The Emerging Principles of International Competition Law

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Chris Noonan
Print publication date: 2008
Print ISBN-13: 9780199207527
Published to Oxford Scholarship Online: January 2009
DOI: 10.1093/acprof:oso/9780199207527.001.0001

Introduction
Chris Noonan
DOI:10.1093/acprof:oso/9780199207527.003.0001
Abstract and Keywords

This introductory chapter begins with a discussion of the scope of the study, covering
the international competition law system, the inter-relatedness of international
competition law problems, and the comprehensive coverage of international business
activity. It then clarifies the meaning of some terms that are often used to describe
aspects of the internationalization of law. An overview of the subsequent chapters is
presented.

Keywords: international competition law, international business activity,

internationalization of law
1.1 The Scope of the Study
1.1.1 The International Competition Law System

International competition law exists because the world is divided into states with
exclusive territorial jurisdiction. Many firms operate in complex legal environments,
where several states often regulate the same activity against a background of
international law. International competition law, therefore, is not simply a scaled-up
version of national competition law applied to international markets. The defining
problems of international competition law revolve around fragmented and
overlapping authority and the collision of national interests.

The importance of international competition law has grown with the increasing
integration of national economies and the proliferation of national competition law
regimes. International competition law problems arise where one country perceives
that the way that another country does or does not apply its competition law
adversely affects its interests. This book argues that there is an evolving
international competition law system, albeit in a somewhat chaotic state. The
international competition law system embraces all national and international laws and
institutions related to competition law. States are only, beginning to see the system as
a whole and are still struggling to identify where their long-term interests lie. This
book describes the elements of the system and their interaction, and explains how the
system is evolving, with the view to suggesting what states, individually and
collectively, could do to modify the system to the advantage of all states. A
set of principles is shown to be emerging in international competition law. The focus is
on the identification of international competition law problems and ways to reduce or
eliminate those problems, without proselytizing any particular approach to national
competition law. The adoption of a set of core principles would do much to
assist states to reduce problems without attempting to compel the
convergence of competition laws, in particular agreement on the consistent
application and enforcement of competition law rules.
The emergence of an international competition law system is a product of three
more specific developments, which are outlined in the remainder of Section 1.1.
First, the practice and study of international competition law is undergoing a (p.4)
transformation from a subject that was fixated with the legitimacy of the
extraterritorial application of competition law, to one that is primarily interested in the
role of competition law in increasing the gains from international economic
integration, facilitating the regulation of international business conduct, and
managing overlapping assertions of jurisdiction. This is producing a growing
awareness that all of these problems are inter-related and that there is a need for the
development of an analytical framework capable of incorporating all of the relevant
economic, legal and political concerns and developments. Secondly, the
internationalization of business activity has meant that almost any type of
anticompetitive conduct, wherever it occurs, and therefore almost every
competition law rule, could affect the interests of another country. A
geographically and functionally comprehensive and integrated study of business
practices and laws is therefore required. Thirdly, a mixture of national and
international laws makes up the international competition law of each state.
The resolution of international competition law problems will not be found in a single
grand global competition code, but in a combination of national and international laws
and institutions and a broader application of existing cooperative arrangements.

1.1.2 The Inter-relatedness of International Competition Law Problems

The literature on the internationalization of law has tended to follow one of several
well-worn tracks. First, lawyers and business people operating in a global
environment encounter similar legal issues in different local legal cultures.1
The experience with and knowledge of foreign laws inevitably influences their views
on the appropriate domestic legal rules and resolution of international legal problems,
which may feed into domestic law reform processes. This may sometimes lead to a
degree of convergence of laws, but may not resolve international legal problems
where international cooperation is required.
Secondly, a number of special regimes have been created to facilitate private
individuals conducting business and other affairs across national borders, such as the
United Nations Convention on Contracts for the International Sale of Goods 1980.
These regimes have generally focused on international transactions that were
potentially subject to the laws of multiple jurisdictions, and attempted to unify or
harmonize the relevant private law or private international law rules.2 Although some
of the literature has discussed the practical significance for firms (p.5) of differences
between national laws or the harmonization of laws, the discussion has not generally
been linked with trade policy.

Thirdly, during much of the post-Second World War period, international competition
law was seen as primarily involving a large number of intense international disputes
arising out of the extraterritorial application of US antitrust law pursuant to
the so-called effects doctrine. Lord Wilberforce famously observed that in anti-
trust matters the policy of one state may be to defend what it is the policy of another
state to attack.3 For example, when an US uranium purchaser commenced a private
action for treble damages against an international uranium cartel, which included
Canadian producers, Canada objected to the assertion of jurisdiction by the US
because it infringed Canadian sovereignty, violated international law, and interfered
with Canada's policy to develop its uranium mining industry. From the point of view of
the US, the international cartel raised import prices and harmed consumers in the US.
Many countries have also objected to long-arm personal jurisdiction, broad
extraterritorial demands for discovery, and the use of criminal prosecutions and
private treble damages actions to achieve what those countries regarded as
essentially political or economic aims.
In response, at least in part, to the fierce foreign criticism, the US courts modified
some of the rules relating to the application of US antitrust laws to conduct that takes
place outside of US territory. The courts also recognized several international antitrust
defences. Other countries also responded. Many enacted blocking and clawback
statutes and attempted to negotiate agreements with the US. However, over time, as
national policy-makers recognized the value of competition law in their domestic
markets, many countries reformed their competition laws and began to apply them
extraterritorially. Recently, some US politicians have expressed concern about the
extraterritorial application of foreign competition law enforcement actions interfering
with the US economy, such as the proposed GE/Honeywell merger, which was
approved by the US authorities, but rejected by EU authorities.4

While the international competition law system still requires additional rules to
mediate between conflicting interests, the extraterritorial application of competition
law is no longer seen solely as a zero-sum game. The extraterritorial application of
competition law is inevitable and probably necessary for a country to be able to
protect its consumers and producers against anticompetitive conduct abroad.
Increasingly, national competition law enforcement agencies are cooperating in the
prosecution of international cartels. However, the existing instruments for cooperation
in investigation and enforcement in competition law cases are not always adequate.
Most of the existing international agreements do not address a number of key
problems, including jurisdiction over foreign defendants (p.6) and conduct, the
enforcement of judgments abroad, and are applicable only to competition law
investigations by competition authorities. With a few notable exceptions,
supranational competition law enforcement has played a limited role in international
competition law.
International mergers raise similar issues to international cartels. However, the
mandatory pre-merger notification and approval regimes operated by many countries
 give such states a much greater ability to enforce their laws, which often forces the
merging parties to simultaneously navigate multiple regulatory approval processes.
Fourthly, all multilateral and regional trading arrangements impose some
restrictions on the laws and policies of their members, such as a prohibition on
laws that discriminate against foreign products or a requirement to harmonize certain
laws. These international obligations are not usually motivated by a concern about the
costs of business transactions or legal doctrine, but by a variety of public policy
concerns raised by international economic integration. Competition law impacts on
the costs of international commercial transactions for the participating individuals and
firms and the costs and benefits of international economic integration to the
participating states.

Prior to the Second World War, the ability of private international cartels to
divide up world markets and negate government efforts to liberalize had
been recognized. More recently, the possibility that domestic anticompetitive
conduct may create market access barriers, which protect local producers from
foreign competition, has been recognised. In the 1980s and 1990s, the lax
enforcement of the Japanese Antimonopoly Law was a major source of trade
tension between Japan and the US. A wide range of business conduct may restrict
trade, including vertical restraints that foreclose access to distribution channels, group
boycotts, exclusionary conduct by dominant firms, and control of access to essential
facilities such as telecommunications networks. However, business conduct that
restricts trade is not necessarily inefficient or harmful to consumer welfare.
International competition law has to reconcile the different views of trade
and competition policy-makers on barriers to market access. Other types of
restrictive business conduct are linked with particular trade policy measures, such as
export cartels and voluntary export restraints and predatory pricing and antidumping
measures. Many trade agreements, including the WTO agreements, 5 contain rules that
affect national competition law. Other trade agreements contain detailed competition
law rules and create mechanisms for the enforcement of those rules, most notably the
EC Treaty (Treaty of Rome).6
(p.7) The international competition law problems associated with the regulation of
international transactions, extraterritoriality and economic integration cannot be
easily separated. Attempting to solve the problems separately may do more harm
than good. International competition law disputes do not arise solely from
differences in economic policies or laws, but may arise from conflicting
economic and commercial interests. The latter category may be immune to the
conciliatory effects of the worldwide convergence of competition policies.7 A
systematic and comprehensive approach to problem solving is therefore necessary. An
analytical framework that is broad enough to jointly consider these problems, and
their legal, economic and political components, must be based on an understanding of
the nature of the relationship between states and the policy preferences of states. The
preferences of states for particular international competition law rules depend on a
number of variables, but can be summarized, as a first approximation, in terms of a
combination of their preferences on the following six factors.
Consumer welfarestates may want to protect local consumers from foreign supra-
competitive pricing and anticompetitive conduct.
Access to foreign marketsstates may want remedies against anticompetitive
conduct that might hinder access to foreign markets.
Protection and promotion of producer interestsstates may want to protect local
producer and industry interests in a number of ways, including allowing them to
exploit foreign consumers, engage in transactions and conduct that improves their
international competitiveness, receive protection under trade remedy laws, and not be
subject to discriminatory treatment under foreign competition laws.
 Non-competition objectivesstates may want to create exceptions from, or limit the
scope of, competition laws, such as creating exceptions for organized labour, national
security, shipping conferences or crisis cartels, or restrict the application of
competition law in cases where intellectual property laws, trade remedies measures or
utility regulation are relevant. States may also want to permit or prohibit certain forms
of business conduct in order to advance objectives other than consumer welfare or
efficiency, for example market integration and economic freedom.
Sovereignty and autonomystates may want to limit any interface with their
domestic policy by the extraterritorial application of foreign competition law, and limit
control over national competition and other laws and policies under international
agreements.
(p.8)
Administrative costsstates may want to reduce administration and error costs, and
limit the compliance and transaction costs for (local) firms caused by multiple merger
review, concurrent and conflicting administrative and judicial proceedings and
remedies, and uncertain legal rules.

Different states will weigh these factors differently, which will lead to
different preferences for the international competition law system, often for
different business practices. Indeed, the level (and prospects) of convergence of
competition laws varies among business practices, as does the existence of a
consensus on what is best practice for competition law or the assessment of the
benefits from further convergence.8 The resolution of international competition law
disputes involves both a trade-off between the interests of states, and trade-off
between competing interests within each state. In deciding how to respond, states
may therefore need to balance their competing interests. The need to reconcile
national interests is, in a large part, made necessary and shaped by the fact that most
of the international competition law system involves rules-based government
intervention. Furthermore, there is no sharp line between domestic and international
cases. Thus, the nature of both international relations and domestic interests
embodied in specific laws fundamentally shape international competition law.

1.1.3 Comprehensive Coverage of International Business Activity (business activity is

becoming more internationalized ESP CROSS BORDER MERGERS)

Markets are becoming increasingly international through lower

transportation costs, new information and communication technologies,
reduced trade and investment barriers, and less state direction and
ownership of the means of production and distribution of goods and
services. The increasing internationalization of business activity is measurable in
terms of trade and investment flows, trade and investment treaties, state-owned
enterprises privatized, and industries deregulated. However, the trend toward the
internationalisation of business activity varies in both form and degree by industrial
sector.9

International trade in goods and services is still the most widespread form
of internationalization of industrial activities. The value of international trade is
now a significant percentage of gross domestic product (GDP) in most countries.10
Goods and services trade is also changing in character. Intra-firm trade and intra-
industry trade now account for a large proportion of international trade. At the end of
2002, global foreign direct investment stock stood at an estimated (p.9) US$7.1
trillion and at the end of 2001 an estimated 63,000 transnational corporations
controlled approximately 800,000 foreign affiliates and accounted for approximately
one-third of world trade.11 Cross-border mergers and acquisitions are a popular
means to create economies of scale in research, production and marketing,
as well as to localize production. Since the late 1980s, cross-border mergers
and acquisitions have become the most common strategy for investing
abroad and represent about 30 per cent of total worldwide merger and
acquisition activity.12 Statistics on the enforcement of national competition laws
show that a similarly high percentage of all mergers reviewed by national competition
authorities have an international element.13 Cross-border mergers are not simply a
trans-Atlantic phenomenon.

Since the 1980s, internationalization has gone beyond exporting and foreign
investment. Corporations now interact on a global scale through a wide range of
external alliances, including joint ventures, subcontracting and licensing
agreements, and looser strategic alliances.14 Such alliances may be formed for
research and development, production, marketing and a variety of other purposes.
Strategic alliances are seen by some as the global emulation of the Japanese
keiretsu industrial groups, in which networks of firms are linked to one another by
small cross-shareholdings and long-term supply relationships.15

Trade, direct investment, financing arrangements and technology are now

intimately linked as either complements or substitutes in the global
marketplace.16 The ability of international corporations to compete successfully is
dependent on being able to combine all these elements. As the distinctions between
goods and services are becoming blurred, so are the distinctions between producers
and consumers.17 There is a convergence of manufacturing and marketing into an
integrated approach that involves product development and customer relations.
Under this paradigm, vertical integration and contractual arrangements are
likely to become increasingly important and international in scope. Sustained
export flows rely increasingly on direct investment, while market penetration by
exports often sets the stage for subsequent direct investment in the same country.
(p.10) Some idea of the scale of the connection between foreign direct investment
and trade can be gleaned from the statistics showing that a very high proportion of
international trade is conducted within multinational enterprises or between
affiliates.18

Globalization has also changed the structure of national and international markets.
When one firm seeks to achieve a competitive advantage through a cross-border
acquisition or alliance, its competitors often feel compelled to do likewise.
Industries may then become globally concentrated in relatively short time
periods. The high global concentration of many important industries19 suggests that
trade and investment liberalization, as well as increased market size and lower
barriers to entry, has not eliminated the possibility of harmful anticompetitive
conduct.

International business activity has increased in importance relative to domestic

business activity and is taking an increasingly wide range of forms. The growth in
international business activity means that an increasing number of
competition law cases will have an international element. The business
practices that will be the subject of international competition law cases will include
virtually all the types of conduct that could be the subject of a domestic competition
law case.20 International competition law problems have already arisen in a wide
variety of cases, ranging from international cartels that raise prices to
consumers in many countries to exclusionary conduct and distribution
arrangements that deny access to foreign markets to international mergers
and acquisitions subject to approval by many competition authorities. Many
types of international business transactions are one of several alternative ways of
participating in foreign markets or organizing international production. If international
competition law regulated these transactions differently, business decision-making
may be distorted and inefficient choices made. Therefore, ad hoc solutions to
international competition law problems, or solutions limited to particular industries or
business practices, are unlikely to be lasting and stable solutions. Globalization has
given rise to new forms of business organization and competition, which will
require national competition authorities to analyse increasingly complex
factual situations. Multinational enterprises also give rise to peculiar
regulatory issues that can affect the effectiveness of national competition
law.

(p.11) In addition to comprehensive coverage of business practices, the geographic

coverage of this study should also be comprehensive. The internationalization of
commerce affects all countries, which means that no country is isolated from the
effects of foreign anticompetitive conduct. Anticompetitive conduct in some markets
could affect every country. For example, New Zealand could be affected by the
decision of the EU competition authorities to challenge the marketing practices of a
US software manufacturer, or the decision of a private US firm to challenge the
subcontracting system in the Japanese car manufacturing industry. Certain foreign
enforcement decisions may even have a greater effect on the economic welfare than
any single competition law enforcement action undertaken in a small country. Large
and small countries need to see their interests in terms of the entire competition law
system.

A detailed study of all national and international competition rules is beyond the
scope of this book. Space constraints require a focus on the most significant national
and international rules for the system as a whole. However, this book seeks to
understand the international competition law system from the perspective of both
large countries and small countries that have little influence. It is therefore necessary
to discuss national competition law rules at a fairly highly aggregated level, with
specific examples chosen to illustrate those laws and the arguments of this study. This
approach seeks to satisfy the need for a consistent and comprehensive coverage of
business conduct to the extent permitted by practical constraints.

1.1.4 Complex Solutions and Simple Organizing Principles

For the same reasons that individual problems, legal rules, business practices, or
countries should not be viewed in isolation from the rest of the system, attempts to
improve the international competition law system need to be viewed from a system-
wide perspective. Conflicts between states cannot be eliminated, but it may be
practical to reduce the number and intensity of conflicts through a variety of mutually
advantageous unilateral or bilateral actions. It is not necessary to adopt one
single multilateral agreement to realize most of the gains from international
cooperation. States are unlikely to agree to a global competition law code, let alone
empower an international body to effectively enforce such a code. See Chapter 2. The
practical resolution of problems will involve a combination of national and
international actions, including the extraterritorial application of competition
law, cooperation between competition law agencies, international judicial
assistance, and international trade agreements. Each of these areas, in turn,
consists of a number of specific legal rules. Parts II and III of this book show that
examples of the elements necessary to reduce international competition law problems
are already in operation. What is most needed is to broaden their application, in terms
of countries and coverage, and to establish common patterns of cooperation.
(p.12) Although the enforcement and evolution of competition law should essentially
remain the responsibility of national institutions, it will be argued that it would be
mutually advantageous for states to agree upon general international
competition law principles to guide their more specific actions within the
international competition law system. These principles are for the system; not all of
the principles would be directly implemented through national laws or international
treaties. A set of such general principles based on the analysis of international
competition law problems, which are broadly consistent with current legal trends in
the major competition law jurisdictions is proposed in Chapter 14. The acceptance
that there are and should be general principles underlying international competition
law may facilitate the negotiation of more specific cooperation agreements.

1.2 The Terminology of the Internationalization of Law

It is useful to clarify the meaning of terms that are often used to describe aspects of
the internationalization of law. Inconsistent and imprecise use of the terms has
clouded the analysis of international competition law and, at times, lead to unhelpful
presumptions about the causes of and potential solutions to problems.

1.2.1 Internationalization and Transnationalization

The internationalization of law denotes the process of making or using law that is
international in character or use. This could include not only the creation and
enforcement of an international agreement on competition law, but also the
application of national law to international cases and cooperation between
countries in the creation and enforcement of national laws. Transnational law
involves the application of law to actions or events beyond national boundaries.21
Where a competition law applies to persons or conduct, wholly or in part, outside
national borders, the law is appropriately described as involving the transnational
application of law. The extraterritorial application of competition law exemplifies the
transnationalization of law. Part II of this book is for this reason entitled Transnational
Competition Law. Transnationalization may be regarded as a subset or an aspect of
internationalization. Part III of this book is entitled The Internationalization of
Competition Law. It examines the inter-relationships between the many national and
international rules that shape the subject.

(p.13) 1.2.2 Cooperation and Coordination

The literature on international relations contains a number of inconsistent definitions
of the terms cooperation and coordination. One group of scholars tend to link
degrees of international integration (or intensities of cooperation) with specific
institutional forms. However, no two categorizations are alike.22 The concept of
intensity of cooperation does not adequately capture the economic or political utility
of specific institution forms as mechanisms for improving the international
competition law system.
More usefully, Keohane suggests that cooperation arises from situations where each
actor's policies, which are pursued without regard for the interests of others, are
regarded by the other actors as hindering the attainment of their goals. Therefore,
cooperation occurs when actors adjust their behaviour to the actual or anticipated
preferences of others, through a process of policy coordination.23 Many liberal and
realist international relations scholars have adopted this definition. 24 Cooperation is
therefore different from conflict, competition, unilateral behaviour, or inactivity. A set
of decisions is coordinated if adjustments have been made in them, such that the
adverse consequences of any one decision for other decisions are to a degree and in
some frequency avoided, reduced, or counterbalanced or overweighed. 25
This conception of cooperation has several important features. 26 First, it assumes that
each actor's behaviour is directed toward some goal(s). It need not be the same goal
for all the actors. Secondly, the definition implies that cooperation provides all the
actors with some reward. Thirdly, cooperation does not require any particular
institution, such as the adoption of common laws or the creation of an international
organization. The choice of institutional solution will depend on the costs and benefits
of the alternatives to each participant. Fourthly, cooperation can be achieved in
several ways: it can be tacit and occur without communication or require explicit
agreement; it can be negotiated in an explicit bargaining (p.14) process; or it can be
imposed, as in some versions of hegemonic stability theory. 27 With respect to
competition law, decisions whether to cooperate may be taken at the time the
legislation is enacted or enforced in an individual case.

1.2.3 Harmonization
Trade-related demands for the harmonization of laws and policies or for a level playing
field have been voiced at least since the mid-19th century.28 In the legal literature, the
concepts of harmonization and unification were traditionally deployed in comparative
law scholarship and were often directed at facilitating cross-border, private
transactions.29 By applying comparative analysis of laws they hoped to derive
common features, which could provide the foundation for a set of rules acceptable to
a number of states.30 Understood in this sense, harmonization did not necessarily
involve purposeful international cooperation to solve international problems. Building
a common understanding of international competition law may, nonetheless, be
essential to solving international problems.

In the 1980s and 1990s, drawing on both traditions, a number of commentators

recommended the harmonization of competition law as a solution for a variety
of international competition law problems. The confluence of these traditions
added to the uncertainty of the meaning of the term harmonization. The uncertainty
added to the political appeal of harmonization as a solution. To some degree, attitudes
to harmonization have reflected different assumptions about the meaning of
harmonization.

Comparative lawyers, trade lawyers and economists commonly view harmonization as

process of making the laws or policies of different jurisdictions similar, or so they have
a similar effect.31 If harmonization is defined in terms (p.15) of similarity, it has only
two dimensions: the degree of similarity that is being pursued, and the scope of
coverage of the harmonization process. The dictionary, however, suggests that
harmonization involves more than merely increasing similarity. The New Shorter
Oxford English Dictionary defines harmonization as: [t]he action or process of
bringing into harmony or agreement; reconciliation, standardization.32 The WTO
Agreement on the Application of Sanitary and Phytosanitary Measures defines
harmonization in terms of standardization, whereby national measures incorporate
some, but not all, of the elements of an international standard.33 Some scholars,
therefore, see harmonization as an enormously flexible concept; its content varying
according to the circumstances and the policy goals of the parties.34 The flexibility
extends beyond the concept of harmony to the processes and resulting institutional
arrangements. Fox and Ordover helpfully:35

use the word harmonization generically to signify a process or phenomenon that

relieves tensions between and among the laws and policies of different nations in a
liberal world competition/trading system by bringing those laws and policies into a
state of greater compatibility.
Harmony is in the intellectual eye of the beholder. One legal philosopher's harmony
may be another's dissonance. A lawyer may perceive doctrinal harmony where a
business person perceives administrative anarchy.36 Thus, to talk about
harmonization without specifying the criteria for harmony is not meaningful. (p.16)
Harmony may reflect a relationship among things derived from an external standard,
such as those found in ethics or economics, or the common or independent
perceptions of the individual participants. The appropriate changes to national legal
regimes and international institutional arrangements will be affected by the ways in
which it is proposed to make laws more harmonious with each other. Harmonization is
not guaranteed merely because two countries have the same laws.

Leebron argues that: Harmonization is not an end in itself. Rather, it is a means of

achieving goals such as greater efficiency or fairness. Both the validity of the
harmonization claim and the effectiveness of its implementation must be judged in
terms of some asserted purpose,[] and it is the purpose that determines whether the
form of harmonization adopted is suitable.37 That purpose will usually be related to
the international competition law problem that harmonization is designed to address.
The parties may have a wide range of objectives for harmonization,
including the reduction of private transaction costs, the elimination of
harmful spill-over effects, economic efficiency, levelling the playing fields,
the elimination of regulatory overlap or conflicts, and the fair treatment of
individuals. Without agreement on its purpose, a simple promise to
harmonize laws would be indeterminately vague.

Similarity is not an internal, logical criterion for harmony. Similarity may entail
similar laws and/or laws producing similar effects. The assessment of whether laws
have similar, or any particular, effects requires some external criteria. These criteria
do not exclusively relate to the local effects. The need for harmonization usually arises
because national laws have international effects. If the achievement or elimination of
certain effects is the objective of an inter-jurisdictional law harmonization proposal, for
example the elimination of economic spill-over effects or the adoption of similar
technical standards, many aspects of the relevant laws or policies must be taken into
account, such as procedural, substantive, and jurisdictional rules and enforcement
policy. The inter-relationships between these elements mean that there will often be
different ways to resolve international competition law problems, that is, to
harmonize. For example, if excessive extraterritoriality is perceived to be a problem,
the scope of application of competition law could be restricted to conduct that affects
competition in the home country, or by the application of a rule of reason to all
international conduct. Harmonization may not involve the adoption of similar laws, but
may be achieved through different actions in different countries.

The rationale for harmonization need not find its base in the rationale(s) for individual
countries having the particular business law in question.38 A political trade-off
between national policy objectives is an inevitable aspect of (p.17) harmonization.
Sometimes only one state perceives there is an international competition law
problem, but another state will agree to harmonization to improve trade relations. For
instance, in the 1990s, the US government, but not the Japanese government, may
have believed there was a problem arising from the lax enforcement of competition
law in Japan. The objectives of Japan and the US for harmonization are likely to be
different. Therefore, at least two sets of values form a harmonization problem. Without
a clear common objective, the process and outcome of harmonization may reflect
international political forces. Thus, the question of whether harmonization is desirable
will not always be helpful where there is no agreement to harmonize to achieve a
specific purpose. Instead, the key questions are what are the problems states perceive
to exist in the international competition law system, and what accommodations are
they likely to make to remove those problems?
It is important to distinguish the justifications for harmonization, the process, and the
resulting institutional arrangements. Harmonization need not result only in similar
laws, but could involve a range of institutional responses. Some writers include the
formation of world codes, international organizations and dispute resolution within the
term harmonization.39 Harmonization of law is different from other forms of
cooperation, because it addresses problems arising from distinct national legal
systems, and results in more than a temporary adjustment to those laws. The
problems are addressed through rules-based cooperation, but may be implemented
through national or international rules. For example, concern about excessive
extraterritoriality could be addressed in several ways, such as by modifying the test
for jurisdiction, by modifying substantive rules applied in international cases, or by
agreeing to a set of international rules.

1.3 The Structure of the Study

Chapter 1 has briefly described the major conflicts that arise in the international
competition law system and outlined the need for a holistic and comprehensive study
of the system. Next, it was argued that concepts, such as cooperation and
harmonization, are most usually seen as describing processes by which states seek to
address multi-jurisdictional policy problems. This book seeks to identify the politically
feasible ways that states can reduce the extent to which (non-)application of
competition laws is perceived to adversely affect the interests of other states.

(p.18) Chapter 2 argues that the international competition law system is

fundamentally shaped by the nature of international relations and the self-
interested behaviour of states. It then identifies a number of constraints on the
development of international competition law, which feed into the analysis in later
chapters and permits the book to focus on the forms of international cooperation that
are practical and politically realistic within the short- to medium-term.

Chapter 3 identifies the nature of major similarities and differences between

national competition laws. It is concluded that the significant differences between
competition laws, even among the OECD countries, are unlikely to disappear in the
foreseeable future. The inevitably incomplete convergence of competition law will
restrict the approaches to solving international competition law problems.
Nonetheless, a case can be made for states to adopt a marginally cosmopolitan
conception of self-interest to guide their actions in this field. The book argues that the
global consumer welfare standard can maximize the long-term interests of states
without significantly changing existing policies or sacrificing short-term interests. It
therefore provides a focal point for resolving international competition law problems.

Chapter 4 asks whether there is a case for harmonization to reduce concerns about a
loss of competitiveness due to competition law. The case is weak. In the limited
circumstances where competition laws could affect competitiveness, it is argued that
the concerns may be substantially reduced if competition laws are applied on a non-
discriminatory basis between local and foreign firms and the competition law takes
the form of general principles applicable to a wide range of industries.

Chapter 5 looks at the international effects of anticompetitive conduct, and the

potential conflict of interests between countries concerned about the harmful effects
of foreign anticompetitive conduct and the concern of the country where that
anticompetitive conduct takes place to maximize its welfare and not harm the
competitiveness of local firms. The analysis of the national welfare in international
cases can be complex and involve different considerations to purely domestic cases. A
politically realistic way to accommodate the interests within and among states is for
states to agree not to act in manner inconsistent with the global consumer welfare
principle. This approach can be implemented through fairly simple rules without
significant changes to current substantive competition laws.

Chapter 6 concludes that anticompetitive conduct may restrict market access and
that an international remedy should be available in some circumstances. While there
may be mutual gains from states agreeing to prohibit private anticompetitive conduct
that restricts market access, the case for a common set of rules is weak. However,
potential conflict would be reduced if importing states put in place mechanisms to
ensure the impartiality, consistency, and transparency of their competition laws and
enforcement practices, and exporting states ensured consistency between their own
conduct and their complaints about the business and enforcement practices in
importing states.

(p.19) Part II analyses the legal rules governing the scope of application of
competition law in international cases. Part I explored what the interests of states are
in the international competition law system, and suggested how they might be
reconciled. Part II seeks to integrate this discussion with an analysis of competition
law jurisdiction, bridging the divide between trade policy and extraterritoriality.

Chapter 7 discusses the extent and nature of the constraints that international law
imposes on national competition law jurisdiction.

Chapter 8 analyses the scope of application of competition law in the US, the EU and
Japan. A number of legal rules determine the effective scope of application of
competition laws. The analysis reveals, it is argued, a trend towards acceptance of the
exercise of jurisdiction based on anticompetitive effects.

Chapter 9 analyses the international competition law defences in several jurisdictions.

Chapter 10 argues that states should ensure their rules on jurisdiction reflect the
proportionality principle, in particular by states restricting the scope of application of
their competition to what was necessary to protect their interests under competition
law. State practice is generally headed in this direction. There is broad acceptance of
the effects doctrine and a recognition that competition law should only apply where
the conduct in question has a substantial, direct and foreseeable effect on competition
in that country. Balancing tests are unlikely to be effective in reducing conflicts. On
the other hand, there is an important role for international competition law defences.
It is argued that mutual recognition of certain competition law exceptions in a limited
range of cases would be desirable. Even if governments cannot agree on binding rules
on competition law jurisdiction, through the application of established forum selection
doctrines a number of conflicts could be avoided and the allocation of cases better
managed.

Chapter 11, the first in Part III, examines the manner in which existing World Trade
Organization (WTO) rules both require the enforcement of national competition laws
and regulate such laws. It is descriptive in the sense that the chapter summarizes the
WTO rules that affect national competition laws. It also analyses the extent to which
the WTO rules are compatible with and achieve the recommendations made in Part I.
Several types of WTO rule are relevant. First, the WTO contains a number of rules that
address private anticompetitive conduct. These include weak, general obligations and
harder, sector-specific obligations. Secondly, the WTO also contains some rules that
recognize the right of its members to take action against anticompetitive conduct.
Thirdly, a number of WTO rules address conduct of a kind that is addressed by
competition laws where there has been a level of government involvement in that
conduct, such as export cartels and exclusive dealing arrangements. Fourthly, several
general WTO rules affect the ability of members to regulate, and how they regulate,
anticompetitive conduct, which could form the basis of a set of core rules on
competition law.

(p.20) Chapter 12 argues that the content of international competition law rules and
the nature of dispute resolution impose limits on each other. A WTO dispute panel (or
any similar body) would face significant problems reviewing the (non-)application of
national competition laws without an agreed set of competition law principles, and
would need stronger information gathering and remedial powers. A WTO disputes
panel review of a competition law case might be unable to legitimately and properly
do little more than review the transparency, impartiality, and the discriminatory
nature of national competition laws.

Chapter 13 argues that, given the improbability of agreement on a global competition

code and the unworkability of inter-state dispute resolution on competition law,
international competition law problems need to be (and can be) addressed through
enforcement cooperation between competition authorities and international judicial
assistance. Chapter 13 examines the scope and limitations of cooperation
agreements.
Chapter 14 briefly summaries the conclusions of this study and posits a set of
emerging principles of international competition law.
Notes:
(1) See, eg, RT Nimmer and PA Krauthaus, Globalisation of law in intellectual property
and related commercial contexts (1992) 10 Law in Context (Science, Law & Society
special issue) 80, 89 ; Y Dezalay, The Big Bang and the law: the
internationalization and reconstruction of the legal field (1990) 7:23 Theory, Culture
& Society 279.
(2) See L D'Arcy, C Murray, and B Cleave (eds), Schmitthoff's Export Trade: The Law
and Practice of International Trade (10th edn, London: Sweet & Maxwell, 2000) ch 32.

(3) Rio Tinto Zinc Corp v Westinghouse Elec Corp [1978] 1 All ER 434 (HL), 448.
(4) See COMP/M.2220, General Electric/Honeywell [2004] L48/1; US Department of
Justice Press Release, Statement by Assistant Attorney-General Charles A. James on
the EU's Decision regrading the GE/Honeywell acquisition, 3 July 2001.
(5) The WTO agreements refer to the Marrakesh Agreement Establishing the World
Trade Organisation of 15 April 1994, which entered into force on 1 January 1995. See
<http://www.wto.org>.
(6) See Treaty Establishing the European Economic Community, 25 March 1957, 298
UNTS 11 (the EEC Treaty); renamed Treaty Establishing the European Community (the
EC Treaty) by the Treaty on European Union (the EU Treaty), 7 February 1992;
amended by the Treaty of Amsterdam, signed on 2 October 1997 and the Treaty of
Nice, 26 February 2001. See [2002] OJ C35/33. The competition law rules contained in
EC Treaty and secondary legislation and case-law are collectively referred to EU
competition law.
(7) See BE Hawk, International antitrust policy and the 1982 acts: the continuing
need for reassessment (1982) 51 Fordham Law Review 201, 238 ;S
Berger and R Dore (eds), National Diversity and Global Capitalism (Ithaca: Cornell
University Press, 1996).
(8) See JD Richardson, Competition policies as irritants to East Asian trade in D
Robertson (ed), East Asian Trade After the Uruguay Round (Cambridge: Cambridge
University Press, 1997) 194, 1967.
(9) See OECD, Globalisation of Industrial Activities. Four Case Studies: Auto Parts,
Chemicals, Construction and Semiconductors (Paris: OECD, 1992) 13.
(10) Imports as a percentage of GDP, averaged over the periods 198090, were: all
OECD members, 18.7%; Belgium, 70.0%; Netherlands, 53.2%; Switzerland, 36.4%;
Germany, 26.6%; Japan, 10.9%; US, 10.6%. OECD, Historical Statistics, 19601990
(Paris: OECD, 1992) 72.
(11) UNCTAD, Globalization and Development: Facts and Figures 2004 (New York: UN,
2004) ; UNCTAD, World Investment Report 2001 (New York: UN, 2002) 8.

(12) See AE Safarian, Trends in the forms of international business organization in L

Waverman, WS Comanor, and A Goto (eds), Competition Policy in the Global
Economy: Modalities for Cooperation (London: Routledge, 1997) 40, 4651
; J Wilson, Globalization and the Limits of National Merger Control Laws
(The Hague: Kluwer Law International, 2003) 2745.
(13) See C Stark, International mergers and joint ventures: a view from the Justice
Department [1990] Fordham Corporate Law Institute 21, 24 ; U.S.,
Commission sign antitrust cooperation accord (25 September 1991) 8 International
Trade Reporter 1407.
(14) OECD, Globalisation (n 9 above) 11.
(15) The Economist, 27 March 1993, A survey of multinationals, p 16.
(16) D Ireland, Interactions Between Competition and Trade Policies: Challenges and
Opportunities, Discussion Paper, Bureau of Competition Policy, Consumer and
Corporate Affairs, Canada (1992) appendix B, p 13.
(17) Ibid .
(18) See FS Hipple, The measurement of international trade related to multinational
companies (1990) 80 American Economic Review 1263 ; UNCTAD,
Recent developments in international investment and transnational corporations:
trends in foreign direct investment, UN Doc TD/B/ITNC/2, 21 February 1995, p 18,
table 11.
(19) See, eg, The Economist, 27 March 1993, A survey of multinationals, p 17; DB
Yoffie (ed), Beyond Free Trade: Firms, Governments, and Global Competition (Boston:
Harvard Business School Press, 1993) xiii.
(20) The EU experience shows that competition cases involving service industries
tracked the liberalization of services industries in the EU. A Sapir, P Buigues, and A
Jacquemin, European competition policy in manufacturing and services: a two-speed
approach (1993) 9:2 Oxford Review of Economic Policy 113, 11920.
(21) Cf PC Jessup, Transnational Law (New Haven: Yale University Press, 1956) 2
, who used the term transnational law to describe all law which
regulates actions or events that transcend national frontiers.
(22) Cf RC Hine, International economic integration in D Greenaway and LA Winters
(eds), Surveys in International Trade (Oxford: Basil Blackwell, 1994) 234, 261
; P Taylor, A conceptual typology of international organization in AJR
Groom and P Taylor (eds), Frameworks for International Co-operation (London: Pinter
Publishers, 1990) 12, 1217 ; HJ Aaron, RC Bryant, SM Collins, and RZ
Lawrence, Preface to the Studies on Integrating National Economies in FM Scherer,
Competition Policies for an Integrated World Economy (Washington: Brookings
Institute, 1994) xxxxi ; W Dobson, Economic Policy Coordination:
Requiem or Prologue? (Washington: Institute for Economic Research, 1991) 23
; D Steiner, The international convergence of competition laws (1997)
24 Manitoba Law Journal 577, 5789.
(23) RO Keohane, After Hegemony: Cooperation and Discord in the World Political
Economy (Princeton: Princeton University Press, 1984) 51.
(24) H Milner, International theories of cooperation among nations: strengths and
weaknesses (1992) 44 World Politics 466, 4678.
(25) Keohane (n 23 above) 51.
(26) See also Milner (n 24 above) 4678; JM Grieco, Cooperation Among Nations:
Europe, America, and Non-Tariff Barriers to Trade (Ithaca: Cornell University Press,
1990) 22.
(27) Milner (n 24 above) 46970.
(28) S Charnovitz, Environmental harmonization and trade policy in D Zaelke, P
Orbuch, and RF Housman (eds), Trade and the Environment: Law, Economics, and
Policy (Washington: Island Press for Center for International Environmental Law, 1993)
267 ; G Hansson, Harmonization and International Trade (London:
Routledge, 1990) 2.
(29) M Boodman, The myth of harmonization of laws (1991) 39 American Journal of
Comparative Law 699, 7023.
(30) J Goldring, Unification and harmonisation of the rules of law (1978) 9 Federal
Law Review 284, 286 . See also Boodman (n 29 above); M Ancel, From
the unification of law to its harmonization (197677) 51 Tulane Law Review 108
; JW Cairns, Comparative law, unification and scholarly creation of a new
ius commune (1981) 32 Northern Ireland Law Quarterly 272 ; R David,
The methods of unification (1968) 16 American Journal of Comparative Law 13.

(31) See, eg, David (n 30 above) 15; Goldring (n 30 above) 289; DW Leebron, Claims
for harmonization: a theoretical framework (1996) 27 Canadian Business Law Journal
63, 66 ; Hansson (n 28 above) 1; Charovitz (n 28 above) 267; JP
Trachtman, Trade in financial services under GATS, NAFTA and the EC: a regulatory
jurisdictional analysis (1995) 34 Columbia Journal of Transnational Law 37, 93
. See also the Memorandum of Understanding between the Government
of Australia and the Government of New Zealand on Harmonisation of Business Law,
signed on 1 July 1988, which was replaced by the Memorandum of Understanding
Between the Government of New Zealand and the Government of Australia on
Coordination of Business Law, signed on 31 August 2000, revised 22 February 2006,
and available from <http://www.dfat.gov.au>, 1 March 2007. The terms
harmonization, approximation, and coordination are often used interchangeably in EU
documents. CC Twitchett (ed), Harmonization in the EEC (London: MacMillan, 1981) 1
; E Stein, Harmonization of European Company Laws (Indianapolis: Bobbs
Merrill, 1971) 1112 ; A Evans, A Textbook on EU Law (Oxford: Hart
Publishing, 1998) 467 ; PJG Kapteyn, PV van Themaat, and L Gormley,
Introduction to the Law of the European Communities (London: Kluwer Law, 1998)
774.
(32) The New Shorter Oxford English Dictionary (4th edn, Oxford: Clarendon Press,
1993).
(33) Agreement on the Application of Sanitary and Phytosanitary Measures, Art 3 and
annex A, para 2; European CommunityMeasures Concerning Meat and Meat
Products (Hormones), WT/DS26/AB/R, WT/DS38/AB/R, adopted 13 February 1998,
paras 1635, 171. See also GATS, Art VII:1 and Annex on Financial Services, para 3(a).
(34) See, eg, WH Hurlburt, Harmonization of provincial legislation in Canada: the
elusive goal (19867) 12 Canadian Business Law Journal 387, 388 ;H
Shibata, Free trade areas and policy coordination with special reference to the
European Free Trade Area in HG Johnson, P Wonnacott, and H Shibata, Harmonization
of National Economic Policies under Free Trade (Toronto: Private Planning Association
of Canada/University of Toronto Press, 1967) 71, 72.
(35) EM Fox and J Ordover, The harmonization of competition and trade law: the case
for modest linkages of law and the limits to parochial state action in L Waverman, WS
Comanor, and A Goto (eds), Competition Policy in the Global Economy: Modalities for
Cooperation (London: Routledge, 1997) 407, 409, 411 (footnote omitted)
. See also DI Baker, AN Campbell, MJ Reynolds, and JW Rowley, The harmonization of
international competition law enforcement in L Waverman, WS Comanor, and A Goto
(eds), Competition Policy in the Global Economy: Modalities for Cooperation (London:
Routledge, 1997) 439 ; International Competition Policy Advisory
Committee to the Attorney-General and Assistant Attorney-General for Antitrust, Final
Report (2000) 42.
(36) Hurlburt (n 34 above) 389.
(37) DW Leebron, Claims for harmonization: a theoretical framework (1996) 27
Canadian Business Law Journal 63, 656.
(38) Cf American Bar Association, Section of Antitrust Law, Report of the Special
Committee on International Antitrust (ABA, 1991) 289.
(39) See, eg, EM Fox, Harmonization of law and procedures in a globalized world:
why, what, and how? (1992) 60 Antitrust Law Journal 593, 595 ; EM Fox
and J Ordover, The harmonization of competition and trade law: the case for modest
linkages of law and the limits to parochial state action in L Waverman, WS Comanor,
and A Goto (eds), Competition Policy in the Global Economy: Modalities for
Cooperation (London: Routledge, 1997) 409, 411.

The Fundamental Forces Shaping International Competition

Law
Chris Noonan
DOI:10.1093/acprof:oso/9780199207527.003.0002
Abstract and Keywords

This chapter argues that the international competition law system is fundamentally
shaped by the nature of international relations and the self-interested behaviour of
states. It identifies a number of constraints on the development of international
competition law, including the concept and implications of subsidiarity, the principle of
sovereignty, autonomy and opportunism, and legitimacy of decision-making
processes. The forms and facilitators of international cooperation are discussed.

Keywords: international relations, international cooperation, subsidiarity,

sovereignty, autonomy, opportunism, WTO

2.1 The Almost Anarchical International Competition Law System

2.1.1 The Nature of International Relations

The international competition law system is shaped by the anarchical nature of

international relations. Whether or not states will cooperate to resolve international
competition law problems is a political question. Chapter 2 seeks to identify the key
political constraints on the development of international competition law, which
permits this book to focus on the types of international cooperation on competition
law that are practical and politically realistic within the short- to medium-term.

