (since 1 May 2004) reads ‘A concentration which would significantly impede effective competition, in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position shall be declared incompatible with the common market’. Only the future merger control practice will show to which extent this implies a substantial change in European merger control policy. One of the most probable effects is the inclusion of unilateral effects (in addition to co-ordinated effects) in oligopolistic merger cases in the light of the judgments of the European Court of First Instance in Airtours/First Choice, Schneider/Legrand and Tetra Laval/Sidel. See also Budzinski and Chrrstiansen (2004) and Voight and Schmidt (2004).

The decisive difference between the European and the US evaluation was the differing weight put on short-run price decreases and on long-run contestability problems, respectively. Whether efficiency in the sense of short-run and (maybe only temporary) price decreases is accepted as a defence for antitrust concerns in terms of market power, increasing opportunities for exclusion, and a long-run decrease in contestability is neither ruled out by the application of ‘market dominance’ nor prescribed by the application of ‘SLC’. See, on the European line of thought, European Commission (2001) and Drauz (2002), on the American view Kolasky (2002) and Pflanz & Caffarra (2002). See also Reynolds and Ordover (2003) as well as the excellent analysis of the (ideological) origins of the divergent views by Gerber (2003). Moreover, without changing the substantial rules (like the SLC criterion), the US antitrust policy has gone through a couple of major changes in regard to the underlying theories in the last decades. For instance, the switch from Harvard-dominated to Chicago-dominated competition policy during the Reagan administration took place without a reform of the Sherman Act or the Clayton Act. Instead, according to Fox and Sullivan (1987), central terms and concepts of antitrust law became interpreted in a different way.

Currently, the US antitrust authorities are generally said to be more dedicated to the Chicago School of Antitrust Analysis whereas the European competition policy is said to argue on a less clear-cut theoretical basis, instead referring to a larger variety of economic competition theories (Post-Chicago industrial economics, European derivates of the Harvard School, the Freiburg School (Ordoliberalism), etc.; see also Hildebrand 2002). However, from a non-ideological perspective, one has to concede that there is a variety of competition theories in economics and corresponding competition policy paradigms and there is no scientific way to identify an ‘ultimate’ one (Budzinski 2003). Moreover, the scientific competition of ideas will hopefully continue to produce new alternatives. For the line of argument here, it is only of relevance that competition policy paradigms can change without altering the substantial rules.

See the working programme of the Merger Control SGI in the following section.

See, for example, Tarullo (2000) (regulatory-convergence approach), Maher (2002) (regime-building competition policy networks), O'Connor (2002) (convergence through enforcement networks and decentralized case law evolution) and First (2003) (mapping national and international antitrust networks). A more general theory of supranational legal networks is provided by Ladeur (1997).

For example, people might refuse to accept foreign shareholders of local enterprises that serve as symbols for a specific region.

Contrary to many central banks (like the European Central Bank), competition agencies usually have a significant lower degree of independence from political influence. For example, the competition agency of the EU is part of the political executive organ (EC) and the US antitrust agencies are either part of the government (Department of Justice, Antitrust Division) or their independence is rather limited (the Federal Trade Commission is not independent concerning their budget and the appointment and removal of its leading professionals). Even the Bundeskartellamt (Federal Cartel Office of Germany) loses de facto some of its theoretical independence because of the Ministerlaubnis (§§8, 42 GWB), i.e. the discretionary power of the German Federal Minister for Economic Affairs to abolish a merger or cartel prohibition by the Bundeskartellamt on the grounds of (rather vague) public interest considerations. Against this background, a number of experts argue in favour of institutionally and factually independent competition agencies, see Schmidt (2001).

The ICN attempts to strengthen the role of competition agencies as advocates for competition, especially concerning merger control issues, see earlier section ‘The Working Groups’.

This refers to the 1998 extension of the antitrust co-operation agreement between the USA and the EU.