The dominant theories in mainstream international relations scholarship1 assume that

states are self-interested and the international system is anarchical, in the
sense that there is no mechanism comparable to that available to national
governments within their borders to define and enforce the rights and duties of
states.2 While all scholars accept that international cooperation is possible,3 some
view international agreements and organizations as having little or no impact.4 These
institutions are unlikely to have no impact, because states would not incur the costs
involved in creating new international organizations without some corresponding
benefit from membership.5 Some international institutions perform many useful tasks
for which direct coercion is not (p.22) required.6 The different assessments of the
significance of the constraints created by international institutions may reflect the
extent to which national interests are seen as being determined by national security
rather than economic welfare concerns. In situations that involve national security,
cooperation may indeed be epiphenomenal.7 In other circumstances, state interests in
cooperation may reflect the outcome of calculations of economic welfare and
domestic political processes. State preferences in relation to the international
competition law system will reflect both the strategic environment and domestic
politics of states.
States are constrained by international relations and markets. Although a
multinational enterprise may occasionally be able to directly influence a state, the
conduct of multinationals is (partially) constrained by competition from other
multinationals.8 Multinationals are also likely to be increasingly constrained (and
experience increased costs) from regulatory differences and overlapping state
jurisdiction.9 Thus, while states may increase their independence of action relative to
multinationals by inter-governmental cooperation, multinationals may hope to
improve the consistency of the international regulatory environment. The influence of
multinational enterprises on international competition law will be primarily through
their influence on the policy preferences of individual countries.

2.1.2 The Domestic Political Economy of National Interests

A consideration of domestic politics is essential to understanding state interests and
international cooperation. The outcome of the USJapan Structural Impediments
Initiative talks demonstrated that the harmonization of competition laws and policies
cannot be explained solely in terms of systemic level factors, but will reflect the
complex interactions between national and international political processes. 10
Relatively little has been written about the political forces that shape
competition law.11 The understanding of the political forces that shape national
attitudes to international competition law is far from complete. States' preferences in
relation to international competition law cooperation are likely (p.23) to be influenced
by, inter alia, similar factors that affect the broader process of economic integration.
Attempts to construct rigorous theories to explain the incidence of import protection
have proved to be better at predicting when protection will be demanded rather than
when it will be delivered.12 Many of the general conclusions arising out of this work
help to understand the politics of international competition law. Firms will lobby for
what is in their interest. Governments, responding to local firms, appear to approach
trade liberalization negotiations from a mercantilist perspective and seek to exchange
trade concessions.13 The mercantilism logic applies to aspects of international
competition law.14 Some national competition laws and policies appear to be
motivated by mercantilist concerns, such as decisions to tolerate anticompetitive
conduct that restricts market access, create national champions, prohibit restrictive
provisions in international technology licensing agreements, and authorize mergers
that promote exports or import substitution.15 No obvious domestic constituency
would oppose laws permitting local export-oriented industries to exploit any market
power they might have in foreign markets, which makes it even more likely that
governments will give effect to the wishes of local firms.

Corden has argued that many societies have a preference for what he terms the
conservative social welfare function. Put in its simplest form any significant
absolute reduction in real incomes of any significant section of the community should
be avoided.16 All things being equal, any proposed agreement on international
competition law that suddenly and adversely affected the welfare of a significant
group in a major country or group of countries is unlikely to be politically feasible. A
country that is dependent on the export of relatively few products and benefits from
the participation of its firms in a particular international cartel would be likely to object
to increased enforcement of competition rules in international trade. Large countries
are less likely to be concerned by the effects of changes on a single industry, but will
assess the effect of any changes on a broad range of industries.

Large private firms and their advisers are likely to be most knowledgeable about the
consequences of international competition law developments and understand how
their interests will be affected better than other social groups. In most countries,
international competition law is likely to be important to only a few (p.24) major firms
in a select number of industries. International cooperation might, therefore, be easier
in areas where it reduces the transaction and compliance costs of businesses. For
example, the decision of the US to enter the ECUS competition law enforcement
cooperation agreement of 1991 was influenced by the concern of large US firms about
the costs of potential conflicts between governments and increased costs as a result
of the EU merger regulation. Similarly, during the recent settlement negotiations with
the US Department of Justice (DOJ), Microsoft requested that EU officials participate in
the talks so that a similar investigation in the EU could be resolved simultaneously
and consistently. See Chapter 13.

Antitrust law has no natural industry supporters and the only support it has is derived
from the populist values it promotes, such as those associated with fairness and
wealth distribution.17 However, rational free riding means that consumers and most
businesses will not lobby for competition law. Free rider effects may mean that
individual industries may put greater effort into lobbying for industry-specific
regulation or seeking an exemption from competition law, rather than changes to
general rules. Competition law exemptions, like trade protection,18 may often have the
political virtue of providing non-budgetary, non-transparent methods of redistribution,
and they may be less costly for the government than collecting and distributing funds.
An international competition law agreement might, therefore, face greater political
opposition if it seeks to eliminate all competition law exceptions. More generally, the
precise mix of business practices within the mandate of the core competition law
institutions of each jurisdiction is important both for actual internal decision-making
and for the politics of the lead competition policy agency and its policy community.19
Political economy models obscure the importance of ideas and society's
institutionalized structures of authority.20 The political behaviour of a country is
influenced by the values, policy beliefs and ideologies of its leaders and broader
population, and changes in ideas will shift policies accordingly.21 Attitudes to
international competition law will, therefore, be influenced by broader ideas about
competition law, market processes, and globalization. Different legal institutions and
traditions are part of the culture of a country and popular or professional groups are
likely to have some degree of attachment to local practices. On the other hand, large-
scale economic traumas, as East Asia experienced in 1997, may also change
entrenched government and popular attitudes.
(p.25) National competition laws and competition law institutions (or the lack thereof)
will provide real constraints on what developments in the international competition
law system can be expected in the short- to medium-term. National executives prefer
to avoid going to national legislatures to obtain the necessary authority to enter
international trade agreements, because in many circumstances gains to one section
of the community will have to be balanced against losses to another in deciding
whether to enter an agreement.22 Governments may, therefore, pursue less formal
methods of international economic cooperation. More importantly, competition law (or
its absence) reflects a legislative balance between domestic political constituencies.
This balance may become projected onto international markets and affect
determinations of national self-interest, because of the difficulty of separating
domestic and international cases, and the interests of local and foreign consumers
and producers. Having been embodied in law, this balance may be hard to change.
Therefore, to adapt competition law to an international environment without opening
a politically controversial reconsideration of the whole law or upsetting the existing
balance between domestic interests may be difficult.

2.1.3 National Security Interests may Trump Competition Concerns

International competition policy will sometimes be motivated by geopolitical and
security concerns or economic nationalism.23 After the Second World War, the
US imposed competition law on Germany and Japan in part from the belief
that international cartels hindered the allied war effort.24 The establishment of
the European Coal and Steel Community and EEC, and the inclusion of competition
rules in the basic frameworks, were also in part motivated by national security
concerns and a fear of revived German coal and steel industries.25 Today,
anticompetitive conduct is more likely to have national security implications
where private actions, or foreign competition law enforcement, are seen as
hindering access to supplies of goods and technology deemed necessary for
economic security or military purposes, or affecting the viability, strength,
or control of national defence contractors or strategic industries. In the 1970s
serious consideration was given to the use of military force to break up the
Organization of Petroleum Exporting Countries (OPEC) cartel, because of the threat
that the (p.26) monopolization of oil supplies posed to US national security.26 Foreign
competition laws may also affect national security where they prevent the attainment
of economies of scale or necessary restructuring, or undermine incentives to invest or
innovate, especially in high-technology or defence industries. 27 To the extent that
international competition law affects national security, the realist conception of
national interests is likely to provide a better guide to state actions and preferences.

National security decisions are likely to affect the development of international

competition law in several ways. First, any agreement on international competition
law would have to create an open-ended exception where a case impacted on a
country's vital security interests, as have other international economic agreements. 28
The decision of the EC Commission in the Boeing/McDonnell Douglas merger to ignore
aspects of the transaction that had national security implications for the US illustrates
the necessity for such an exception.29 Although national security concerns are more
often present when foreign firms, especially if they are state owned, seek control of
major national firms, mergers between domestic firms may create security issues
where the merger would increase concentration in a key defence industry or permit
the creation of a stronger national firm.30 Secondly, international competition law
might alleviate some security concerns arising from trade liberalization, and
dependence on foreign suppliers, by helping to keep markets open and to maintain
several independent sources of supply of essential commodities.31 Thirdly, the
economic security of smaller countries might be threatened by competition law
enforcement actions challenging cartels in important national industries, such as the
challenge to OPEC in the US courts.32 The risk of such challenges could be reduced,
and the prospects of cooperation could be increased, if the scope of existing
international competition law defences was clarified. Fourthly, competition law,
especially merger (p.27) regulation, may be manipulated to serve as a de facto
foreign investment control or used to advance strategic interests by interfering with
the policy of foreign governments. In the past, the US has used antitrust enforcement
actions to advance national security policies.33 Greater transparency and commitment
to non-discriminatory treatment would make the manipulation of competition law
harder. Fifthly, state power is closely related to state jurisdiction. Therefore, states will
be reluctant to permanently renounce any jurisdiction they claim to possess.

2.2 The Interests of States in Cooperation on Competition Law

2.2.1 The Distinction between National and Global Welfare

The nature of the international state system suggests that states will only
cooperate when it is in their interests and each participant believes it will
gain from cooperation. Notwithstanding the many theoretical problems and
practical limitations of costbenefit analysis,34 economics has provided the most
influential analytical tools in competition policy and trade policy. It will inevitably
assume an important role in international competition law, regardless of the
social goals of each competition law. A global economic welfare standard does not
provide a practical policy guide to international cooperation, because it ignores the
interest of individual countries.35 The elimination of anticompetitive action in an
international case could improve the welfare of Country A while harming the welfare
of Country B. A competition law designed to maximize the economic welfare of
Country A would not necessarily always be consistent with the promotion of global
economic welfare or the welfare of Country B.36 Even if the global economic welfare
standard would not be consistent with the objectives of national governments in many
cases, that or a similar concept may nonetheless have a role to play in the
international competition law system as a focal point for negotiations.37
(p.28) Based on the factors discussed in Sections 1.1.2 and 2.1.2, where national
security is not implicated, national costbenefit analysis involves a consideration of
the effects of a policy on: (A) local consumers; (B) local producers including through
foreign market access, local market protection, and export promotion; (C) non-
economic objectives; (D) sovereignty and autonomy; and (E) administration costs. A
state's national interest could be seen as approximated by the maximization of the
sum of A+B+C+D-E, subject to the constraints imposed by legal rules and markets.
One of the major roles of government is to reconcile the conflicting interests of
different groups within a country. There may, for example, be a negative correlation
between local consumer interests, on the one hand, and foreign market access and
local market protection, on the other hand. With different national valuations of the
elements and different linkages between the elements, the formula suggests that it
may not be obvious to a group of states how to improve the welfare of all countries.

2.2.2 International Regulatory Competition Failures

The tools of economic federalism can assist to identify potentially desirable forms of
cooperation in international competition law. Economic federalism studies the
implications of different government structures for patterns of resource use and
income distribution.38 The decentralized law and policy-making of independent, self-
interested states is often analysed in terms of inter-jurisdictional or regulatory
competition. States are seen as competing to protect and promote local firms,
competitiveness and investment, which in turn affects their legal and policy choices.
In Chapter 4, models of regulatory competition are used to identify many of the types
of situations where there are joint gains from regulatory cooperation and international
cooperation might be desirable. The situations where regulatory competition fails tend
to parallel the situations giving rise to market failure,39 such as the under-provision of
public goods, externalities, and failures of competition.40

2.2.3 International Trade Theory

Significant portions of international trade can only be explained by examining the
actions and structure of individual firms, market structure, and the government policy
measures that affect those firms. Traditional economic models that ignore imperfect
competition, anticompetitive conduct and regulatory and industrial (p.29) policies do
not provide an adequate basis for developing policy on international competition law.
While international trade economics has not advanced to a stage so as to provide
certain guidance for international competition law,41 a number of models of
international trade, collectively, suggest the welfare of states may increase through
cooperation on competition law.
It has been argued that the demand for harmonization of labour and environmental
standards may result in protectionism.42 Similar problems may arise if Country A's
competition law preference were affected by its trade policy preference and Country
B's preferences on competition law, trade and other matters. The links between
competition law and trade policy preferences may not be as strong as other trade-
related areas, because of the limited effects competition law has on
competitiveness.43 International competition law problems are more likely to arise
after trade liberalization, which is often effectively irreversible, has taken place. Trade
liberalization will generally be consistent with the goals of competition law.

Overlapping jurisdiction, and regulatory interdependence generally, 44 creates another

mechanism linking the outcomes of different policies. Although the recognition of the
technical legal side to national regulation increases the number of factors affecting
the relationship between competition law and other policies, it also reveals several
further mechanisms that limit the impact of trade and other policies on competition
law. For example, an international treaty requiring non-discriminatory competition
laws could mean that both the costs and the benefits of any particular competition
law rule are felt by domestic firms and consumers, which imposes political constraints
on the type of rules that can be adopted. The public international law rules and
national laws relating to jurisdiction may provide a suitable basis for reconciling
concerns about productive efficiency and competitiveness with harmful extraterritorial
effects. The international competition law defences, in combination with WTO rules,
also tend to limit the types of link that will exist between competition law and other
policies.45

2.2.4 Underlying Power Relations will Shape the Terms of Cooperation

While there may be benefits to national and global economic welfare from
cooperation, the political economy of national interests suggests that states will
(p.30) face political obstacles to their realization of these gains. The functional
theories are not good at predicting how or when cooperation will occur. 46 First, there
may be a number of costs associated with cooperation, which are outlined in Section
2.3. The institutional arrangements that will emerge, from the set of potential
institutional arrangements that could produce joint gains from cooperation, will also
tend to reflect the desires of the more powerful actors.47 International institutions are
also arenas for conflict and the exercise of power. An agreement on competition law
that had limited distributional consequences relative to the gains from cooperation is
more likely to be accepted and remain stable. Despite the formal sovereign equality of
states, powerful states also have the greatest influence on the development of
customary international law, which tends to reflect their preferences.48 In the field of
international competition law, the acceptance of the restrictive theory of sovereign
immunity49 and the effects doctrine in the post-war period is consistent with this
hypothesis.50

All things being equal, small states would prefer to have a system of international
competition rules embedded within a larger multilateral institution, rather than have
issues determined bilaterally or through unilateral action by a large state. Small states
are likely to benefit from a regime where all states have equal rights and the large
states perceive that there are substantial gains from membership. Large states are
likely to prefer a regime that preserves their autonomy of action, including their
national jurisdiction.51

2.3 The Costs of Cooperation and the Principle of Subsidiarity

2.3.1 The Concept and Implications of Subsidiarity
International competition law problems should be approached from the perspective
that differences in competition laws and their administration are legitimate and not in
themselves undesirable. The assumption that regulatory functions should be allocated
to lower, rather than higher, levels of government unless (p.31) there are good
reasons for not doing so is often referred to as the principle of subsidiarity. 52 In
Europe, the principle of subsidiarity requires the EU not only to provide the reason
why it is taking action, but also to justify the intrusiveness of its action and the extent
to which a measure would restrict the freedom of action of member states. Many
commentators have suggested subsidiarity and related concepts as a model for
allocating regulatory functions at the international and national level. 53
Although a variety of EU-specific factors played a part in the rise to prominence of
subsidiarity in the EU, part of its appeal lay in its imprecise nature.54 The question of
whether tasks cannot be performed effectively at a local level and therefore should be
performed by a central authority may be essentially political and not justiciable.55 The
same is true about the decision to cooperate on international competition law.
Subsidiarity implies that the gains from cooperation must be significant for
cooperation to occur, and these must outweigh the benefits from a decentralized
system of competition law creation and enforcement. More specifically, international
regulatory regimes that fail to take into account state interests in retaining their
autonomy and sovereignty, as well as concerns about political legitimacy,
accountability, procedural fairness, and expertise, are unlikely to gain the support of a
sufficient number of countries. National competition law regimes should remain free to
develop and be enforced at a national level to the greatest extent consistent with the
realization of important gains from cooperation.

2.3.2 Sovereignty
The principle of subsidiarity is to some extent based on national feelings about the
loss of sovereignty. Many governments protested that the extraterritorial application
of US antitrust law and threats of trade retaliation under section 301 of the Trade Act
of 1974 infringed their sovereignty. Some US officials objected to the decisions of the
European Commission in the Boeing/McDonnell Douglas and GE/Honeywell merger
cases on the grounds that they were an unjustified interference in the US economy. 56
On the other hand, the US government (p.32) contends that the WTO dispute
resolution mechanism is an inappropriate body for the review of individual decisions
taken by domestic competition enforcement authorities, because such a review could
interfere with national sovereignty concerning prosecutorial discretion and judicial
decision making.57 The US Congress has long been reluctant to sign international
agreements that could undermine US sovereignty.58
Traditionally, sovereignty was seen as the right of a state to exclude from its territory
the exercise of power by another state,59 and was closely linked to the concepts of
domestic jurisdiction and territorial integrity. Sovereignty cannot be simply equated
with national autonomy. It is also associated with notions of identity, democracy,
community, responsibility, security, power, authority, and legitimacy. The nation-state
is thus often perceived as underpinned by a communitarian conception of citizenship
or as the institutional representative of the community that exists to uphold and
defend the community's particular self-image.
The problem is that to invoke the concept of national sovereignty as in itself a
decisional factor is to fall back on a word which has an emotive quality lacking
meaningful specific content.60 For example, even if an international agreement on
competition law could enhance the autonomy of a country by providing it with more
control over its external environment, it may still perceive a loss of sovereignty.
Disciplines on the features of national policy that reflect operational assessments of
expediency or administrative convenience, not just fundamental policy choices, may
be seen as involving a loss of sovereignty. This may reflect the broad array of
considerations that underpin sovereignty, as well as the outcome of domestic political
accommodations needed to get a policy accepted.
The harmonization of laws and economic and social integration are mutually
reinforcing processes. Harmonization of laws between states may not only assist
economic integration, but may reinforce, or help create, a sense of national unity and
identity. The sense of European identity that the enforcement of EU competition law
may have helped to foster was reinforced by the fact that many of the most important
cases in EU competition law arose when the Commission went after large non-EU
undertakings.61
The lack of feeling of nationhood and solidarity in the EU as a whole has tended to
carry much more weight than the usual arguments deployed to justify (p.33)
centralization of policies in federations.62 At a global level, the fear of a loss of
sovereignty will also weigh heavily against the benefits of inter-state cooperation.
Where competition law is part of the popular consciousness, such as in the US,
attempts to harmonize competition law may be seen as destroying some of what
makes that country unique. Where the enactment of competition law is more recent
and lacks the same popular roots, there may be little public interest in, and resistance
to, harmonization.63 In many developing countries there is a suspicion of
Westernization, and the wholesale adoption of foreign legislation might be opposed. 64
In such cases, the reform of competition law could be assisted by the identification of
local historical precedents and by retaining as much existing legislation and
institutions as possible.65
2.3.3 Autonomy and Opportunism
An agreement to harmonize competition laws will reduce the freedom of action of
governments. Although governments sometimes enter international agreements in
order to limit the freedom of action of their successors, governments are likely to be
reluctant to enter into binding agreements on the content of national competition
laws. Such an agreement could prevent countries adapting their laws to changing
local conditions and social needs, or responding to shifting policy preferences,
improvements in economic research, or the exigencies of international relations.
In some circumstances, an international agreement on competition law may enhance
the ability of a state to implement the policy of its choice. If globalization or the
excessive extraterritorial application of competition law reduced the ability of states
to regulate conduct that affects its people and set the legal rules governing the
conduct of local firms, international cooperation could give a country more policy
space. The benefits of a binding international agreement are more likely to outweigh
the costs of the loss a decentralized system of competition laws if the agreement
specifically targets the problems arising from a lack of cooperation so as to leave
maximum freedom for national legislatures and enforcers.
Concern about autonomy will affect the extent to which states would be willing to
delegate decision-making authority to an international organization. A treaty must
allocate the residual rights of control, because it cannot provide (p.34) for all
eventualities. Many states highly value autonomy over their competition law and will
be reluctant to surrender significant authority over their policies to other states or
international organizations. Greater incentives for opportunism by states will increase
the cost of states retaining autonomy and the willingness of states to the transfer of
authority to international bureaucratic, legislative or dispute resolution mechanisms.
The risk of opportunistic behaviour could be largely reduced without detailed
international rules or extensive international decision-making through the application
of general, negative proscriptions. For example, if national competition rules had to be
applied in a non-discriminatory manner, the incentive for opportunism would be
reduced and choice over the precise terms of those rules could be left to individual
states.66
2.3.4 Accountability and Responsiveness
The independent creation and enforcement of competition laws by competing
national jurisdictions offers several benefits. Legislatures and enforcement agencies
may be more accountable and responsive to the preferences of their constituents.
There is some empirical evidence that lower level governments are likely to better
reflect citizen's preferences than central governments.67 Competition law can be
tailored to local preferences. For example, a large country may be content to have
allocative efficiency as its sole objective of its competition policy, while a small
geographically isolated country may prefer not to pursue the objective of allocative
efficiency only to the extent that productive efficiency is not harmed. The populations
of such localities are likely to be more homogenous and, therefore, more voters are
more likely to be able to agree on the government policies they want through electing
a government. The Tiebout hypothesis predicts that the preferences of people are
revealed to the government through the ability of inhabitants to move to the
jurisdiction that has the mix of policies the inhabitant most favours.68 On the other
hand, some groups (p.35) or values with little influence in certain localities may be
better able to get their concerns heard at a central level.69
Decentralized regulation allows for experimentation with different types of regulation,
which provides a means to assess the comparative value of different regulations and
institutions.70 For example, while there is near universal agreement in OECD countries
to prohibit hard core cartels, there is no agreement on how to draw the line between
such cartels and arrangements that should be analysed under a rule of reason. By
promoting increased innovation in policy over time and by providing competitive
pressures to induce local governments to adopt the best practices, decentralization
may increase both static and dynamic efficiency. Thus, by adopting competition rules
and procedures from other countries that appear to promote that country's welfare
other, countries can also improve their own welfare.
A system of decentralized and competitive government may provide an institutional
setting that promotes better public-decision making by compelling a more explicit
recognition of the costs of public programmes. National governments must also take
responsibility for their own actions and cannot blame international organizations for
their policy failures.
Decentralized systems may be more effective at gathering information than
centralized systems.71 In the case of competition law, there are risks that firms may be
able to (undetected) not reveal all relevant information, or disclose false information
to competition authorities. Decentralized enforcement may be better than centralized
enforcement, because it enables easier crosschecking of information with
competitors, consumer organizations and official and public sources. On the other
hand, decentralized enforcement perhaps poses greater risks of regulatory capture,
pursuit of nationalistic industrial policy goals, and inability to gather and crosscheck
information in major international transactions. Central or foreign authorities'
promises not to misuse information to the disadvantage of a locality may also lack
credibility. In international competition law, foreigners will be under-represented in
national political processes. Political scrutiny may need to involve international
political processes, which could involve cooperation between national enforcement
authorities and/or supra-national supervision of the application of the law in individual
countries. Accountability is consistent with political independence of the regulatory
agency, if such accountability is exercised at occasional intervals and through the
(p.36) application of clearly specified criteria, rather than on a day-to-day
interference in individual decisions.
Thus, residents are better able to monitor the enforcement of competition law than
international organizations. It may also be difficult for citizens and voters to monitor
the performance of, and hold accountable, international institutions, because non-
governmental actors may not have any standing to directly challenge an international
institution. The persons affected by the actions of the international institution could be
widely dispersed, and suffer from severe collective action problems. A citizen's ability
to hold an international institution accountable depends on the influence and
resources of their national government. It is possible that it is easier for inhabitants to
monitor the government's performance when policy is decided at a more local level.
2.3.5 Legitimacy of Decision-Making Processes
The expansion of international regulation into new areas has given rise to concerns
about the legitimacy of decision-making processes and the undermining of democracy.
These concerns, however, need to be seen in the context of the erosion of local
government and community control over the things that impact on the community
caused by globalization. The basic problem is that:72
democratic theory has tended to assume a symmetrical and congruent
relationship between political decision-makers and the recipients of political decisions.
[]
In fact, symmetry and congruence have often been taken for granted at two crucial
points: first, between citizen-voters and the decision-makers whom they are, in
principle, able to hold to account; and secondly, between the output (decisions,
policies, and so on) of decision-makers and their constituents ultimately, the
people in a delimited territory.
If a government should be elected by, or at least accountable to, a population to be
able to legitimately regulate that population, the extraterritorial application of
competition law, which typically affects persons to whom the state is not
democratically accountable, may not be legitimate. On the other hand, if the
government fails to act, it fails to protect its local population from the harmful effects
of foreign anticompetitive conduct it was elected to do. Similar concerns arise when a
large state pressures another state to harmonize its competition laws with those of
the large state, or one state attempts to fend off the extraterritorial regulation of
another state.

While regulatory cooperation and participation in international institutions may

provide a state with greater influence over foreign governmental and non-
governmental conduct that affects a country, cooperation and international
institutions themselves raise concerns about reduced legitimacy and democratic
(p.37) accountability. A new level of normative activity superimposed on national
democratic systems makes citizen participation more remote, and parliamentary
control over the executive, notoriously loose in foreign affairs, becomes even less
effective.73 Concerns about legitimacy grow where decisions of an international
organization can bind a member against its will. Inter-governmental organizations are
often claimed to be undemocratic, because they operate with little transparency or
public and parliamentary scrutiny. They are seen as being controlled by national
officials who are instructed by their respective executives and international
secretariats whose staff may at times act independently of the members of inter-
governmental organization. Some commentators have noted this concern in
connection with the prospect of a WTO agreement on competition law. 74
It is unclear whether, or under what conditions, a stand-alone international agreement
on competition law could improve the legitimacy of international competition law.
However, if such an agreement was incorporated into a wider regime, such as the
WTO, the legitimacy of which has already been challenged, it would likely face greater
opposition. Similarly, the greater the controls imposed on national competition laws,
the greater the opposition. A stand-alone competition law agreement, which provided
only minimal restrictions on domestic laws, would be likely to be subject to less
opposition. Where any decisions made only by consensus and the area of activity is
essentially technical, rather than the setting of priorities and mediation between
conflicting interests and values, concern about a democracy/legitimacy deficit will be
more limited.75 While adjudication procedures may ensure better implementation and
offer a degree of legitimacy by association with the rule of law and the reasoned
decisions, the review of national legislation and other government measures creates
the potential for the adjudicatory body to substitute its value judgments for those of
democratically elected governments. Dispute settlement procedures, if any, should,
where possible, not be required to engage in complex costbenefit analysis or
balancing between values. Such decisions should be taken in the political process of
negotiations. While the WTO may have a role to play in the international competition
law system, it should not be the primary legislator in the international competition
law system. That function, if required, should be performed by another organization.
Many WTO agreements recognize a role for other international organizations (p.38)
and incorporate other international agreements.76 These organizations generally
administer and/or promulgate international rules on fairly specific government
functions. National representatives in these organizations are frequently not trade
officials, but officials from government agencies responsible for the relevant
government function.
Commonly suggested remedies for the democracylegitimacy deficit include
transferring the model of representative democracy to the international level, seeking
to improve representation and accountability through national parliaments, or
adopting a civic republican or participatory approach. The first approach is politically
unrealistic. The second approach will often be within the control of individual states.
The last approach is based on institutional balance, broad deliberation, and
consensus, supported by open access to policy-making for interests groups and
possibly individual standing to bring claims before international tribunals. Increased
participation would not necessarily legitimize decisions by an international
organization if one group of countries, or firms or non-governmental organizations,
were able to dominate the processes.77 Business groups will be most interested in an
international competition law agreement, and have the best resources to lobby for
their interests. Thus, popular representation is unlikely to resolve popular concerns.
The legitimacy of the international competition law system could also be enhanced by
an international agreement that both recognizes the legitimate use of the
extraterritorial application of competition law and limits the scope of its application.
For example, while Australia and New Zealand objected to the extraterritorial
application of US antitrust law in the early 1980s, in the late 1980s they agreed that
Australia and New Zealand could apply certain of their competition law rules to
conduct occurring anywhere in a market in Australia and/or New Zealand, that is,
extraterritorially.78
2.3.6 The Direct Costs of International Cooperation
The experience with harmonization in the EU shows that the process can often be long
and eventually unfruitful.79 There are significant costs involved in negotiating an
international agreement, which must be weighed against the expected benefits.80 A
number of factors can increase the costs, time, and political difficulties of negotiating
harmonization agreements. Agreements that provide detailed (p.39) commitments in
relation to competition law rules will be harder for individual countries to comply with
without significant reforms to their competition law and perhaps their legal systems as
a whole. Different aspects of competition law may require different accommodations
between local interests and global interests, which may complicate negotiations. Local
elites and other groups might have an interest in maintaining the status quo
regulations (or lack of regulations). A large number of states have competition laws
and would want to be party to the negotiations, which increases the costs and length
of any negotiations.81 To address these problems, many harmonization agreements
are drafted as compromises between countries or in such a way as to disguise
disagreements. They may therefore have less merit than most of the individual
systems of law from which they are drawn, lack consistency and coherence, and
introduce uncertainty where none existed before. Harmonization is also likely to be
dominated by the most powerful nations and the outcome will often tend toward their
preferences and the existing practices of those nations, rather than the some
objectively better standard.82
Once created, an international regime may be more difficult to change than a
domestic law. If the international agreement contains detailed obligations on the
required content of domestic competition laws, the agreement could quickly go out of
date, as market conditions, economic understanding and political values change. This
could then necessitate new negotiations. In addition to the costs of negotiating an
agreement, there are ongoing costs in administering the regime. These will include
the costs and delays involved in translating regulatory and court proceedings and
decisions, the costs and delays in accessing legal material from foreign countries or
running some international reporting system, there will be little past experience to
draw on in interpreting rules created by the international agreement, and so forth.
In summary, subsidiarity should be a core principle of the international competition
law system. There needs to be significant gains from cooperation before states will or
should fetter their control over national competition law, and even then international
cooperation should aim, to leave to the greatest extent possible, countries free to
develop their own competition law. Many of the costs are impossible to quantify, but
cooperation can be structured in a way so as to minimize or eliminate all the sources
of the costs. State opportunism should where possible be addressed by general
principles, such as non-discrimination and transparency, rather than detailed
prescriptive international standards or conferring decision-making authority on an
international institution. An international agreement that contains only a few general
principles is likely to be easier to negotiate and impose fewer ongoing costs than an
international agreement that contains a detailed competition code. Concerns about
international institutions can be addressed in the design of those institutions to ensure
transparency and accountability of the institution in the performance of the tasks they
are assigned.
(p.40) 2.4 The Forms and Facilitators of International Cooperation
2.4.1 Conditions that Facilitate Cooperation
Cooperation that is beneficial will not always be feasible, because of the anarchical
nature of the international system. Although not without significant theoretical and
practical problems,83 game theory has been used to explore the situations where
international cooperation is feasible. The incentives facing states often correspond to
those of the players in a Prisoner's Dilemma (PD).84 The toleration of export cartels
reflects the structure of the PD. Each country is best off if it permits export cartels and
others do not, and in the worst position if it does not have an export cartel but others
do. Therefore, each country has an incentive to permit export cartels. However, all
countries may be better off if they can agree not to permit export cartels. Theoretic
and empirical research has shown that the PD can be overcome, and international
cooperation can emerge, where the interaction between States will continue over
time.85
International regimes can facilitate cooperation by encouraging states to take a
longer-term view of their interests, where non-compliance may be in their short-term
interest. Theory suggests there are a number of factors that may increase the
shadow of the future, and so promote cooperation, including the belief that mutual
cooperation will continue indefinitely; the pay-offs for cooperation and defection are
similar for participating states; states have reliable information about each others'
actions; and states can respond quickly to changes in each others' actions.86 The
prospect of cooperation can be increased by the adoption of institutional
arrangements that positively influence the aforementioned factors. Once a norm is
established, the costs of defection include the weakening of that norm, which may
make defections by others more likely, leading ultimately to the loss of a valuable
institution.87 Ironically, a greater concern for the future makes the initial bargaining
more intense, because the parties are now affected more by the future consequences
of the bargain they strike.88
(p.41) A number of international competition law conflicts are essentially coordination
problems. See Section 4.5.6. Where states are not indifferent among the possible
courses of action that lead to coordinated action, they will face a conflict of interest
over the point of coordination. However, once coordination has been achieved there is
no incentive for any party to deviate. The relative power of states can be very
important in determining the solution of coordination problems when the distribution
of benefits is at stake.89 Small states may also have little choice but to adopt the
standards of a large state if they want to benefit from coordination.
2.4.2 Resolving Conflict by Reducing Transaction Costs and Assigning Entitlements
The Coase Theorem has been used to explain international cooperation that aims to
eliminate or reduce international externalities.90 Coase argued that, under certain
conditions, an efficient allocation of resources is achievable through market
transactions despite the presence of externalities and regardless of the initial
assignment of property and liability rules. By bargaining amongst themselves, states
may also be able to agree to eliminate the external effects of state policy on other
states. While international payments for compensation for externalities may not
generally be politically feasible, states may bargain to solve externality problems
through actions analogous to the reassignment of property rights and other
entitlements,91 such as by agreeing to apply (or not to apply) certain substantive and
jurisdictional rules. For example, an agreement to harmonize competition law might
involve an obligation not to exempt export cartels from local anti-cartel rules.
Coasean bargains will not be struck where transaction costs are high. Governments
may be able to create international regimes that reduce transaction costs, and
thereby facilitate the negotiation and maintenance of international agreements.92
International regimes are commonly defined as sets of implicit or explicit principles,
norms, rules and decision-making procedures around which actors' expectations
converge in a given area of international relations.93 A regime (p.42) consists
primarily of functional and behavioural relationships. Formal organizations and legal
agreements may not exist. An international competition law regime might be reflected
in national laws, treaties, and/or customary international law.94 International regimes
rarely directly regulate economic transactions, but generally take effect through the
modification of national measures, such as an interstate agreement that regulates the
use of antidumping measures.95
Regimes can reduce the costs of every phase of international cooperation, often by
overcoming problems with imperfect information,96 and thereby improve the prospects
of cooperation. Regimes can reduce the cost of bargaining by providing forums for
meetings and secretariat services, providing information about parties and thereby
helping to identify possibilities for exchange, and modifying the parties' understanding
of an issue. Previously negotiated regimes can provide information about the likely
problems and potential solutions. Regimes can also reduce the complications of
overlapping agreements through their principles and norms. The clustering of
numerous issues facilitates side-payments and may reduce costs because of
economies of scale in handling a variety of issues under the same organizational
structure. Where long-term cooperation can be enhanced by a policy of conditional
cooperation or reciprocity, monitoring and enforcement costs can be reduced through
reporting requirements, transparency obligations and supranational review or
surveillance. Regimes can clarify what activities constitute violations, provide
procedures for determining when a violation has occurred, and convey to states the
likely consequences of violations, as do the WTO dispute settlement procedures.97
States are (to some degree) able to assess the likelihood of other states keeping their
commitments by referring to the reputation those states have acquired by their past
compliance with agreements.98 Regimes facilitate the communication and assessment
of reputations by providing standards of behaviour against which performance can be
measured, by linking these standards to specific issues, and by providing forums,
often through international organisations, in which these evaluations can be made. 99
Reputations for compliance are likely to be most important where compliance is linked
to the continued receipt of material benefits under a regime.100
(p.43) Coase believed that clearly defined property rights were required for an
efficient outcome. However, competition law rules are often not well defined. In
relation to jurisdiction, the doctrine that violations of customary international law (the
source of most rules on the limits of state jurisdiction) contain the seeds of new rules
seems almost custom-made to maximize the difficulty of Coasean bargaining.101
Where transaction costs are high, the absence of well-defined property rights may
indeed facilitate a reallocation of those property rights.102 International competition
rules are uncertain and the costs of negotiating a solution are high. This suggests a
potential problem in attempting to resolve international competition law problems:
many problems reflect the PD, which can be resolved through repeated interaction
and clear rules, but competition law rules, especially those governing jurisdiction, are
not clear and are unlikely to be made clear through agreement because of high
transaction costs. Therefore, a multilateral agreement on international competition
law prescribing a set of competition law rules will be very difficult to negotiate. States
may need to clarify existing rules, including those linked to customary international
law, before seeking to solve problems that reflect the prisoner's dilemma. An
essentially iterative approach to solving international competition law problems may
be required.
Thus, regimes where states repeatedly interact may facilitate cooperation in situations
resembling a PD and assist the coordination of actions. However, regimes will reflect
the interests of the more powerful states. Externalities may be reduced through the
reform of legal rules in states. However, the difficulty in simultaneously solving the PD
problems and re-assigning entitlements suggests that reform should take the form of
creeping cooperation, involving a series of small changes to the existing regime,
rather than a radical reformation.
2.4.3 Options for a Multilateral Competition Law Regime
International cooperation can take many forms and could consist of a combination of
national and international institutions. Competition law cooperation may be viewed as
being defined by three broad characteristics: coverage, function, and firmness. First,
cooperative arrangements vary in their geographical coverage (arrangements can be
bilateral, regional, plurilateral, or multilateral), their sectoral coverage (arrangements
could apply only to, or exclude, certain sectors), and business practices and rule
coverage (arrangements could exclude mergers, only apply to hardcore cartels or
apply to only criminal or non-criminal competition law rules).
(p.44) Secondly, the functions that cooperative arrangements perform may relate to
substantive, enforcement and/or multi-jurisdictional aspects of international
competition law. In relation to substantive rules, international agreements may
attempt to prescribe detailed rules, minimum standards, core principles, common
objectives or simply require undefined countermeasures against private
anticompetitive conduct. In relation to enforcement, an international arrangement
could assist states in their enforcement of competition law in a number of ways,
including providing for the exchange of information between competition authorities
or courts, or facilitating the service of process abroad and the enforcement or
recognition of foreign judgments. In relation to multi-jurisdictional functions, an
international agreement could allocate jurisdiction, provide for negative or positive
comity, determine the appropriate forum, or coordinate enforcement efforts.
Thirdly, cooperation can vary from confidence and consensus building exercises to
soft law (such as OECD recommendations to countries or non-binding codes of
conduct for firms) to binding international obligations (such as the WTO agreements)
to supranational investigation and enforcement mechanisms (such as the EC Treaty).
The choices made in relation to one characteristic will sometimes affect the choices
made in relation to another characteristic. The remainder of this section will provide
an introduction to the range of international cooperation proposals for international
competition law. The list is not intended to be exhaustive; its purpose is to narrow
down the types of international competition law cooperative arrangements that need
to be considered in the remainder of this study.
International Obligations to Adopt and Enforce Competition Law
An international agreement that requires states to harmonize their competition laws
may contain more or less detailed prescriptions.103 The many proposals for the
improvement of the international competition law system suggest more or less
detailed international commitments on the content of national competition law. At one
extreme, a world competition law code could be created. Such a code could,
theoretically, create an international investigatory and/or adjudicatory competition
law agency. However, it is nearly universally agreed that a multilateral agreement that
created a supranational competition enforcement (p.45) agency, or that contained
detailed competition rules that were directly applicable in member states' legal
systems (whether or not enforcement was carried out by national authorities or an
international authority), is unrealistic in the short or medium term.104 Similar proposals
were made in the UNCTAD negotiations on codes of conduct for multinational
enterprises in the 1970s and 1980s.105 Many developing countries argued that the
codes of conduct should be binding and legally enforceable, especially in relation to
foreign-owned multinationals. The UN Code for Transnational Corporations and the
OECD Guidelines for Multinational Corporations contained provisions on competition
law, but were not binding on firms or governments.106 While some non-binding
agreements have produced a high level of compliance by states and enterprises, 107
the competition law codes had virtually no impact on international conflicts or on
private conduct, partly because they did not provide sufficiently clear rules.
Nonetheless, the negotiations and associated processes had a significant educational
value for some countries.
On 10 July 1993, a group of academics, calling themselves the International Antitrust
Code Working Group, published the Draft International Antitrust (p.46) Code (DAIC),
which was intended to be a model for a plurilateral agreement in the WTO.108 Under
the DAIC, competition law would continue to be national law, but the competition laws
of the parties to the agreement would need to be non-discriminatory and meet certain
minimum standards. The DAIC provided guidelines for legislation regulating horizontal
and vertical restraints of trade, concentration of market power, abuse of dominant
position, and the regulation of public undertakings. The DIAC would have only applied
in international cases. If national antitrust law was not enforced, an independent
International Antitrust Authority would have standing before national antitrust
authorities and national courts to enforce national antitrust law. An International
Antitrust Panel would hear disputes between states, and the WTO Dispute Settlement
Understanding (DSU) would hear disputes between the International Antitrust
Authority and a WTO member. The International Antitrust Panel was not a final appeal
court from national antitrust tribunals; it only had power to hear cases alleging a
state's violation of its obligations under the DAIC, but could require a national court
rendering a decision to reconsider that decision if the decision was found to be
inconsistent with a state's obligations under the DAIC. The DAIC was heavily criticised
for being too ambitious and for the substantive competition rules it contained.
The (unofficial) EU Report of Group of Experts on Competition Policy in the New Trade
Order: Strengthening International Cooperation and Rules argued for a plurilateral
agreement on competition law that would require certain minimum principles to be
incorporated into the national law of participating countries in much the same way as
EC Directives.109 Each country would have an obligation to achieve certain results, but
would not be obliged to amend its current legislation if it already contained these
principles, or if the legislation was open to similar interpretation. The Report proposed
an international body, which would serve as a forum for drafting and then reviewing,
adapting and extending the common principles for incorporation in various national
laws and for their enforcement; the establishment of a register of anticompetitive
practices that are encouraged or required by national governments, including
general exceptions from national antitrust laws; and the settlement of disputes
between participating countries.110 The plurilateral agreement would also enable
cooperation between competition authorities. The EC Commission Communication to
Council of 18 June 1996 and the Commission's communication at the 1996 WTO
Ministerial contained (p.47) similar proposals.111 However, the Commission
recognized that agreement on a core of common competition rules or principles and
procedures would take time and sought merely to work towards their adoption at
international level. There was an evolution in the approach advocated by the EU to the
WTO.112
At the time of the WTO Ministerial meeting in Singapore in December 1996, the
Japanese government suggested that discussion on trade and competition in the WTO
should be confined to government measures.113 If WTO members agreed to a set of
international competition rules, it was also argued they should eliminate antidumping
measures.114 However, at the Cancun WTO Ministerial Meeting, Japan and Korea
appeared to be even more committed to negotiations on competition law than the
EU.115 Canadian officials have also supported the development through the WTO of a
set of principles or minimum rules for domestic competition law, coupled with
procedural rules.116
Drafting treaties that prescribe broad corridors within which national competition laws
must operate is very difficult. For example, it would be impossible to succinctly and
precisely describe the range of legitimate rules against unilateral anticompetitive
conduct that covers the different approaches reflected in the case-law under section 2
of the Sherman Act, s 36 of the New Zealand Commerce Act and Article 82 of the EC
Treaty. Furthermore, each jurisdiction may wish to leave itself some room to modify its
existing approach through case-law or statute. An ambiguous or vaguely worded
provision in an international agreement could incorporate all these laws, but could be
unenforceable and allow many other types of rule that all three jurisdictions would
regard as undesirable. Alternatively, such a provision could give a WTO dispute
settlement panel enormous power to determine the direction of competition law
throughout the world. See Chapter 12. The structure of competition laws and methods
of statutory interpretation may also make it difficult to isolate particular practices on
which there is a higher level of agreement and only provide detailed rules in these
areas in an international agreement. For example, most countries have a mix of rule
of (p.48) reason and per se competition rules. However, the boundaries of each
category are not always clear and differ between jurisdictions. Similar problems arise
in trying to specify a similar corridor for an obligation to take enforcement action.
The difficulties with codes, rules and minimum standards lead to proposals for more
general principles.117 An international agreement might include the requirements to
enact national antitrust laws; allow private action suits; guarantee political
independence of antitrust authorities; grant legal standing to private parties and
foreigners; not discriminate against foreigners; abolish antidumping; not engage in
strategic antitrust policy; and meet procedural minimum standards for merger control.
There would need to be cooperation between antitrust authorities, including in the
collection of evidence abroad and assistance in enforcement abroad through foreign
authorities. These obligations would be enforceable through the WTO dispute
settlement mechanism.
The Doha Ministerial Declaration suggests an even more limited agreement. The WTO
Working Group on Trade and Competition Policy was instructed to clarify, inter alia,
core principles, including transparency, non-discrimination and procedural fairness
that could be applicable to competition law.118 These principles should be part of any
well-administered competition law and would be similar to obligations already
imposed by a number of WTO agreements. A WTO agreement on competition law
would ensure members fully implemented these principles and would prevent
opportunistic deviations. It would also allow the specific implications of these general
principles for competition law to be spelt out over time to provide more certainty.
Many developing countries have suggested a further core principle of special and
differential treatment, which could qualify the application of the other principles to
developing countries.119 Some countries are concerned that the transparency and
fairness principles could be difficult to comply with. Some countries are concerned
that the non-discrimination principle could disadvantage small and medium-sized
firms (especially in developing countries), prevent the use of rationalization cartels
and mergers to ease adjustment, and prevent development strategies that aim to
encourage investment and dynamic efficiency.120 Some developed countries have
been concerned to ensure that non-discrimination would not prevent exceptions and
authorization of conduct that provides a net public benefit.121 The EU proposed that
WTO members would be free to adopt sectoral exclusions and exemptions from the
application of their competition law, provided (p.49) they did so in a predictable and
transparent manner.122 New Zealand went further and advocated, like the APEC
Principles to Enhance Competition and Regulatory Reform, the inclusion of the
principle of comprehensiveness, which would require that exemptions and exceptions
to competition law be implemented in a way that minimizes economic distortions.123
The objections to the core principles have tended to relate to their content and
uncertain implications. There has been limited analysis of whether such principles
could resolve significant international competition law problems.
In Chapters 3 to 6, it is argued that the probability of complete convergence of
competition law emerging through agreement or otherwise is low and any significant
substantive international competition law problems can be addressed through
adherence to certain core principles contained in a plurilateral agreement in the WTO.
There would be insufficient gains from developing a detailed code or a set of minimum
standards to justify the time and costs of negotiating and administering a code or a
set of minimum standards. While a plurilateral agreement containing a set of core
principles is necessary, it would not be sufficient to resolve international competition
law problems.
International Obligations to Cooperate in Competition Law Enforcement
In 1991, the American Bar Association's Special Committee on International Antitrust
argued that no code is better than a compromise code, because whittling down
best law has greater costs, both practically and aspirationally than multitudinous
enforcement centers and inconsistent enforcement standards.124 Ever since, most US
antitrust enforcement officials and antitrust commentators have criticized proposals to
adopt a WTO agreement on competition law, especially if this would involve the
review of individual decisions. Faith is put in the extraterritorial application of national
law, selected bilateral enforcement agency cooperation, and sector-specific trade
agreements.125 By contrast, the US Trade Representative (USTR) has actively
challenged restrictive business practices that hinder market access. The Kodak/Fuji
case was a prime example.126 The difference is largely a reflection of the different
objectives of antitrust laws (p.50) and trade laws,127 and what the DOJ and US Trade
Representative (USTR) perceive are their missions and constituencies.
A number of elaborate institutional arrangements have been suggested to improve
the enforcement of competition law in international cases. Graham and Warner, for
example, proposed the establishment of a North American Competition Commission
(NACC) along the lines of the US Federal Trade Commission (FTC).128 However, such
arrangements are unlikely to be acceptable in the foreseeable future. If there is no
supra-national competition law enforcement body, the investigation and adjudication
of international competition law cases will need to be done by national competition
authorities and courts. National enforcement can be assisted through a variety of
forms of international cooperation. See Chapter 13.
Informal inter-government agreements usually do not have the legal status of treaties
in domestic law and must be implemented within the existing statutory frameworks.
Informal inter-government agreements may affect the operation of governmental
agencies where they have some discretion. For example, an agreement may
encourage a government to make different enforcement decisions and exercise its
prosecutorial discretion differently.129 Such agreements do not affect private
competition law actions. If cooperation is dependent on repeat interaction, the legal
formality of the agreement may not be particularly important. In any event, treaties
providing for more specific forms of cooperation might also be effectively voluntary if
the agreement allows the government not to cooperate where doing so would be
contrary to its domestic law or its national interests. While competition law
enforcement cooperation is useful, the need for cooperation will remain exceptional
for most countries in most cases.130 There are significant costs for a country that
enters a large number of cooperation agreements, including staff resources and risks
of misuse of information. Thus, bilateral cooperation is likely to take place between
countries that have fairly developed competition laws where there is a high level of
international trade between the countries, unless the countries are parties to a
broader regional integration initiative. Most countries will have little incentive to assist
other countries on an ad hoc basis, unless they are likely to require reciprocal
assistance in the foreseeable future or the commitment to provide assistance is part
of a larger multilateral arrangement.
(p.51) There are also a number of mutual legal assistance treaties that provide for
cooperation between countries in relation to criminal investigations of competition law
violations. No international agreements cover all types of competition law
investigation and proceeding and provide for the recognition and enforcement of
foreign competition law judgments and assistance in the judicial processes. It will be
argued that in Chapter 13 that, in addition to a framework for enforcement
cooperation between competition authorities and legal assistance treaties, the most
significant gap in international competition law is something akin to the Hague
Conference on Private International Law's failed Draft Convention on Jurisdiction and
Foreign Judgments in Civil and Commercial Matters.
International Obligations to Reduce Multi-Jurisdictional Problems
The suggested resolution to the international competition problems discussed in
Chapters 4 to 6 has implications for the scope of application of national competition
laws. The suggested approach is broadly consistent with most current views on
jurisdiction. A number of mechanisms have been developed to alleviate problems
arising from the unilateral application of competition law in a multi-jurisdictional
setting, including restrictions on the scope of application of competition law; the
notification of competition law actions that could affect another country; consultation
on cases; negative comity and balancing tests whereby competition agencies and
courts take into account the interests of other countries before proceeding in an
international case; and positive comity whereby a country agrees to consider a
request to commence an investigation at the request of another country. Increasingly,
new problems relating to the coordination of national competition law actions are
arising, such as during merger reviews and the application of leniency policies. The
extent to which the application of competition law in a multi-jurisdictional setting is a
problem will be affected by international obligations to enact and enforce competition
law. Furthermore, the effectiveness of many of the solutions to multi-jurisdictional
problems will depend on what arrangements are in place for enforcement cooperation.
These problems and solutions are discussed in Part II and Chapter 13.
2.4.4 The Role of the WTO in International Competition Law
Many commentators and several countries have suggested that the WTO is the
natural location for international rules on competition law. To a large extent, the desire
for competition law to be regulated by the WTO reflects the fact that the GATT has a
history of being pragmatic and concrete and the WTO dispute settlement system is
perceived as unique and a powerful device to secure compliance with international
rules. See Chapter 12. After the collapse of the Cancun WTO Ministerial Meeting, WTO
members decided against inclusion (p.52) negotiations on WTO competition rules in
the Doha Round.131 Nonetheless, the WTO remains the most appropriate body to
implement an agreement containing a set of core competition law principles, which
would provide the foundation for mutual trust and more specific forms of enforcement
cooperation.132
While not all types of cooperation need to be based on a binding agreement, states
are unlikely to modify their competition laws to comply with a non-binding agreement
on competition law, unless the change is seen to be beneficial independently of the
actions of other states. Where reversing or halting such a change is difficult, other
states may have an incentive not to implement the agreed changes. 133 This may be
one of the reasons that the OECD initiatives on competition law, which attempt to
promote convergence and regulatory cooperation through increasing the contact
between regulatory officials, monitoring, and non-binding recommendations,134 will not
resolve certain types of international competition law problems. Like the WTO, the
UNCTAD has a global reach, but no binding dispute settlement mechanism, and its
achievements in the field of competition law have been modest. The major
industrialized states clearly prefer the WTO to UNCTAD as a venue for any trade-
related negotiations.135 The effect is to limit UNCTAD to being a source of expertise to
developing countries on competition law.
Without a worldwide agreement on competition law, WTO members are likely to
negotiate a miscellany of agreement- or sector-specific substantive competition law-
related obligations. However, dealing first with the sectors where the role of
competition law is particularly important or international agreement is relatively easy
to reach may make it harder to reach agreement in the other sectors.136 More
generally, the inclusion of differentially valued and even unrelated issues can increase
the zone of agreement in multi-party, multi-issue settings, provided such issues are
not very divisive.137 It may therefore be useful to negotiate a competition law
agreement under the auspices of the WTO, rather than another organization, because
of the broad range of issues covered in trade negotiations.
(p.53) Officials in the US DOJ have opposed WTO negotiations on competition law,
because of the risk that issue linkage could require trade-offs between competition
laws and between competition law and trade interests.138 However, the experience
with the GATT suggests that it is easy to link disparate policy issues in ministerial
declarations, difficult in negotiations, and impracticable in the subsequent
administration of the results of the negotiations.139 Therefore, the concerns of the US
are overstated and could be addressed through a carefully drafted negotiating
agenda. All but the most minimalist WTO obligations on competition law would involve
lengthy and complex negotiations, which would require the expertise of competition
law specialists, which further decreases the likelihood of the specific terms of the
agreement being affected by non-competition law interests.
Trade negotiations tend to be dominated by producer interests. Similarly, private law
harmonization initiatives also tend to be dominated by business groups.140
Competition lawyers and officials are concerned that a WTO agreement on
competition law rules might end up promoting or protecting certain trade concerns,
rather than promoting efficient markets.141 The harmonization of competition law is
therefore unlikely to proceed if business groups perceive that it will impose significant
new costs on business. While business interests may also see negotiations as an
opportunity to reduce the level of competition law regulation, a failure to take into
account the views of consumers and civil society could lead to significant opposition in
national legislatures during ratification and the passage of any implementing
legislation. A WTO agreement on competition law that does not discriminate between
sectors and firms is less likely to be able to be used to promote or protect special
interests.142 Thus, a broad agreement on competition law and generally applied
competition laws are more likely to reflect (p.54) competition policy rather than trade
policy concerns. However, whether driven by principle or politics, most WTO members
will want some sectors or practices to be excluded from their competition laws. To be
viable, a WTO agreement on competition law will need to permit some exceptions, but
for the agreement to be valuable, the use of exceptions may need to be constrained
in a principled manner.
As discussed in Section 1.1.3, the globalization of business activity means that the
application of different competition law rules to different modes of business activity
risks distorting the market and adding to the costs of doing business. The WTO is the
only multilateral organization that could address all modes of business activity in an
integrated manner. A WTO agreement on competition law rules or core principles
could also inform the various current, and any future, sector-specific competition law
obligations in the WTO, such as those negotiated under the GATS. This could ensure
consistent treatment and encourage the broad and non-discriminatory application of
competition laws. There may also be economies of scale in making and enforcing
competition law rules in the WTO. Having the WTO address both public and private
trade and investment barriers may reduce institutional and regulatory segmentation
and duplication, and the risk of concurrent or conflicting jurisdiction between
international bodies, and so improve the transparency of the regulatory regime.
The multilateral process has its downside. The participation of a larger number of
countries may provide more opportunities for exchanges and side-payments, so
increasing the possibility that a balanced agreement can be reached. However,
increasing the number of parties and issues makes negotiations more difficult,
because of the greater heterogeneity of interests and perceptions, and increased
communication and information-processing difficulties.143 The number and diversity of
representatives has meant that the meetings at UNCITRAL (United Nations
Commission on International Trade Law), and to some extent at Unidroit (Institute for
the Unification of Private Law), are less efficient than in comparable national
institutions.144 This is compounded by the time taken to translate documents. A crucial
weakness is the very high turnover of delegates to international organizations, who
are frequently not experts in the field under consideration. Many smaller and poorer
countries are also unable to field experienced and effective representatives who
receive reliable input from their home country's business and legal communities. A
large number of participants also increases the probability of defection and free riding
and reduces the feasibility of sanctioning defectors. The expanding WTO membership
and the practice of making decisions by consensus145 will compound these problems.
The WTO Secretariat also faces significant resource constraints, which limits its
capacity to undertake (p.55) significant new tasks.146 Thus, the WTO is not the
appropriate institutional host for negotiations on a detailed international agreement
on competition law.
While the formation of coalitions may facilitate negotiations by effectively reducing
the number of negotiators, coalitions formed around ideologies or narrow principles
may block agreement. Bridging solutions between coalitions usually do not arise
through trading concessions, but through the identification of a new formula that
satisfies the principal needs of all the parties. The fundamental differences between
the EU and the US, or between developed and developing countries, on substantive
competition law issues will not be eliminated through negotiations, but may be
bridged by a well-designed set of core principles.
The US is a hegemonic power.147 The US is able to exercise its power through
mechanisms of economic interdependence, such as the actual or threatened cut-off of
flows of trade, finance, and technology. It can exercise regulatory control over foreign
subsidiaries of its own firms and many foreign firms dealing with the US, and
managers that are US citizens can be subpoenaed by US courts. US corporations
dominate many service industries and have huge offshore manufacturing capacity.
Ironically, it is these sources of US power that give the US an interest in international
competition law cooperation foreign regulation reduces the effectiveness of US
regulation and benefits from foreign investment.
A group of states may be willing to provide and support international public goods,
including aspects of international competition law, even though all states may benefit,
because the benefits are sufficiently great.148 While there may be some incentive for
some members to free ride, international competition law cooperation is not a pure
public good, because access to enforcement cooperation and judicial assistance will
be denied to a free rider. Thus, while a plurilateral agreement on core competition law
principles could be beneficial to all WTO members, it could also provide sufficiently
great benefits for a group of major states to want the plurilateral agreement,
especially if it was linked to enforcement cooperation.
2.4.5 A New Institution to Coordinate Competition Law Cooperation
A number of WTO agreements refer to other international agreements and
organizations, which have a complementary role to the WTO in establishing an
international regulatory framework. The TRIPs agreement provides one precedent
(p.56) for the WTO having a role in enforcing obligations to adopt and enforce certain
private law rules, without being primarily responsible for the development of the
general substantive laws or international cooperation. Competition law, however,
requires different institutional arrangements, because of the problems arising from the
extraterritorial application of competition law and the need for international
enforcement cooperation. An international organization devoted to competition law
would usefully complement the WTO.
During the past several decades, numerous amorphous but active and influential
networks of individuals and organizations that possess superior shared knowledge
about specific issues have formed at both a national and international level, including
communities of lawyers specializing in transnational commercial and regulatory
issues.149 These networks, which may be characterized by changing membership and
relatively open access, tend to coalesce around an existing international institution,
trade or professional association or particular substantive issues. Such expert
communities can contribute to the successful conclusion of an international
agreement by setting the agenda, building a consensus that a genuine problem exists,
assisting states to understand what their interests and preferences are, or conferring
legitimacy on particular solutions to a problem.
An international competition law community appears to be coalescing. In addition to
the exposure to foreign developments that practitioners get through reading foreign
statutes, cases and secondary materials, and contact with foreign practitioners and
involvement in transnational cases, several organizations also facilitate international
contacts. The WTO Working Group on Trade and Competition Policy, for a time,
became the most important forum for discussion of international competition law and
policy.150 There is also the International Chamber of Commerce's Commission on Law
Practices Relating to Competition, the International Bar Association and its Global
Competition Forum website,151 the International Competition Network (ICN),152 the joint
meetings of the American and Canadian Bar Associations' sections on competition
law, and annual conferences on international competition law. The officials in
international agencies may also play a role in assisting the building of an international
consensus by forging strategic alliances with their counterparts in national
bureaucracies, sponsoring and coordinating research, mobilizing (p.57) technical
expertise, raising public awareness, and playing a leadership role at the bargaining
table.153
The Set of Multilaterally Agreed Equitable Principles and Rules for the Control of
Restrictive Business Practices that was adopted by a United Nations General Assembly
Resolution 35/63 failed to have any real practical significance. While the United
Nations General Assembly is a body of considerable importance, its imprimatur
probably added no greater authority to the set because the General Assembly was not
recognized as having any special expertise or authority in competition law, and there
was significant disagreement (between and within countries) at the time on what was
the most desirable form of competition law. A consensus among a representative
group of experts on the appropriate direction for the international competition law
system would be influential.154 Various international bodies are also conducting
research into the creation of an international competition law regime, including the
ICN, OECD and UNCTAD. None have reached firm conclusions on international
competition law or articulated comprehensive proposals that have the support of
experts from a wide range of backgrounds.
In expressing support for a network for competition law enforcers, non-government
organizations and private practitioners, a senior EU official observed that the initiative
was a response to problems and limited progress with bilateral, plurilateral and
multilateral initiatives and a concern that the outcome of these initiatives cannot be
controlled or even influenced by competition authorities in a decisive manner.155 The
implication is that the coalescence of an international competition law community
around a purpose-built organization, rather than a trade organization like the WTO, is
likely to lead to a more homogenous community and a greater chance of consensus.
Such an organization can serve a number of purposes, including disseminating
information and educating; proselytizing competition law; promoting convergence
through general discussion and peer review processes; building confidence and trust
between agencies and collegiality among their personnel; and setting the scene for
international agreements to formalize the different levels and types of international
cooperation and organizing principles. Greater informal contacts between antitrust
authorities will likely lead to greater recognition of the benefits than more formalized
cooperative arrangement and of the appropriate design of those arrangements. 156
Informal contacts are useful to disseminating new analytical (p.58) methods and
analysis of new issues, and may help to promote the adoption of best practices in all
countries.157
The methods by which harmonization is sought to be achieved often generate
criticism.158 Although this may reflect dissatisfaction with the outcome rather than the
process of the negotiations, the use of familiar and respected procedures is likely to
maximize confidence in the process and outcome.159 The experience with private law
harmonization suggests that extreme care in the preparation, the formal inclusion of
non-governmental persons and organizations in the process, open discussions, full
consideration of criticisms expressed, and proper promotion of the finished product
are essential to the success of harmonization projects.160
Notes:
(1) DA Baldwin (ed), Neorealism and Neoliberalism: The Contemporary Debate (New
York: Columbia University Press, 1993) ; see also KW Abbott, Modern
international relations theory: a prospectus for international lawyers (1989) 14 Yale
Journal of International Law 335.
(2) H Milner, The assumption of anarchy in international relations theory: a critique
in DA Baldwin (ed), Neorealism and Neoliberalism: The Contemporary Debate (New
York: Columbia University Press, 1993) 143, 1457.
(3) See, eg, neo-realist KN Waltz, Theory of International Politics (Reading, Mass:
Addison-Wesley, 1979) 114 , who observed that the international system
is flecked with particles of government and alloyed with elements of community.
(4) See, eg, SD Krasner, Structural causes and regimes consequences: regimes as
intervening variables (1982) 36 International Organization 185, 190.
(5) D Snidal, International political economy approaches to international institutions
in JS Bhandari and AO Skyes (eds), Economic Dimensions in International Law:
Comparative and Empirical Perspectives (Cambridge: Cambridge University Press,
1997) 477, 484.
(6) D Snidal, International political economy approaches to international institutions
in JS Bhandari and AO Skyes (eds), Economic Dimensions in International Law:
Comparative and Empirical Perspectives (Cambridge: Cambridge University Press,
1997) 489.
(7) Ibid 484.
(8) See TH Moran (ed), Governments and Transnational Corporations, vol 7, United
Nations Library on Transnational Corporations (London and New York: Routledge,
1993) ; JH Dunning, The Globalization of Business (London: Routledge,
1993) chs 13 and 14 ; P Muchlinski, Multinational Enterprises and the Law
(Oxford: Blackwell Publishers, 1995) ch 4.
(9) See, eg, CD Wallace, Legal Control of the Multinationals (2nd edn, The Hague:
Martinus Nijhoff, 2004).
(10) See LJ Schoppa, Two-level games and bargaining outcomes: why gaiatsu
succeeds in Japan in some cases but not others (1993) 47 International Organization
353.
(11) See GB Doern, Comparative competition policy: boundaries and levels of political
analysis in GB Doern and S Wilks (eds), Comparative Competition Policy: National
Institutions in a Global Market (Oxford: Clarendon Press, 1996) 7.
(12) For summaries see JS Odell, Understanding international trade policies: an
emerging synthesis (1990) 43 World Politics 139 ; SP Magee, The
political economy of trade policy in D Greenaway and LA Winters (eds), Surveys in
International Trade (Oxford: Basil Blackwell, 1994) 139.
(13) P Krugman, What should trade negotiators negotiate about? (1997) 35 Journal
of Economic Literature 113.
(14) G Feketekuty and RA Rogowsky, The scope, implication and economic rationale
of a competition-oriented approach to future multilateral trade negotiations (1996)
The World Economy: Global Trade Policy 167, 179.
(15) See, eg, Trade Practices Act 1974 (Aust), s 50A(1B).
(16) WM Corden, Trade Policy and Economic Welfare (2nd edn, Oxford: Clarendon
Press, 1997) 74.
(17) P Areeda, Antitrust policy in M Feldstein (ed), American Economic Policy in the
1980s (Chicago: University of Chicago Press, 1994) 573.
(18) Magee (n 12 above) 142, 144, 1567.
(19) Doern (n 11 above) 15.
(20) Odell (n 12 above) 148.
(21) J Bhagwati, Protectionism (Cambridge, Mass: MIT Press, 1988) xii, 2633, 11014
; J Goldstein, Ideas, Interests, and American Trade Policy (Ithaca: Cornell
University Press, 1993).
(22) See JH Jackson, The World Trading System: The Law and Policy of International
Economic Relations (2nd edn, Cambridge, Mass: MIT Press, 1997) 341.
(23) On economic nationalism see R Gilpin, The Political Economy of International
Relations (Princeton: Princeton University Press, 1987) 172, 1803, 185.
(24) W Wells, Antitrust and the Formation of the Postwar World (New York: Columbia
University Press, 2002).
(25) DJ Gerber, Law and Competition in Twentieth Century Europe: Protecting
Prometheus (Oxford: Clarendon Press, 1998) 33445.
(26) See Oilfields as Military Objectives, Congressional Research Service, Library of
Congress, issued 21 August 1975 (against the use of force). Cited in EN Luttwak,
Intervention and access to natural resources in H Bull (ed), Intervention in World
Politics (Oxford: Clarendon Press, 1984) 79 . See also DP Fidler,
Competition law and international relations (1992) 41 International and
Comparative Law Quarterly 563, 568 , who discusses The British
Monopolies and Mergers Commission declaring the Kuwait Investment Office's stake in
British Petroleum against the British public interest. Kuwait Investment Office/BP
(1988) Cm477.
(27) See, eg, the controversy surrounding the EC Commission's IV/M.877,
Boeing/McDonnell Douglas [1997] 5 CMLR 270 and COMP/M.2220, GE/Honeywell
[2004] OJ L48/1, merger decisions, and the exemptions granted under Art 81(3) of the
EC Treaty to permit rationalization cartels between major European petrochemical
producers in IV/31.055, ENI/Montedison [1988] 4 CMLR 444 and IV/31.846,
Enichem/ICI [1989] 4 CMLR 54.
(28) See, eg, GATT, art XXI; GATS, art XIV bis; TRIPS, Art 73.
(29) Commission Press Release, The Commission clears the merger between Boeing
and McDonnell Douglas under conditions and obligations, IP/97/727 (30 July 1997).
(30) See, eg, GEC/Plessey (1986) Cmnd 9867. See also Fidler (n 26 above) 568, 5723.
(31) See L D'Andrea Tyson, Who's Bashing Whom?: Trade Conflicts in High-technology
Industries (Washington: Institute for International Economics, 1992) 11.
(32) See International Ass'n of Machinists and Aerospace Workers v OPEC 649 F 2d
1354 (9th Cir 1981), cert denied, 454 US 1163 (1982).
(33) See, eg, United States v Bechtel Corp 19791 Trade Cases 62,429; 62,430 (ND
Cal, 1979), affirmed, 648 F 2d 660 (9th Cir), cert denied, 454 US 1083 (1981). The
Exon-Florio Act, 50 USC 2170, gives officials a broad power to block mergers that
threaten US national security. Enforcement officials in the US acknowledge that the
analysis of the enforcement agencies may be different where a transaction could
affect national security or raise First Amendment considerations. R Pitofsky, The
effect of global trade on United States competition law and enforcement policies,
Fordham Corporate Law Institute, 26th Annual Conference on International Antitrust
Law and Policy, New York, 15 October 1999.
(34) See AM Feldman, Pareto optimality and Kaldor-Hicks compensation and LA
Kornhauser, Wealth maximisation in P Newman (ed), The New Palgrave Dictionary of
Economics and the Law (London: Macmillan, 1998) 5, 417, 685.
(35) The concept of global economic welfare is not a sum of the welfare of states, but
of all individuals living in all states. This is consistent with modern moral theories
which treat people as moral agents not nations. See CR Beitz, Political Theory and
International Relations (Princeton: Princeton University Press, 1979).
(36) See Chapter 5.
(37) See Section 3.4.
(38) See WE Oates, Fiscal Federalism (New York: Harcourt Brace Jovanovich, 1972)
; J Pelkmans, The assignment of public functions in economic
integration (1982) 21 Journal of Common Market Studies 97.
(39) Cf JE Stiglitz, Economics of the Public Sector (2nd edn, New York: W W Norton,
1988) 637.
(40) See FM Bator, The anatomy of market failure (1958) 72 Quarterly Journal of
Economics 351 ; T Cowen (ed), Public Goods and Market Failures: A
Critical Examination (New Brunswick: Transaction Publishers, 1992).
(41) E Hope, Introduction in E Hope and P Maeleng (eds), Competition and Trade
Policies: Coherence or Conflict? (London: Routledge, 1998) 1, 23.
(42) J Bhagwati, Fair trade, reciprocity, and harmonization: the novel challenge to the
theory and policy of free trade in D Salvatore (ed), Protectionism and World Welfare
(Cambridge: Cambridge University Press, 1993) 17, 47.
(43) See Section 4.2.
(44) In relation to competition law, regulatory interdependence will exist when the
achievement of the objectives of the competition law in one country is affected by the
policy of another country and actions taken pursuant to that policy, and vice-versa.
(45) See Chapters 9 to 11.
(46) S Haggard and BA Simmons, Theories of international regimes (1987) 41
International Organization 491, 5069 ; D Snidal, International political
economy approaches to international institutions in JS Bhandari and AO Skyes (eds),
Economic Dimensions in International Law: Comparative and Empirical Perpectives
(Cambridge: Cambridge University Press, 1997) 481, 482.
(47) RO Keohane, Institutional theory and the realist challenge after the cold war in
DA Baldwin (ed), Neorealism and Neoliberalism: The Contemporary Debate (New York:
Columbia University Press, 1993) 269, 292.
(48) See M Byers, Custom, Power and the Power of Rules: International Relations and
Customary International Law (Cambridge: Cambridge University Press, 1999)
. See also JL Goldsmith and EA Posner, The Limits of International Law
(New York: Oxford University Press, 2005).
(49) Ibid 57.
(50) See Part II.
(51) SD Krasner, Global communications and national power: life on the Pareto
frontier in DA Baldwin (ed), Neorealism and Neoliberalism: The Contemporary Debate
(New York: Columbia University Press, 1993) 234, 2456.
(52) See EC Treaty, art 5; EU Treaty, art 2. See N Emiliou, Subsidiarity: an effective
barrier against the enterprises of ambition? (1992) 43 European Law Review 383
; A Scott, J Peterson, and D Millar, Subsidiarity: a Europe of the regions
v. the British constitution? (1994) 32 Journal of Common Market Studies 47
; JP Gonzlez, The principle of subsidiarity (a guide for lawyers with a
particular community orientation) (1995) 20 European Law Review 355 ;
G Davies, Subsidiarity: the wrong idea, in the wrong place, at the wrong time (2006)
43 Common Market Law Review 63.
(53) See, eg, JP Trachtman, L'etat, c'est nous: sovereignty, economic integration and
subsidiarity (1992) 33 Harvard International Law Journal 459.
(54) P Demaret, A short walk in the realm of subsidiarity in RM Buxbaum, G Hertig, A
Hirsch, and KJ Hopt (eds), European Economic and Business Law: Legal and Economic
Analyses on Integration and Harmonization (Berlin: Walter de Gruyter, 1996) 13, 15
16.
(55) See Emiliou (n 52 above) 4025.
(56) IV/M.877 Boeing/McDonnell Douglas [1997] 5 CMLR 270; COMP/M.2220
GE/Honeywell, [2004] OJ L 48/1.
(57) JI Klein, A note of caution with respect to a WTO agenda on competition policy,
Remarks before the Royal Institute of International Affairs, London, 18 November
1996.
(58) JH Jackson, The great 1994 sovereignty debate: United States acceptance and
implementation of the Uruguay Round results (1997) 36 Columbia Journal of
Transnational Law 157.
(59) E Lauterpacht, Sovereigntymyth or reality? (1997) 73 International Affairs
137, 140.
(60) Ibid 141 . See also S Krasner, Sovereignty; Organized Hypocrisy
(Princeton: Princeton University Press, 1999) ; JH Jackson, Sovereignty-
modern: a new approach to an outdated concept (2003) 97 American Journal of
International Law 782.
(61) DP Fidler, Competition law and international relations (1992) 41 International
and Comparative Law Quartlery 563, 569.
(62) J Pekmans, Governing European Union: from prefederal to federal economic
integration? in K Knop, S Ostry, R Simeon, and K Swinton (eds), Rethinking
Federalism: Citizens, Markets, and Governments in a Changing World (Vancouver: UBC
Press, 1995) 166, 179.
(63) RH Garveson, The international unification of law (1968) 16 American Journal of
Comparative Law 4, 6.
(64) TW Welde and JL Gunderson, Legislative reform in transition economies:
Western transplantsa short-cut to social market economy status? (1994) 43
International and Comparative Law Quarterly 347, 362, 368.
(65) Ibid 3767.
(66) Much depends on the definition of non-discrimination used. See Section 11.5.6.
(67) See Centre for Economic Policy Research, Making Sense of Subsidiarity: How
Much Centralization for Europe? (London: Centre for Economic Policy Research,
Monitoring European Integration 4, 1993) 4651 . Responsiveness to local
constituents raises the spectre of regulatory capture. The fact that regulatory
agencies respond to interest group pressure is not necessarily bad provided that the
interest group pressures to which regulatory agencies respond are representative of
society at large. D Neven, R Nuttal, and P Seabright, Merger in Daylight: The
Economics and Politics of European Merger Control (London: Centre for Economic
Policy Research, 1993) 166 . The information asymmetries between, on
the one hand, consumers and competition authorities and, on the other hand, the
regulated firms, suggests that the regulatory capture of competition authorities is
possible. Large firms will have an advantage as lobbyists because their information
gathering costs about substantive and procedural issues are likely to be low, because
the information is likely to be a by-product of other activities, such as participating in
antitrust disputes or assessing new markets. R van den Bergh, The subsidiary
principle and the EC competition rules: the costs and benefits of decentralisation in D
Schmidtchen and R Cooter (eds), Constitutional Law and Economics of the European
Union (Cheltenham: Edward Elgar, 1997) 142.
(68) C Tiebout, A pure theory of local expenditures (1956) 64 Journal of Political
Economy 416.
(69) GC Shaffer, The World Trade Organization under challenge: democracy and the
law and politics of the WTO's treatment of trade and environment matters (2001) 25
Harvard Environmental Law Review 1.
(70) See Centre for Economic Policy Research (n 67 above) esp ch 3.
(71) RD Cooter, The structural approach to decentralising law: a theory of games and
norms in RM Buxbaum, G Hertig, A Hirsh, and KJ Hopt (eds), European Economic and
Business Law: Legal and Economic Analyses on Integration and Harmonization (Berlin:
Walter de Gruyter, 1996) 3413.
(72) D Held, Democracy: from city-states to a cosmopolitan order? (1992) 40
Political Studies 10, 202 (footnote omitted) . See also D Held,
Democracy, the nation-state and the global system in D Held (ed), Political Theory
Today (Cambridge: Polity Press, 1991) 197.
(73) E Stein, International integration and democracy: no love at first sight (2001)
95 American Journal of International Law 489 . There is a growing
literature on democracy and trade regulation and regulatory cooperation. See, eg, R
Howse, Transatlantic regulatory cooperation and the problem of democracy and S
Picciotto, North Atlantic cooperation and democratizing globalism in GA Bremann, M
Herdegen, and PL Lindseth (eds), Transatlantic Regulatory Cooperation: Legal
Problems and Political Prospects (Oxford: Oxford University Press, 2000) 469, 495.

(74) DP Wood, The trade effects of domestic antitrust enforcement in JS Bhandari

and AO Sykes (eds), Economic Dimensions in International Law: Comparative and
Empirical Perspectives (Cambridge: Cambridge University Press, 1997) 513, 5256.

(75) Stein (n 73 above) 115, 530.

(76) WTO Agreement, art III:5; GATT, art XV; TRIPS, art 68; Agreement on the
Application of Sanitary and Phytosanitary Measures, Art 3:4.
(77) GC Shaffer, The World Trade Organization under challenge: democracy and the
law and politics of the WTO's treatment of trade and environment matters (2001) 25
Harvard Environmental Law Review 1, 618.
(78) See Section 13.4.4.
(79) See J Pelkmans, The new approach to technical harmonisation and
standardisation (1987) 25 Journal of Common Market Studies 249.
(80) See Centre for Economic Policy Research (n 67 above) 837.
(81) See Section 2.4.5.
(82) See Section 2.2.4.
(83) See S Haggard and BA Simmons, Theories of international regimes (1987) 41
International Organization 491, 5406.
(84) KW Abbott, Modern international relations theory: a prospectus for international
lawyers (1989) 14 Yale Journal of International Law 335, 377395 ; JAC
Conybeare, International organization and the theory of property rights (1980) 34
International Organization 307.
(85) R Axelrod, The Evolution of Cooperation (New York: Penguin, 1984/1990)
; RO Keohane, After Hegemony: Cooperation and Discord in the World
Political Economy (Princeton: Princeton University Press, 1984) 678.
(86) R Axelrod and RO Keohane, Achieving cooperation under anarchy: strategies and
institutions in DA Baldwin (ed), Neorealism and Neoliberalism: The Contemporary
Debate (New York: Columbia University Press, 1993) 85, 914.
(87) KW Abbott, Modern international relations theory: a prospectus for international
lawyers (1989) 14 Yale Journal of International Law 335, 363.
(88) Keohane (n 85 above) 1003.
(89) SD Krasner, Global communications and national power: life on the Pareto
frontier in DA Baldwin (ed), Neorealism and Neoliberalism: The Contemporary Debate
(New York: Columbia University Press, 1993), 238.
(90) Keohane (n 85 above) 8598.
(91) Conybeare (n 84 above).
(92) Keohane (n 85 above) 612.
(93) SD Krasner, Structural causes and regimes consequences: regimes as
intervening variables (1982) 36 International Organization 185 ;S
Haggard and BA Simmons, Theories of international regimes (1987) 41 International
Organization 491, 4936 . D North, Institutions (1991) 5 Journal of
Economic Perspectives 97 , defines institutions as humanly devised
constraints that structure political, economic and social interaction, which consist of
both informal constraints (sanctions, taboos, customs, traditions and codes of
conduct) and formal rules (constitutions, laws, property rights).
(94) KW Abbott, Modern international relations theory: a prospectus for international
lawyers (1989) 14 Yale Journal of International Law 335, 403.
(95) RO Keohane, After Hegemony: Cooperation and Discord in the World Political
Economy (Princetown: Princetown University Press, 1984) 61.
(96) See, eg, Ibid 79, 8996 ; KW Abbott, Modern international relations
theory: a prospectus for international lawyers (1989) 14 Yale Journal of International
Law 335, 399401, 367.
(97) R Axelrod and RO Keohane, Achieving cooperation under anarchy: strategies and
institutions in DA Baldwin (ed) Neorealism and Neoliberalism: The Contemporary
Debate (New York: Columbia University Press, 1993) 948.
(98) Cf RO Keohane, International relations and international law: two optics (1997)
38 Harvard International Law Journal 487, 4978.
(99) RW Keohane, After Hegemony: Cooperation and Discord in the World Political
Economy (Princetown: Princetown University Press, 1984), 94.
(100) Keohane (n 98 above) 500.
(101) KW Abbott, Modern international relations theory: a prospectus for international
lawyers (1989) 14 Yale Journal of International Law 335, 397.
(102) See, eg, R Posner, The Economic Analysis of the Law (4th edn, Boston: Little
Brown, 1992) 428, 557.
(103) The OECD Joint Group on Trade and Competition, Outline of (A) Core Principles,
Common Approaches and Common Standards and (B) Bilateral and Multilateral
Approaches, OECD Doc COM/TD/DAFFE/CLP(98)97/REV2, Paris, 2930 June 1999,
suggests three categories of rules: core principles, common standards, and common
approaches. Core principles may be seen as fundamental principles of general
application, such as national treatment and transparency. Common standards set
forth, in varying levels of detail, the standards that must be applied and the manner in
which they must be applied. A common approach would set forth or list certain criteria
or objectives to be considered, without necessarily delineating how those criteria
would be applied, or what precise weight should be assigned to particular elements of
the criteria.
(104) See, eg, Report of Group of Experts, Competition Policy in the New Trade Order:
Strengthening International Cooperation and Rules (Brussels: European Commission,
DGIV, 1995) 18.
(105) See J Davidow and L Chiles, The United States and the issue of the binding or
voluntary nature of international codes of conduct regarding restrictive business
practices (1978) 72 American Journal of International Law 247, 2547 .
UNCTAD has been involved in a number of competition law related initiatives,
including creating the Set of Multilaterally Agreed Equitable Principles and Rules for
the Control of Restrictive Business Practices that was adopted by a United Nations
General Assembly Resolution 35/63, reprinted in (1980) 19 ILM 815, and the provision
of technical assistance to developing countries. See TL Brewer, International
regulation of restrictive business practices (1982) 16 Journal of World Trade Law 108
; P Brusick, UN control of restrictive business practices. A decisive first
step (1983) 17 Journal of World Trade Law 337 ; J Davidow, The
UNCTAD restrictive business practices code (1979) 13 International Lawyer 587
; DL Miller and J Davidow, Antitrust at the United Nations: a tale of two
codes (1982) 18 Stanford Journal of International Law 347 ; S Dell, The
United Nations and International Business (Durham: Duke University Press, 1990) 22
36 ; DG Gill, The UNCTAD restrictive business practices code: a code for
competition? (1979) 13 International Lawyer 607 ; SK Sell, Power and
Ideas: NorthSouth Politics of Intellectual Property and Antitrust (Albany: State
University of New York Press, 1998) chs 3 and 5 . The recent activities or
UNCTAD are documented on its website. See:
<http://r0.unctad.org/en/subsites/cpolicy/index.htm>.
(106) The Guidelines for Multinational Enterprises were first adopted by the OECD in
1976 and have been updated several times. For the latest version see OECD, The
OECD Guidelines for Multinational Enterprises (Paris: OECD, 2000) . See
also BE Hawk, The OECD Guidelines for Multinational Enterprises: Competition
(1977) 46 Fordham Law Review 241 . The OECD established a Restrictive
Business Practices Committee when the OECD was first created in 1961. According to
the OECD website The OECD's Competition Committee is the world's premier source
of policy analysis and advice to governments on how best to harness market forces in
the interests of greater global economic efficiency and prosperity. Bringing together
the leaders of the world's major competition authorities, the Committee is the chief
international forum on important competition policy issues. See:
<http://www.oecd.org.libproxy1.nus.edu.sg/about/0,2337,en_2649_37463_1_1_1_1_37
463,00.html>, accessed on 1 March 2007.
(107) H Hillenberg, A fresh look at soft law (1999) 10 European Journal of
International Law 499 ; DE Ho, Compliance and international soft law:
why do countries implement the Basle Accord? (2002) 5 Journal of International
Economic Law 647.
(108) W Fikentscher, The Draft International Antitrust Code (DIAC) in the context of
international technological integration (1996) 72 Chicago-Kent Law Review 533
. For a critical commentary see DJ Gifford, The Draft International
Antitrust Code proposed at Munich: good intentions gone awry (1997) 6 Minnesota
Journal of Global Trade 1.
(109) Report of Group of Experts, Competition Policy in the New Trade Order:
Strengthening International Cooperation and Rules (Brussels: European Commission,
DGIV, 1995) 22.
(110) Ibid 234.
(111) Communication to Council, Communication submitted by Sir Leon Brittan and
Karel Van Miert, Towards an International Framework of Competition Rules, 18 June
1996, Com(96) 284.
(112) Compare the Report and Communication to Council with the Communication
from the European Community and its Member States, WT/WGTCP/W/152, 25
September 2000; Communication from the European Community and its Member
States, WT/WGTCP/W/160, 14 March 2001.
(113) See Non-paper on trade and competition by the Japanese delegates to the
WTO (1996) 24 International Business Lawyer 463.
(114) Communication from Japan, Preparations for the 1999 Ministerial Conference,
Trade and Competition, WT/GC/W/308, 25 August 1999.
(115) See Bridges Daily Update on the Fifth WTO Ministerial Conference, Issue 6,
Cancun Collpase: where there is no will there is no way, 15 September 2003.
(116) See Canadian competition officials, lawyers dismiss concept of a global
competition code (9 October 1997) 73 Antitrust and Trade Regulation Report 357; R
MacLaren, Two steps forward, and no steps back: charting a new course for trade and
competition policy (1996) 24 International Business Lawyer 464 ;D
Burlone, Canada and the internationalization of competition policy, Speech to the
Canadian Bar Association, 21 September 2000.
(117) See, eg, A Mattoo and A Subramanian, Multilateral rules on competition policy
a possible way forward (1997) 31:5 Journal of World Trade 95.
(118) WT/MIN(01)/DEC/1, 914 November 2001, para 25.
(119) See, eg, Communication from Thailand, WT/WGTCP/W/213/Rev.1, 26
September 2002; Communication from China, WT/WGTCP/W/227, 14 March 2003.
(120) See, eg, Communication from India, WT/WGTCP/W/216, 26 September 2002.
(121) See, eg, Communication from Australia, WT/WGTCP/W/211, 24 September
2002; Communication from Switzerland, WT/WGTCP/W/214, 24 September 2002.
(122) Communication from the European Community and its member states,
WT/WGTCP/W/222, 19 November 2002.
(123) Communication from New Zealand, WT/WGTCP/W/210, 24 September 2002.
(124) American Bar Association, Section of Antitrust Law, Report of the Special
Committee on International Antitrust (ABA, 1991) 290.
(125) See, eg, D Wood, A cooperative framework for national regulators (1996) 72
Chicago-Kent Law Review 521 ; FTC commissioner Starek urges nations
to cooperate in enforcing antitrust law (18 April 1996) 70 Antitrust and Trade
Regulation Report 445; Klein reviews and projects trends in international antitrust
enforcement (23 October 1997) 73 Antitrust and Trade Regulation Report 400; DA
Valentine, Jurisdiction and enforcement: building a cooperative framework for
oversight in mergersthe answer to extraterritorial issues in merger review (1998) 6
George Mason University Law Review 525 ; AD Melamed, International
antitrust in an age of international deregulation (1998) 6 George Mason University
Law Review 437.
(126) See Section 11.5.1.
(127) WH Barringer, Competition policy and cross border dispute resolution: lessons
learned from the U.S. Japan film dispute (1998) 6 George Mason University Law
Review 459, 462.
(128) EM Graham and MAA Warner, Multinationals and competition policy in North
America in Lorraine Eden (ed), Multinationals in North America (Calgary: University of
Calgary Press, 1994) 463, 47681.
(129) See, however, the challenge to the European Commission's authority to enter
into the Agreement between the Government of the United States of America and the
Commission of the European Communities Regarding the Application of their
Competition Laws, 23 September 1999. Case C-327/91 France v Commission [1994] 5
CMLR 517.
(130) Productivity Commission, International Cooperation on Competition Policy: An
Australian Perspective, Report 96/15 (Canberra: Australian Government Publishing
Service, September 1996) 435.
(131) Informal consultations on Singapore issues continue BRIDGES Weekly Trade
News Digest (2004) 8 (13); Doha Round: political momentum growing as ministers
prepare for Paris meet BRIDGES Weekly Trade News Digest (2004) 8 (17); WTO
General Council Decision, Doha work programme WT/GC/W/5353, 31 July 2004, para
1g.
(132) Communication from the European Community and its member states
WT/WGTCP/W/222, 19 November 2002.
(133) JP Trachtman, The theory of the firm and the theory of international economic
organization: toward comparative institutional analysis (1996) 17 Northwestern
Journal of International Law and Business 470, 531.
(134) DK Tarullo, Norms and institutions in global competition policy (2000) 94
American Journal of International Law 478, 495.
(135) UNCTAD XI takes on trade and development challenge BRIDGES Weekly Trade
News Digest (2004) 8 (22).
(136) A Sapir, The General Agreement on Trade in Services from 1994 to the year
2000 (1999) 33:1 Journal of World Trade 51, 556.
(137) Ibid .
(138) See, eg, JI Klein, A note of caution with respect to a WTO agenda on
competition policy, Remarks before the Royal Institute of International Affairs,
London, 18 November 1996 ; AD Melamed International antitrust in an
age of international deregulation (1998) 6 George Mason University Law Review 437.