Anti-competitive mergers of national enterprises are sometimes allowed because they are believed to increase the international competitiveness of domestic industry (creation of ‘national champions’ or ‘domestic global players’). Sometimes, the same line of thought is applied to prevent national enterprises from being taken over by foreign competitors.

See the overviews by Krugman (1987) (concluding that rather specific assumptions are needed), Kemp (2001) and Kemp and Shimomura (2002) (concluding that none of the challenges can be sustained in general). In analogy to the well-known strategic trade policies one may call this ‘strategic competition policy’. Although economic theory also demonstrates that such strategies are unlikely to yield increases in total national welfare in reality, the mere possibility of strategic gains may, nevertheless, serve as a justification for politicians to engage in discriminating strategies. This is especially true if there are vested interests and domestic lobby groups whose welfare becomes increased through internationally anti-competitive national competition policies. Even though total national welfare may be likely to become hampered, imperfect political competition and biased public opinion might offer enough incentives and discretionary scope for politicians to favour strategic competition policy – at the expense of international competition and world welfare. Moreover, the application of strategic competition policies is likely to be reinforced and can develop strong persistence due to prisoners' dilemma problems (Budzinski 2004a: 4–10). See more elaboration on strategic competition policy in Kerber and Budzinski (2004: 41–49).

The guiding principles of the merger WG serve as a good example: who would argue against ‘transparency’ or ‘procedural fairness’?

As the section entitled ‘Best Practice Proposals …’ argues, it is not unambiguously clear that substantive harmonization, although efficient from an enterprise point of view, is beneficial overall.

See, for controversial discussions, First (2003), Gerber (2003), Stephen (2004) and Wood (2004).

This consideration is based on the assumption that one cannot derive optimal competition rules and antitrust practices from theory because of the simple fact that there is no ultimate competition theory. From a non-ideological perspective, there are numerous and largely incompatible economic competition theories and policy paradigms. Since this fuels a beneficial competition of ideas, this pluralism of theories is a sustainable, permanent and desirable phenomenon. Every progress in competition economics (as in every scientific discipline) is provisional and subject to further and future challenges. For more elaboration, see Budzinski (2003). Against the background of sustainable theory pluralism, a process of mutual learning becomes beneficial because different competition policy paradigms can be tested in reality in a process of parallel experimentation. Yardstick competition means that competition agencies (and other relevant agencies and agents) observe each other and their success or failure in the governance of competition and, thus, can learn from each other's performance. See Kerber (2003) and Kerber and Budzinski (2004) for more details.

Contrary to a policy-determined, ex ante harmonization (top–down approach), a self-organized (quasi market-determined), ex post harmonization must not be designed in advance and is not subject to political–economic inefficiencies of negotiations of international agreements (bargaining, minimum consensus, strategic behaviour, etc.). Instead, a best-rule-harmonization emerges as a bottom–up approach out of the interaction of the competition agencies themselves. For a thorough comparison of different paths to harmonization, see First (1998) and, for an analysis of bottom–up versus top–down policy approaches, Wegner (2003).

See, more generally, on the sustainable demand for diversity in international competition policy arrangements Budzinski (2002: 115–119). This can be rooted in the theoretical background of the economics of federalism, applied to antitrust (Easterbrook 1983; Van den Bergh 1996; Kerber 2003).

See, additionally and more implicitly, Easterbrook (1983), O'Connor (2002) and Grimes (2003). In the US antitrust system, two federal agencies are complemented by industry-specific regulatory agencies with competition policy competences, the state attorneys general and private litigation. Also concerning competition laws, a dualism of federal and state antitrust laws exists.

Of course, theoretically, far more centralized regimes are possible, such as the implementation of a World Competition Agency with comprehensive competencies, enforcing a uniform World Competition Code. However, there is no sign of scenarios like these in the current development of international competition governance. Thus, the WTO – albeit only moderately centralizing – represents the only realistic avenue towards middle-term substantial harmonization.