(139) F Roessler, Diverging domestic policies and multilateral trade integration in J

Bhagwati and RE Hudec (eds), Fair Trade and Harmonization: Prerequisites for Free
Trade?, Vol 2, Legal Analysis (Cambridge, Mass: MIT Press, 1996) 46, 53.
(140) In the US, business groups dominated the harmonization work of the American
Law Institute and the National Conference of Commissioners on Uniform State Laws
(NCCUL). See K Patchel, Interest group politics, federalism, and the uniform laws
process: some lessons from the Uniform Commercial Code (1993) 78 Minnesota Law
Review 83, 88 ; A Schwartz and RE Scott, The political economy of
private legislatures (1995) 143 University of Pennsylvania Law Review 595, 597
. UNCITRAL (United Nations Commission on International Trade Law) and
Unidroit (Institute for the Unification of Private Law) share many of the characteristics
of the US bodies. EA Farnsworth, Unification and harmonization of private law (1996)
27 Canadian Business Law Review 48, 5760.
(141) See Neven, Nuttal and Seabright (n 67 above) for a review the literature on
regulatory capture in the antitrust context.
(142) See also G Feketekuty and RA Rogowsky, The scope, implication and economic
rationale of a competition-oriented approach to future multilateral trade negotiations
(1996) The World Economy: Global Trade Policy 167, 179.
(143) FO Hampson with M Hart, Multilateral Negotiations: Lessons from Arms Control,
Trade, and the Environment (Baltimore: John Hopkins University Press, 1995) 45, 28
33, 407.
(144) Farnsworth (n 140 above) 59.
(145) WTO Agreement, Art IX.
(146) R Blackhurst, The capacity of the WTO to fulfil its mandate in AO Krueger (ed),
The WTO as an International Organization (Chicago: University of Chicago Press, 1998)
31.
(147) S Strange, States and Markets (London: Pinter Publishers, 1988) 23540.

(148) S Haggard and BA Simmons, Theories of international regimes (1987) 41

International Organization 491, 503 . In several sectors, a subset of WTO
members agreed to liberalize trade on a most-favoured-nation basis.
(149) See Y Dezalay, The Big Bang and the law: the internationalisation and
reconstruction of the legal field (1990) 7:23 Theory, Culture & Society 28193
; RT Nimmer and PA Krauthaus, Globalisation of law in intellectual
property and related commercial contexts (1992) 10 Law in Context (Science, Law &
Societyspecial issue) 80 ; Symposium, Knowledge, power, and
international policy coordination (1992) 46 International Organization 1 ;
M Byers, Custom, Power and the Power of Rules: International Relations and
Customary International Law (Cambridge: Cambridge University Press, 1999), ch 9.

(150) WTO, Singapore Ministerial Declaration, Conf. Doc. WT/MIN(96)/DEC/W, 13

December 1996.
(151) See <http://www.globalcompetitionforum.org>.
(152) See <http://www.internationalcompetitionnetwork.org>.
(153) FO Hampson with M Hart, Multilateral Negotiations: Lessons from Arms Control,
Trade, and the Environment (Baltimore: John Hophins University Press, 1995), ch 12.

(154) See also MJ Trebilcock, Competition policy and trade policy: mediating the
interface (1996) 30:4 Journal of World Trade Law 71, 105.
(155) A Schaub, The Global Competition Forum: How it should be organised and
operated, European Policy Centre, Brussels, 14 March 2001 . See also
International Competition Policy Advisory Committee, Final Report (2000) 2815.
(156) For example, James F Rill is reported as saying that both US and Canadian
competition enforcement officials have not been entirely forthcoming on the extent to
which they cooperate at levels below what is officially visible. See Canadian
counsellors ponder issues of confidentiality in data exchanges (5 October 1995) 69
Antitrust and Trade Regulation Reporter 397.
(157) See, eg, H Dumez and A Jeunematre, The convergence of competition policies
in Europe: internal dynamic and external implications in S Berger and R Dore (eds),
National Diversity and Global Capitalism (Ithaca: Cornell University Press, 1996) 216,
227.
(158) See, eg, C-D Ehlermann, Harmonisation for harmonisation's sake? (1978) 15
Common Market Law Review 4.
(159) JA Spanogle, The arrival of private international law (1991) 25 George
Washington Journal of International Law and Economics 477, 494.
(160) Ibid 497, 503, 5056.

The Inevitably Incomplete Convergence of Competition Laws

Chris Noonan
DOI:10.1093/acprof:oso/9780199207527.003.0003
Abstract and Keywords

This chapter examines the nature of major similarities and differences between
national competition laws. Section 3.1 provides an overview of competition law in
developed countries. Section 3.2 examines the role of competition law in developing
countries. Section 3.3 argues that there are fundamental differences between
competition laws and that it is not realistic to expect a complete convergence of
competition laws in the foreseeable future. Section 3.4 argues that the agreement on
a fundamental underlying principle is missing from current proposals to reform the
international competition law system.

Keywords: national competition laws, developed countries, developing countries,

international competition law system
3.1 An Overview of Competition Law
3.1.1 The Common Elements of Competition Laws
The ostensible function of competition law is to protect rivalry among buyers and
sellers. Competition laws are legal regimes of general application that prohibit or
sanction market conduct that restrains the process of competition.1 This definition
excludes laws that regulate prices or specific industries or that incidentally or
indirectly protect competition, such unfair competition laws that prohibit conduct that
harms a competitor. Over 100 countries have a competition law and more are in the
process of adopting one.2 The majority of these are based on Western laws and
economic theories. Competition laws typically regulate the four types of business
practices: (1) cartels and other horizontal arrangements between competitors; (2)
vertical arrangements between producers and sellers; (3) abuse of a dominant
position, monopoly, or market power; and (4) mergers and acquisitions that reduce
competition.3
In many countries, the most important substantive competition law rules consist of a
few short, general statutory provisions, like ss 1 and 2 of the US Sherman Act 1890.4
The effect and meaning of these provisions is largely determined by how they are
interpreted by the courts and competition authorities. The consequences of a breach
of a competition law also depend upon the legal rules regulating investigation and
enforcement in competition law cases, such as the rules of civil procedure. In addition
to short, general rules, many competition laws have several more detailed provisions
dealing with specific trade practices, (p.60) like the Clayton Act 1914 and the
Robinson-Patman Act 1936 in the US. These provisions were often enacted to respond
to particular social issues.
A full analysis of all competition laws is beyond the scope of this book. Most
competition law rules can only be discussed at a general level. Too much detail would
in any event run the risk of highlighting differences between jurisdictions that may be
of limited importance to international economic integration and competition law
cooperation. If international cooperation on competition laws is to preserve a degree
of flexibility for national jurisdictions to apply and develop their competition laws,
broad shared principles rather than minute detail are likely to form the basis of
cooperation.
Section 3.1 provides an overview of competition law in developed countries. Section
3.2 examines the role of competition law in developing countries. Section 3.3 argues
that there are fundamental differences between competition laws and it is not realistic
to expect a complete convergence of competition laws in the foreseeable future.
Section 3.4 argues that the agreement on a fundamental underlying principle is
missing from current proposals to reform the international competition law system.
Cartels and Horizontal Arrangements
There is a large degree of agreement among competition officials on the competition
effects of hard core cartels, such as price fixing, market division, and bid rigging, even
if legal approaches vary considerably. Hard core cartels, once identified, are prohibited
outright in many countries, without regard to the market power of the participants,
their motives, or purported business justifications. Such outright prohibitions are often
called per se prohibitions. In Australia and New Zealand, the per se prohibition of price
fixing cartels is embodied in a statutory rule. In the US, the per se rule is a judicial
creation and subject to judicial adjustment. Countries do not draw the line between
per se prohibited business practices and other business practices that are prohibited
under their competition laws in a uniform way. Competition laws increasingly only
prohibit other horizontal business arrangements, such as joint ventures, buying
groups, and standard-setting organizations, where such practices reduce competition
and/or their anticompetitive effects outweigh their pro-competitive effects, rather
than simply because the arrangement assumes a specific form. In some competition
laws, all horizontal agreements are subject to a competition or a rule of reason test. In
all countries, there are exemptions available to certain types of cartel.
Vertical Arrangements
Vertical restraints include exclusive dealing, tying, requirements contracts, resale
price maintenance, and territorial restraints. Vertical restraints are often regulated by
the same competition law rule as horizontal restraints.5 Today, such restraints (p.61)
are generally permitted, provided that they do not lessen competition or they pass a
rule of reason test. In the past a number of vertical restraints were prohibited per se.
Resale price maintenance is still often prohibited, sometimes with a few sectoral
exceptions, in many countries, without proof of harm to competition. Most intellectual
property licences contain vertical restraints. Some countries have adopted specific
guidelines or regulations detailing how competition law applies to such licences, 6 or
their competition statutes contain specific provisions modifying the application of
general competition rules to cases involving intellectual property.7
Abuse of Dominance and Monopolisation
Most countries with competition laws have rules prohibiting unilateral anticompetitive
acts by dominant firms, such as predatory pricing, exclusive dealing, tying and
refusals to deal. In the US, monopolization requires proof that the defendant has
monopoly power and that it wilfully acquired or maintained its monopoly by
anticompetitive acts.8 In the EU, abuse of dominance is prohibited.9 In Australia and
New Zealand, taking advantage of a substantial degree of market power for an
anticompetitive purpose is prohibited.10 Many countries determine dominance after a
full examination of the market, while some countries presume dominance where a
firm's market share exceeds more than a specified amount. 11
Mergers and Acquisitions
The US, Australia, Canada and New Zealand prohibit mergers (or acquisitions) that
substantially lessen competition. The EU prohibits mergers that would significantly
impede effective competition, in particular mergers that create or strengthen
dominance. The choice of wording does not necessarily provide a clear picture of the
competition thresholds. In the US, for instance, dominance (as applied in the EU) is
seen as a lower threshold (or more interventionist standard) than a substantial
lessening of competition test. On the other hand, in Australia and New Zealand
dominance is seen as providing as a higher threshold than substantial lessening of
competition. In some countries, mergers that substantially lessen competition or
create a dominant position may nonetheless be permitted if the merger results in an
overall gain in efficiency or is otherwise found to be in the (p.62) public interest. In
some countries a public interest test may involve a ministerial decision or the statute
may give the ultimate power of decision to a minister. Over 80 countries now have
either mandatory or voluntary pre-merger notification laws.12 The jurisdictional
thresholds triggering filing obligations, the information that must be submitted, the
review criteria, and the timetable for merger reviews vary.
Public Enforcement
Most countries with a competition law have an autonomous or semiautonomous
government agency to administer or enforce the law. A competition authority may
carry out a number of functions, including gathering information and investigating
potential breaches of competition law, prosecuting potential breaches through the
court system, determining whether there has been a breach of competition law
through quasi-judicial procedures and ordering appropriate remedies, and receiving
notifications of particular types of transactions and determining whether a transaction
complies with the law. All enforcement agencies face resource constraints and
therefore tend to apply competition law selectively, attempt to encourage compliance
with the competition law rather than to punish all wrongdoers, and use a variety of
techniques short of litigation, such as warnings, settlements, undertakings, and
consent decrees, to resolve cases. The role of competition authorities and courts in
decision-making varies between countries. Where a competition authority is able to
impose fines or make other orders, there is often a right of appeal to the courts.
A number of countries prosecute cartels as criminal offences (eg Canada, Japan,
Korea, Mexico, the UK and the US); are considering enacting legislation allowing
criminal prosecutions (eg Australia) or may prosecute certain types of cartels under
general criminal statutes (eg Germany).13 In many countries, even if cartel conduct is
not a criminal offence, fines or surcharges may be imposed on violators of competition
law rules through civil proceedings or administrative procedures. In civil actions in the
US, the enforcement agencies may seek broad equitable relief from the courts, such
as an injunction or an order for divestiture or exceptionally to break up a firm.14 The
remedial powers of courts in civil law countries are typically not as broad or as
flexible.15
(p.63) Private Actions
A number of countries provide private rights of action against breaches of competition
law.16 The case for private suits is essentially to ensure better enforcement of
competition law and compensate persons harmed as a result of illegal conduct. 17
Private suits may also ensure that foreign plaintiffs can get redress from the courts
where the local competition authority is unable or unwilling to act. In international
antitrust cases, private suits have been described as a rogue elephant, because
private litigants will not consider the foreign policy implications before commencing
an action. Private competition law enforcement actions often are pursued before civil
or commercial courts and are subject to most of the normal rules of civil procedure. 18
The US civil antitrust litigation system has a number of relatively unique features,
including jury trial, treble damages, contingency fees, class actions, broad pre-trial
discovery, and the losing plaintiff usually does not pay the winner's costs, all of which
encourage private antitrust litigation. In the EU, private actions may be brought for
breaches of Articles 81 and 82 of the EC Treaty, but not the Merger Regulation, and
national laws in the courts of the member states.19 In Japan, private suits are also
possible, but only a few have ever been brought.20 The possibility and extent of any
recovery in private suits is also affected by general principles of tort law or specific
competition law doctrines, including rules relating to standing to sue, causation, the
requirement that the damage flows from a harm to competition, remoteness of
damage, and prohibitions on recovery by indirect purchasers.
3.1.2 Objectives and Underlying Ideas
The objectives of competition laws may greatly influence their interpretation and
effect. The objectives of competition laws range from purely economic to populist to
partisan political.21 A brief review of the competition law objectives provides an
indication of some of the obstacles to harmonizing competition law.
(p.64) Efficiency and Consumer Welfare
Competition law is premised on the idea that economic welfare will be improved by
promoting the competitive pricing of goods and services. Anticompetitive conduct
may reduce competition and raise prices, harm allocative, productive, and/or dynamic
efficiency, and involve socially harmful rent-seeking behaviour. 22 Conduct that reduces
competition and allocative efficiency may not reduce total economic welfare if it
permits sufficient improvements in the productive efficiency of the firms concerned.
US antitrust law is generally perceived as being more focussed on the promotion of
economic efficiency or consumer welfare than most other competition laws.23 The two
standards are different, but not always clearly distinguished. The specific statutory
language in the US antitrust laws and older antitrust precedents indicate that it is not
entirely correct to say that US antitrust law has the sole objective of promoting
efficiency.24 The maximization of efficiency may improve total economic welfare, which
is the sum of the consumer surplus and producer surplus. The consumer surplus is the
aggregate difference between what the consumers of a product or service would be
willing to pay and what they actually pay. The producer surplus is the difference
between revenue received by the producer and the cost of production. Any transfer of
wealth from consumers to producers resulting from anticompetitive conduct that
reduces competition and raises prices is not generally seen as reducing the aggregate
welfare in society.
Some competition laws give greater weight to consumer surplus than to the producer
surplus. For example, competition laws may seek to maximize the consumer surplus,
maximise the long-term interests of consumers,25 or ensure that a fair share of any
efficiency gains are passed on to consumers.26 All of these objectives could be
described as designed to protect consumer welfare, indicating the ambiguity in that
concept. Both the consumer and total welfare standards require an output limitation
or price rise before conduct will be prohibited. A common objective of all competition
laws is to prevent consumer price rises, but sometimes this objective may be justified
as being anti-inflationary and designed to promote social justice rather than economic
efficiency.
(p.65) Free Competition and Fairness
Prior to the 1970s, many US antitrust cases condemned conduct as lessening
competition if that conduct deprived firms of the right to compete.27 The law sought to
promote openness, opportunity, and freedom from coercion by firms with power, and
did not require proof that the conduct reduced consumer welfare. 28 A competition law
concerned with free competition will tend to be more interventionist than one
concerned with efficiency or consumer welfare. EU competition law still seeks to
promote the freedom of firms to trade without artificial obstacles constructed by
dominant firms or agreements among firms, and this freedom is seen as important to
the legitimacy of the competition process and is likely to inure to the benefit of all
market players, whether competitors or consumers.29 Market integration has long
been the primary objective of EU competition law, which resulted in strict prohibition
of restraints in distribution and licensing that tend to isolate member states. 30 Overall
there tends to be greater scepticism in the EU of the claim that markets work well and
that government intervention will do more harm than good than there is in the US.
Fox argues that a number of cases in the US, while paying lip service to the output
limitation standard, use it creatively to provide protection against unjustified but not
necessarily output limiting exclusionary restraints.31 In contrast, the EU has faced a
number of pressures to move towards a consumer welfare standard. 32 The distinction
between the efficiency and free competition standards becomes grey where a court or
a competition authority can condemn conduct even though reduced output is only a
remote possibility.33
The freedom of competition standard can be distinguished from competition laws that
aim to protect small and medium sized enterprises from the non-exclusionary,
efficient conduct of larger firms. A number of competition laws prohibit price
discrimination between traders, social groups or geographic areas, because it is
unfair to one group of consumers or traders, even where such price discrimination is
economically efficient. In Japan, the Antimonopoly Law, in (p.66) theory, could
prevent the abuse of dominant bargaining positions as an unfair trade practice.34 A
number of developing countries also prohibit efficient and non-exclusionary business
conduct in order to promote small (often indigenous) businesses from competition
with large (often foreign) firms.35 These approaches share some similarities with the
application of competition law in some Western countries to prevent the excessive
concentration of economic power.36 The desire to limit the size of firms has never
played an appreciable role in Britain, the Netherlands or Switzerland, but in the US
and Germany popular concern about bigness influenced competition law during
particular periods in their history.37
Broader Economic and Political Aims
A number of competition laws contain a broad list of economic and political objectives.
These objectives might include promoting economic growth and development,
opportunities for small and medium sized enterprises, economic and social cohesion,
social justice, and democracy. For example, the 1986 Canadian Competition Act states
that:38
The purpose of this Act is to maintain and encourage competition in Canada in order
to promote the efficiency and adaptability of the Canadian economy, in order to
expand opportunities for Canadian participation in the world markets while at the
same time recognizing the role of foreign competition in Canada, in order to ensure
that small and medium-sized enterprises have an equitable opportunity to participate
in the Canadian economy and in order to provide consumers with competitive prices
and product choices.

Despite this provision, the primary function of the Competition Act has been seen to
be to promote economic efficiency.39 The Federal Court of Appeal, however, rejected
this approach when interpreting an express efficiency defence for mergers in favour of
one that balanced the competing objectives of the Competition Act.40
Section 1 of the Japanese Antimonopoly Law states that it aims to promote free and
fair competition, to stimulate the creative initiative of entrepreneurs, to encourage
business activities of enterprises, to heighten the level of employment and people's
real income, and thereby to promote the democratic and wholesome (p.67)
development of the national economy as well as to assure the interests of consumers
in general. Although cross-elasticities of demand are used in product market
definition and measures of concentration are used in merger analysis, the focus has
been on the terms of the statute rather than economic analysis.41 Accordingly,
economists are not generally used in lawsuits. Despite the language of section 1, no
special attention is given to the protection of domestic jobs or other social welfare
considerations.42 Thus, like Canada and the US, the broader economic and political
aims of competition law are generally seen as being promoted by the enforcement of
competition law, rather than guiding the interpretation of the competition law.
Public Interest Tests
The list of objectives of competition law could be expanded if factors that are taken
into account in public benefit or public interest tests were included. Under the
Australian Trade Practices Act 1974 and New Zealand Commerce Act 1986,
notwithstanding any harm to competition, most restrictive business practices and
business acquisitions may be authorized if the public benefits resulting from the
practices outweigh the public detriments. Objectives like competitiveness, export
earnings, consumer benefits, employment, regional development, and adjustment
costs may be considered in such tests. Tests that require consideration of multiple
factors may reduce the transparency of the decision-making process.
While some competition laws that may have a single objective, such as efficiency,
may appear to be more transparent, transparency may be undermined by other laws
and government policies that create competition law exemptions. In the US, for
example, the state action doctrine exempts a broad range of conduct from the
antitrust laws. The state action doctrine is arguably less transparent and predictable
than the application of some public interest tests, such as those applied in Australia
and New Zealand, which use clear criteria, like efficiency, to weigh and balance a
range of effects.
International Policy Objectives
Although the content of most competition law rules reflect domestic policy concerns, a
number of rules reflect international policy concerns. First, many competition laws do
not prohibit conduct that harms only foreign consumers. Express or implicit
exemptions for export cartels may be the most common example. The exploitation of
foreigners is rarely a positive objective of a competition law, but (p.68) arises
because the law only prohibits conduct that harms national consumer welfare.
Competition laws may also protect local consumers against such exploitation by
foreign firms or improve the bargaining position of local firms relative to foreign firms.
Secondly, many competition laws contain efficiency defences or public interest tests
which require the decision-maker to take into account any effect on the efficiency or
the international competitiveness of local firms in deciding to prohibit conduct that
may lessen competition in the domestic market. Alternatively, a rule may exempt, or
require special consideration be given to, conduct that increases exports or import
substitution.
Thirdly, as noted above, EU competition law aims to encourage international economic
integration within the common market. It therefore strictly regulates private conduct
that could erect barriers between markets. Similarly, in Fletcher Challenge Ltd, the
Australian Trade Practices Commission considered the objectives of ANZCERTA as a
factor favouring the authorization of an acquisition of 50 per cent of an Australian
company by a New Zealand company.43
Fourthly, unique to the US is the objective of improving access to foreign markets.
Controversially, US antitrust law has been applied to anticompetitive conduct in
foreign markets that has restricted market access for US exports. See Section 8.2.
The Convergence of Objectives
While significant differences in the objectives of competition laws remain among
OECD countries, competition law has increasingly been applied in furtherance of
economic objectives to the exclusion of non-economic or political interests.44 The
OECD Competition Law and Policy Committee considered that: There is general
consensus that the basic objective of competition policy is to protect and preserve
competition as the most appropriate means of ensuring the efficient allocation of
resourcesand thus efficient market outcomein free market economies. 45 Although
a competition law may promote a number of values, many of these values are
secondary objectives, which do not affect the interpretation and application of
competition laws. The secondary objectives of competition law may be important in
securing broad-based political support for competition law and broader deregulatory
policies. The convergence of the objectives of competition laws may lead to a gradual
convergence of analytical approaches and interpretations of general rules.
(p.69) 3.1.3 The Influence of Economics
Competition law does not just command firms not to act in such a way as to reduce
efficiency, or some other objective, but lays down rules about market structure and
conduct. The effect is that competition laws with different objectives may often
produce the same result in the same factual circumstances. Nonetheless, all countries
will not reach the same result in each case. Even if countries are converging in their
use of economic analysis and the objective of promoting consumer welfare or
efficiency, courts and competition authorities are likely to follow different economic
schools of thought at different times. Even if they adopt the same economic
approaches, the implementation in practice may differ.
Clark defined workable competition as the most desirable form of competition,
selected from those that are practically possible.46 Although the concept is vague and
not subject to formal theory, it significantly influenced competition law in a number of
countries. For example, while section 3(1) of the New Zealand Commerce Act defines
competition as workable or effective competition, more modern theory has
influenced the application of the statute. The key conceptual framework for analysing
competition issues in Australia is derived from the structureconductperformance
(SCP) paradigm, which had it origins in the writings of Mason in the 1930s, and was
developed by Bain at Harvard.47 The SCP paradigm was primarily descriptive and
empirical. The so-called Harvard School recommended that competition law should
prevent industries becoming concentrated.
In the 1970s and 1980s, the Chicago School, with its more theoretical approach to
competition law and greater scepticism about the value of government intervention,
largely displaced the Harvard School in US courts and competition authorities. 48
Subsequently, contestability theory became an influential guide to competition law. 49
More recently, the so-called new theory of industrial organization, which relies
heavily on game theory to produce detailed models of strategic interactions between
firms, has helped create a loosely defined Post-Chicago School. Members of the
Post-Chicago School tend to be more sceptical of the robustness of markets.50 The
decision of the US Supreme Court in Eastman (p.70) Kodak Co v Image Technical
Services, Inc is often cited as an example of Post-Chicago economics.51 Practices that
the Chicago School thought were virtually never anticompetitive, such as predatory
pricing and exclusive dealing, Post-Chicago analysis has shown could in some
circumstances be anticompetitive.52
Economics is continuing to develop and move further beyond the traditional static
models and the preoccupation with price competition on which competition law has
been based. The traditional approach to competition law of defining markets and
assessing market power may not be useful to analyse the competitive effects of
conduct in an industry where radical innovations can quickly lead to the replacement
of the current dominant firm.53 However, economics is [not yet] in a position to
provide a defensible and comprehensive set of prescriptions for an economy whose
most enduring attribute is rapid change.54
In parallel with the development of the aforementioned economic scholarship, the
writers associated with Austrian School of economics, which sees competition as a
process of discovery, saw little if any role for competition law.55 However, this concept
of competition influenced other schools that continue to influence the direction of
competition law in Europe. The most important of them was the Freiburg School,
whose ordoliberal conception of competition law played a key role in the success of
the social market economy in Germany and influenced the thinking of EU competition
lawyers.56 The notion of restriction on economic freedom as a basis for competition
law has been criticised for its failure to generate precise operable rules; its distance
from and tension with modern economics; its tendency to favour traders over
consumers and consumer welfare; and the prohibition of innocuous contracts
provisions having no anticompetitive effects.57
The EC Commission's competition law decisions do not refer to any specific economic
approaches to market or competition analysis, but, in a minority of (p.71) cases,
increasingly sophisticated economic and econometric approaches have been used by
the Commission and in submissions to the Commission. In the merger area, demand-
and supply-side substitutability are routinely examined and in cases of collective
dominance the structure of markets are examined to determine whether the merger
would lead to a higher degree of tacit coordination.58 While an increased use of
economics may bend EU competition law closer to US antitrust law, Post-Chicago
analysis may provide a rationale for some of the traditional EU jurisprudence.
The influence of economists has been greater in the US and New Zealand than in the
EU and Japan, but the influence of economics is also rising in the EU and more
recently in Japan. Economics may play at least two important roles in antitrust cases. 59
First, it influences the substantive content of legal rules by providing definitions of key
concepts and analytical frameworks. Secondly, economics impacts on the proof of
specific economic facts, especially where direct proof is impossible or impractical,
organizing the data and providing a methodology. What data there is, however,
depends on a wide range of factors, including institutions and the availability of
financial and human resources. Economists often cannot agree on the appropriate
model to analyse an industry and, even if they can, they might not agree on the
application of that model to a particular set of facts.
No competition law can be simply and unambiguously derived from analytical models.
Competition laws reflect layers of social and political concerns embodied in particular
legal rules that have built up over time. Even where economic efficiency is the
primary goal of competition law, economic analysis will not always offer clear
guidance in individual cases, in which case the other values that competition law is
intended to promote and the assumptions of competition law authorities and courts
will be more influential, such as ideological views on the role of government and
assumptions about the robustness of markets.
Whether new economic theory is incorporated into a particular competition law
depends on a wide range of factors, including the terms of the statute, judicial
precedent, the level of acceptance of the theory in the economic profession, and a
dispute that raises the new theory. New economic learning will not be adopted at a
uniform pace by all countries. Martin believes that there probably is a current
consensus among industrial organization economists that the influence of industrial
economics on policy is perhaps greater than it should be given the current state of
industrial economics.60
(p.72) 3.1.4 The Relationship with Industrial and Regulatory Policies
The term industrial policy is not well defined, but embraces all policies that directly
or indirectly affect industrial performance through their impact on microeconomic
variables.61 Industrial policy is also commonly understood to refer to policies followed
by a government toward a specific sector of the economy in an effort to promote,
reorganize or protect that sector. Industrial policy can take many forms, including
trade policy measures, subsidies, competition law exceptions and other regulations.
Regulatory and industrial policy measures will often affect the same variables that
competition law acts upon, such as market structure and inter-firm agreements and,
indirectly, price levels. Thus, there are many legal, economic and political linkages
between industrial and regulatory policy and competition law.
Whatever type of industrial or regulatory policy that is pursued, the issues for
competition law are generally similar. An industrial or regulatory policy may involve
permitting, encouraging or compelling business conduct, which might harm
competition, such as a rationalization cartel or a merger. Each legal system will need
to determine to what extent the conduct subject to such an industrial or regulatory
policy is exempt from competition law rules. An exemption may be created by express
statutory exemptions for specified conduct, general exemptions in competition laws
for statutorily authorized or mandated conduct,62 constitutional doctrines, principles of
interpretation used to reconcile conflicting statutes, government intervention in the
market changing the nature of the conduct, and so forth.63
A number of economic and non-economic justifications for competition law
exemptions have been advanced. Exemptions may also reflect the legal position of
state enterprises, historical accidents or the political power of certain groups within
the community. Competition law exemptions vary between countries, but exemptions
for regulated industries, export cartels, state-owned enterprises, research and
development joint ventures, the learned professions, and collective labour
agreements are quite common.64
The industrial or regulatory policy of one country may affect the achievement of the
objectives of the competition law of another country. For example, the (p.73) actions
of a trade association or a regulated industry exempt from competition law in Country
A might be prohibited by the competition law in Country B. A merger to create a
national champion in Country A might be prohibited by the competition law in
Country B. Each legal system therefore needs to decide in what circumstances
conduct, which would otherwise breach its competition law, should be exempt
because the conduct is authorized, encouraged, supported, or compelled by a foreign
government. Different legal principles govern the exemption from competition law of
domestic and foreign conduct in which there is some governmental involvement. See
Chapter 9.
An international agreement that required states to adopt and enforce competition
laws might adversely affect their ability to carry out other legitimate regulatory and
industrial policies, unless the international agreement permitted states to exempt
some conduct from their competition laws. Many types of exemption, such as
horizontal arrangements permitting the coordination of investment or rationalization
of an industry, mergers to create internationally competitive firms, and policies
designed to ensure equality of access to essential services, are likely to be
controversial. Negotiations on competition law are unlikely to be successful if they
attempt to strictly limit exemptions from competition law. See Section 10.3.4.
3.2 Competition Law in Developing and Transitional Countries
3.2.1 The Adoption of Competition Laws by Developing and Transitional Countries
In the past, many developing countries saw competition as leading to excess capacity
or diseconomies of scale and the erosion of the market position of local firms vis--vis
foreign firms. Within a more or less dirigiste ideological framework, the governments
in Latin American generally responded to restrictive business practices by imposing
price controls, establishing state enterprises to place countervailing power in local
hands, and regulating foreign investment and the technology transfer.65 The few
developing countries that had competition laws often targeted local subsidiaries of
foreign multinational corporations in an attempt to increase the national benefit from
the presence of the multinationals, rather than to promote competition in domestic
markets. After the economic downturn of the late 1970s and early 1980s, many
developing countries turned towards more market-oriented policies.66
(p.74) Several factors contributed to the move towards more-market oriented polices,
including an international intellectual environment that favoured economic liberalism,
the failure of past policies, the success of other nations who followed more market-
oriented policies, the conditions imposed by the International Monetary Fund (IMF)
and World Bank in return for financial aid, and some recognition that competition law
could encourage Western investment, increase the international competitiveness of
national firms and promote development.67 Non-competitive markets were seen by the
international financial organizations and some economists as having contributed to
the 1997 Asian financial crisis.68 The enforcement of competition law in many
developing countries is not very active.
3.2.2 The Influence of Domestic Circumstances and External Influences on
Competition Law
Many of the 70 plus developing countries that chose to adopt a competition law did so
without significant pressure.69 Where the IMF and/or the World Bank pressured
developing countries to adopt a competition law,70 the external pressure did not
control the detailed contents of a law or actual operation and effect of a new law.71 For
example, while Indonesia adopted a competition law in 1999 because the IMF required
it to do so,72 the advisors at the IMF are unlikely to have approved many of the rules
actually adopted. The post-war history of the Antimonopoly Law and the Japanese Fair
Trade Commission, as well as the inability of the US in the Structural Impediments
Initiative talks to induce (p.75) Japan to concede on several issues,73 also suggest
that if the basic rationale of a competition law is not accepted by the government nor
the business community, its effective enforcement is unlikely. The slow convergence
of competition laws of the EU member states again reflects the need for domestic
interests in different countries to share similar beliefs about the purpose and content
of competition law for convergence to take place.74
If local political and economic influences are likely to shape the detail of local
competition laws, competition laws in developing countries are likely to have some
unique features. In Central and Eastern Europe,75 there was a concern that the
privatization and deregulation of public monopolies would create private monopolies
and both the existence and abuse of market power would be more prevalent than in
industrialized countries.76 Threats of predatory pricing, for example, may be more
credible in transitional economies where state enterprises operate under soft budget
constraints, credit markets are undeveloped, and new entry is likely to be difficult due
to capital shortages, depressed market conditions, high levels of government
regulation and involvement in the economy, and the lack of entrepreneurial skills and
spirit in management.77 These circumstances may justify special competition rules
during the transitional period.78 The old organizational and personal links that were
central to the management of firms that before privatization were part of the same
industry hierarchy, or units of a single state-owned enterprise, may also justify rules
permitting price fixing agreements to be inferred more readily from parallel business
conduct than would be the case in developed countries or more per se rules.79
(p.76) Some developing countries (and the US) believe that merger investigations are
the business practice least likely to be an enforcement priority in a developing
country.80 In other countries, where privatized firms have not ben exposed to
international competition, the absence of effective competition law rules for mergers
has been lamented.81
In addition to local economic conditions, competition laws are likely to be influenced
by different political concerns to those that prevail in industrialized countries. In the
early 1990s, some commentators feared that some Eastern European officials might
see excessive pricing as an abuse of dominance, and enforcement efforts would target
successful firms.82 The implementation of a competition law can provide actual or
symbolic assurance to the public and elected representatives that the move to a
market system does not leave citizens at the mercy of the market, especially in the
transitional phase when price controls are removed and competition has not yet
emerged.83 Where economic reform was inextricably linked to democratic reforms,
competition laws may reflect a greater concern with consumer welfare and freedom in
competition. The inclusion of exceptions for economically disadvantaged groups may
be a political imperative for some governments adopting competition laws, as in
South Africa84 and Indonesia.85
The economic conditions and political imperatives in many developing countries may
necessitate a competition law different from that typically applied in developed
countries. One size will not fit all.
3.2.3 Competition Law and Development
A well-known World Bank study argued that a common denominator in the success of
economic development of East Asian countries was the high degree (p.77) to which
firms were exposed to domestic or international competition.86 Other studies have
provided different explanations for the East Asian successes.87 The presence of
significant market imperfections and government failures in markets in developing
countries means that the case for assuming that maximum competition will promote
either economic welfare in a static sense or in the dynamic sense is theoretically and
empirically weak.88 It has been argued that economic development might be assisted
in capital-short developing countries by lenient competition laws that permit a high
rate of return on investment to achieve the high rates of investment needed for fast
growth of productivity. Market imperfections may also require government
coordination of investment decisions to prevent over-capacity. 89 An international
obligation to adopt a competition law that complied with certain minimum standards
could undermine the development strategy of some developing countries.
However, these arguments do not show that a modern competition law, which aims to
deter and/or provide remedies for specific abuses such as cartelization,
monopolization, or anti-competitive mergers that raise the price and/or reduce the
quality of goods and services, is anti-development.90 The level of competition in most
markets will be determined by government measures that create barriers to entry or
regulate market conduct rather than competition law. The adoption of a competition
law is unlikely to be harmful if certain activities or industries may be exempt from a
competition law.
A modern competition law without overly broad per se rules need not undermine a
country's development strategy, because it could take account of local market
conditions. If the assumptions that developed country competition law authorities and
courts typically make about the operation and robustness of the (p.78) market do not
apply, the unreflective application of, say, the judicially developed rules on predatory
pricing in the US may be inappropriate. Developing countries may be able to better
attract foreign investment if they do not strictly proscribe vertical restraints where
such restraints enable investors to reduce some of the risks commonly associated
with investments in developing countries, such as quality control over inputs. During
the transition to a market economy, there may be a genuine need for cooperation
among firms, especially where infrastructure is inadequate. In both cases, a rule of
reason could justify practices that might be prohibited in like circumstances in another
country. The need to acquire economies of scale to be internationally competitive may
be incompatible with competition in certain markets in a small country. An efficiency
defence could therefore be incorporated into the provisions prohibiting
anticompetitive mergers and acquisitions and other forms of cooperation between
firms to prevent efficient firms being penalized and to encourage industries to export
by exploiting economies of scale.
Some writers have argued that developing countries should adopt a relatively
interventionist approach to competition law. First, a consumer welfare standard may
be more appropriate than an efficiency standard, because of the high levels of
industry concentration, close relationship between government officials and privatized
enterprises, and the flaws in the democratic process, which give producers a
disproportionate influence on governments in developing countries.91 A competition
law that prohibits exclusionary conduct, rather than just conduct that harms economic
welfare or consumer welfare, may help to form a competitive business culture, rather
than one dependent on connections and corruption, and break up guild-type practices
common in many service industries.92 The need to grow competition and encourage
new entry and entrepreneurial behaviour may require a strict and vigorously enforced
competition law, at least until markets get established. This appears to have been
behind the approach taken in the Australia Trade Practices Act when it was first
enacted in 1974.93
Some developing countries are concerned that the EU and the US are not interested in
countering the anticompetitive conduct of their multinational enterprises, including
transfer pricing and other intra-firm practices. The industrialized countries reject the
argument. With a competition law, developing countries could attempt to protect
themselves against foreign international anticompetitive conduct and the
monopolization of local markets by multinational firms, as well (p.79) as to limit some
of the negative effects from their commitments to protect foreign intellectual property
and improve the transfer of technology.94
Many developing countries are concerned that an international agreement on
competition law would require the provision of equal treatment to foreign firms and
open their markets to foreign direct investment.95 Some developing countries,
therefore, want any WTO agreement on competition law to allow them to exempt
certain sectors from the application of competition law.96 While some developing
countries were concerned that an international agreement on competition law was a
device to increase market access, others were concerned that subsidiaries of foreign
multinationals could easily attain a dominant position and use vertical restraints to
prevent the entry of local firms or other multinationals.97 Not all these international
concerns can be reconciled. An efficiency defence could be applied in such a way that
permitted the use of cost reducing albeit exclusionary vertical restraints by local firms,
but not foreign-owned firms.98 This would permit local firms to engage in restrictive
business practices that foreign firms could not engage in. This would encourage
investment by local firms, and assist such firms negotiate favourable terms in
distribution arrangements with foreign firms. However, such a rule could be difficult to
administer and would discourage foreign investment and the distribution of foreign
products.
3.2.4 Appropriate Institutions and Technical Assistance
While a number of developing and transitional countries already have a competition
law statute, many do not, and many of those that do are still putting in place the
necessary procedural rules and institutional arrangements. The effective
implementation of competition law may be impossible in many countries because of
the absence of appropriate investigatory and judicial bodies, a reasonably
sophisticated private bar, and accountants and economists with relevant expertise.99
Business owners and managers must also have a general (p.80) understanding of the
type of conduct that can have anticompetitive effects and know that legal sanctions
will be imposed if they engage in such conduct. Even if a country establishes the
necessary institutions, corruption and political pressure and inference may undermine
the neutrality and transparency of competition law authorities and courts.100 Some
writers have concluded that these factors may mean that the costs may outweigh the
benefits to developing and transitional countries adopting a competition law. 101
The institutional challenges some developing countries face need to be taken into
account in the design of competition laws and institutions. For example, lack of
expertise could result in unpredictable applications of general competition law rules,
in which case the initial use of more per se rules and safe harbours could be desirable.
An approach like the notification system as was previously used to implement Article
81(3) of the EC Treaty may also be inappropriate where there are substantial resource
constraints.
The establishment of well-functioning legal institutions is inevitably a long and deeply
political process, but it can be facilitated by well-designed enabling legislation and
adequate financial support, training and technical assistance, for which there appears
to be a large and growing demand. Further commitments on technical assistance are
likely to be a necessary component of any WTO agreement on competition law. 102
Technical assistance takes many forms, including commenting on draft competition
laws and regulatory structures, providing short-and long-term-in country assistance,
organizing study visits for foreign officials to established competition authorities and
internship programmes, staff exchange programmes, and organizing seminars for
foreign officials and judges. Developed countries and international development
organizations (such as UNCTAD and the World Bank) are a major source of technical
assistance, which gives the advisors significant influence over the course that the
development of competition law takes in developing countries.103
(p.81) The presence of long-term advisors resident in the foreign country to provide
assistance dealing with real enforcement problems over a period of a couple of years
may be especially useful, because it helps builds links between agencies and provides
a conduit for more specialized help from the advisors' home competition authority. 104
The provision of technical assistance in real cases may sometimes resemble the type
of cooperation that takes place under international agreements for cooperation
between competition authorities.105 The coordination of the provision of technical
assistance by international organizations and individual countries can and should be
improved. The links between cooperation and technical assistance suggests that the
coordination of both in a multilateral framework on competition law, as was suggested
in Chapter 2, would be desirable.
The motivations for a larger or more developed country in giving advice are manifold.
They include international prestige, geopolitical aims, and market access. Developed
countries have often encouraged developing countries to adopt a similar competition
law to their own. Advice-giving countries, however, have an interest in developing
countries not adopting a competition law that would increase the transaction and
compliance costs of multinational firms, prohibit efficient business practices,
discriminate against foreign-owned firms, or transfer wealth from foreign producers to
domestic consumers.106 Thus, both developed and developing countries have an
interest in developing countries receiving adequate technical assistance to design and
implement a competition law.
3.2.5 Developing Countries and International Competition Law
The above analysis of competition law in developing countries leads to the following
conclusions on the interests of developing countries in international competition law.
First, developing countries will be reluctant to, and should not be forced to, negotiate
on a subject where they do not have the expertise or experience necessary to
effectively negotiate.107 One size will not fit all.108 Any initiative for a multilateral
agreement on competition laws and enforcement should be able to (p.82)
accommodate differing market structures, development strategies, institutional
strengths and weaknesses, and levels of technical assistance received, including the
possibility that the smallest WTO members may see no net benefit in the adoption of
a competition law.
Although a very large number of developing countries have chosen to enact
competition laws, many oppose a multilateral agreement on competition law. An
international obligation on countries to adopt and enforce a competition law could
provide political support at the domestic level for a national competition authority.
Some developing countries might be induced to join a plurilateral agreement that
embodied a set of international competition law principles in exchange for greater
technical assistance and international enforcement cooperation. As the experience
and competence grows, these countries may have an interest in entering into more
extensive bilateral cooperation agreements, like those between some developed
countries.
It is in the interests of developing countries for developed countries to enforce their
national competition laws, and to cooperate amongst themselves on enforcement,
because this keeps developed country markets open and reduces international
anticompetitive conduct. Developing countries will benefit from the prohibition of
international cartels and mergers between multinational firms. Developing countries
often do not have the financial or human resources to investigate such activities or
the legal or political tools to prevent and remedy the harmful effects of such activities,
and would benefit from international cooperation on enforcement.109
An international agreement requiring countries to prevent anticompetitive conduct
that restricted market access is perceived by developing countries as being designed
to improve market access of multinational enterprises to their national markets.
Although consumers in developing countries could benefit, improved market access is
seen as being harmful to a number of interests in developing countries. First, there is
a fear that multinational enterprises will drive out local firms and monopolize the
market, in which case there would be a national welfare loss. Secondly, the
elimination of smaller, less well-established local firms might retard economic
development. Thirdly, developed countries may be insisting on developing countries
adopting a competition law for essentially mercantilist reasons. Developing countries
are therefore unlikely to implement a law that they are compelled to adopt, but, given
time and assistance, may decide that the promotion of competition would be
beneficial. Finally, the concentration of many industries within the developed
countries means that developing countries are likely to lose out, as a group, from the
use of a global efficiency standard. On the other hand, a global consumer welfare
standard can be presented as a means of ensuring that developing countries are
receiving a fair share of the benefits of trade liberalization.
(p.83) On the other hand, the desire of some developing countries to avoid a WTO
requirement that competition laws be applied on a non-discriminatory basis appears
to be driven by a misunderstanding of competition law. The desire to discriminate in
favour of local firms generally appears to reflect policies that do not naturally fit within
a competition law regime. Such policies may be better pursued through the creation
of express exemptions from competition law or the enactment of specific statutory
regimes (for example providing for the review of technology licensing contracts).
Punishing foreign multinationals by subjecting them to strict competition laws is
likely to discourage investment and prevent a country from receiving technical
assistance and enforcement cooperation from developed countries.
3.3 The Inevitably Incomplete Convergence of Competition Laws
3.3.1 Distinguishing Proselytization from Problem Solving
Even without the indeterminacy of antitrust economics and the special economic and
political circumstances in developing countries, there are significant political and
technical problems in attempting to unify competition laws by agreement.
Harmonization requires at least one country to alter its law. However, most countries
prefer other countries to make any adjustment.110 Sometimes this is based on
familiarity with the local law or a belief in its superiority. Sometimes the balance of
domestic political interests favours the status quo.
Harmonization may be difficult where it requires a reconciliation of the differences
between government agencies and policies. For example, while antitrust enforcement
officials in the US have argued against a WTO agreement on competition law, at other
times antitrust and trade officials have sought to challenge foreign competition law
regimes that differed from the US model and/or were not consistent with US
commercial interests. An international agreement on substantive rules or core
principles would also restrict the ability of the US government to take action and
grounds for criticising foreign competition laws.
Sometimes reform can be pushed through the legislature as part of a package of
measures necessary for harmonization.111 Harmonization may also help fill a legal
vacuum by providing rules where national law was previously non-existent (p.84) or
incomplete.112 Harmonization may be used to justify a competition law reform that is
opposed by a section of the community. This occurred in Sweden in 1993 when it
adapted its competition law to mirror that of the EU,113 and in New Zealand when the
Commerce Act was amended in 2001 to bring sections 36 and 47 of the Act closely
into line with sections 46 and 50 of the Australian Trade Practices Act.114 In both cases,
competition law was borrowed from a larger neighbour and important trading partner.
However, at the global level there is no dominant standard in competition law to
facilitate harmonization or reform.
A common complaint about harmonization initiatives is the prospect of getting
second-rate law, because compromises often have to be made to reach agreement or
differences are papered over with vague language.115 Many US antitrust enforcement
officials and commentators have expressed the fear that negotiations to achieve a
minimum set of acceptable principles would lead to the adoption of a lowest common
denominator set of principles which would weaken existing, more effective rules.116 All
states may benefit from the extensive multilateral comparative law research and
policy analysis that is normally part of the preparations for harmonization. 117 Such
educational benefits are probably better (and more cheaply) provided without
attempting to negotiate a detailed set of rules. The proselytization of competition law
is a distinct task from international competition law problem solving.
3.3.2 Legal Transplantation
A WTO agreement prescribing a common set of substantive competition rules for all
Members is not feasible, because many established competition laws represent
unique social and legal visions that cannot be readily transferred to other countries.118
The history of legal transplantation suggests that the more competition laws
contribute to such social goals, or are linked to local culture, society and (p.85)
politics, the less likely it is that total harmonization will occur.119 A competition law is
neither a simple technical, apolitical law, nor is it merely lawyers' law that does not
form part of the broader national culture. The reform of competition law will affect the
interest of individuals, firms, government ministries and political parties. The issue of
transferability has been much discussed in the context of the reception of Western law
in Japan, which has fed into the debate about the effect and effectiveness of Japanese
competition law.120
Although similar outcomes could arise from different laws, different outcomes could
arise from the same law. The substantive provisions of competition laws tend to take
the form of broad principles, which need to be interpreted. Much modern comparative
law scholarship is based on the assumption that while national legal orders are
founded on diverse doctrinal traditions, they face similar structural problems, which
they have to resolve.121 Some convergence of laws might be expected to occur
naturally as countries will find solutions to the functionally similar problems. It seems
to be accepted that the borrowing of general ideas rather than whole legal institutions
is more likely,122 to which (new) competition laws are open. A legal transplantation will
produce both legal transformation and social transformation.123 An agreement seeking
to harmonize competition laws might have multiple and unpredicted legal and social
consequences.
Even if countries are free to adopt any economic concepts and approaches to
regulation from those used in other parts of the world, the style of implementation
may often be strongly influenced by existing social structures and institutions in the
receiving country.124 For example, the rules of civil procedure may mean that private
competition law actions are unlikely to be common in many countries. A similar level
of maturity among the legal systems,125 colonial links between countries (such as
within the Commonwealth or between the South American countries and Spain and
Portugal) or a shared cultural heritage (such as between (p.86) Australia and New
Zealand) may also facilitate the transplantation of more of the institutional and
procedural aspects of competition law.126 Outside formal harmonization negotiations,
many countries have borrowed competition law features from other countries through
legislative and judicial acts. The propensity of judges to borrow from foreign legal
systems also varies considerably between countries. Without a common language and
legal heritage, borrowing will be extremely limited. Judicial borrowing in competition
law is most likely where the relevant statute was modelled on a foreign statute, as
was the New Zealand Commerce Act on the Australian Trade Practices Act, or at the
level of economic principle.
The level of cooperation in other legal fields suggests that different legal heritages are
not insurmountable obstacles to some forms of cooperation. However, there is
considerable variation in legal systems.127 Many procedural rules may affect the
substantive outcome of a competition law case, including rules for gathering evidence
and cooperating with other nations in evidence gathering; service of proceedings and
other formal documents; procedures; time limits; appeals; reviews; party participation
in the proceedings and the nature of their participation; personal jurisdiction; value of
precedent; remedies available and enforcement means; filing requirements; and the
consequences of not complying with any of these rules. Thus, harmonization of
procedural rules and more would be necessary if it was desired that all countries
would reach the same result on the same facts most of the time.
Harmonization may also be more difficult in federal states where the location of the
authority to regulate the subject in question is unclear or shared between different
levels of government.128 The obligations under the WTO Agreements apply in principle
to all government measures, irrespective of which government within a country is
responsible.129 An international agreement containing minimum standards for
national competition laws could be difficult for some federal states to comply with
because of the ability of sub-national governments to derogate from national
competition rules, such as the state action doctrine under US antitrust law.
3.3.3 Dealing with Limited Knowledge of Foreign Laws
According to some scholars, comparative law suffers from deep methodological
problems, because it is theoretically impossible to fully understand a foreign (p.87)
legal system.130 Other scholars believe that the difficulty does not negate the
importance of trying to understand a foreign legal system and so long as strenuous
efforts are made to avoid misunderstanding other cultures it is possible to come close
to the understanding of a native.131 In different societies the same terms (such as
competition or dominance ) may carry different meanings and economic
circumstances and business customs may vary. Seemingly neutral modes of inquiry,
such as economic analysis, may also be more particularistic historically and culturally
than is generally believed. Much of the writing on foreign competition laws does
little more than describe doctrine without capturing the complete picture. The
possibility that some governments may not have always complied with their
international obligations, or are concerned about their negotiating position, means
that governments may sometimes be less than candid informants.
However, such critiques do not help to solve practical problems created by different
legal regimes,132 nor do they recognize that many international agreements regulate
national laws and many international business transactions take place
notwithstanding imperfect knowledge of foreign laws and their socio-political
context.133 This has several implications for the subject of this study. First, if it is hard
to understand a foreign law, it will be hard to know if two laws are alike. If it is hard to
know whether two laws are alike, it may be futile to attempt to make them identical. It
may also be the case that where laws are similar, little benefit may be derived from
attempts to further increase similarity. Secondly, the problem-solving efforts
themselves frequently provide the basis and context in which the learning and
understanding said to be required to understand foreign law in fact takes place.
Thirdly, if the resolution of an international competition law problem does not require
uniformity, the relevant countries may not need to fully understand the laws in other
countries to solve the problem. Finally, improving knowledge of foreign laws through
international obligations on transparency and the like may need to be part of the
resolution of international competition law problems.
3.3.4 Conventions and Model Laws cannot Guarantee Uniformity
No national or international competition law could be so exhaustive so as to leave no
room for economic and policy concerns influencing its interpretation (p.88) without
undermining the ability to regulate complex and new situations. A convention that
attempted to specify competition law rules in that much detail would be impossible to
negotiate. If an international convention is interpreted in accordance with the
interpretative techniques of the domestic legal system into which it is transplanted,134
little uniformity can be expected. For example, the concept of dominance used in
the New Zealand Commerce Act 1986 was derived from EU competition law, but has
been interpreted in a very different way by the New Zealand courts and the Privy
Council.135 Even if a Convention required that it be interpreted in an autonomous
manner in accordance with specified principles, independent of any particular of a
specific legal system,136 different interpretations would still arise. In any event, the
application of the same economic principles is likely to vary between countries.
Inconsistent national interpretations of a convention's rules, or the laws implementing
them in a national legal system, are likely to grow in proportion to the number of
states party to the convention.
Uniform application of the law would require that national courts and authorities have
regard to the interpretations and guidelines of other countries. Without easy access to
translations of foreign precedents, local courts and authorities will not have regard to
foreign interpretations and guidelines. For a multilateral convention this would require
an international institution to gather, translate and distribute documents, which would
increase implementation costs.137 While section 60 of the UK Competition Act 1998
provides that it should be interpreted consistently with EU competition law, some
members of the US Supreme Court consider it inappropriate to even refer to foreign
judgments.
The experience in the US is that, even with a common statute and a Supreme Court,
significant differences between the circuits in the application of US antitrust law have
arisen. The US experience suggests that differences are inevitable, and that minor
differences between countries should not be a problem. A decision by one circuit is
recognised and enforced throughout the US. Thus, the critical issue for international
competition law is how great do the differences between national competition laws
need to be before they become a problem or prevent specific international
competition law problems being resolved?
(p.89) 3.3.5 Intellectual Harmonization
Strict uniformity in competition laws and institutions is unlikely. The objectives and
substantive rules of competition law in all countries have evolved over the last two
decades. Convergence has and will take place through increasing similarity in
underlying principles, policy objectives, analytical methods and enforcement
priorities.138 A variety of international institutions are promoting communication and
discussion among competition economists, lawyers and officials, which promotes
convergence. Convergence is also enhanced by the interaction between the
disciplines of economics and law. The former has increasingly become international
and claims to be rational and universal, while judicial and legal reasoning encourages
the adoption of the most systematic and rigorous analysis. Friedman has observed
that some lawyers tend to view harmonization and technical craft as ends in
themselves, and feel that the more elegant and systematic legal system carries with
it, in the long run, important values for society.139 There will be pressure for
differences between the laws and their application not founded on reason to be
eliminated over time.
3.4 A Marginally Cosmopolitan Conception of Self-Interest
3.4.1 General Organizing Principles are Missing from Most Proposals for WTO
Competition Rules
The potential for expanding bilateral antitrust cooperation between the US and other
countries much beyond what it is today may be limited, in part, by the level of
concern outside the US about a number of aspects of US antitrust law and
adjudication. Bilateral cooperation agreements will also not be sufficient to resolve
conflicts when national policies are in conflict. The US fared badly in the KodakFuji
dispute with Japan, because there were no multilateral rules governing the
enforcement of competition law, and there was a perception that the US was
demanding that Japan prohibit conduct that would have been legal under US antitrust
law. The US attempts to address private market access in Japan for US firms may have
been undermined by a perception that the US demands reflect mercantilist concerns
as often as good competition policy. In the future, US concerns with foreign
competition law may well relate to over-enforcement or inconsistent enforcement as
much as under-enforcement.
(p.90) What is missing is a set of guiding principles able to explain why countries are
in fact cooperating and how they can reconcile their conflicting interests in a mutually
advantageous way. Such principles may help states make trade-offs between
seemingly discrete aspects of the system indicate how much cooperation is enough,
expose inconsistent national positions, guide the overall organization of the
international competition law system, and inform the more specific actions states may
take. For example, multilateral cooperation could be facilitated if bilateral cooperation
arrangements were consistent and connected.140 A case can be made for a set of
principles that reflects a marginally cosmopolitan conception of self-interest, namely
the global consumer welfare standard. It is argued in this book that this standard best
reflects current international competition law and provides a focal point for resolving
conflicts.
3.4.2 The Influence of Ideas on International Relations
While states are fundamentally motivated by self-interest, there are a number of ways
in which ideas may influence the international competition law system.141 First, ideas
may guide behaviour under conditions of uncertainty. Individuals need to determine
their own preferences and to understand the causal relationship between their goals
and alternative strategies to achieve those goals. Causal ideas respond directly to
uncertainty by reducing it, whereas principled ideas enable people to behave
decisively despite causal uncertainty. Multilateral, multi-issue negotiations may
encourage ideologically motivated strategies as a result of the complexity of the
process and issues and the informational problems. In many areas, states will be
unable to accurately calculate which international competition law rules are in their
long-term interests. Here, the ideology and institutions of domestic competition law
and international trade law may be influential.
Secondly, ideas can contribute to outcomes, because they may serve as focal points
that define cooperative solutions or act as coalitional glue. Shared beliefs can often
serve as focal points. Reaching agreement may therefore be easier when the belief
systems and ideologies of the participants are consistent. Shared legal traditions,
similar substantive competition laws and analytical methods, and regulatory principles
common to most international economic agreements may provide both focal points.
Thirdly, ideas that become embedded in institutions can affect the incentives of
political actors long after the interests of its initial proponents have changed.
Consequentially, ideas may become efficacious only after the pre-existing policy
consensus in an issue area has been destabilized and/or in conjunction with other
(p.91) changes in material interests or power relationships. Crises can challenge core
values, attitudes and beliefs and thereby fundamentally alter the decision-making
context and established patterns of thinking and action.
3.4.3 Competition Law and the International Distribution of Wealth
In the 1970s, developing countries unsuccessfully argued that international rules to
control the restrictive business practices of multinational enterprises were a necessary
part of the unsuccessful attempt to construct a New International Economic Order,
which sought a redistribution of power and international economic justice. However,
states generally act in their national self-interest in international competition law. 142
Most competition laws also seek to promote some vision of national interest, such as
national consumer welfare or efficiency, which means there is limited scope for the
pursuit of international distributive justice in the existing international competition law
system. Even the non-economic objectives of competition law, such as democracy and
freedom, tend to be defined in terms of national interests.
Today, few commentators argue that there is a moral case for international
competition law cooperation.143 Although liberal Western political philosophy may
provide a rationale for the international acceptance of basic human rights, it is
unlikely to motivate significant international redistributions of wealth, especially not
through international competition law. The Western liberal philosophical tradition is
not accepted in large parts of the world. Its implications for the redistribution of
wealth within and a fortiori between countries are highly contested in the West.144
While ethical constraints on the international behaviour of governments can arise out
of domestic political processes, such as when individuals in more prosperous countries
derive some utility from assisting people in poorer countries, concerns about poverty
are unlikely to be linked to competition law.
Competition law has only a limited ability to advance political or moral values that
may be seen as related to human rights. Its absence is not a violation of fundamental
human rights that might justify international action. There has been no concern
expressed in the large Western states about trading with countries that do not have
and adequately enforce competition laws, because the absence of such laws have
undemocratic effects in those countries, nor has it been argued (p.92) that the
spread of competition law is necessary to spread democracy. The argument that
competition law facilitates democratic government has instead been used as an
argument that might encourage the local population or government to adopt a
competition law.
Whatever the objectives of a competition law, all enforcement actions affect the
distribution of wealth. These effects are often greater than the effects of
anticompetitive conduct on efficiency. Competition law enforcement actions in
international cases will generally affect the international distribution of wealth,
because of the location of the consumers and firms (and their owners) engaging in or
affected by anticompetitive conduct, and the effects of enforcement costs, fines, and
damages. International cooperation will depend on both there being gains from
cooperation and no country being made worse off as a result of cooperation. The fact
that the wealth distribution effects may be greater than the associated efficiency
gains from international cooperation in an enforcement action may mean that these
effects control the extent of international cooperation. States may agree to prevent
(or allow others to prevent) anticompetitive actions that result in an international
transfer of wealth that they might otherwise benefit, if they believe other states will
do the same in other cases where the direction of the transfer is reversed. While
international cooperation that involves one state abstaining from the opportunity of
exploiting another may appear to be ethical behaviour, it is in reality based on
calculations of long-term self-interest by states.
A number of provisions in the WTO agreements provide for modest special and
deferential treatment for developing countries in trade matters. Many of these
concessions were obtained after the developing countries threatened to withdraw as a
block in the 1960s. The Preamble to the WTO Agreement, for example, recognizes
the need for positive efforts designed to ensure that developing countries, especially
the least developed among them, secure a share in the growth in international trade
commensurate with the needs of their economic development. To reduce the risk of a
backlash and to help stabilize the WTO, wealthy countries may need to temper their
pursuit of their interests and ensure that developing countries would benefit from the
international competition law system.145 International competition law rules could not
easily distinguish between rich and poor countries, apart from exemptions from an
obligation to enact and enforce a competition law rules, or through the provision of
technical assistance. There would be little incentive for developing countries to agree
to an obligation to enact and enforce a competition law with only those incentives.
Even if developing countries have an effective veto on whether the WTO adopts a
competition law agreement, the level of influence they will have over its terms will be
limited if the major countries can achieve most of the gains from cooperation (p.93)
without the WTO. Developing countries will be looking for benefits that cannot be
gained without cooperation. These are likely to relate to assistance in enforcement.
Without giving up very much, as explained below, developed countries could also
agree to global consumer welfare as the fundamental principle of international
competition law. Such an approach would mean that at least some of the gains from
cooperation, even between developed countries, would accrue to the developing
countries.
The populist rhetoric associated with competition law (such as fairness in the market
place, non-exploitation of consumers and the protection of smaller firms from their
larger, less scrupulous rivals) may affect the behaviour of government representatives
in the international context. For example, to the extent that one country argues that
its nationals should be treated fairly and not discriminated against under the
competition laws of other countries, it may itself need to treat foreign nationals fairly
and in a non-discriminatory manner under its competition laws. Although enforcement
actions against foreign anticompetitive conduct are sometimes justified on the basis
that a state has a duty to protect its own people, this has not prevented such states
from exploiting foreigners. Non-discrimination against foreigners is more likely where
such values are embodied in a national competition law and the legal system as a
whole.
Although there are gains to be had from international competition law cooperation,
there is likely to be uncertainty over the distribution of those gains, in which case
national preferences are likely to be influenced by a wider range of factors, such as a
liberal ideology, attachment to domestic institutions, nationalistic sentiment and
domestic politics. Ethical arguments might provide focal point solutions or justify rules
in the context of uncertainty about what are the long-term interests of the larger
countries or what is the most efficient rule. Ethical values may also be projected
internationally by the ordinary application of national competition law as a result of
the inability to separate domestic transactions, effects and individuals from foreign or
international transactions, effects and individuals. The projection of those values may
reflect self-interest, rather than ethical concerns. For example, enforcement action to
prevent an abuse of dominance in a national market may reflect both efficiency and
fairness concerns. This may protect both small local and foreign competitors, as well
as local and foreign consumers.
In relation to wealth distribution, globalization has made it difficult to accurately
assess the precise welfare consequences for each country of the application of
national competition law in an international case, which makes it difficult to develop
general rules in the field of competition law to maximize national welfare. For
example, if multinational firms that are headquartered in developed countries
organize a cartel in a particular natural resource, which is only mined in one or more
developing countries, that cartel may or may not improve the welfare of any of those
developing countries. Furthermore, the moral basis for attempting to restrict certain
wealth transfers with competition law is much weaker when (p.94) monopoly rents
are seen to flow to many different countries. A basis for resolving international
competition law problems may be found in some notion of global welfare, which
appears to be consistent with the maximization of long-term national welfare in all
countries.
3.4.4 Global Consumer Welfare as the Guiding Principle
Some theory is necessary if international competition law disputes are to be resolved
in a rules-oriented system, rather than on an ad hoc political basis, or on one that
depends on fortuitous circumstances. While the theory may be relatively
parsimonious, it must be rich enough to guide the resolution of disputes involving
multiple countries and legal rules, consistent with the general international rules
governing international trade, and flexible enough to allow for some evolution of
national laws. Substantive competition rules apply to domestic cases more than
international cases. Therefore, states will have limited incentives to change the
fundamental approach of national competition law. There are three main candidates
for a guiding principle for the international competition law system: global economic
welfare,146 international market contestability,147 and global consumer welfare.
(p.95) Contestability as a concept lacks the richness to be able to accommodate and
provide guidance on the treatment of the many non-efficiency concerns that influence
many competition laws and trade policy. The concept of workably contestable, as
opposed to perfectly contestable, lacks precision. An international contestability
objective would be incompatible with an efficiency defence in competition law,
because in some legal systems conduct may be found to be exclusionary yet legal
because it is efficiency enhancing. It also offers no guidance in situations that involve
the exploitation of foreign consumers, rather than market access barriers. A global
economic welfare standard is able to balance both the costs and benefits of seeking to
achieve internationally contestable markets, and take into account the exploitation of
consumers. Contestability would seem to involve a greater preference for free trade
over other regulatory policies. The adoption of the maximization of global economic
welfare as a guiding principle for competition law may help to reduce international
competition law problems arising from some countries pursuing non-efficiency
objectives through their competition laws. However, the implementation of the
maximization of global welfare principles in national law may restrict domestic policy
choices unnecessarily where there is no international competition law or trade
problem.
If global economic or total welfare became the guiding principle for the international
competition law system, states would not necessarily have to consider the welfare of
all states in all their actions, or ensure that all their policies promote economic welfare
rather than some other values. Instead, individual states, in maximizing their own
welfare, might be required to recognize that, in certain defined situations, they should
act in a manner consistent with the maximization of global economic welfare, because
this would maximize their individual welfare over the long-term. That is, secondary
principles that would collectively promote global welfare, which would in turn be
reflected in national and international laws, would actually guide states. A
consequence of the adoption of global welfare as a guiding principle is that sometimes
a country will be prevented from taking action that improves its own welfare, because
other countries gain more than it loses. The same is the case for global consumer
welfare.
There are several reasons why the global consumer welfare standard is better than
the global economic welfare standard as a guiding principle for international
competition law.148 Although economic welfare is the standard used in much of the
economic analysis of competition law and trade policy, it is national rather (p.96)
than global economic welfare. Costbenefit analysis and potential Pareto efficiency
has been subject to a number of theoretical and practical criticisms, many of which
relate to the neglect of the effects on a policy the distribution of wealth. The use of
Potential Parteo efficiency or wealth maximization as a guide to international policy
raises even larger problems because the distribution of benefits from cooperation will
affect the prospect of cooperation.
Trade policy has traditionally been seen as driven by producer interests, especially in
importing competing industries. The global economic or consumer welfare standard
would take consumer interests into account, whereas contestability could result in a
continued focus on an exchange of market access concessions and therefore producer
interests. None of the major competition law jurisdictions have adopted a pure
efficiency or total economic welfare standard. Unless a country globally dominates a
particular industry, measures (not) taken in accordance with a competition law that
has economic efficiency or national total economic welfare as the sole standard are
unlikely to be inconsistent with the global consumer welfare standard. In the case of
large countries, which are most likely to globally dominate a particular industry, the
larger domestic market means that the efficiency gains resulting from particular
conduct have to be very large to outweigh the effects of a price rise from a reduction
in competition. In other words, the difference between total and consumer welfare will
arise infrequently in large countries and a fortiori in the world economy. See Chapter
5. If states agreed not to act inconsistently with global consumer welfare, a state
would not necessarily be prevented from adopting stricter competition laws for its
domestic market. See Chapter 6.
Even if the difference between economic efficiency and consumer welfare is not
substantial, the latter is possibly politically and rhetorically more advantageous.
International political concerns about relative wealth and the distributional effects of
individual cases may be alleviated. The self-interested nature of states means that
when applying national competition laws they will be reluctant to balance a foreign
efficiency gain against a local consumer loss.
Finally, the global consumer welfare standard is arguably consistent with the trend in
the jurisprudence in the US applying antitrust laws extraterritorially. See Chapters 5
and 8. If the case-law developed in the direction of the global consumer welfare
standard, many of the international conflicts created by the extraterritorial application
of the US and the EU competition laws would not arise in the future. If the global
consumer welfare standard was the guiding principle behind the extraterritorial
application of competition law, the application of the effects doctrine would require
showing that the foreign conduct in question harms or would harm competition within
the forum.
The implications of the global consumer welfare standard proposed here will need to
be worked out over time. Some exceptions may also need to be made. Nonetheless, it
seems to provide an economically sensible and politically feasible guiding principle,
which gives states considerable freedom to develop their competition laws.
(p.97) 3.5 Conclusion
Convergence by itself is neither a necessary nor a sufficient condition for the
elimination of international competition law disputes. The divergent objectives,
vagaries of economic analysis, levels of development, social and legal contexts, and
technical considerations suggest that it would be futile to attempt to uniformize
competition laws. The current level of diversity among competition laws and the
motivations for the differences suggests that convergence is occurring slowly. Despite
the diversity of competition laws, the protection of consumer welfare is common to all
systems, albeit in some countries subject to the need to protect the international
competitiveness or efficiency of domestic industries. The inevitably incomplete
convergence of competition laws naturally raises the question of whether this is in
fact a problem. That question is addressed in the following chapters. (p.98)
Notes:
(1) Cf DJ Gerber, Law and Competition in Twentieth Century Europe: Protecting
Prometheus (Oxford: Clarendon Press, 1998) 4 .
(2) American Bar Association, Section of Antitrust Law, Competition Laws Outside of
the United States (Chicago: ABA, 2001) Overview-13 identifies 107 competition laws
.
(3) See WTO Secretariat, Overview of members' national competition legislation
WT/WGTCP/W/128/Rev.3, 27 November 2003 ; WTO Secretariat,
Exceptions, exemptions and exclusion contained in members' national competition
legislation, WT/WGTCP/W/172, 6 July 2001 .
(4) See also EC Treaty, arts 81 and 82; Antimonopoly Law, ss 3 and 19 (Japan);
Commerce Act 1986, ss 27 and 36 (NZ).
(5) See, eg, Sherman Act, s 1 (US); Commerce Act, s 27 (NZ).
(6) See, eg, the US Department of Justice and Federal Trade Commission, Antitrust
Guidelines for Licensing of Intellectual Property, 6 April 1995 ;
Commission Regulation (EC) 240/96 of 31 January 1996 on the application of Articles
85(3) of the Treaty to Certain Categories of Technology Transfer Agreements [1996] OJ
L31/2.
(7) See, eg, Commerce Act, ss 36(3), 36A(4), 45 (NZ).
(8) Sherman Act, s 2.
(9) EC Treaty, art 82.
(10) Trade Practices Act, s 46 (Aust); Commerce Act, s 36 (NZ).
(11) World Bank, World Development Report: Building Institutions for Markets
(Washington/New York: World Bank/Oxford University Press, 2002) 140 ;T
Vardy, The emergence of competition in (former) socialist countries (1999) 47
American Journal of Comparative Law 229, 2612 .
(12) ABA (n 2 above) Overview-14.
(13) OECD, Report on the nature and impact of hard core cartels and sanctions
against cartels under national competition laws DAFFE/COMP(2002)7, 9 April 2002,
paras 27, 32 ; K Cseres, MP Schinkel, and F Vogelaar, Criminalization of
Competition Law Enforcement: Economic and Legal Implication for the EU Member
States (Cheltenham: Edward Elgar, 2006) .
(14) B Hawk, United States, Common Market and International Antitrust: A
Comparative Guide (2nd edn, Englewood Cliffs: Prentice Hall Law and Business, 1991
supp), vol 1, 75164 .
(15) JO Haley, Antitrust in Germany and Japan: The First Fifty Years, 19471998
(Seattle: University of Washington Press, 2001) 108 .
(16) See CA Jones, Private Enforcement of Antitrust Law in the EU, UK, and the USA
(Oxford: Oxford University Press, 1999) ; RJ Roberts, International
Comparative Analysis of Private Rights of Access: A Study Commissioned by Industry
Canada Competition Bureau, 3 April 2000 .
(17) See generally K Yeung, Privatizing competition regulation (1998) 18 Oxford
Journal of Legal Studies 581 .
(18) In some countries, procedural and evidential rules have been adapted to the
needs of competition law. See, eg, Commerce Act, ss 78 and 79 (NZ).
(19) See M Holmes and L Davey, A Practical Guide to National Competition Rules
Across Europe (The Hague: Kluwer Law International, 2004) .
(20) Haley (n 15 above) 1507.
(21) See, eg, V Rose (ed), Bellamy & Child Common Market Law of Competition (4th
edn, London: Sweet & Maxwell, 1993) 337 ; P Areeda and D Turner,
Antitrust Law (Boston: Little Brown, 1978), vol 1, 733 ; UNCTAD,
Continued Work on the Elaboration of a Model Law or Laws on Restrictive Business
Practices: Draft Commentaries to Possible Elements for Articles of a Model Law or
Laws UN Doc TD/B/RBP/81/Rev.3, 2 August 1994, 1516.
(22) H Hovenkamp, Federal Antitrust Policy: The Law of Competition and Its Practice
(3rd edn, St Paul, Minn: West, 2005) ch 1 .
(23) See, eg, DJ Gifford, Rethinking the relationship between antidumping and
antitrust laws (1991) 6 American University Journal of International Law and Policy
277 .
(24) See, eg, EM Fox, What is harm to competition? Exclusionary practices and
anticompetitive effect (2002) 70 Antitrust Law Journal 371 .
(25) Commerce Act, s 1A (NZ).
(26) EC Treaty, Art 81(3).
(27) See, eg, Standard Oil Co of Cal v United States 337 US 293 (1949); Federal Trade
Commission v Consolidated Foods Corp 380 US 592 (1965).
(28) Fox (n 24 above) 377.
(29) Fox (n 24 above) 395. Illustrative cases include Case 322/81 Michelin v
Commission [1983] ECR 3461 (abuse of dominance); Boeing/McDonnell Douglas,
Commission Decision of 30 July 1997, [1997] OJ L336/16 (merger). See generally DJ
Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus
(Oxford: Clarendon Press, 1998) 4 .
(30) See, eg, Cases 56 and 58/64, Establissements Coste, SARL & Grundig-Verkaufs
GmbH v Commission [1966] ECR 299. See also American Bar Association, Section of
Antitrust Law, Report of the Special Committee on International Antitrust (ABA, 1991)
259 .
(31) EM Fox, What is harm to competition? Exclusionary practices and
anticompetitive effect (2002) 70 Antitrust Law Journal 371 . Citing, inter
alia, United States v Microsoft Corp 253 F 3d 34 (DC Cir), cert denied|122 S Ct 350
(2001).
(32) See, eg, JS Venit, Brave new world: the modernization and decentralization of
enforcement under Articles 81 and 82 of the EC Treaty (2003) 40 Common Market
Law Review 545, 5759 .
(33) Fox (n 31 above) 373.
(34) Antimonopoly Law, s 19.
(35) Fox (n 31 above) 4068.
(36) See, eg, RJR Peritz, Some realism about economic power in a time of sectoral
change (1997) 66 Antitrust Law Journal 247 .
(37) D Hildebrand, The Role of Economic Analysis in the EC Competition Rules (2nd
edn, The Hague: Kluwer Law International, 2002) .
(38) Competition Act, s 1.1 (Can). See also the Competition Act of South Africa 1998,
Act No 89, ch 1, para 2.
(39) American Bar Association, Section of Antitrust Law, Competition Laws Outside of
the United States (Chicago: ABA, 2001) Canada 1516 .
(40) Canada (Commissioner of Competition) v Superior Propane Inc [2001] FCA 104.
(41) ABA (n 39 above), Japan-13, 17. See also K Takeshima, Chairman JFTC, Toward
the new design of competition policy in Japan, address intended to be presented
before the American Bar Association Section on International Law and Practice and
Section on Antitrust Law, 18 September 2003, p 7 .
(42) Ibid .
(43) Fletcher Challenge Ltd (1988) ATPR (Com) 50077, 57, 3946. See also Section
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(44) GB Doern, Comparative competition policy: boundaries and levels of political
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(45) OECD, Competition Law and Policy Committee, Interim Report on Convergence of
Competition Policy (Paris: OECD, GD (94/64), 1984) 89 .
(46) Hildebrand (n 37 above) 122. Quoting JM Clark, Towards a concept of workable
competition (1940) 30 American Economic Review 241, 253 .
(47) See, eg, SG Corones, Competition Law in Australia (3rd edn, Sydney: LBC, 2004)
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(48) See, eg, EM Fox and LA Sullivan, Antitrustretrospective and prospective: where
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welfare, and technological progress (1987) 62 New York University Law Review 1020
.
(49) WJ Baumol, JC Panzar, and RD Willing, Contestable Markets and the Theory of
Industry Structure (New York: Harcourt Brace Jovanovich, 1982) .
(50) See, eg, H Hovenkamp, Antitrust policy after Chicago (1986) 84 Michigan Law
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.
(51) 504 US 451 (1992).
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54 .
(56) DJ Gerber, Law and Competition in Twentieth Century Europe: Protecting
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International, 2002) 15862 .
(57) BE Hawk, System Failure: vertical restraints and EC competition law (1995) 32
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(58) American Bar Association, Section of Antitrust Law, Competition Laws Outside of
the United States (Chicago: ABA, 2001) European Union 1617.
(59) SG Breyer, Economics and judging: an afterword on Cooter and Wald (1987)
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(60) S Martin, Advanced Industrial Economics (Cambridge, Mass: Blackwell Publishers,
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(61) TM Jorde and DJ Teece, Introduction in TM Jorde and DJ Teece (eds), Antitrust,
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.
(62) See, eg, Commerce Act, s 43 (NZ), which exempts any act, matter, or thing that
is, or is of a kind, specifically authorised by any enactment or Order in Council made
under any Act from the restrictive trade practices provisions of the Commerce Act.
(63) For example, if a government compelled competitors to set a price, a court might
conclude that the competitors did not agree on prices because there was no
voluntary agreement within the terms of the competition law.
(64) WTO Secretariat, Exceptions, exemptions and exclusion contained in members
national competition legislation, WT/WGTCP/W/172, 6 July 2001.
(65) SK Sell, Power and Ideas: NorthSouth Politics of Intellectual Property and
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(66) The development of competition law in Europe has also been linked to major
events, in particular World War I, the depression, and World War II. DJ Gerber, Law and
Competition in Twentieth Century Europe: Protecting Prometheus (Oxford: Clarendon
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(67) SK Sell, Intellectual property protection and antitrust in the developing world:
crisis, coercion, and choice (1995) 49 International Organization 315, 333
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(68) The structural analysis of the Asian crisis is not universally accepted. Cf F Jenny,
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Competition Law and Policy 13 ; A Singh, Competition and competition
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proposed antitrust programs for developing countries (1994) 19 North Carolina
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(70) WTO Secretariat, Report on the meeting of 2324 April 2002 WT/WGTCP/M/17,
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.
(72) EM Fox, Equality, discrimination, and competition law: lessons from South Africa
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(73) FK Upham, Retail convergence: the Structural Impediments Initiative and the
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.
(74) H Dumez and A Jeunematre, The convergence of competition policies in Europe:
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(75) See, eg, C Brzezinski, Competition and antitrust in Central Europe: Poland, The
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Russian Federation (1997) 23 Review of Central and East European Law 49
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(76) J Langenfeld and MW Blitzer, Is competition policy the last thing Central and
Eastern Europe Need? (1991) 6 American University Journal of International Law and
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(77) See M Fritsch and H Hansen, EastWest integration and competition policy in M
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(78) See MM Sheth, Formulating antitrust policy in emerging economies (1997) 86
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(79) Ibid 470 . See also E Modzelewska, Appropriate rules of competition
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.
(80) Communication from the United States WT/WGTCP/W/185, 22 April 2002;
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(81) Modzelewska (n 79 above) 102, 105.
(82) American Bar Association, Section of Antitrust Law, Report of the Special
Committee on International Antitrust (1991) 259, 257, 272; MRA Palim, The
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(84) Competition Act of South Africa 1998, Act No 89, ch 1, para 2(e) and (f); ch 2, pt
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(86) World Bank, The East Asian Miracle (Washington and New York: World Bank and
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(89) Singh (n 88 above) 19. Encouragement of investment in one sector may reduce
investment in other parts of the economy. Such investment incentives are also
inconsistent with a policy designed to extract the best terms for local firms under an
investment or technology transfer agreement by prohibiting such foreign firms from
imposing various vertical restraints in those agreements.
(90) RD Anderson and P Holmes, Competition policy and the future of the multilateral
trading system (2002) 5 Journal of International Economic Law 531, 553
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(91) MM Sheth, Formulating antitrust policy in emerging economics (1997) 86
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(93) M Brunt, The Australian antitrust law after 20 yearsa stocktake in DK Round
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.
(94) The World Bank reports that a survey of competition laws in developing countries
found that only five out of 35 countries ban intellectual property agreements that
restrict competition. World Bank, World Development Report (2002) 1478
.
(95) Communication from UNCTAD, WT/WGTCP/W/197, 15 August 2002, para 52.
(96) Ibid para 51.
(97) Developing countries have often been concerned about territorial restraints
imposed upon domestic fabricators and distributors by multinational enterprises,
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certain vertical restraints by multinationals may sometimes increase local efficiency.
See P Zweifel and R Zch, Vertical restraints: the case of multinationals (2003) 48
Antitrust Bulletin 271 .
(98) See, eg, New Zealand Commerce Commission, Guidelines to the Analysis of
Public Benefits and Detriments (1997) 15 .
(99) FM Scherer, Competition Policies for an Integrated World Economy (Washington:
Brookings Institute, 1995) estimates that it takes about 10 years for countries to
acquire the necessary expertise and experience to effective implement competition
laws . The World Bank, World Development Report (2002) 141 argues
that the higher the per capita income of the country and the longer the competition
authority has been in place, the more effective the competition law regime
. See also BJ Phillips, OECD involvement (1995) 23 International
Business Lawyer 488 .
(100) See, eg, MJ Reynolds, The role of competition law in Central and Eastern
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(101) See, eg, Bing Song, Competition policy in a transitional economy: the case of
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(102) See Doha Ministerial Declaration, WT/MIN(01)/DEC//1, 914 November 2001,
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(103) For a description of technical assistance activities by individual countries see,
eg, Communication from the European Community and its Member States
WT/WGTCP/W/184, 22 April 2002; Technical assistance programmes and projects
provided by the European Community and its member states in the field of trade and
competition policy WT/WGTCP/W/223, 27 February 2003; Communication from the
United States WT/WGTCP/W/185, 22 April 2002; Communication from Japan
WT/WGTCP/W/186, 19 June 2002; Communication from Korea WT/WGTCP/W/189, 21
June 2002; Communication from Australia WT/WGTCP/W/190, 29 May 2002.
(104) Communication from the United States WT/WGTCP/W/185, 22 April 2002; WE
Kovacic, Antitrust and competition policy in transition economies: a preliminary
assessment [2000] Fordham Corporate Law Institute, ch 23, 537 ;
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Communication from Thailand, WT/WGTCP/W/188, 29 May 2002; WTO Secretariat,
Report on the meeting of 2324 April 2002, WT/WGTCP/M/17, 26 June 2002
.
(105) See Communication from the European Community and its Member States
WT/WGTCP/W/184, 22 April 2002.
(106) See also American Bar Association, Section of Antitrust Law and Section of
International Law and Practice, Comments and Recommendations on the Competition
Elements of the Doha Declaration, Before the USTR Washington: ABA, June 2003, 911
.
(107) Joint NGO statement on issues and proposals for the WTO Ministerial
Conference, <http://www.twnside.org.sg/title/issue-cn.htm>, visited on 17 February
2002.
(108) WTO Secretariat, Report on the meeting of 2324 April 2002, WT/WGTCP/M/17,
26 June 2002 .
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(110) R Goode, Reflections on the harmonization of commercial law in R Cranston
and R Goode (eds), Commercial and Consumer Law: National and International
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(111) RH Graveson, The international unification of law (1968) 16 American Journal
of Comparative Law 4, 78 .
(112) JS Hobhouse, International conventions and commercial law: the pursuit of
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(113) DJ Gerber, Law and Competition in Twentieth Century Europe: Protecting
Prometheus (Oxford: Clarendon Press, 1998) 195203, 41013 .
(114) See Commerce Select Committee Report on the Commerce Amendment Bill,
2001; Explanatory Note to the Commerce Amendment (No 2) Bill 2001.
(115) See, eg, EA Farnsworth, Unification and harmonization of private law (1996)
27 Canadian Business Law Review 48, 60 ; cf JA Spanogle, The arrival of
private international law (1991) 25 George Washington Journal of International Law
and Economics 477, 51016 .
(116) See, eg, SW Waller, Antitrust and American business abroad today (1995) 44
DePaul Law Review 1251, 1284 .
(117) American Bar Association, Section of Antitrust Law, Report of the Special
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(118) SW Waller, Neo-realism and the international harmonization of law: lessons
from antitrust (1994) 42 Kansas Law Review 557 ; DP Wood, The trade
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(Cambridge: Cambridge University Press, 1997) 513, 5245 .
(119) Waller Ibid 5623 . Classic articles on legal transplantation include
O Kahn-Freund, On uses and misuses of comparative law (1974) 37 Modern Law
Review 1 ; A Watson, Legal transplants and law reform (1976) 92 Law
Quarterly Review 797 ; A Watson, Comparative law and legal change
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(120) See JO Haley, Authority without Power: Law and the Japanese Paradox (New
York: Oxford University Press, 1991) .
(121) G Teubner, Legal irritants: good faith in British law or how unifying law ends up
in new divergences (1998) 61 Modern Law Review 11, 1213 . The World
Bank seems to have adopted a not dissimilar approach to legal reform in developing
and transitional countries. See CW Gray, Reforming legal systems in developing and
transition countries (1997) 34:3 Finance and Development 14, 15 .
(122) B Grossfeld, The Strength and Weakness of Comparative Law (Oxford:
Clarendon Press, T Weir trans, 1990) 458 .
(123) See generally Tebner (n 121 above).
(124) See also TW Welde and JL Gunderson, Legislative reform in transition
economies: Western transplantsa short-cut to social market economy status?
(1994) 43 International and Comparative Law Quarterly 347, 3725 .
(125) RM Graveson, The international unification of law (1968) 16 American Journal
of Comparative Law 4, 6 .
(126) Cf AM Garo, Unification and harmonization of private law in Latin America
(1992) 40 American Journal of Comparative Law 587, 61013 .
(127) G Marceau, Anti-Dumping and Anti-Trust Issues in Free-trade Areas (Oxford:
Clarendon Press, 1994) 11923 lists the usually identified differences between
common law and civil law systems .
(128) See KH Nadelmann, Uniform legislation versus international conventions
revisited (1968) 16 American Journal of Comparative Law 28, 313 .
(129) See GATT, art XXIV:12; DSU, art 22:9.
(130) P Legrand, Comparative legal studies and commitment to theory (1995) 58
Modern Law Review 262, 273 .
(131) See, eg, WP Alford, On the limits of grand theory in comparative law (1986)
61 Washington Law Review 945 ; T Koopmans, Understanding political
systems: a comment on methods of comparative research (1987) 17 Georgia Journal
of International & Comparative Law 261, 269 .
(132) See also G Teubner, Legal irritants: good faith in British law or how unifying law
ends up in new divergences (1998) 61 Modern Law Review 11, 1415 .
(133) Legrand (n 130 above) 271.
(134) F Ferrari, Uniform interpretation of the 1980 uniform sales law (1994) 24
Georgia Journal of International and Comparative Law 183, 1989 .
(135) See Telecom Corp of New Zealand Ltd v Clear Communications [1995] 1 NZLR
385 (PC); Carter Holt Harvey Building products Ltd v Commerce Commission [2006] 1
NZLR 145 (PC).
(136) See, eg, the United Nations Convention of the International Sale of Goods 1980,
art 7(1). See A Rosett, Unification, harmonization, restatement, codification, and
reform in international commercial law (1992) 40 American Journal of Comparative
Law 683, 687 .
(137) See, eg, the procedure adopted by UNCITRAL. Report of the United Nations
Commission on International Trade Law on the Work of its Twenty-First Session (1988)
98 . Cited in Ferrari (n 134 above) 2056. See also JA Spanogle, The
arrival of private international law (1991) 25 George Washington Journal of
International Law and Economics 477, 51617 .
(138) See also OECD, Competition Law and Policy Committee, Interim Report on
Convergence of Competition Policy (Paris: OECD, GD (94/64), 1984) 5 .
(139) L Friedman, Law reform in historical perspective (1969) 13 Saint Louis
University Law Quarterly 351, 35677 . See also M Ancel, From the
unification of law to its harmonization (197677) 51 Tulane Law Review 108
.
(140) See also Communication from Japan, WT/WGTCP/W/195, 12 August 2002.
(141) See J Goldstein and RO Keohane, Ideas and foreign policy: an analytical
framework in J Goldstein and RO Keohane (eds), Ideas and Foreign Policy: Beliefs,
Institutions, and Political Change (Ithaca: Cornell University Press, 1993) 3
; PM Haas, Introduction: epistemic communities and international policy
coordination (1992) 46 International Organization 1, 2034 .
(142) See, eg, WF Baxter, Antitrust policy in M Feldstein (ed), American Economic
Policy in the 1980s (Chicago: University of Chicago Press, 1994) 600 .
(143) Cf RD Anderson and H Wager, Human rights, development, and the WTO: the
cases of intellectual property and competition law (2006) 9 Journal of International
Economic Law 707 .
(144) There is a vast literature on international redistributive justice. For a survey see
CR Beitz, International liberalism and distributive justice: a survey of recent thought
(1999) 51 World Politics 269 ; C Brown, International Relations Theory
(Hemel Hempstead: Harvester Wheatsheaf, 1993) .
(145) See P Gerhart, Slow transformations: the WTO as a distributive organization
(2002) 17 American University Law Review 1045 ; JP Trachtman, Legal
aspects of a poverty agenda at the WTO: trade law and global apartheid (2003) 6
Journal of International Economic Law 3 .
(146) See, eg, AN Campbell, JW Rowley and MJ Trebilcock, The role of monopoly laws
in the international trading system (1995) 5 International Trade Law Review 167, 173
; EM Fox and J Ordover, The harmonization of competition and trade
law: the case for modest linkages of law and the limits to parochial state action in L
Waverman, WS Comanor, and A Goto (eds), Competition Policy in the Global
Economy: Modalities for Cooperation (London: Routledge, 1997) 407, 41617
; EM Graham and MAA Warner, Multinationals and competition policy in
North America in L Eden (ed), Multinationals in North America (Calgary: University of
Calgary Press, 1994) 463, 471 ; PS Crampton and CL Witterick, Trade
distorting private restraints and market access: learning to walk before we run (1996)
24 International Business Lawyer 467, 467 ; WTO, WTO Annual Report
(WTO, 1997) esp 523 ; DJ Gifford and ET Sullivan Can international
antitrust be saved for the post-Boeing merger world? A proposal to minimize
international conflict and to rescue antitrust from misuse (2000) Antitrust Bulletin 55
 . See also DJ Gifford and M Matsushita, Antitrust or competition laws
viewed in a trading context: harmony or dissonance? in J Bhagwati and RE Hudec
(eds), Fair Trade and Harmonization: Prerequisites for Free Trade?, Volume 2, Legal
Analysis (Cambridge, Mass: MIT Press, 1996) 269, 279 .
(147) See, eg, AB Zampetti and P Sauv, Onwards to Singapore: the international
contestability of markets and the new trade agenda (1996) 19 World Economy 333,
335 ; BM Hoekman and PC Mavroidis, Policy externalities and high-tech
rivalry: competition and multilateral co-operation beyond the WTO in OECD, Market
Access After the Uruguay Round: Investment, Competition and Technology
Perspectives (Paris: OECD, 1996) 187 ; RZ Lawrence, Towards globally
contestable markets and S Ostry, Technology issues in the international trading
system in OECD, Market Access After the Uruguay Round: Investment, Competition
and Technology Perspectives (Paris: OECD, 1996) 25, 145 ; TJ
Schoebaum, The theory of contestable markets in international trade: a rationale for
justifiable unilateralism to combat restrictive business practices? (1996) 30:3
Journal of World Trade 161 ; EM Graham and RZ Lawrence, Measuring
the international contestability of markets: a conceptual approach (1996) 30:5
Journal of World Trade 5 . See also M Matsishita, Competition law and
policy in the context of the WTO system (1995) 44 DePaul Law Review 1097, 1104
.
(148) The concept global consumer welfare is intentionally left undefined. Although
it is distinct from the total surplus standard, it could embrace several different
standards, including the price standard, the modified price standard, the
consumer surplus standard, and the balancing weights approach listed by the
Canadian Competition Tribunal. See The Commissioner of Competition v Superior
Propane Inc, 2000 Comp Trib 16, 4 April 2002. See also IK Gotts and CS Goldman, The
role of efficiencies in M&A global antitrust review: still in flux? [2002] Fordham
Corporate Law Institute 201 . It could also include an approach where
efficiencies were given greater weight if they were immediately passed on to
consumers and a lesser weight if the efficiencies were only likely to redound to
consumers at some time in the future.

The Limited Case for Harmonization to Protect Competitiveness

Chris Noonan
DOI:10.1093/acprof:oso/9780199207527.003.0004
Abstract and Keywords

This chapter examines the links between competition law, competitiveness, and trade
policy. Section 4.1 assesses the meaning of the claim that harmonization may be
justified to promote fair trade. Section 4.2 examines the case for harmonization
purely on the grounds of loss of competitiveness. Sections 4.3 to 4.5 use the economic
analysis of regulatory competition to identify the type of situations where
harmonization could in theory improve global and national welfare.

Keywords: competition law, competitiveness, trade policy, fair trade, regulatory

competition, global welfare, national welfare
4.1 Introduction
4.1.1 The Competition to Upgrade Competitive Advantage through Competition Law
In The Competitive Advantage of Nations, Porter concluded that a government can
influence the competitive advantage of an industry.1 Furthermore, [f]ew roles of
government are more important to the upgrading of an economy than ensuring
vigorous domestic rivalry, which has strong implications for antitrust policy,
particularly policy toward mergers and alliances.2 The system of states and the
domestic processes by which governments are selected induce governments to
compete in the provision of public goods and services to improve the international
competitiveness of local industries and enhance national welfare. Section 2.3 argued
that regulatory competition was generally desirable. However, regulatory
competition may encourage the adoption of policies that favour certain groups in a
society over others. In some circumstances, regulatory competition could lead to
policies that lower the welfare of all countries.
Chapter 4 assesses the links between competition law, competitiveness, and trade
policy. The remainder of Section 4.1 examines the meaning of the claim that
harmonization may be justified to promote fair trade. Section 4.2 examines the case
for harmonization purely on the grounds of loss of competitiveness. Sections 4.3 to
4.5 uses the economic analysis of regulatory competition to identify the type of
situations where harmonization could in theory improve global and national welfare.
4.1.2 What is Fair Trade?
Many self-proclaimed free traders assert that fair trade is a pre-condition for free
trade. Harmonization is an often prescribed cure for unfair trade. For over (p.100)
a century the potential conflict between national labour market regulation and
international competitiveness has led to demands for international labour market
legislation.3 Some writers have claimed that differences between national competition
laws could also give the firms of one country an unfair competitive advantage over
firms from another country and therefore competition laws should be harmonized. 4
Those demanding harmonization typically wish to have the world converge on their
own preferences, which other countries may resist. If harmonization is unachievable,
the demanders may threaten to take unilateral counter-measures. Antidumping
measures may provide a remedy for harms arising from the interaction between
different economic and social systems,5 including differences in competition law.6
Some countries may prefer to live with protectionist antidumping measures, rather
than begin an uncertain process that could lead to the harmonization of the whole
regulatory environment and social norms. One of the problems in dealing with
demands for harmonization, especially for smaller countries, is that the concept of
unfair trade does not have a fixed meaning.
In the 1980s and early 1990s, the complaints about unfair trade and the demands for
harmonization in the US were in part a response to the prevailing economic
environment, including the increased intensity of international competition and the
emergence of Japan as an economic superpower with a different culture and economic
organization to that of the West.7 Other factors also helped shape the demands for
harmonization. The GATT did not adequately address many non-border trade barriers
and even where it did the rules could not always be enforced. The deepening linkages
between trade in goods and trade in services, investment and intellectual property
increased concerns that the GATT was inadequate. The development of the new
trade theory added an air of intellectual respectability to claims that policy
differences could lead to unfair trade, and made it harder to dismiss such claims as
merely protectionist. The important role of fairness in the American political psyche
made it is easier for domestic (p.101) producers to get protection if they alleged they
faced unfair trade, rather than just tough competition.8
Section 301 of the US Trade Act 1974, as amended, provides remedies against
unfair, inequitable, and unreasonable trade practices. The statute leaves the
normative content of those concepts largely undefined.9 In the lengthy Congressional
hearings on section 301, no witness or member of Congress provided a general
definition of unfairness.10 In the legislative history of section 301, Abbott identified
seven normative concepts used to give content to the idea of fair trade, namely: 11
(1) foreign practices that violate an international rule or commitment; (2) foreign
practices that nullify or impair the value of previous trade concessions or agreements;
(3) foreign practices that discriminate against US firms; (4) a lack of reciprocity; (5)
foreign practices that distort market forces to the disadvantage of US firms; (6)
fundamental characteristics of foreign political systems, economic systems and/or
culture that are responsible for difficulties in entering or operating in foreign
markets;12 and/or (7) pure mercantilism.
The first three meanings of unfairness are widely accepted as identifying illegitimate
measures, which are subject to WTO rules. See Chapter 11. The demands for the
harmonization of competition law extend beyond these situations. Some complaints
about unfair differences between national competition laws might be merely cover
for protectionist or mercantilist aims (the seventh meaning of unfairness). While some
attitudes to the international competition law system could reflect protectionist or
mercantilist aims, such aims could not form a principle of international competition
law or a rules-based world trading system. This leaves meanings four to six.
The norm of reciprocity dominates the legislative history of section 301. Abbot
identifies several notions of reciprocity in the legislative history of section 301: (a)
specific reciprocity where the parties exchange concessions or other items of equal
value; (b) equal access, which implies US firms should have access to, or commercial
opportunities in, foreign markets, equivalent to those that foreign firms have in the
US; (c) equal production conditions, whereby US firms should not be subject to taxes,
regulations and subsidies less favourable than those to (p.102) which foreign firms
are subject; (d) national reciprocity; (e) sectoral reciprocity; and (f) equal outcomes
and measurable results.13 The absence of competition law (or its enforcement) might
prevent reciprocity when restrictive business practices or market structures inhibit
access of exports or investments from another country. The different concepts of
reciprocity have different implications for competition law harmonization. For
example, equal production conditions suggests that competition law in the two
countries should be the same, while equal access might require one country to apply
different competition laws if the market structure or other government measures in
one country makes market access more difficult.
Specific reciprocity, meaning (a), is normally contrasted with diffuse reciprocity, where
the parties do not demand precisely equivalent concessions in exchange, but count on
their partners contributing to an acceptable overall balance over time.14 Specific
reciprocity does not provide a useful standard for competition law harmonization in a
rules-based trading system. Multilateral trade negotiations inevitably require all
participants to make trade-offs between industries and therefore sectoral reciprocity,
meaning (e), will often be absent. Without a single, integrated global market, there
will always be a lack of reciprocity in some sectors. In the context of competition law,
unequal outcomes, meaning (f), are generally treated as evidence of a lack of
reciprocity rather than a specific type of reciprocity that is required. Like mercantilism,
the requirement of equal outcomes would be inconsistent with market competition
and competition law.
In relation to competition law, equivalent market access and equal production
conditions, meanings (b) and (c) of reciprocity, are similar to meanings (5) and (6) of
unfairness. The fundamental characteristics argument, meaning (6), effectively
creates a presumption of unfairness when there are any differences between
countries. Such a presumption is contrary to the principle of subsidiarity. Without an
identifiable link between anticompetitive conduct (and/or a competition law) and
some disadvantage to foreign firms, national and international competition law rules
cannot contribute to the elimination of any disadvantage that might flow from
fundamental differences between countries. In connection with the fundamental
characteristics argument, it is sometimes argued that the nature of the political and
economic system in a country means there is no clear line between government and
non-government conduct whereby neither competition law nor international trade
rules can address the resulting trade distortions. However, the assertion that there is
a need to make special provision for so-called hybrid publicprivate behaviour does
not withstand close scrutiny. See Section 11.4.1.
(p.103) Chapter 4 focuses on the remaining concepts of unfair trade and a lack of
reciprocity: foreign practices that distort market forces to the disadvantage of US firms
and unequal production conditions. The significance of private market access barriers
and the consequences for international competition law are discussed in Chapter 6.
During the Structural Impediments Initiative talks in the early 1990s, over 250
Japanese domestic policies and practices were alleged to be structural impediments to
access to the Japanese market. In the late-1990s, attention moved from offensive to
defensive harmonization.15 The harmonization of environmental, human rights and
core labour standards is demanded as a pre-condition to foreign (usually developing
country) products entering local (usually developed country) markets, rather than as a
means of improving market access. A concern that is common to both cases is that
firms in countries with a low level of regulation are viewed as having a competitive
advantage over firms in countries with a high level of regulation. Without similar
regulatory conditions, production conditions are different and there is not reciprocity
as per meaning (c). If by lowering the level of regulation the competitive disadvantage
faced by firms by one country can be neutralized, a race to the bottom may be
triggered.
The notion that market distortions and government measures disadvantaging foreign
firms are unfair provides a theoretical basis for the norms of non-discrimination and
many other WTO rules. Market distortions can occur in national or international
markets. Unfair trade complaints tend to focus on the interests of private firms, rather
than the welfare of the importing or exporting countries. Thus, only some market
distortions will give rise to claims of unfair trade. On the other hand, a market
distortion is not always seen as a necessary prerequisite for trade to be unfair.
Although some market distortions may arise even if national laws are identical, a
claim of unfairness or a lack of reciprocity will be undermined when the complainant
engages in the same conduct.16 Therefore, allegations of unfair trade will get the most
attention when there are international differences between government measures or
market structures and conduct, which create market distortions and disadvantage
foreign firms.
Reliance on market distortions as a rationale for harmonization is problematic since
the analysis of such claims tends to be complex, because of the pervasive influence of
governments on the market. Furthermore, the concept free trade is as about as well
defined as fair trade.17 It therefore cannot provide a baseline (p.104) from which to
identify distortions. To argue that the harmonization of competition law is necessary to
achieve free trade is therefore unhelpful.
4.1.3 No A Priori Reason not to Apply International Trade Rules to Competition Law
Whether or not a non-trade policy is trade related and should be subject to WTO
regulation is ultimately a political question. Several countries have sought to establish
a link between trade and competition law. Demands for level playing fields,
harmonization, fair trade, and reciprocity are sometimes portrayed as the most
serious threat to the legitimacy and feasibility of free trade, because they can be
applied to any governmental policy or institution that is different from one's own. 18
Virtually every foreign producer would be subject to some regulations that are less
strict in one way or another compared to those faced by firms in any other country.
However, all demands for the harmonization of policies cannot be written off as
protectionist. Trade negotiators have long recognized that domestic policies can affect
trade flows. The reduction in the more traditional forms of trade protection has shifted
attention to new forms of protection, which may necessitate further international
disciplines. The links between trade in goods and trade in services and international
movement of capital and technology means that a greater variety of government
measures can affect trade, which again may necessitate the adoption of international
disciplines on a greater array of government measures to prevent trade concessions
being nullified and to facilitate trade. Regulatory differences are no longer seen as
necessarily being a source of comparative advantage and as contributing to increased
trade flows.19 The post-war history of international economic law shows a trend
towards ever-greater regulation of domestic policies.
The GATT has also always permitted measures against certain unfair trade
practices, notably countervailing and antidumping duties. Therefore, it is not a priori
inappropriate for the WTO to have rules addressing other forms of unfair trade, such
as that caused by anticompetitive conduct. Some traditional international trade rules,
such as those against subsidies, also pose a slippery slope problem, but this has not
stopped attempts to refine anti-subsidy rules (p.105) and recognize that certain sorts
of subsidization are not harmful to international trade. If clearly identified problems
related to competition law do exist, there should not be an automatic bar to
considering the international regulation of domestic policies.
The distinction between government intervention and non-intervention is unlikely to
be a useful policy guide for international trade rules. A number of policies may be
pursued through selective inaction, such as a decision to grant an exemption or not to
prohibit a merger. Many international trade agreements also oblige governments to
ensure that their firms do or do not act in a certain way. However, a distinction can be
made between barriers to trade that result from government policies and
institutional or systemic barriers, such as local languages or geographical
location. It is economically and technically feasible for the government to remove the
former, but not the latter. While anything can be a trade barrier, a number of factors
need to be considered to determine whether a policy response is justified.
Where government policies place a disproportionately heavy burden on domestic
producers relative to their foreign competitors, there will be some political pressure
for remedial action. Reducing barriers to trade and investment could accentuate the
asymmetry between groups that can easily cross international borders (capital) and
those groups that cannot (labour). Trade then becomes a source of conflict when it
unleashes forces that undermine the norms implicit in national practices.20 For
example, low-priced imports could have an adverse impact on some of the least
advantaged members of the importing country or the welfare of communities
dependent on a particular industry, which could be viewed as unfair.21 Since the
government could compensate the affected individuals, the unfairness can be
viewed as just as much a result of the actions of the local government, as opposed to
foreign governments or foreign producers. The claim that a country with lax regulatory
standards is unfair to another country because it confers an advantage on its
producers over producers in other countries is inconsistent with the nature of
international relations and is unlikely to carry much weight. See Section 3.4.3.
Therefore, in this context whether or not the injured groups have been treated
unfairly is perhaps better seen as a matter that could and should only be
authoritatively and legitimately determined by the state to which the affected groups
owe their allegiance.
Although unilateral trade liberalization will generally improve a country's economic
welfare, it has long been recognized that the threat of the closure (p.106) of one's
own markets can help pry open the markets of other countries, and so improve one's
own welfare.22 However, the loose concept of reciprocity used in tariff negotiations is
less meaningful in negotiations on non-tariff barriers, where the approach has been to
develop a set of rules that are expected to improve the overall operation of world
markets in the long-run. Whether or not insisting on regulatory reciprocity is in the
national interest depends on a number of factors, including the extent to which
foreign barriers are in fact subject to change; whether one actually has the power to
pry open another country's markets; the risk of capture of the process by domestic
protectionist interests; the risk of a foreign backlash and an ensuing trade war; and
the risk of undermining the rule-oriented trading system. From a global perspective,
the insistence on reciprocity could reduce world welfare by diverting trade from small
but competitive countries to the powerful, and eliminating policy measures in less
powerful countries designed to eliminate a domestic market failure.
The objectives of integration may provide a legal rationale for the harmonization of
competition law.23 Article 46 of the Havana Charter expressly linked the obligation to
control restrictive business practices to the objectives of the Charter.24 A number of
free trade agreements and customs unions have provisions on competition law, which
could be viewed as designed to maintain the value of trade concessions. See Section
13.2.3. The WTO is based on the idea that international trade largely takes place
between private enterprises and largely independent of government control. The
Preamble to the WTO Agreement provides that the purpose of the agreement is to
enhance trade and consumption while raising standards of living, ensuring full
employment and allowing for the optimal use of the world's resources in
accordance with the objective of sustainable development. This is not inconsistent
with a WTO agreement on competition law addressing private market access barriers
and inefficient anticompetitive conduct. The WTO agreements reflect many carefully
negotiated compromises, rather than a set of rules necessary to implement a single
vision of international economic integration. Some WTO agreements, such as the
Antidumping Agreement, are inconsistent with the promotion of economic efficiency.
The WTO is not intended to equalize the relative competitiveness of firms operating in
different countries.
(p.107) 4.2 Competition Law for a Competitive Advantage
4.2.1 The Competitive Advantages and Disadvantages Resulting from Competition
Law
Section 4.2 examines the claim that it is unfair (and potentially inefficient) that firms
and workers in Country A should bear the costs of stricter laws or higher standards
through loss of market share to producers from Country B, which have lower costs due
to lax enforcement or lower standards. The loss of market share may occur in
Countries A, B and/or C. Such a cost disadvantage is likely to be most apparent in a
free trade area, especially where the costs of factors of production and other
regulations do not vary widely between the participating countries. Since the
disadvantage is not related to the firms' inherent productivity and efficiency,
adversely affected firms may claim that they are harmed by unfair competition and
request that the competition laws be harmonized so as to level the playing field.
Even if regulatory competition would force governments to change disadvantageous
regulations, the cost disadvantage may be so large or the political process so slow
that the necessary adjustment takes too long for efficient firms to survive.
There has long been perceived to be a link between competition law and international
competitiveness. The Webb-Pomerene Act was enacted in 1918 partly in response to
the difficulty that US firms, particularly smaller firms, faced in competing against
international cartels outside the US.25 Notwithstanding a relatively interventionist
approach to antitrust law in the 1950s and 1960s, it was not until the mid-1970s when
US industry was faced strong competition from firms in Europe and Japan that the US
antitrust laws, amongst other regulations, were claimed to have increased costs and
limited the competitiveness of US industry.26 The impact of antitrust on business was,
however, unclear because empirical data was scant and anecdotal in nature and it
was difficult to isolate antitrust considerations from the numerous other variables that
go into a business decision.27 There was also a tendency not to distinguish between
the impact of antitrust on US national interests and the impact on individual firms and
industries. Nonetheless, in the 1980s many commentators asserted that US antitrust
had an adverse impact on American business in certain circumstances.28 Other
(p.108) commentators argued that antitrust benefited US industry and did not cause
any US firm to shift its operations to another country in order to lessen the impact of
antitrust.29
Allegations that US antitrust raised the costs of US businesses have focused on
extraterritoriality, the lack of an efficiency defence for mergers, the uncertain scope of
application of per se rules (especially in relation to joint ventures and research and
development cooperation), procedural rules, and treble damages. Today, it is much
harder for US firms to claim they are at a cost disadvantage, because most foreign
firms are now subject to competition law. The US courts and enforcement agencies
have increasingly strained to avoid preventing conduct that would promote productive
efficiency or innovation.30 Foreign laws are often tougher than US law in areas that
could impact upon competitiveness.
In recent years, some jurisdictions have amended or re-interpreted their competition
laws to emphasize economic efficiency or consumer welfare, rather than other social
or political objectives, partly because of concern about harming the international
competitiveness of local firms. In New Zealand, the amendment of the test in section
47 of the Commerce Act to the same test as is contained in Australia, Canadian and
US competition laws gave rise to a concern that the new threshold would catch
more mergers and business would be faced with the additional costs and uncertainty
of seeking authorization.31 The EU policy of requiring prospective members to adopt
laws that approximate EU competition law was intended to level the playing field for
firms in Europe.32 On the other hand, it has been argued that a business environment
with an efficiency-based competition law should generally be attractive and provide
little scope to argue that the absence of similar laws in other countries competitively
disadvantages home firms.33
(p.109) Cartels and Monopolies
A strict rule prohibiting hard core cartels should have little impact on the ability of
local firms to compete in their own market. The presence of a local cartel would
generally raise prices and harm the competitiveness of local firms, thereby facilitating
the entry of foreign firms. While anti-cartel rules may prevent the erection of collusive
barriers to entry by foreign firms or allow for the cross-subsidization of exports, this is
not an argument many firms will openly make.34 That type of conduct also raises
issues distinct from competitiveness. If foreign firms were allowed to establish cartels,
local firms would not be under a competitive disadvantage, whether competing in
local or foreign markets, because a hard core cartel involves no integration of
production or distribution and therefore no efficiency gains for the participants. A
policy permitting hard core cartels is likely to harm the welfare and competitiveness of
the country with such a policy. Prior to the introduction of an anti-cartel law in the UK,
it was estimated that over 50 per cent of manufacturing industries were cartelized
and such industries were characterized by excess capacity, with a few large firms and
a tail of inefficient smaller firms existing under a high price umbrella. 35 The removal of
cartels led to a reduction in capacity and efficiency improvements. The same
conclusion applies to government policies encouraging or permitting the formation of
monopolies that do not produce any countervailing efficiency gains. Competitiveness
concerns do not justify a rule prohibiting hard core cartels.
The exemptions from anti-cartel rules may allow certain efficient forms of cooperation,
respond to particular market failures, or reflect political lobbying. Only in the first
situation, which is considered below, does the exemption directly enhance the
competitiveness of a local industry. A crisis or recession cartel may reduce
competition among the participants, but not from foreign competition. If domestic
producers are protected from foreign competition, a recession cartel could allow more
local firms to survive despite under-utilized capacity, while foreign firms are forced to
exit the market. Rationalization cartels may have a similar effect. The possibility of
such effects has been cited as a justification for trade remedies.36 See Section 5.3.2.
Trade-offs between Competition and Competitiveness
Most competition laws aim to prevent anticompetitive price rises and the resulting
loss of allocative efficiency. Competition laws generally make some trade-off (p.110)
between allocative and productive efficiency, whether through general rules that
provide an efficiency defence for conduct reducing competition, or under more
specific rules that implicitly balance between harm to competition and
competitiveness. An example of the latter might be a rule that a firm cannot be found
to have engaged in predatory pricing unless it has market power and has priced below
its average variable costs. Hard core cartels are often prohibited per se, because
these arrangements virtually never have an efficiency rationale. However, mergers
and most restrictive business practices can simultaneously reduce competition and
produce some efficiency gains. For example, a merger may reduce competition and
permit the merged entity to get certain otherwise unattainable economies of scale or
synergies. If local firms are unable to achieve economies available to foreign firms,
they may be at a disadvantage to foreign firms in either local or export markets.
Competition law could harm competitiveness by preventing efficiency enhancing
mergers or joint ventures in one country, because other countries have no merger
law, apply lower standards, or provide a more generous efficiency defence.
Furthermore, small economies might be concerned that a particular competition rule
may adversely harm their competitiveness relative to large countries. For example,
without an efficiency defence, a rule prohibiting mergers that substantially lessen
competition may impose greater limitations on mergers of firms based in small
countries, and therefore make it hard for those firms to achieve the necessary
economies of scale to compete internationally.37
Most modern competition laws do not prohibit concentration or size per se, but only
prohibit mergers that harm competition. Competition laws rarely prevent firms from
growing internally to reap economies of scale and improving their competitiveness. If
internal growth is possible, a competition law may not harm competitiveness. This
raises the empirical question of how often is a merger necessary to achieve
economies of scale. Competitiveness will generally not be an issue unless the product
is traded internationally. In non-traded sectors, competitiveness is only affected when
the output of the non-traded sector is used as an input in a traded sector. Where local
firms face significant competition in the domestic market, competition law may define
the market as international in scope, in which case the local firms may be found to
have only a small share of the relevant market. Alternatively, if the market is defined
as having a national scope, barriers to entry and expansion may be found to be low,
especially if a narrow definition of barriers to entry preferred by some economists is
adopted. In either case, a merger or joint venture between local firms may be found
not to harm (p.111) competition. Where trade barriers mean that local firms face
limited competition from imports, the trade barriers may contribute to a finding that a
merger or joint venture harms competition, but, at the same time, any lack of
competitiveness of the local firms is less likely to threaten their viability.
Where a firm is already exporting, economies of scale will not depend on local market
size and therefore the possibility of internal growth may make it more difficult to
establish that any efficiency gain is dependent on the merger. The scope of
application of competition law may also affect the competitiveness of local firms in
export markets. Most competition laws do not apply to much conduct that affects only
foreign countries. If all the local firms in an industry formed an export company to
market their products abroad, the participating firms could gain significant economies
of scale in exporting without harming competition in the domestic market and
therefore not contravene local competition law. However, if such efficiency gains are
not available without a merger or a joint venture that would lessen competition in the
local market, the trade-off between competition and competitiveness may be
unavoidable. Therefore, if the concern is with competition from imports or in export
markets, competition law often would not prevent local firms achieving the necessary
economies of scale.
While some countries have efficiency defences and/or permit mergers creating
national champions, others believe that intense local competition is the best way to
enhance international competitiveness. There is also no universally accepted
approach to the assessment of the efficiency effects of a merger. To the extent that
the optimal policy is uncertain, countries should be free to experiment. The same
applies to the scope of per se rules and the approach to the application of rules of
reason or competition tests to restrictive business practices. Claims by firms that they
are disadvantaged or have lost international competitiveness, because of national
regulations, typically receive a sympathetic hearing from national legislators.
However, self-serving statements need to be carefully scrutinized. The information
advantage that firms have over legislators and consumers raises the prospect of
regulatory capture. Regulatory competition could therefore lead to competition laws
that sub-optimally favour competitiveness over competition.
Competition laws that contain a large number of per se rules, or that prohibit firms
with more than a specified market share from engaging in specific conduct, are more
likely to affect competitiveness than competition laws that apply competition or rule
of reason tests. Thus, countries can modify their competition laws to minimize their
impact on competitiveness. Many competition laws contain a number of devices to
exempt potentially competition-restricting arrangements where those arrangements
improve competitiveness. Non-cartel, horizontal arrangements are often examined
under a competition or rule of reason standard. Several aspects of a rule of reason
can prevent competition law prohibiting conduct that might harm competitiveness,
including the need for market power, the need to show a lessening of competition,
and consideration of whether the investment or efficiency gain would have occurred
but for the restraint in question. (p.112) Small and medium sized enterprises are
unlikely to be caught by such rules, because they do not possess market power. A
competition authority could issue interpretative guidelines that suggest safe harbours
in terms of market shares or financial size, below which a collection of small and
medium sized enterprises would not be found to have market power and so would not
breach a rule against anticompetitive horizontal arrangements to increase certainty.
The nature of a joint venture will affect the likelihood of whether it harms competition.
For example, a bona fide research and development or standard-setting joint venture
is less likely to harm competition than a joint selling arrangement. The former may be
found not to harm competition even where all local firms are participants. In relation
to developing countries, it has been argued that supra-competitive returns from a
cartel among local firms could provide a necessary incentive for firms to invest in an
industry and allow that industry to be established. Thus, the rule of reason may be
sensitive to development concerns. Some competition laws have created exemptions
for carefully defined classes of joint venture.38
Distribution Arrangements
Competition rules preventing efficient distribution restraints (for example, in order to
promote free competition or fairness in business dealings) will not usually affect
the relative competitiveness of local and foreign firms, because both groups of firms
will be subject to the same rules when they conduct business in the territory where
the competition law is applicable.39 Effectively, the non-tradable part of a good/service
package is subject to the local rules restricting the use of certain types of restrictive
arrangements or unilateral actions. Restrictive distribution arrangements can reduce
competition in the local market and create market access barriers. Resale price
maintenance is often seen as a device for protecting small retailers from competition
from large retailers, such as large foreign retail chains. However, the ability to create
private market access barriers depends on the local market structure, as well as the
local competition law, and would exist regardless of the differences between local and
foreign competition laws. Although foreign firms could have greater difficulty and face
higher costs when entering the local market than the local firms, this would be the
result of the anticompetitive effect of business practices, rather than competition law
creating differences in the distribution costs of local and foreign firms. The
international competition law problem is therefore seen as a lack of reciprocity of
market access or barriers to entry created by incumbent firms, rather than the relative
competitiveness of local and foreign firms. In the first case foreign firms (generally)
(p.113) complain that local competition is too lax; in the latter case local firms
complain that local competition is too strict. See Chapter 6.
Abuse of Dominance
Although some monopolization cases under section 2 of the Sherman Act in the US
might have lowered efficiency, such cases are few in number and the criticism of the
cases did not focus on international competitiveness.40 Under Article 82 of the EC
Treaty a wider range of firms are subject to greater limitations on their conduct. A firm
might be found to have abused its dominance by engaging in conduct in which a non-
dominant firm can legally engage.41 Article 82 and similar provisions in other
competition laws could therefore affect the relative competitiveness of firms. First, if a
competition rule requires a firm to provide access to essential facilities or license
intellectual property rights, incentives to invest in such facilities and innovate might
be affected. If the firms in Country A are prevented from engaging in business
practices that reduce the production costs of other local firms, firms based in Country
B may have a competitive advantage. For example, an interventionist essential
facilities doctrine may dissuade firms from investing in large infrastructure projects,
such as port upgrades and broadband telecommunications links, which could prevent
improvements in the competitiveness of other firms. On the other hand, permitting
the exploitation of market power in one market will harm consumers and the
competitiveness of other industries and misdirect investment. Secondly, restrictions
on promotional pricing could prevent a firm moving down the learning curve or
capturing economies of scale. Thirdly, an excessively broad application of an abuse of
dominance rule could affect the ability of firms to appropriate the benefits of their
innovation and therefore invest in innovation. On the other hand, net innovation
importing countries may be more interested in increasing the rate of transfer of
technology and diffusion of innovation.
Procedural Rules
Participation in the competition law proceedings in one country may be more costly to
a firm than participation in comparable proceedings in another country. Procedural
rules relating to information gathering, standards and burdens of proof, and remedies
affect the incentives to bring public and private competition law enforcement actions.
However, most competition law procedural rules are part of more general systems of
civil, criminal, or administrative procedural rules. The elimination of the affect of the
different rules on competitiveness might not be possible without harmonizing entire
legal systems, which is unrealistic. Because the procedural rules are applied
throughout the legal system and therefore are more likely to be applied to local firms,
countries have their own (p.114) internal incentives to ensure that they do not create
excessive costs for businesses. Competition law-specific rules, such as administrative
proceedings commenced before a competition enforcement agency, which
discriminate between local and foreign firms, could affect the relative competitiveness
of the firms. These rules could often discriminate in favour of foreign firms, because
such firms or their activities are beyond the local jurisdiction. Where the procedures
do not discriminate, the procedures should not affect the relative competitiveness of
firms.
Extraterritorial Jurisdiction
Extraterritorial jurisdiction may or may not affect the relative competitiveness of local
and foreign firms. Home country competitiveness concerns arise only when local firms
are prevented from engaging in competitive conduct abroad of a type in which foreign
firms can engage. Where the home country competition law does not prohibit
efficiency enhancing conduct, the extraterritorial application of competition law is
unlikely to affect the competitiveness of local firms. In some circumstances, the
extraterritorial application of competition law could harm the competitiveness of
foreign firms. For example, where an efficiency defence was only available for conduct
which enhanced the use of resources within the home country, and/or which was
engaged in by firms that were owned by residents of the home country. If the home
country only applied its laws to conduct that affected the competitive conditions in its
own country, two things follow. First, the extraterritorial application of competition law
will be relevant where there is a terms of trade effect, rather than reflecting a pure
competitiveness concern, which raises somewhat different considerations. Secondly,
the types of conduct that might be prohibited in the home country could be
undertaken by home country firms operating abroad, in which case firms operating in
the same market will be subject to the same rules. Although enforcement against
local firms may be more certain than enforcement against foreign firms, the perceived
harm to the competitiveness of local firms will provide an incentive for countries to
apply their laws in no broader circumstances than is needed to protect their interests.
If international action is needed, the appropriate action is to negotiate an agreement
on enforcement cooperation. If certain competition law rules limit the ability of local
firms to participate in foreign market cartels, local firm competitiveness is not thereby
harmed.
Extraterritoriality can also reduce the adverse affects that particular competition rules
may have on competitiveness. For example, if a country wishes to maintain a
decentralized industrial structure to prevent politically dangerous accumulations of
economic power, the best policy could (conceivably) be to prevent certain mergers
and acquisitions that would increase concentration. If economies of scale are
important, such a policy could harm the competitiveness of local firms, especially
firms based in small countries, in which case there will sometimes be a trade-off
between competitiveness and a policy of maintaining a (p.115) decentralized
industrial structure. The extraterritorial application of competition law may alter the
assessment of the net costs of the policy, because the government could impose its
policy on local and foreign firms that compete in the home country market and other
markets. Thus, all firms could be subject to the same rules. Indeed, one interpretation
of the Boeing/McDonnell Douglas and GE/Honeywell mergers is that the EU contested
a merger that might have harmed the relative competitiveness of EU firms.42
Depending on the local market size and structure and the local competition law, there
may be a trade-off between competition law objectives and competitiveness. The size
of the trade-off should not be exaggerated. A competition law with an efficiency
defence could reduce, but not eliminate, the trade-off. If a competition law does not
have efficiency as its objective, further trade-offs may be required.
4.2.2 Optimal Competition Law with Domestic Distortions and Non-Efficiency
Objectives
If market failures are present and prices do not reflect true social costs, free trade and
unregulated market conduct may reduce welfare. In a closed economy, competition
law can improve national welfare by preventing efficiency harming business practices.
Competition laws that have non-efficiency objectives may also improve national
economic welfare, if the competition laws prevent market outcomes that are
considered socially undesirable. National policies should not be presumed to be
illegitimate distortions of international trade simply because they do not have
economic efficiency as their sole objective. Engineering the convergence of
competition laws so that all such laws have efficiency as their objective will not
necessarily enhance global welfare, if some states have chosen to have competition
laws with non-efficiency objectives.
The belief that developing countries were characterized by a number of market
imperfections prompted the study of optimal policy intervention in the presence of
non-economic objectives and the optimal and second-best policies to remedy the
distorting effects of market imperfections.43 The research concluded that governments
should use the policy measure (or measures) that most directly affect(s) the variable
being targeted to maximize domestic economic welfare.44 As a general rule, the
optimal policy to achieve most common non-economic objectives will not be trade
protection, unless the objective is national self-sufficiency (p.116) in a particular
product. Trade protection will not generally be the optimal policy to maintain
production in a strategically important industry above a certain level or factor
employment in certain activities above a certain level to protect national security or
the national character. Few if any general competition law objectives (including
efficiency, consumer welfare, fair competition or anti-bigness) seem capable of
justifying trade restrictions. However, trade protection may be a possible alternative
or supplementary policy response to the policy objective behind some competition law
exemptions or applications of public interest tests, such as maintaining local
employment.
Some models of social concerns, such as pollution and opprobrium associated with
employing children, can be applied to a number of non-economic competition policy
objectives.45 Assume a policy instrument designed to address some social costs
created by the activities of a firm but not borne by that firm. Further assume that the
socially optimal policy requires that firms do not engage in certain conduct, rather
than the government devoting its own resources to countervailing the effects of the
conduct on society, which increases the costs of production for the firm. If the
countries are too small to affect their terms of trade and if the social cost of the
externality only affects the country where the firm is located, domestic policies that
internalize the externality are welfare improving from the point of view of that country
and the world.
The distribution of gains between consumers and producers depends on whether the
regulation is adopted on a unilateral or coordinated basis. If one country imposes a
costly regulation and other countries do not, the world price will remain unchanged. In
this situation, the price to consumers is unchanged (because the world price is
unchanged) and the country as a whole continues to benefit from the internalization
of the externality, but producers are harmed because foreign producers now have
lower costs. Producers would like either a tariff that equalled the cost associated with
internalizing the externality, or for foreign producers to bear similar costs. The former
policy would usually have the usual effects of a tariff and lower national welfare. The
latter policy would have different effects depending on the quantities that the country
imports and exports of the good in question.
As a general rule, the best policy for small countries is free trade combined with the
use of the optimum policy instrument to correct any market failures. Free trade
between two such countries maximizes world welfare. The optimal policy may differ
between countries. Therefore, assuming countries adopted optimal policy
instruments, forcing Country A to harmonize to the standard of Country (p.117) B
may reduce world welfare. This will reduce the welfare of Country A, and may or may
not improve the welfare of Country B.
If many countries imposed the same costly regulation, world prices will rise, but this
would enhance world welfare to the extent that the externality is internalized. Of
course, the worldwide adoption of a competition law that promoted fairness or
prohibited bigness would not be seen as a desirable policy in some countries, in
which case the widespread adoption of such competition laws would not enhance
global welfare. A country that imports a significant quantity of a good relative to its
domestic production is likely to lose from the adoption of its standard as the common
world standard because of the rising costs to its consumers. A country that exports (or
imports only a small quantity of) a good has a stronger interest in having worldwide
standards. Local consumers will generally not share in the social benefits of the
standard imposed abroad. That is, a consumer in Country A that derives a benefit
from the social and political goals of competition law in Country A probably derives no
benefit from the achievement of the social and political goals of competition law in
Country B. A small country could therefore be made worse off by the international
adoption of its standard. Pressure to harmonize may still be exerted by countries
where the cost of protecting a number of competitors is high. A policy of protecting
competitors per se would appear to imply either a requirement that additional policy
instruments are adopted to protect local production and producers (such as subsidies
or tariff protection), or that there is agreement between states that a number of
competitors continue to exist at a world level.46
All competition laws trade off between productive efficiency and allocative efficiency
and/or administrative costs, which means that they will affect the competitiveness of
some industries some of the time. Where there is an efficiency defence and markets
are international, the economy-wide sacrifice of competitiveness may not be great.
However, competitiveness is likely to be impaired more where a competition law has
non-efficiency objectives, such as free competition or anti-bigness. On the other hand,
even where competition laws have different objectives, the application of the law will
frequently not lead to different outcomes on the same facts. Whether a competition
law rule or objective would adversely affect competitiveness in a particular case will
often depend on the relevant market structures, which may reflect many factors
unrelated to competition law. Many other economic conditions and government
policies will also affect the relative competitiveness of local and foreign firms.
(p.118) 4.2.3 Should the Harmonization of Competition Law be Required on National
Competitiveness Grounds?
A concern about a loss of competitiveness by firms in Country A may lead to a
secondary concern that international trade will force the government of Country A to
choose competitiveness over Country A's preferred approach to competition law. The
countries with the less strict competition laws might capture an unfairly large share of
the gains from trade. Nonetheless, competitiveness concerns do not justify requiring
convergence of competition laws.
A country's welfare could be improved if it adopts the policies required to address
domestic distortions and advance non-economic policy objectives. The optimal policy
is likely to differ between countries. In light of the range of possible non-efficiency
objectives a competition law could have, it may be difficult for a third party to show
conclusively that a particular competition law rule is not socially optimal for a
particular country. Convergence could lower global welfare.
Even if all countries had the same preferences in relation to market structures and
business practices, the effect of the same competition law rule on the
competitiveness of national firms is likely to differ between countries. The same
general standards, such as a rule prohibiting a certain trade practice or a test of
substantially lessening competition in merger analysis, may produce different effects
on competitiveness depending on the particular market structure and size of the
jurisdiction.47 Countries may also disagree over precisely what legal rules are best, let
alone whether particular enforcement actions are efficiency-enhancing, because of
the complexity and uncertainty of the economics involved. There are a number of
alternative ways that competition law can implement the same substantive rules (for
example through civil, criminal or administrative procedures). These choices will affect
the costs of firms. Therefore, if both imposing the same substantive competition rules
has different effects (on competitiveness and competition) in different countries, it
does not seem possible to conclude that a competition law is unfair merely because
it is different from, or fair because it is the same as, the competition law in another
country. An international agreement that required national competition laws to
promote efficiency would not lead to uniformity in competition laws and would not
eliminate concerns about competitiveness.
If some competition rules affect competitiveness, firms in Country A might demand a
remedy so that the impact of the competition law of Country B on firms from Country
B is limited to what it would have been in some counter-factual situation. This would
entail the assessment of the effects of a competition (p.119) law on the marginal
costs of firms from Country B. If a competition law reduces (or permits the reduction
of) the marginal costs of a firm, that firm will have a higher level of output. The
relevant counter-factual would presumably need to be an international agreed
baseline.48 Neither free trade nor laissez faire could provide an appropriate
normative baseline for competition law to define what is unfair. However, for the
reasons advanced in Chapter 3, it is very unlikely that countries could successfully
negotiate such a baseline.
The calculation of the disadvantage faced by the firms in Country A would be difficult,
even if it could be agreed on what an efficiency maximizing competition law regulator
would have done in a particular case. Where a competition law has efficiency as its
declared objective, there should rarely be an adverse affect on competitiveness and
therefore a remedy would be available in relatively few situations.
If countries choose not to alter their competition laws in response to the cost
disadvantage they impose on local firms, they have made a decision to accept this
cost to the country in favour of other social gains. Governments pursuing non-
efficiency objectives through competition law will often have a range of choices about
what policy instruments it will use to achieve a particular policy, some of which could
reduce compliance costs and eliminate or alleviate the competitiveness pressures on
local firms. In these circumstances, there may be greater unfairness to other
countries in insisting on harmonization, than any unfairness caused by a loss of
competitiveness in a country that could apply other policy instruments.
Harmonization to address competitiveness concerns cannot be supported on the
grounds of international distributive justice.49 Most demands for harmonization arising
out of a loss of competitiveness emanate from the large wealthy countries, in
particular the EU and the US, and generally have been targeted at countries with
lower per capita incomes, higher unemployment, weaker social welfare nets, and a
dependence on a smaller number of industries. Trade sanctions are often threatened
as the alternative to harmonization. Trade sanctions would generally have the effect of
transferring wealth from consumers to producers and workers in the country imposing
the sanctions. As noted above, if the threatened country accedes to the demand for
harmonization, this may harm consumers, producers, and workers in the threatened
country.
International competition will put pressure on governments to reduce business costs
regardless of whether the same costs are borne by foreign competitors. Given that
national and global resources are finite, all countries must make choices (p.120)
between policies. If a competition law, or exemptions from that competition law,
affects the competitiveness of a country, it is fundamentally a political and a policy
issue for that country. There is no basis for a presumption that the government in
Country A can make these judgments for the people in Country B better than the
government of Country B, even where the government of Country B is not
democratically elected. However, it may be argued, producers generally have greater
influence over trade policy than consumers. Although the national welfare case for
regulation is not weakened because a good is traded, the practical ability of a
government to regulate may depend on other countries adopting similar regulations.
This is similar to the argument that while there is an economic case for unilateral
liberalization, reciprocal trade liberalization is politically necessary so that exporters
are a domestic political counterweight to producers facing import competition. 50
However, the political economy of competition law is less clear than that of trade
liberalization. Unlike trade liberalization, both the costs and benefits of strict or lax
competition law will primarily fall on local producers and consumers. This argument
suggests that although an international agreement on competition law may have
some political utility for governments desiring to promote national welfare, it does not
indicate whether an agreement to harmonize laws is possible or what the terms that
agreement would be.
4.2.4 Conclusion
There are real costs and benefits associated with the choice of different competition
laws and therefore any requirement for competition laws to converge.
Competitiveness concerns alone do provide a justification for harmonization of
competition law. A country should be able to adopt a competition law to address
domestic distortions and to advance non-efficiency objectives, if that is seen as
promoting national welfare, even if such policies occasionally affect the
competitiveness of industries in the tradeable sector. The realignment of exchange
rates and other international adjustment mechanisms are unlikely to remove any
desire for harmonization arising from the affects of competition law on
competitiveness, because competition laws do not have an equivalent effect on all
industries and the effect of capital flows on exchange rates.51
Enforcing a competition law will generally raise the efficiency of an economy and
improve the competitiveness of most industries. The absence of competition (p.121)
law may allow particular industries to improve their competitiveness beyond what
they could otherwise have achieved. However, those same industries may need to
pay more for inputs and distribution because of a lack of competition in other sectors
of the economy. Any improvement in one sector will need to be balanced against a
loss in competitiveness and investment in other sectors. What matters for economy-
wide efficiency are relative prices and costs from sector to sector, which means, with
one important exception, that a single economy can still be reasonably efficient when
each of its sectors faces comparable competitive imperfections. 52 If a competition law
applied the same rules to all sectors, it is likely to reflect genuine national policy
objectives, rather than merely promote one sector at the expense of others.53
In the absence of an agreed benchmark for competition law, the home country's own
law may be the only possible benchmark. An international obligation requiring a
competition law to be applied in a consistent and non-discriminatory manner to all
sectors could reduce any concerns (if they were felt to be significant) about
competition law (and exemptions) enhancing the competitiveness of particular
industries. However, competitiveness concerns are not the only potential justifications
for international competition law cooperation. As will be explained in later chapters, a
rule requiring consistency may also address other, more significant competition law
problems.
On the other hand, as discussed in Section 2.4.3, countries will need to be able to
create exceptions from competition law. However, as will be discussed in Sections
10.3.4 and 11.5.6, some control over the creation of exemptions from general
competition law rules may be desirable. The freedom to pursue domestic policy
objectives might then be limited by the need to address international distortions and
the willingness of countries to address international distortions is limited by the choice
of domestic policy objectives.
4.3 Models of Regulatory Competition
Several models of non-coordinated decision-making by national governments have
been developed, which can assist in the analysis of competition among competition
laws. These models are broadly consistent with the nature of international relations.
Each country attempts to maximize the welfare of its residents (p.122) by creating a
desirable package of taxes, laws, policies, public services and institutional
arrangements in response to the actual or expected impact on the international
movement of goods, services, capital or people. Inter-jurisdictional or regulatory
competition may occur as governments compete to attract more investment from a
common international pool of capital with a view to improving national economic
welfare. The desire to be re-elected gives governments an incentive to balance the
interests of residents and the interests of mobile factors of production.
Since the late nineteenth century, when New Jersey enacted a set of rules that
favoured the formation of trusts, the states of the US have been competing for
incorporations by offering them different corporate law rules. Scholars disagree on the
extent to which this results in pro-management corporate rules.54 The ability to
reincorporate in another state at low cost, and without physically moving, and to
consume corporate laws independently of other laws distinguishes the market for
corporate charters from the competition among competition laws.
In Tiebout's model there is a mobile population and a set of either potential or existing
communities offering varying bundles of public goods so that, with costless mobility,
individuals can choose the community with the best package of public goods and
taxes and in the process reveal their true preferences for public goods.55 Under
several strong assumptions, the outcome of this process will be Pareto efficient. These
conditions are almost never met in the real world.56 Most of the vast literature
elaborating on the Tiebout model analyses the distribution of local residents in
response to packages of local public goods and taxes. Some models show that
regulatory competition among states for firms to invest in the locality may in some
circumstances produce socially optimal regulation.57 In the legal literature, where the
rigors of formalization are relaxed and normative concerns predominate, the Tiebout
model has been widely applied.58 The importance of the Tiebout models, for the
purpose of this book, is the extensive exploration of the situations where regulatory
competition (p.123) may produce undesirable results. The failures of regulatory
competition indicate in what circumstances there might be gains from international
cooperation on competition law.
A number of studies of the process of economic integration in the EU have examined
the relative merits of greater inter-jurisdictional policy competition and the negotiation
of common European standards and institutions.59 In the EU, regulatory competition is
seen as having two key elements, namely, the free movement of goods, capital and
people within the EU, and mutual recognition, whereby harmonization of laws was
purposefully limited to essential requirements, with member states free to determine
the details of specific regulatory instruments.60 The insistence on essential
harmonization reflects the fact that economic federalism is a theory of
decentralization for a given policy in mature federations, with an integrated market
and a single currency,61 rather than one designed for a process of economic
integration. The EU economic integration is, of course, more formalized and advanced
than global integration. The assumption of economic integration is also problematic,
because one of the arguments for the harmonization of competition law is that it is
necessary to remove impediments to trade. In both the EU and the US, a federal
competition law is applied to prevent anticompetitive conduct creating barriers to
trade between the states. Unlike regulatory competition in an established federation,
the extent to which national systems are exposed to regulatory competition depends
on the rules states agree to when they agree to liberalize international commerce.
The models of regulatory competition discussed so far are based on the mobility of
residents or capital. A more sophisticated model would allow for international trade in
goods and services, as well as factor mobility. If goods and services can cross the
border, consumers and firms would not necessarily be consuming goods and services
produced locally and therefore the relationship between investment, regulation and
welfare would be more complex. It is difficult to comprehensively model the
interaction between trade, investment, and competition law since competition law
rules, and the effects of any particular rule on investment and trade, vary between
countries and industries within a country.62 For example, while there may be some
common ground between incumbent firms and new entrants, incumbents will favour
regulations that put new entrants at a disadvantage, (p.124) such as permissive rules
on abuse of a dominant position. On the other hand, both groups might favour
permissive rules on horizontal arrangements. In some circumstances, local producers
and importers will favour the same rules, and in other circumstances they might
favour different rules where the rule primarily affects the production rather than
distribution of products. The analysis must therefore proceed without the rigours of
formalization.
4.4 Regulatory Competition in Practice
4.4.1 The Effect of Government Policies on Investment Decisions
While regulatory competition exists in theory, whether or not it actually takes place
will depend on a number of economic and political factors, such as the cost
differentials implied by differences in national regulations and the underlying
competitiveness of the industry in question relative to its foreign competitors. Without
detailed information on the relevant firms and countries, the outcome of competition
among competition laws is speculative. The plausibility of regulatory competition may
be able to be assessed from evidence on whether or not countries amend their laws in
response to factor movements and whether this has lead to a greater convergence of
laws. Research has failed to show, one way or the other, whether inter-jurisdictional
competition has resulted in more efficient or optimal provision of public goods or
services. However, the empirical literature provides some support for the proposition
that some people and firms may move state or country in response to differences in
public services, regulations and taxes. The effects may, however, be fairly weak and
unpredictable.63
Nonetheless, there has been a great deal of casual empiricism suggesting that
regulatory competition has significant effects. People from such diverse groups as
politicians, business people, academics, environmentalists and trade unionists have
expressed concern about regulatory competition. Such statements cannot be easily
dismissed as ill-informed, because regulatory competition can operate (p.125)
effectively on the basis of the perceived effects that different national regulations
have on the welfare, trade balances or inward investment of countries.64 Even if
reducing regulatory burdens only plays a limited role in investment location decisions,
amendments to competition laws may be made in the hope that this will attract
investment in a tie-breaker situation.
One study on the influence of competition law on foreign direct investment found
(admittedly thin) empirical evidence that suggested, in general, that competition law
will not deter foreign direct investment and may help to promote it.65 However, closing
a market to further entry, the granting of monopoly rights, or granting protection from
import competition are among the many types of investment incentives states use. 66
Thus, some countries believe the prospect of monopoly rents may attract specific
investments. The ability of US antitrust investigations to affect share prices in the US67
suggests that the enforcement of a competition law will affect investment decisions.
Competition law rules on access to essential facilities and long-term vertical contracts
could often affect expected investment returns in infrastructure and industrial
projects.
There is some evidence that multinational enterprises often abide by their home
country standards when they establish a new plant in another country.68 Many also
use the same business practices abroad as they use at home. There is some evidence
of a high usage of exclusive dealing arrangements by Japanese manufacturing firms in
Japan and abroad.69 Thus, if the competition law of a host country prohibited conduct
permitted by the competition law in home states of most multinational enterprises
(the major source of foreign direct investment), the host country's competition law
may discourage certain investments.
4.4.2 Industry Support for Harmonization
Business interests have not generally pushed strongly for harmonization.70 This might
either be evidence that there are few gains for business from harmonization, (p.126)
or that non-harmonized laws provide local firms with a degree of protection from
foreign competition.71 Industry is more likely to support harmonization when it
operates internationally and cannot avoid the costs of dealing with multiple,
overlapping, and possibly inconsistent, regulatory systems, and the legal uncertainty
that may create.72 The concern of US business interests about the impact of the EU
Merger Regulation was one of the main motivations behind the negotiation of the
1991 ECUS competition law cooperation agreement. See Section 13.2.2. The
legislative histories of national competition laws enacted in several EU member states
reveal that imitation of the EU rules was supported by large firms.73 Although concerns
about the substantive rules was undoubtedly a factor, large firms cited the increased
predictability of decisions of national antitrust authorities and the ability to operate
under the same rules at home and abroad as major benefits from national authorities
following EU standards.74 It also appears that local lawyers preferred familiar EU-style
competition laws to US-style competition laws.75
In the US and the EU, general advocacy of centralization of regulation is correlated
with a preference for a high level of regulation, and vice-versa.76 In practice, the
choice of the governmental level to handle a particular regulatory function appears to
be determined by the policy preferences and influence it wields at each level. 77 For
example, one study that looked at the centralization of merger regulation in the EU
found a high level of satisfaction with the procedure among firms involved in merger
cases.78 The study concluded that while the Commission's procedure was speedy and
efficient in an administrative sense, it lacked transparency, which may have given
well-informed firms significant bargaining power in their dealings with the Commission
and therefore distorted merger policy in the direction of greater tolerance of market
power.
(p.127) Although regulatory competition may sometimes affect specific investment
decisions, when legal areas are taken as a whole, regulatory competition has an
uncertain impact. The perception of general regulatory competition may encourage
countries to modernize their competition laws. Firms in countries with tolerant
competition laws are likely to oppose substantive harmonization or any significant
centralization of competition law enforcement. All firms can benefit from improved
coordination among overlapping competition laws. Policy-makers must be alert to the
possibility the interests of under-represented groups are not adequately considered in
establishing mechanisms for international cooperation.
4.5 International Regulatory Market Failures
4.5.1 A General Race to the Bottom is Unlikely
Many models of regulatory competition predict that in certain circumstances all
countries will end up with suboptimal regulations. Some critics of regulatory
competition argue that after Country A has relaxed its regulations in response to
Country B relaxing its regulations, Country B will then further relax its regulations so
as to prevent the exit of the mobile factors. In the end, this process could lead to
suboptimal levels of regulation and, in an extreme case, a state of zero-regulation,
without attracting any extra investment. This could be harmful for all countries. In
these circumstances, national and world welfare may be improved by harmonization.
The analysis of whether a race to laxity79 will occur between competition laws is
difficult because anticompetitive conduct and competition laws may cause many
types of domestic and trans-border effects.
Economic models suggest that, if there is a race, it will not go all the way to the
bottom.80 Under restrictive assumptions, communities may even select a combination
of incentives for new investment and standards for local environmental quality that
are socially optimal. The community as a whole must balance the benefits of
increased investment (and increased economic activity and wages) against the costs
of foregone tax revenues, fewer public services and/or lower regulatory standards.
Even the subjects of regulation may not wish to see zero (p.128) regulation. If
regulatory outcome is also an input into the production process, the productivity of
firms will be negatively affected. However, for many regulations this condition will not
be satisfied. The indirect and imperfect link between the costs and benefits of
regulation means that a sub-optimal level of regulation is possible.
A similar analysis could be applied to competition law. Consumers/employees/voters
will presumably not be prepared to tolerate an unlimited amount of anticompetitive
conduct, especially if the benefits from that anticompetitive conduct will mostly
accrue to foreign investors/shareholders rather than local employees.
Consumers/employees/voters may also not accept a very strict competition law if this
depressed investment and their incomes. It is not unreasonable to make the
assumption that environmental regulation is purely a cost to all firms. The situation is
different for competition law. Firms are also consumers. Although many dominant
firms or members of cartels would prefer not to be subject to competition law, they
would like other firms to behave competitively. Thus, even dominant firms may favour
some type of competition law.
The economic models make a number of strong assumptions. When these
assumptions are relaxed, several potential distortions in local decision-making appear,
including the deviation of public decisions from the will of the electorate (for example,
as a result of bureaucratic aggrandisement), conflicts of interest within a
heterogenous community, and the presence of sufficiently large jurisdictions to have
some influence over the price of capital. Many of these papers developed game-
theoretic models of strategic interactions among the jurisdictions.81 Overall, the
theoretical models provide no basis for predicting either efficient outcomes or sizable
distortions. The theoretical predictions of no race to the bottom when combined with
the empirical uncertainty about the effect of regulatory competition suggest that
countries will retain a significant discretion to determine most competition rules.
Regulatory competition could lead to a different level of regulation than there would
have been without capital mobility and international trade, because the cost of a
particular regulation will be different. In a federal state, national market integration is
usually an established fact and often has a constitutional basis, whereas in an
international setting a country's decision to open up to the international market and
accept the trade-offs implicit in regulatory competition is part of the same decision. In
Section 4.3.4, it was noted that EU regulatory competition took place within a
framework of essential requirements. A similar framework, consisting of core
competition law principles, may be desirable in the field of competition law.
(p.129) 4.5.2 Regulatory Redistribution
A government's ability to introduce wealth redistribution policies is limited by the
prospect of the movement of people and capital to another state or country. 82 Capital
will move to the jurisdiction where its owners will receive the highest rate of return,
which is unlikely to be a jurisdiction where the tax system or regulation redistributes
income from firms to consumers. Redistribution policy should therefore be allocated to
the highest level of government in a federation.83
Competition laws are commonly described as redistributive when the objective of the
law is not economic efficiency but the maximization of the consumer surplus or
consumer welfare, or the law requires that a fair share of the benefits of any
improvement in production or distribution be passed on to consumers. However, any
competition law rule that restricts the manner in which any firm does business has a
redistributive effect because enforcement will prevent certain firms receiving supra-
normal profits from consumers as a result of anticompetitive conduct, or require firms
to pay fines and damages. For example, a competition law rule that prohibited
inefficient refusals of access to essential facilities would still reduce returns on
investment and therefore the level of investment.84 In the context of regulatory
competition, the difference between a competition law that has economic efficiency
as its sole objective and a competition law that has the promotion of fair
competition or equal opportunities for competitors is a matter of degree and not a
matter of kind.
A number of considerations reduce the likely effect of redistribution through
competition law on investment decisions. Competition law rules that incorporate a
market power threshold or require proof of a lessening of competition will have a
lesser impact than per se rules, because most investments are not made by firms with
market power or by firms that would acquire market power as a result of the
investment. An established firm with market power in a country is unlikely to relocate
to another country where that requires the surrender of their market position.
The only way that an established firm could avoid the competition laws of a country is
to not trade there. However, the costs of relocation may be high and the firm may
have large sunk costs, for example, through advertising to create goodwill in one
particular country, such that relocation may not be a viable option. If the firm
relocated to another country and wished to continue to serve (p.130) its original
home market, it would still be subject to that country's competition laws by exporting
to and distributing its products in its original home market. The large, wealthy
markets, such as the EU and the US, will have even greater latitude in implementing
competition rules that may place a burden on mobile factors. For example, global
economies of scale may require manufacturers to enter all large markets; the
production of certain products may require certain inputs that are only found in
certain countries, such as scientists or natural resources; and the extraterritoriality
application of competition law means that relocation or a new investment in another
country might not escape the reach of the competition law that firms wish to escape
from. Where production and distribution are not clearly separate processes, or the
producers are particularly concerned that an inefficient distribution system would
depress product sales (perhaps making an investment uneconomic), the producers
will still be concerned about inefficient distribution systems in the countries in which
they sell their products. More generally, where the products in question are traded
internationally, regulatory competition may provide some pressure on countries to
reform competition law rules that hinder the attainment of production efficiencies. See
Section 4.2. Thus, the threat of firms leaving one country in the above situation
because of the redistributive effects of its competition law seems slight for a wide
range of competition laws.
Even with complete capital mobility, the amount of capital that would migrate to a
country without any or very lax competition laws would be limited. The number of
firms that could enter an industry with the expectation of supra-competitive returns is
inherently limited. New investment may also be restricted by anticompetitive conduct.
For example, if exclusive dealing arrangements may prevent a firm from profitably
selling products in a country, the firm will not invest in production facilities in that
country. Firms that earn supra-competitive returns would also face higher costs as a
result of the lack of competition in other areas of the economy. See Section 4.5.1.
Thus, it is not clear that lax competition law may be the best competition law to
attract the most investment. On the other hand, very strict competition rules may also
prevent investment in industries by allowing the returns on the investment to be
appropriated by other firms, such as through restrictions on the terms of intellectual
property licences or pricing rules for access to essential facilities that do not allow a
firm to recover the full cost of its investment.
These considerations suggest that competition rules favouring specific industries,
rather than any general approach to competition law, are more likely to be used as an
investment incentive.
4.5.3 Failure of Competition among Competition Law Providers
There are several reasons why competition among competition laws is likely to be
restrained. The Tiebout model requires a large number of jurisdictions so that (p.131)
individuals and firms can find one that satisfies their preferences.85 However, laws
come in bundles. As the number of laws that are part of the bundle and variations of
each law possible rises, the number of jurisdictions required could approach the
number of individuals. As issues and preferences change, new jurisdictions may need
to be spontaneously created. Different public goods and regulations will also have
economies of scale, which may necessitate certain minimum sized jurisdictions. The
number and size of jurisdictions are, of course, effectively fixed. Therefore, while an
individual may prefer the competition law of Country A to that in other countries, the
individual may not move because doing so requires the consumption of disfavoured
laws and other conditions, such as lack of infrastructure and skilled workers.
For regulatory competition to work it is necessary that both firms and governments
act competitively. The predicted outcome from regulatory competition may be quite
different if a model of an oligopoly with differentiated products, rather than perfect
competition, is used.86 Each jurisdiction must be free to select its laws. Where
countries agree to harmonize their competition laws, or federal constitutions limit the
competency of subordinate governments, competition may be eliminated. Large
countries, such as the US and the EU, may also pressure smaller countries in trade
negotiations to adopt particular types of competition laws. There is some evidence of
a failure of regulatory competition in taxation, because of the dominant position and
tax rules of the US.87 Competition law may present a similar situation. The
extraterritorial application of competition law limits the freedom of other countries to
control the competitive environment in their own country. Because the EU and the US
are the major sources of and destinations for foreign direct investment, and major
export markets, they usually have the means to enforce their competition law
extraterritorially.88 Cooperation between these two areas could further reduce the
effects of regulatory competition.
4.5.4 Mobility
For exit threats to be credible, capital must enjoy a high degree of inter-jurisdictional
mobility. As discussed above, firms may not be able escape a competition law other
than by abandoning a market, which may involve considerable cost. There may also
be a number of governmental and non-governmental (p.132) barriers to relocation to
certain jurisdictions. Competition laws regulating the distribution and marketing of
products affect both local and foreign producers that choose to sell their products in
that jurisdiction. The extraterritorial application of competition law means that
producers would not be able to avoid competition law by shifting location if they
continued to supply their previous location. For example, Microsoft would not be able
to avoid allegations of monopolization of US markets by moving its operations to
Mexico.
The Tiebout model also assumes perfect information about the public goods in all
jurisdictions. If the costs of obtaining and assimilating information about legislative
differences are high, citizens and investors will be imperfectly informed and will fail to
match their preferences with the most suitable jurisdiction. Unless conduct falls within
a clear exception, the application of most competition laws to a significant range of
conduct is likely to be complex and uncertain, especially if there are not significant
bodies of case-law to assist.
4.5.5 Internalization of Benefits and Costs
The Identification of Harmful Spill-Over Effects
Regulatory competition can result in both positive and negative externalities or spill-
over effects. In both cases regulatory competition may provide incentives for
countries to adopt sub-optimal competition laws. Export cartel exemptions illustrate
the desirability of international competition law rules to address externalities. If the
firms based in Country A have market power in foreign markets, Country A has an
incentive to promote export cartel activity, which will increase national wealth at the
expense of foreigners. Countries have an incentive to apply different competition rules
to local and export markets.89 Many countries, including the US,90 exempt certain
export cartels from their competition laws. In the EU, pure export cartels are not
subject to Article 81 of the EC Treaty where they do not affect trade between member
states. Export cartel exemptions harm the welfare of most countries. However, it is
not in the interest of any individual country to repeal its export cartel laws unilaterally,
least the repealing country be left exposed to foreign export cartels, but with its own
firms unable to reap the corresponding benefits. Regulatory competition reinforces the
incentives to adopt such exemptions.
In the US, it has been argued that the state action doctrine, which recognizes the right
of states to create certain exceptions from the antitrust laws, should not exempt
government regulations when the result would be that one state would (p.133)
impose a monopoly overcharge on the residents of other states.91 The US DOJ and FTC,
the OECD, and the European Commission agree that export cartels tend to facilitate
and coexist with anticompetitive practices in domestic markets and that the pure
export cartel is a relatively rare phenomenon.92 Therefore, domestic consumers may
often bear some of the costs of a permissive regime for export cartels.
Apart from export cartels, a wide variety of other restrictive business practices can
have negative spill-over effects. A merger in Country A may affect competition and
economic welfare in Country B. An abuse of a dominant position by a firm based in
Country A may eliminate a firm based in Country B and affect competition in Countries
A, B and C. Network externalities may also generate positive or negative spill-over
effects. The use of a product in Country A can generate network externalities, which
may benefit consumers and suppliers of complementary products in Country B.
Similarly, barriers to entry created by network externalities in Country A could harm
consumers in Country B by preventing the introduction of new products in both
Countries A or B produced in Country B.
In addition to spill-over effects on foreign consumers, global welfare can also be
harmed where national competition law affects foreign producers but fails to take their
interests into account.93 Harm to foreign producers may be viewed as anything that
increases a firm's costs or the level of competition it faces or reduces its access to
markets. For example, the extraterritorial application of competition law can prevent a
firm in a foreign country achieving certain productive efficiency gains. If Country A has
intellectual property protection and Country B does not, nor protects the intellectual
property created in Country A, firms in Country B may free ride on the investments in
innovation made by firms in Country A, undermining Country A's firms incentives to
invent. The interface between intellectual property rights and competition law varies
between countries, which can affect the rewards from innovation.
The perception that there was regulatory competition appears to have induced a
relaxation of the competition law rules applicable to strategic alliances and
cooperative research and development agreements. The US National Cooperative
Research Act94 was enacted to allow US firms to better compete with Japanese
(p.134) firms by facilitating joint research and development projects. The European
Commission shortly afterwards issued regulations in response to the US law changes
and the need to compete with Japan.95 A significant number of theorists had argued
that the role of cooperation between firms in the innovative process had not been fully
recognized in competition law. However, at the time, there was limited data on such
cooperation arrangements and uncertainty about the merits of a policy permitting
extensive cooperation between competitors. The industries where cooperation
between competitors might promote innovation are often the same industries that are
considered potential targets for strategic trade policypolicies that are designed to
benefit one country at the expense of others. See Section 5.2.6.
Internalizing Spill-Over Effects
There are three broad approaches to the internalization of spill-over effects:
harmonization, centralization, and the extraterritorial application of competition law.
Harmonization could involve an agreement among countries to prohibit certain
conduct that harmed foreign countries, such as a ban on export cartels. The
formulation of such an agreement would be complex due to different welfare effects
that anticompetitive conduct can have on the various affected countries. On the other
hand, an agreement on core principles, such as rule against discrimination, may
provide a means to reduce harmful effects on foreign producers.
The EU Merger Regulation is an example of centralization. It stipulates that mergers
above a certain threshold should be notified to the Commission, unless the parties
conduct two-thirds or more of their business in one and the same member state.
Therefore, the two-thirds rule provides a means of allocating jurisdiction on the basis
of spill-over effects from one country. The centralized approach to the control of spill-
overs appears to be politically unacceptable at a multilateral level and would involve
some trade-off in terms of a loss of accountability to individual states.96
The extraterritorial application of competition law could reduce the spill-over effects
resulting from foreign anticompetitive practices. Whether or not the effects of foreign
anticompetitive conduct on consumers are internalized depends on the substantive
and jurisdictional rules applied by the enforcing country. Although each individual
country would not internalize the effects of its actions, the international competition
law system as a whole could ensure that internalization occurs. The extraterritorial
application of competition law could create spill-over effects on foreign producers. See
Chapter 5.
(p.135) Beneficial Spill-Over Effects
Positive externalities could also result in sub-optimal levels of regulation. In this
situation, regulatory competition is more analogous to the supply of public goods.97
The provision of public goods will generally be sub-optimal, because the full benefits
of their consumption will not be retained by those who pay the cost of their
production. In integrated world markets, it may be difficult to exclude foreign firms
from the benefits that accrue to a country from having a competition law. For
example, the prosecution of international cartels by US authorities might be viewed as
a worldwide public good by most of the rest of the world. However, various procedural
rules, such as requirements for standing, could restrict some of the benefit of the rule
to local residents. An agreement for international enforcement cooperation could
further spread the costs and benefits.
A second internalization problem results from the fact that successful legal innovation
can be relatively quickly adopted by other jurisdictions. The risks of innovative laws
are borne asymmetrically: the benefits of successful legal innovations are shared with
non-innovative states, whereas the consequences of failed innovation (sunk costs of
research and development, outbound capital flows, and diminished reputation for
producing good laws) are shouldered by the innovating state alone.98 Firms are
unlikely to incur the costs of relocation, if the local government quickly adopts
successful foreign legal innovations. However, sufficient local benefits, increased
international prestige and influence, and the benefits of compatibility mean that
countries are unlikely to cease to innovate.
4.5.6 Decentralization and Compatibility
It has been argued that a decentralized system of laws would lower the transaction
costs of firms, and generate an efficient degree of harmonization of laws, because
competition places strong incentives on each jurisdiction to promulgate efficient rules
for both its internal and external commerce.99 However, the competition laws of many
large countries are well established. Neither regulatory competition nor international
negotiations will bring radical changes to their basic substantive and procedural
competition law rules. This is consistent with the findings of wider literature on the
convergence of economic systems.100 While regulatory (p.136) competition may
provide pressure to reduce certain types of transaction costs, the decentralized
system of competition law may itself give rise to coordination problems analogous to
those that arise in relation to technical standards. The economics literature on
coordination and compatibility of standards suggests that competition may lead to
incompatibility and reduced welfare, and in some circumstances centralized processes
are better.101 The desirability of the coordination of competition law proceedings
may therefore provide a case for international cooperation. The legal literature has
long seen improved communication and interaction between jurisdictions as a
potential benefit of harmonization.102
There are a number of ways in which coordinated competition laws and competition
law enforcement could improve global welfare. For example, private transaction costs
may be increased by different pre-merger review procedures and substantive rules.
These costs include increased legal and professional fees, and longer periods of
uncertainty about the legality of a merger. If transaction costs are too high, then
efficient transactions may not go ahead, or firms may elect not to do business in
fewer jurisdictions. Different substantive rules or enforcement procedures, such as the
use of criminal penalties or treble damages, may prevent cooperation in evidence
gathering. Where competition law is applied extraterritoriality, the performance of a
contract in Country A may be illegal, but an order for specific performance or
damages for a breach of the contract may be ordered by the courts in Country B. The
success of a leniency policy for whistle-blowers in one country could be undermined
by the prosecution of the firms that benefit from the leniency policy in another
country.103
The benefits of compatibility may vary with the size and circumstances of the country.
While small countries may be prepared to adopt the laws of large countries, a large
country is more likely to regard the costs of changing its competition law as too high
relative to the benefits of compatibility. If there is a need for compatibility, small
countries may move toward the laws of a large country. Aspiring members of the EU
adopted the EU model and New Zealand harmonized with Australia. The EU and the
US have presented their competition laws as desirable models for the rest of the world
to follow.
(p.137) 4.6 Conclusion
Some form of regulatory competition is the inevitable consequence of the existence of
sovereign states and globalization. A decentralized system allows countries to
experiment and adopt a competition law that suits local preferences and conditions.
Concerns about disguised protectionism, loss of important social values and heavy
adjustment costs mean that regulatory competition as a strategy for managing
conflict over domestic differences has stiff political prerequisites.104 First, societies
must display a high degree of comity and countries must be willing to credit one
another with fundamental similarity in their national preferences over key policies.
Secondly, a high level of transparency in policy-making and responsiveness to diverse
domestic interests is required. Thirdly, regulatory competition may only be possible
where its effects are relatively weak. Finally, some form of dispute resolution
mechanism may still be needed.
Regulatory competition is likely to have limited and uncertain effects on competition
law as a whole. Nonetheless, a plurilateral agreement among like-minded countries
containing a set of core competition law principles may guide and facilitate
competition among competition laws. The analysis of regulatory competition does not
provide clear and unequivocal guidance on the most desirable rules in the
international competition law system, but highlights a number of considerations that
should and should not guide the evolution of the system. A weak case can be made
for international rules to encourage consistency and transparency in national
competition laws. A stronger case can be made for reducing spill-over effects,
incompatibility and transaction costs. (p.138)
Notes:
(1) ME Porter, The Competitive Advantage of Nations (London: MacMillan Press, 1990)
71, 619 . See also M Porter, Michael Porter on competition (1999) 34
Antitrust Bulletin 841 .
(2) Ibid 662.
(3) G Hansson, Social Clauses and International Trade: An Economic Analysis of Labor
Standards in Trade Policy (London: Croom Helm, 1983) ch 1 .
(4) See, eg, Commission of the European Communities, Report of Group of Experts,
Competition Policy in the New Trade Order: Strengthening International Cooperation
and Rules (1995) 4, 10 .
(5) See, eg, Communication from the United States, WT/WGTCP/W/88, 28 August
1998, p 2, 1112. See also JH Jackson, The World Trading System: Law and Policy of
International Economic Relations (Cambridge, Mass: MIT Press, 1997) 24850.

(6) See, eg, S Ostry, Policy approaches to system friction: convergence plus in S
Berger and R Dore (eds), National Diversity and Global Capitalism (Ithaca: Cornell
University Press, 1996) 333 ; TM Reif and GE Bacher, Trade laws,
antitrust laws, and the process of economic integration (1996) 27 Law and Policy in
International Business 927 ; L Tyson, Who's Basing Whom? Trade Conflict
in High Technology Industries (Washington: Institute for International Economics,
1992) 268.
(7) See JN Bhagwati, Fair trade, reciprocity, and harmonization: the novel challenge
to the theory and policy of free trade in D Salvatore (ed), Protectionism and World
Welfare (Cambridge: Cambridge University Press, 1993) 17, 3740 ;M
Kahler, Trade and domestic differences in S Berger and R Dore (eds), National
Diversity and Global Capitalism (Ithaca: Cornell University Press, 1996) 298, 3016.

(8) See also S Ostry, New dimensions of market access: challenges for the trading
system in New Dimensions of Market Access in a Globalising World Economy (Paris:
OECD, 1995) 25, 26 ; J Bhagwati, The demands to reduce domestic
diversity among trading nations in J Bhagwati and RE Hudec (eds), Fair Trade and
Harmonization: Prerequisites for Free Trade?, Volume 1, Economic Analysis
(Cambridge, Mass: MIT Press, 1996) 8, 18.
(9) Section 301 is discussed in Section 11.5.1.
(10) See KW Abbott, Defensive unfairness: the normative structure of section 301 in
J Bhagwati and RE Hudec (eds), Fair Trade and Harmonization: Prerequisites for Free
Trade?, Volume 2, Legal Analysis (Cambridge, Mass: MIT Press, 1996) 415, 419.

(11) Ibid 42042.

(12) A related, but non-normative, claim sometimes made is that firms are unable to
identify any particular government measure that protects foreign markets, but
something improper must be at work, otherwise those firms would have penetrated
the foreign market. Abbott refers to this as the impenetrable maze or wall of fog
claim. Ibid 440.
(13) See KW Abbott, Defensive unfairness: the normative structure of section 301 in
J Bhagwati and RE Hudec (eds), Fair Trade and Harmonization: Prerequisites for Free
Trade?, Volume 2, Legal Analysis (Cambridge, Mass: MIT Press, 1996) 42636.

(14) See RO Keohane, Reciprocity in international relations (1986) 40 International

Organization 1. Diffuse or national reciprocity is the meaning of
reciprocity in GATT, Article XXVIII bis. See MJ Finger and LA Winters, Reciprocity in the
WTO in B Hoekman, A Mattoo, and P English (eds), Development, Trade, and the
WTO: A Handbook (Washington: World Bank, 2002) 50 .
(15) J Bhagwati, Afterword: the question of linkage (2002) 91 American Journal of
International Law 126, 128 ascribes the distinction to Robert Hudec.
(16) Representatives of the US Executive have been conscientious in pointing this out
in Congressional hearings, which greatly limited the force of demands for reciprocity.
Abbott (above n 10) 4468.
(17) Consider the different concepts of free trade that lie behind the NAFTA, the EC
Treaty and other free trade agreements, as well as the evolution of the case-law
interpreting Article 28 (ex Article 30) of the EC Treaty. See JHH Weiler, Epilogue:
towards a common law of international trade in JHH Weiler (ed), The EU, the WTO,
and the NAFTA: Towards a Common Law of International Trade? (Oxford: Oxford
University Press, 2000) 201.
(18) See, eg, JN Bhagwati, Fair trade, reciprocity, and harmonization: the novel
challenge to the theory and policy of free trade in D Salvatore (ed), Protectionism
and World Welfare (Cambridge: Cambridge University Press, 1993) 38 ; JN
Bhagwati, Free trade: old and new challenges (1994) 104 Economic Journal 231
; J Bhagwati, The threats to the world trading system (1992) 15 World
Economy 443.
(19) DW Leebron, Claims for harmonization: a theoretical framework (1996) 27
Canadian Business Law Journal 63, 95103 ; GR Saxonhouse, Japan, SII
and the international harmonization of domestic economic practices (1991) 12
Michigan Journal of International Law 450, 451.
(20) D Rodrik, Has Globalisation Gone Too Far? (Washington: Institute for International
Economics, 1997) 80, 83.
(21) S Hutton and M Trebilcock, An empirical study of the application of Canadian
anti-dumping laws: a search for normative rationales (1990) 24:3 Journal of World
Trade 123, find few antidumping measures could be justified on such grounds.

(22) See also K Bagwell, PC Mavroidis, and RW Staiger, It's a question of market
access (2002) 96 American Journal of International Law 56.
(23) K Van Miert, The role of competition policy today (Autumn/Winter 1994) 1:3
Competition Policy Newsletter 1, 3 . See also IR Feltham, SA Salen, RF
Mathieson, and R Wonnacott, Competition (antitrust) and antidumping laws in the
context of the CanadaUnited States Free Trade Agreement (1991) 17 CanadaUnited
States Law Journal 71, 757.
(24) See Section 11.2.1.
(25) See WL Fugate, Foreign Commerce and the Antitrust Laws (4th edn, Boston: Little
Brown, 1990) 4705 ; TE Kauper, The legacy of LTV/Republic Steel
(2001) 68 Antitrust Law Journal 753, 7556.
(26) Kauper (n 25 above) 757.
(27) BE Hawk, International antitrust policy and the 1982 Acts: the continuing need
for reassessment (1982) 51 Fordham Law Review 201, 22936.
(28) See, eg, Hawk, Ibid ; Research and Policy Committee of the
Committee of Economic Development, Breaking New Ground in U.S. Trade Policy: A
Statement by the Research and Policy Committee of the Committee for Economic
Development (Boulder: Westview Press, 1991) 65 ; E Nijenhuis, Antitrust
suits involving foreign commerce: suggestions for procedural reform (1987) 135
University of Pennsylvania Law Review 1003, 1006 ; U.S. legislation
works against companies wanting to sell abroad, witnesses testify (14 September
1988) 5:36 International Trade Reporter 1239; WJ Baumol, SAB Blackman, and EN
Wolff, Productivity and American Leadership: The Long View (Cambridge: MIT Press,
1989) 2767.
(29) See, eg, Kauper (n 25 above) 755, n 11; J Rahl, International application of
American antitrust laws: issues and proposals (1980) 2 Northwestern Journal of
International Law and Business 336, 3524 ; J Shenefeld, Thoughts on
extraterritorial application of the United States antitrust laws (1983) 52 Fordham Law
Review 350, 357.
(30) In addition to judicial decisions and changed enforcement practice, several
legislative reforms were intended to limit antitrust law so that it would not hinder the
competitiveness of US business. See, eg, the Export Trading Company Act of 1982;
Foreign Trade Antitrust Improvements Act of 1982; and the National Cooperative
Research and Production Act of 1993.
(31) Commerce Select Committee report on Commerce Amendment Bill, 2001, pp 15
19; Explanatory Note to the Commerce Amendment Bill (No 2) 2001.
(32) EM Fox, Antitrust and regulatory federalism: races up, down, and sideways
(2000) 75 New York University Law Review 1781, 1792 . Citing European
Commission, White Paper: Preparation of the Associated Countries of the Central and
Eastern Europe for Integration into the Internal Market of the Union, COM(95)163 final
2.13.
(33) See, eg, Fox (n 32 above).
(34) Kauper (n 25 above) 758.
(35) APEC, Competition Law for Developing Countries (Singapore: APEC, 1999) 23.

(36) See M Baldridge, Annual Section Luncheon Address (1984) 53 Antitrust Law
Journal 397 ; R Pitofsky, Proposals for revised United States merger
enforcement in a global economy (1992) 81 Georgetown Law Review 195, 1989,
20540 ; BA Tisdell, Steeling the world: economic and antitrust
implications of steel industry cartels as alternatives to trade protectionism (2002) 97
Northwestern University Law Review 473.
(37) U Bernitz and I Gutu, The effect of EU merger policy on large multinationals
based in Sweden and other smaller EU member states: is the policy discriminatory?
[2003] European Competition Law Review 19 . In a longer-term time
frame, the difference between a consumer welfare and a total welfare standard will be
reduced, because the longevity of productive efficiency gains may depend on the
existence of some level of competition and the productive efficiency gains are likely to
feed into the competitive process which forces other competitors to improve their
level of performance, so benefiting the consumer.
(38) See, eg, Commerce Act, ss 3133 (NZ).
(39) See EM Fox, Antitrust and regulatory federalism: races up, down, and sideways
(2000) 75 New York University Law Review 1781, 1789 ; TE Kauper, The
Legacy of LTV/Republic Steel (2001) 68 Antitrust Law Journal 753, 758 .
(40) Kauper (n 39 above) 758.
(41) Case 322/81, Michelin v Commission [1983] ECR 3461, para 57.
(42) See statements reported in International Competition Policy Advisory Committee
to the Attorney-General and Assistance Attorney-General for Antitrust, Final Report
(2000) 556.
(43) JN Bhagwati, Free trade: old and new challenges (1994) 104 Economic Journal
231, 2356.
(44) JN Bhagwati and TN Srinivasan, Optimal intervention to achieve non-economic
objectives (1969) 36 Review of Economic Studies 27 ; WM Corden, Trade
Policy and Economic Welfare (2nd edn, Oxford: Clarendon Press, 1997) chs 2 and 3
; N Vousden, The Economics of Protection (Cambridge: Cambridge
University Press, 1990) 308.
(45) See J Bhagwati and TN Srinivasan, Trade and the environment: does
environmental diversity detract from the case for free trade? and DK Brown, AV
Deardorff, and RM Stern, International law standards and trade: a theoretical
analysis in J Bhagwati and RE Hudec (eds), Fair Trade and Harmonization:
Prerequisites for Free Trade? Volume 1: Economic Analysis (Cambridge, Mass: MIT
Press, 1996) 159, 227 .
(46) The extraterritorial application of a strict competition law could to some extent
protect competitiveness, but would reduce the welfare of other countries. The foreign
country may also suffer a welfare loss if its firms are prevented from engaging in
efficiency enhancing business practices. This may therefore result in global, home
country, and foreign country efficiency losses. The extraterritoriality of competition
law also raises issues of international market power and market access, which are
discussed in Chapters 5 and 6, respectively.
(47) When the small country assumption is relaxed, because there is trade between
the two countries in dispute and the conduct in question affects market shares, the
conduct will often have spill-over effects in other countries. Spill-over effects may
provide an independent ground for international cooperation and justification for the
extraterritorial application of competition law.
(48) See also EM Graham and JD Richardson, Issue overview in EM Graham and JD
Richardson (eds), Global Competition Policy (Washington: Institute for International
Economics, 1997) 3, 38.
(49) R Howse and MJ Trebilcock, The free tradefair trade debate: trade, labor, and
the environment in JS Bhandari and AO Sykes (eds), Economics Dimensions in
International Law: Comparative and Empirical Perspectives (New York: Cambridge
University Press, 1997) 186, 226.
(50) P Krugman, What should trade negotiators negotiate about? (1997) 35 Journal
of Economic Literature 113, 117.
(51) H Siebert, The Harmonization Issue in Europe: Prior Agreement or a Competitive
Process? and G Prosi, Comments on Horst Siebert in H Siebert (ed), The Completion
of the Internal Market (Tbingen: JCB Mohr (Paul Siebeck), 1989) 60, 76 ;
P Wonnacott, Policy harmonization in free trade groupings with special reference to
the European Economic Community in HG Johnson, P Wonnacott, and H Shibata,
Harmonization of National Economic Policies under Free Trade (Toronto: Private
Planning Association of Canada/University of Toronto Press, 1967) 42, 4555.

(52) Graham and Richardson (n 48 above) 358.

(53) The theory of second best shows that the correction of a distortion in one market
may or may not create or exacerbate a distortion in another market, whereby the
intervention in the first market might lower overall social welfare. When competition
law is enforced, the problem of second best is almost always ignored, because
decisions would be much more complex and the decision-makers would rarely have
the necessary information to make such a decision. Competition laws purport to be no
more than general policies that on average result in a better allocation of resources
than other general policies. See FM Scherer and D Ross, Industrial Market Structure
and Economic Performance (3rd edn, Boston: Houghton Mifflin, 1990) 338.

(54) Classic references include W Cary, Federalism and corporate law: reflections
upon Delaware (1974) 83 Yale Law Journal 663 ; RK Winter, State law,
shareholder protection, and the theory of the corporation (1977) 6 Journal of Legal
Studies 251 ; R Romano, Law as a product: some pieces of the
incorporation puzzle (1985) 1 Journal of Law, Economics and Organization 225.

(55) C Tiebout, A pure theory of local expenditures (1956) 64 Journal of Political

Economy 416.
(56) For an overview of the literature see DL Rubinfeld, The economics of the local
public sector in AJ Auerbach and M Felstein (eds), Handbook of Public Economics, vol
2 (Amsterdam: North-Holland, 1987) 571 ; TF Bewley, A critique of
Tiebout's theory of local public expenditures (1981) 49 Econometrica 713
; W Oates, An essay on fiscal federalism (1999) 37 Journal of Economic
Literature 1120.
(57) See, eg, WA Fischel, Fiscal and environmental considerations in the location of
firms in suburban communities in ES Mills and WE Oates (eds), Fiscal Zoning and
Land Use Controls (Lexington: DC Health, 1975) 119.
(58) WW Bratton and JA McCahery, The new economics of jurisdictional competition:
devolutionary federalism in a second-best world (1997) 86 Georgetown Law Journal
201, 20910.
(59) See studies cited in J Pelkmans, Regulation and the Single Market: an economic
perspective in H Siebert (ed), The Completion of the Internal Market (Tbingen: JCB
Mohr (Paul Siebeck), 1989) 91 ; H Siebert, The New Economic Landscape
in Europe (Oxford: Basil Blackwell, 1991) 15 ; R Dehousse, Integration v.
regulation? On the dynamics of regulation in the European Community (1992) 30
Journal of Common Market Studies 383.
(60) J-M Sun and J Pelkamns, Regulatory competition in the single market (1995) 33
Journal of Common Market Studies 67, 69.
(61) J Pelkmans, The assignment of public functions in economic integration (1982)
21 Journal of Common Market Studies 97, 102 ; WE Oates, Fiscal
Federalism (New York: Harcourt Brace Jovanovich, 1972) 4.
(62) Cf JD Wilson, Trade, capital mobility, and tax competition (1987) 95 Journal of
Political Economy 835 ; JD Wilson, Trade in a Tiebout economy (1987)
77 American Economic Review 431.
(63) JA Tobey, The effects of domestic environmental policies on patterns of world
trade: an empirical test (1990) 43 KYKLOS 191 ; D Wheeler and A Mody,
International investment location decisions: the case of U.S. firms (1992) 33 Journal
of International Economics 57 ; OECD, Environmental Policies and
Industrial Competitiveness (Paris: OECD, 1993) ; NA Bailey, Foreign
direct investment and environmental protection in the third world in D Zaelke, P
Orbuch, and RF Housman (eds), Trade and the Environment: Law, Economics, and
Policy (Washington: Island Press for Center for International Environmental Law, 1993)
133 ; Sun and Pelkmans (n 60 above) 7882; A Levinson, Environmental
regulations and industry location: international and domestic evidence in J Bhagwati
and RE Hudec (eds), Fair Trade and Harmonization: Prerequisites for Free Trade?
Volume 1: Economic Analysis (Cambridge, Mass: MIT Press, 1996) 429 ;
ML Cropper and WE Oates, Environmental economics: a survey (1992) 30 Journal of
Economic Literature 675, 6979 . See also Centre for Economic Policy
Research, Making Sense of Subsidiarity: How Much Centralization for Europe? (London:
Centre for Economic Policy Research, Monitoring European Integration 4, 1993) 72, 88.
(64) See also Cropper and Oates (n 63 above) 695; Levinson (n 63 above) 429.
(65) APEC, Competition Law for Developing Economies (APEC, 1999) 34.
(66) TL Brewer and S Young, Investment incentives and the international agenda
(1997) 20 The World Economy 175, 181 ; A Winters (ed), Foundations of
an Open Economy: Trade Laws and Institutions for Eastern Europe (London: Centre for
Economic Policy Research, 1995) esp ch 6.
(67) George Bittlingmayer, Stock returns, real activity, and the trust question (1992)
47 Journal of Finance 1701 .
(68) Levinson (n 63 above) 435. Citing UNCTAD, Program on Transnational
Corporations, Environmental Management in Transnational Corporations: Report on
Benchmark Environmental Survey (New York: UN, 1993).
(69) APEC, Competition Law for Developing Countries (APEC, 1999) 32.
(70) WH Hurlburt, Harmonization of Provincial legislation in Canada: the elusive goal
(198687) 12 Canadian Business Law Journal 387, 393 ; KM Vautier and PJ
Lloyd, International Trade and Competition Policy: CER, APEC and the WTO
(Wellington: Institute for Policy Studies, 1997) 1089, 1516 ; Productivity
Commission, International Cooperation on Competition Policy: An Australian
Perspective, Report 96/15 (Canberra: Australian Government Publishing Service,
September 1996) 501.
(71) See DD Murphy, The Structure of Regulatory Competition: Corporations and
Public Policies in a Global Economy (Oxford: Oxford University Press, 2004).

(72) See, eg, International Chamber of Commerce, Commission on Air Transport,

Convergence of Competition Law and Policy in the Field of Air Transport with Special
Reference to the EUUS Context (16 July 1997).
(73) R van den Bergh, The subsidiary principle and the EC competition rules: the
costs and benefits of decentralisation in D Schmidtchen and R Cooter (eds),
Constitutional Law and Economics of the European Union (Cheltenham: Edward Elgar,
1997) 142, 154, 159, 1678 (citing Swedish and Dutch legislation and
the advice of the EC Economic and Social Committee on the EC Merger Regulation
(Advice 94/C 338/09 [1994] OJ C338/41)).
(74) Ibid .
(75) Ibid .
(76) See, eg, FH Easterbrook, Antitrust and the economics of federalism (1983) 26
Journal of Law and Economics 23 ; FH Easterbrook, Federalism and
European business law in RM Buxbaum, G Hertig, A Hirsch, and KJ Hopt (eds),
European Economic and Business Law: Legal and Economic Analyses on Integration
and Harmonization (Berlin: Walter de Gruyter, 1996) 1 ; J Pelkmans,
Regulation and the Single Market: an economic perspective in H Siebert (ed), The
Completion of the Internal Market (Tbingen: JCB Mohr (Paul Siebeck), 1989) 91, 104.

(77) E Noam, The choice of governmental level in regulation (1982) 35 Kyklos 278
.
(78) See D Neven, R Nuttall, and P Seabright, Merger in Daylight: The Economics and
Politics of European Merger Control (London: Centre for Economic Policy Research,
1993).
(79) See Liggett v Lee 288 US 517, 5589 (1933), where Brandeis J, dissenting, said
that: The race was not one of diligence but of laxity.
(80) See, eg, WE Oates and RM Schwab, Economic competition among jurisdictions:
efficiency enhancing or distortion inducing? (1988) 35 Journal of Public Economics
333 ; N Van Long and H Siebert, Institutional competition versus ex-ante
harmonization: the case of environmental policy (1991) 147 Journal of Institutional
and Theoretical Economics 296 ; JD Wilson, Capital mobility and
environmental standards: Is there a theoretical basis for a race to the bottom? in J
Bhagwati and R Hudec (eds), Harmonization and Fair Trade, Volume 1, Economic
Analysis (Cambridge, Mass: MIT Press, 1996) . See also H Siebert, The
New Economic Landscape in Europe (Oxford: Basil Blackwell, 1991) 213.
(81) See Wilson (n 80 above) for a review of the literature. See also WW Bratton and
JA McCahery, The new economics of jurisdictional competition: devolutionary
federalism in a second-best world (1997) 86 Georgetown Law Journal 201, 270273.
(82) See, eg, WE Oates, Fiscal Federalism (New York: Harcourt Brace Jovanovich,
1972) 8 ; RJ Daniels, Should provinces compete? The case for a
competitive corporate law market (1991) 36 McGill Law Journal 130, 14559.

(83) Oates (n 82 above) 48.

(84) Policy-makers may have an incentive to reduce the burden of competition law on
mobile factors (capital) as compared to immobile factors (natural persons), which may
be done through special treatment for sectors that rely on mobile factors, which will in
turn distort investment decisions. See also Section 4.2.4.
(85) Bratton and McCahery (n 81 above) 2225.
(86) See, eg, R Gordon, Can capital income taxes survive in open economies? (1992)
47 Journal of Finance 1159 .
(87) M Daly, Harmonization of direct taxes in the European Community in M
Baldassarri and P Roberti (eds), Fiscal Problems in the Single-Market Europe (New
York: St Martin's Press in association with Rivista de Politica Economica, SIPI, Rome,
1994) 5, 30.
(88) See also D Conn, Assessing the impact of preferential trade agreements and new
rules of origin on the extraterritorial application of antitrust law to international
mergers (1993) 93 Columbia Law Review 119 .
(89) See AP Victor, Export cartels: an idea whose time has passed (1992) 60
Antitrust Law Journal 571.
(90) In the 1980s, the US has increased the protection given to export cartels largely
in response to the claim that its exporters were being disadvantaged relative to those
of its main trading partners. See the Foreign Trade Antitrust Improvements Act 1982
and the Export Trading Act 1982.
(91) This approach has proved more attractive to scholars than the Supreme Court.
See, eg, FH Easterbrook, Antitrust and the economics of federalism (1983) 26
Journal of Law and Economics 23 ; H Hovenkamp and JA Mackerson III,
Municipal regulation and federal antitrust policy (1985) 32 UCLA Law Review 719,
76871 ; ML Spitzer, Antitrust federalism and rational choice political
economy: a critique of capture theory (1988) 61 Southern California Law Review
1293, 131921 ; RP Inman and DL Rubinfeld, Making sense of the
antitrust state-action doctrine: balancing political participation and economic
efficiency in regulatory federalism (1997) 75 Texas Law Review 1203, 127181.

(92) CD Ehlermann, Antitrust in a global environment: conflicts and resolutions.

Commentary II (1992) 60 Antitrust Law Journal 587, 590.
(93) WTO Annual Report (WTO, 1997) 52.
(94) 15 USC 4301.
(95) J Davidow, The worldwide influence of U.S. antitrust (1990) Antitrust Bulletin
603, 625.
(96) Centre for Economic Policy Research, Making Sense of Subsidiarity: How Much
Centralisation for Europe? (London: Centre for Economic Policy Research, 1993) 636
develops a simple model which makes explicit the trade-off between the control of
spill-overs and the loss of accountability/control of national policy.
(97) See WH Oakland, Theory of public goods in AJ Auberbach and M Feldstein (eds),
Handbook of Public Economics, vol II (Amsterdam: Elsevier Science Publications
(North-Holland), 1987) 485.
(98) See S Rose-Ackermen, Risk taking and reelection: does federalism promote
innovation? (1980) 9 Journal of Legal Studies 593.
(99) See EW Kitch, Regulation, the American common market and public choice
(1982) 6 Harvard Journal of Law and Public Policy 119 ; N Reich,
Competition between legal orders: a new paradigm of EC law? (1992) 29 Common
Market Law Review 861, 8657.
(100) R Boyer, The convergence hypothesis revisited: globalization but still the
century of nations? in S Berger and R Dore (eds), National Diversity and Global
Capitalism (Ithaca: Cornell University Press, 1996) 29.
(101) See, eg, ML Katz and C Shapiro, Network externalities, competition and
compatibility (1985) 75 American Economic Review 424 ; ML Katz and C
Shapiro, Technology adoption in the presence of network externalities (1986) 94
Journal of Political Economy 285 ; J Farrell and G Saloner, Coordination
through committees and markets (1988) 19 RAND Journal of Economics 235
; P Bolton and J Farrell, Decentralization, duplication, and delay (1990)
98 Journal of Political Economy 803.
(102) DW Leebron, Claims for harmonization: a theoretical framework (1996) 27
Canadian Business Law Journal 63, 7578.
(103) R Hewitt Pate, The DOJ international antitrust programmaintaining
momentum, American Bar Association, Section of Antitrust Law, 2003 Forum on
International Competition Law, New York, 6 February 2003, 7 (noting the
benefits of coordinated leniency programmes and simultaneous unannounced
searches); see also C Gauer and M Jaspers, Designing a European solution for a one
stop leniency shop (2006) 27 European Competition Law Review 685.
(104) See M Kahler, Trade and domestic di. erences in S Berger and R Dore (eds),
National Diversity and Global Capitalism (Ithaca: Cornell University Press, 1996) 327-
8.

International Competition Law in a Trade Policy Framework

Chris Noonan
DOI:10.1093/acprof:oso/9780199207527.003.0005
Abstract and Keywords

The international effects of anticompetitive conduct and competition law enforcement

actions are the source of many international conflicts. This chapter examines these
conflicts within a trade policy framework. Section 5.1 outlines the relationship
between trade law and competition law. Section 5.2 seeks to identify suitable rules to
reduce international conflict that arises from the application of competition law in
cases with an international element. Section 5.3 explores some of the international
issues raised by predatory and exclusionary conduct. Section 5.4 examines whether
transaction and compliance costs arising from the overlapping application of
competition laws and multiple pre-merger reviews might justify the harmonization of
competition laws.

Keywords: trade law, competition law, international conflicts, harmonization,

anticompetitive conduct, predatory conduct, exclusionary conduct, transaction costs,
compliance costs
5.1 The Interface between Trade Law and Competition Law
5.1.1 Introduction
The cross-border effects of anticompetitive conduct and competition law enforcement
actions are the source of many international conflicts. Chapter 5 examines these
conflicts within a trade policy framework. Section 5.1 outlines the relationship
between trade law and competition law. Section 5.2 seeks to identify suitable rules to
reduce international conflict that arises from the application of competition law in
cases with an international element. Section 5.3 explores some of the international
issues raised by predatory and exclusionary conduct. Section 5.4 examines whether
transaction and compliance costs arising from the overlapping application of
competition laws and multiple pre-merger reviews might justify the harmonization of
competition laws.
5.1.2 Trade and Competition Law Interfaces
Reconciling Trade and Competition Laws
The Communiqu of the 1992 OECD Ministerial Meeting stated that: Trade and
competition policies have a common objective: economic efficiency. But these policies
have sometimes impinged on each other.1 A closer comparison reveals more
disharmony than harmony.2 Competition laws consist of general rules that apply to
most industries, but with a focus on the short-term effects of specific business
conduct in individual markets. Trade laws apply different tariffs and rules to different
products from different locations, which reflect the more varied objectives of trade
policy. Despite trade policy being subject to a greater (p.140) degree of international
regulation than competition policy, competition laws are generally more transparent,
procedurally fairer and less discriminatory against foreign firms than trade remedy
laws. The general differences between trade and competition laws are less important
than the conflicts between the two sets of laws that might arise in specific cases.
A conflict between trade and competition laws may arise as a result of the
application of both trade and competition law regimes to the same conduct. Where
the two regulatory regimes are from the same jurisdiction, the conflict will generally
be resolved through ordinary rules of interpretation. Such conflicts may result in at
least two types of case. First, although the mere petitioning of the government to
initiate trade law proceedings with a view to restraining imports, alone or in
conjunction with other firms, is not in itself a violation of the US antitrust laws, in
exceptional circumstances antitrust immunity may be lost for bad faith petitioning or
litigation.3 Trade remedy petitions, even when baseless, can chill competition and
reduce trade. Secondly, trade remedy proceedings may facilitate collusion between
local and/or foreign producers.4 There are serious antitrust risks for private parties
that try to settle trade disputes by private agreement in lieu of bringing a trade action
under US law,5 or participate in settlement agreements outside the procedures of the
trade remedy laws.6 The exchange or sharing of information by firms making a
complaint under trade remedy laws could also facilitate price fixing and thereby
breach competition laws.7
(p.141) The settlement of trade disputes has often taken the form of voluntary export
restraints (VERs), which are now prohibited under the WTO Safeguards Agreement. In
such cases, there might be a conflict between the trade policy and the competition
law of the importing country. There may also be a conflict between the trade law of
the exporting country and the competition law of the importing country, in particular
where the law of the exporting country, in order to implement the VER, permits or
compels an export cartel that is unlawful in the importing country. Conflicts between
trade policy and competition law arising from a VER will usually be resolved by the
courts in accordance with the rules governing the extraterritorial application of
competition law and the international competition law defences. See Part II.
Antidumping and competition laws can be applied sequentially or concurrently to the
same facts in the same country. For example, where exporters could show that the EU
producers interfered with the attempts by European cored-wire producers to obtain
ferro-silico-calcium/calcium silicide from intermediaries and the EU producers made an
effort to bring Brazilin exporters into their cartel and attempted to get them to agree
to stop exporting to Europe, the Commission thought it might be appropriate for the
Commission to review a proceeding pursuant to Article 14(1) of Regulation (EEC)
2176/84 on Protection Against Dumped or Subsidised Imports from Countries not
Members of the European Economic Community [1984] OJ L201/1 if and when an
infringement under Articles 81 or 82 was discovered and initiate competition law
proceedings.8 In Dee-K Enterprises, Inc et al v Heveafil, US purchases of rubber thread
alleged that Malaysian, Indonesian and Thai producers colluded to raise prices,
notwithstanding that fact that the Department of Commerce imposed antidumping
duties on the Malaysian producers.9 The court found that the defendants may be liable
under the antitrust laws because they did not act individually in response to the
antidumping order.
The Effect of Trade Measures on Competition and of Competition on the Use
of Trade Measures
The application of competition law should take into account market conditions created
by foreign or domestic trade law and policy. When defining markets or assessing the
level of competition in a market, courts and competition authorities (p.142) will need
to consider the effect of national and international trade rules and foreseeable future
political developments (such as binding international commitments to reduce tariffs or
the likelihood of contingent trade protection). For example, the potential
anticompetitive effects of a merger may be reduced or eliminated if the government
agrees to reduce tariffs or other trade barriers.10 Competition law has also been used
to promote trade liberalization. For example, joint venture and merger approvals have
been made conditional on landing slots at foreign airports being made available to
competitor airlines.11 While in the first case competition law approval was linked to the
removal of domestic trade barriers, in the second case the approval was linked to the
removal of trade barriers in another country.
On the other hand, conduct that would be unlawful in a purely domestic competition
law case might be lawful in an international case because of additional considerations
relating to the effects that the trade practice in question has on international
competitiveness, national security, foreign relations, balance of payments, greater
business and political risks in international markets, conduct necessary to overcome
barriers to entering foreign markets, and so forth.12
Similarly, trade laws may permit national competition law or policy concerns to be
taken into account.13 For example, the government may have discretion to not impose
antidumping duties if there is a risk of anticompetitive behaviour that is contrary to
the public interest.14 Competition authorities sometimes make (p.143)
recommendations on the trade policy or trade remedy measures. There have been
many proposals to increase the extent to which trade remedy laws take into account
restrictive business practices and market structures when determining whether there
have been dumping, subsidization and injury to domestic industries, or what order is
appropriate.15
5.2 Competition Law within a Trade Policy Framework
5.2.1 Introduction
Economic models of international trade help reveal the national welfare implications
of different competition law rules in international cases. The economic case for trade
liberalization assumes that competition among enterprises will increase the economic
welfare of all countries as a result of gains from increased specialization, economies of
scale, and competition. Trade liberalization is often the most effective means of
increasing the level of competition in a national market. But, perversely, some degree
of trade or investment liberalization is also necessary for transnational competition
law disputes. A number of business practices that affect competition may affect the
gains from liberalization and national trade and competition policy choices. Trade
models with imperfectly competitive markets show that free trade will not always
maximize national welfare. Instead, trade barriers or other government measures may
assist local firms to exploit, exercise or extend their market power, often at the
expense of the welfare of foreign countries.
Section 5.2.2 argues that competition law is in general complimentary to international
liberalization and provides additional benefits. Section 5.2.3 (p.144) argues that the
enactment and enforcement of competition law may facilitate the process of trade
liberalization. Section 5.2.4 examines the need to adapt competition laws to suit a
liberalized trading environment. Section 5.2.5 discusses the possible competition law
responses to foreign market power. Section 5.2.6 argues that competition law is a
poor tool to implement a strategic trade policy and no additional international
discipline on competition law is needed to address this risk.
5.2.2 The Complementary Role of Competition Law in Trade and Investment
Liberalization
For a long time, Hong Kong and Singapore deliberately chose not to enact competition
laws, because, it was said, their economies were already competitive and neither
economy imposes many restrictions on the international movement of goods,
services, and capital.16 However, a strong case can be made that the enforcement of a
national competition law is a desirable compliment to trade and investment
liberalization and will help to protect competition where liberalization cannot. 17 If a
good or service is non-tradable or imports are limited, local firms are more likely to be
able to acquire and maintain market power and exploit that power. A wide variety of
factors, such as transportation costs, economies of scale, language, regulatory non-
tariff barriers, and the need for face-to-face delivery of some services may limit
competition from imports despite the elimination of formal trade barriers. In most
countries, non-tradable sectors represent a significant portion of the economy. Capital
shortages, corruption and regulatory barriers may also make new entry difficult. A lack
of competition in a non-tradable sector also might affect competition in a tradable
sector. For example, a telecommunications firm that is dominant in the local area
network market could suppress competition in the international tolls market.18 The
adoption of a national competition law might also be the best option for a country
where there is insufficient political will to fully liberalize trade and exchange controls.
(p.145) Competition law also complements trade liberalization by reducing the
likelihood of certain types of anticompetitive conduct and the harm that such conduct
might cause. Sometimes the business conduct may be a response to, or be made
possible by, a certain trade policy measure. For example, if a domestic industry has
the benefit of import restrictions, it can increase its profits by cartelizing, and if an
industry is cartelized, it can increase its profits by obtaining import restrictions. One
response of firms to trade liberalization might be to engage in conduct that will
impede market access, in particular through the organization of importing,
wholesaling, distribution, or retailing within a country. In many cases,
wholesalers/importers are also linked to a dominant local producer.19 Similarly,
collusion between domestic producers and foreign producers or trading companies
may create a barrier to competing imports.20 Domestic competition law may therefore
prevent private trade barriers replacing government trade barriers. Competition law is
also complementary to the liberalization of foreign direct investment.21 It can improve
the benefit of investments to the host country.22 As countries exhaust the potential for
trade and investment liberalization to contribute to greater contestability of their
markets, the relative importance of competition law and policy as a tool to further
increase and maintain contestability rises.23
Empirical studies on the relationship between market concentration or the presence of
a competition law and price cost margins and productivity growth appear to confirm
that competition law and trade liberalization are compliments, rather than
substitutes.24 Trade barriers may result in an industry containing several local firms, all
producing similar products at below the minimum efficient scale.25 Where there are
substantial economies of scale, competition law may not be able to protect
competition without harming productive efficiency, in which case trade liberalization
may be necessary to increase the level of competition. Thus, welfare may be
maximized by a combination of competition law and trade liberalization.
(p.146) 5.2.3 Competition Law can Facilitate Trade Liberalization Processes
The enforcement of national and/or international competition law rules and
international competition law enforcement cooperation could facilitate trade
liberalization. Competition law may contribute to increased flexibility of an economy
and ease adjustment during the process of trade liberalization.26 A WTO competition
law agreement might reduce the perceived risks of international predatory conduct or
exploitation of market power. It could also reduce some of the concerns about the
security of the supply of food and other essential commodities.27 Trade liberalization
will promote a degree of specialization and change the international pattern of
production. An international agreement on competition may reduce the ability of
countries, and their producers, to exploit this market power created by changes in the
pattern of production. Liberalization may be encouraged by reducing the risk of
harmful post-liberalization anticompetitive conduct.
There has been concern that mixed publicprivate trade barriers may go unregulated,
because outsiders are uncertain about the precise actions of the government or the
effect of those actions.28 A multilateral agreement that encouraged the enforcement
of national competition law to enterprises would indirectly improve the transparency
of government action, thereby facilitating the application WTO rules and liberalization.
See Section 11.4.1.
As governmental barriers to trade are eliminated or reduced, anticompetitive conduct
that creates barriers to trade is likely to assume a greater importance. If there is a
widespread belief that the presence of anticompetitive conduct undermines
reciprocity in negotiated commitments or otherwise leads to unfair trade, political
realities may require international rules on competition law to sustain the trade
liberalization. However, even if some action is politically necessary, the prudential
and unfair trade arguments are incapable of providing meaningful guidance on the
content of the rules.
The GATT drafters were influenced by the long held view of dumping as detrimental to
normal commercial practice.29 The WTO, however, does not prohibit dumping, but
merely authorizes the importing state to take certain trade measures in response to
dumping. Article VI:1 of the GATT states that the contracting parties recognise that
dumping is to be condemned if it causes or (p.147) threatens to cause material
injury to an established industry in the territory of the contracting party or materially
retards the establishment of a domestic industry. Article VI, as elaborated on by the
Agreement on Implementation of Article VI of the General Agreement on Tariffs and
Trade 1994 (the Antidumping Agreement), essentially defines dumping as
international price discrimination or the pricing of exports below cost. The
Antidumping Agreement leaves WTO members with a fair degree of discretion in the
application of antidumping measures. With this freedom, WTO members have
developed methodologies for dumping investigations that are biased towards false
positive findings of dumping or inflated margins of dumping.30 Impartial observers
accept that antidumping laws are obstacles to trade and competition, rather than a
means of preserving free or fair competition.31 Although developed countries were
traditionally the main users of antidumping measures, in recent years a number of the
larger developing countries have become major users.32
The traditional view of dumping as a form of predatory conduct established a policy
link between antidumping laws and competition laws.33 A large number of
commentators have suggested injecting more competition law principles into
antidumping laws or abolishing antidumping laws and replacing them with
international competition rules, or national competition rules and international
enforcement cooperation.34 However, the harmonization of competition laws (p.148)
would not motivate governments to eliminate antidumping measures, and an attempt
to link the two would risk competition laws being distorted to serve trade objectives.
Only limited reform of the Antidumping Agreement seems to be possible in the Doha
Round. Some large firms in the EU and the US, and a number of major trading nations,
support reform of antidumping laws, but no major country or group of countries is
prepared to put the whole Doha Round on the line for the sake of antidumping reform.
It has been reported that those US industries that have benefited from US
antidumping law have made it a condition of US participation in the WTO deliberations
on competition policy that antidumping measures not be included in the WTO
deliberations.35 Although there are about 300 free trade agreements, very few of
these have become antidumping-free zones. Some writers have argued that
competition law is a substitute for antidumping law when all the barriers to the free
flow of goods, services, and investment have been eliminated. However, the
experience of the EEC, the ANZCERTA and the EEA suggest that the elimination of all
trade barriers is not a prerequisite for the elimination of antidumping measures, but a
political commitment to work towards eliminating all barriers is required. 36 Any
international competition law cooperation agreement must therefore stand on its own
merits.
5.2.4 Competition Law in a Liberalized Trading Environment
Trade Liberalization Promotes Competition and Reduces Restrictions on
Local Firm Conduct
Not only are competition law and trade liberalization complementary, but competition
law generally takes into account the effect of trade liberalization on competition.
Some business practices or mergers that would have been prohibited when an
economy was closed may be found not to reduce competition and be (p.149) legal
after trade liberalization. This is consistent with trade policy research, which shows
that international trade may limit the market power of domestic firms and improve
welfare. The evidence for a pro-competitive effect from a reduction of trade barriers in
developing countries is more mixed.37
In theory, tariffs give a monopolist the ability to raise price and restrict output, but
unless the tariff is very high, this ability would be limited by competition from a supply
of imports. In one sense, tariffs are a form of price control for protected monopolies. If
the tariff is below the prohibitive level, the monopolist may have no market power. A
domestic monopoly will have more market power with a quantitative restriction on
imports than with the equivalent tariff.38 However, there is only limited
understanding of the effects of more exotic trade policy instruments, such as domestic
content requirements, product standards and contingent protection triggered by
market share thresholds, under conditions of imperfect competition. Even a brief
review of trade theory indicates that to assess the effects of import competition on
real-life national markets requires a detailed examination of the industry and country
in question. This is the approach of most competition laws.
If trade barriers are low, foreign competition will be taken into account when defining
the market and assessing the level of actual or potential competition local firms face
from foreign competitors. Low trade barriers may mean that competition law markets
may be international in scope,39 or alternatively that the barriers to entry are so low
that the firms in a national market are competitively constrained by imports.40 If tariffs
and other trade barriers are high, markets are likely to be defined so as to exclude
foreign firms and the possibility of entry by foreign firms is unlikely to be seen as
imposing a competitive constraint on local firms.41 Many industrializing and small
countries have fewer local firms producing in industrial markets than do the large
industrialized (p.150) countries.42 A high level of concentration of local production,
however, does not necessarily mean that local markets are concentrated if there is
import competition, and even if the local market is concentrated the market may still
be workably competitive if there is potential for entry by foreign importers. For
example, section 3(3) of the New Zealand Commerce Act provides that the state of
competition in a market shall be determined by reference to all factors that affect
competition in that market, including competition from goods or services supplied or
likely to be supplied by persons not resident or carrying on business in New Zealand. 43
A high level of actual or potential import competition means that local firms are
unlikely to have significant market power, in which case most competition law rules
would not restrict the conduct of local firms operating in such markets. The
relationship between import competition and the freedom of local firms from restraints
imposed by competition law is evidenced by a number of cases where competition
authorities have approved mergers on the condition that tariffs are reduced or
antidumping duties are lifted in the home market.44
On the other hand, enforcement agencies consider that the nature of international
trade may limit the significance of the competitive constraint of imports.45 The extent
to which trade barriers act as a barrier to entry will also be affected by market size. In
a smaller market, there may be fewer potential exporters who will find it profitable to
enter that market, because of the fixed cost involved in entering a new market.46
Foreign competition may also be seen as imposing a qualitatively different form of
competitive constraint to domestic competition, which can advance the objectives of
competition law. Differences in production processes and design may make the
imports significant drivers of improvements in local products. In markets where there
is product differentiation, or where firms differ in their cost structures or the
importance attached to short-run and long-run profits, maintaining explicit or tacit
collusive arrangements is likely to be more difficult. Therefore, the entry of foreign
firms may reduce the likelihood of collusion in the domestic market,47 which may
reduce the likelihood that a merger or other conduct is likely to facilitate collusion in
breach of competition law.
(p.151) The Relaxation of Competition Rules to Promote Exports and
Productive Efficiency
The new trade theorists argue that countries do not necessarily specialise and
trade solely in order to take advantage of their differences; they also trade because of
increasing returns, which makes specialisation advantageous per se.48 The gains from
trade under monopolistic competition may be greater than those under perfect
competition, because extra product varieties become available to consumers and
domestic firms may be able to move down their average costs by increasing
production. The theories also suggest that government policies, not just underlying
differences in natural resources and aptitudes, may affect who produces what.
That said, the use of a tariff just sufficient to ensure the viability of an otherwise non-
viable domestic industry, even where protection enables decreasing-cost industries to
achieve longer production runs, would generally not improve domestic welfare. 49 Trade
protection can also give rise to managerial slackness and costly rent-seeking
behaviour, particularly where trade protection confers market power.50 However,
infant-industry protection may be import substituting and export promoting, and
thereby increase national economic welfare, where costs decrease from expanded
production sufficiently for the new domestic monopolist's marginal costs to be below
the fob export price.51 If the firm's existence is socially desirable, welfare can be
improved at a lower cost to the consumer surplus by a subsidy rather than tariff
protection.52 Unequivocal empirical evidence of the successful use of such infant
industry protection is difficult to find.53 A more practically relevant infant industry
argument for subsidisation of new manufacturing industries based on dynamic
economies and capital market imperfections can be made for many developing
countries. The presence of dynamic internal (p.152) economies of scale mean that
the average costs of a firm are assumed to fall the longer its output has continued
that is, the firm learns from its experience.54
International disciplines on tariffs and subsidies may encourage governments to use
second-best policy instruments, such as allowing cartelization or the monopolization
of an industry, to finance and protect an infant industry.55 A merger that permitted the
attainment of significant additional economics of scale is likely to have involved the
elimination of a major competitor from the local market, such as a merger leading to a
monopoly or duopoly, which would usually be found to involve a substantial lessening
of competition or lead to the formation of a dominant position, unless imports meant
that the local market was competitive. The elimination of a firm with a 15 per cent
market share by a firm with a 75 per cent market share may not lead to any
significant increase in economies of scale or production of the dominant firm.
Therefore, from the point of view of foreign countries concerned about increased
export competition, there is unlikely to be concern about the outcome of the merger
decision unless the merger regime contains an efficiency or public interest defence. In
a larger economy, the prospect of supra-normal profits in the domestic market could
induce an inefficient number of entrants, which could in any event prevent the
attainment of the desired economies of scale.
If it is not possible for the home industry to form a pure export cartel, a policy of
permitting a monopoly in a local market could still improve national welfare if the local
firms could thereby make sufficient supra-competitive profits on foreign sales. The
monopoly could be a result of a cartel, monopolization or a merger. If the monopoly is
unable to discriminate between local and foreign markets, the welfare effects of a
business practice or merger would depend on, inter alia, the share of local production
that is exported as opposed to sold domestically and the elasticities of demand in
domestic and foreign markets.56 Countries with small domestic markets are more
likely to be tolerant of such monopolies than large countries, and are more likely to
encourage collusion among local firms that export. If a local industry can price
discriminate between local and foreign markets, a country should be more tolerant of
a local monopoly if domestic demand is less elastic than foreign demand. In the more
likely case in which foreign demand is more elastic, the country should be less
tolerant of monopoly. When marginal costs of an industry are decreasing, such as
when a merger allows economies of scale to be achieved, it is welfare improving for a
country to be more tolerant of monopoly than the share of local production that is
exported would indicate.
A more likely scenario is that as a result of, or in anticipation of trade liberalization, a
country would become more tolerant of the concentration of local (p.153) industry,
because doing so might allow local firms to have access to greater economies of scale
or synergies and thereby to survive the increased import competition or export to
foreign markets. The firms in concentrated local industries may or may not acquire
any greater ability to exercise market power if they face increased import competition.
Small and large countries may therefore have reasons for preferring different
competition policies. From an examination of the competition policies of 15
industrialized countries, Auquier and Caves found support for their hypothesis that a
nation exporting a large share of its tradable goods production will be more tolerant of
anticompetitive conditions, and will take more chances of adverse spill-over effects on
the home market when it sets rules for the operation of export cartels in these
industries.57 Some competition laws have general public interest tests that take
increased exports into account. For example, the ACCC may grant an authorization to
a person to acquire shares or assets or to acquire a controlling interest in a body
corporate that would otherwise be prohibited, if it is satisfied that the proposed
acquisition would result, or be likely to result, in such a benefit to the public that the
 acquisition should be allowed to take place.58 Section 90(9A) of the Trade Practices Act
provides:59 In determining what amounts to a benefit to the public :
(a) the Commission must regard the following as benefits to the public :
1 (i) a significant increase in the real value of exports;
2 (ii) a significant substitution of domestic products for imported goods; and
(b) without limiting the matters that may be taken into account, the Commission must
take into account all other relevant matters that relate to the international
competitiveness of any Australian industry.

By contrast, the New Zealand Commerce Commission has taken the view that neither
increases in foreign investment in New Zealand nor increases in exports are per se
public benefits.60 Furthermore, increases in turnover are not equated with increases in
efficiency and increases in international competitiveness are not seen as a distinct
public benefit from increases in efficiency of a firm.61
As the discussion of the effects of monopolies and cartels on competitiveness in
Section 4.2 suggested, the level of tolerance for monopoly should essentially be a
choice for each country. If any other approach was taken at an international level,
small countries could be prohibited from allowing local firms to merge to achieve the
economies of scale necessary to export, which firms based in larger markets may
achieve through mergers in their local market. Efficiency defences available (p.154)
to firms in all industries would not be incompatible with the consistency criteria
proposed in Section 4.2. Beyond consistency, the only legitimate competition interest
of other countries is to protect their consumers from paying monopoly prices, which
does not justify an international agreement obliging the parties to adopt a competition
law complying with certain minimum standards.
5.2.5 Responses to Foreign and Multinational Anticompetitive Conduct
Alternative Responses to Foreign Market Power
In the face of a foreign monopoly, whether the monopoly is a single enterprise or a
cartel, there are some policy measures a small country62 could take that might
improve its welfare. Under reasonable assumptions about the form of the demand
curve, there is a positive, non-prohibitive optimal tariff that the importing country
could impose, which would trade off gains in captured foreign rents against the
domestic distortion as a result of a fall in the foreign firm's supply price.63 A small
country might also be able to increase its welfare by imposing a tariff on imports from
a foreign monopoly that price discriminates between countries. 64 Although tariffs will
improve national welfare, a consumption tax would be a better policy and optimal
price controls would be a still better policy.65
A small country's commitments under international trade agreements may prevent it
from imposing such import tariffs and discriminatory taxes. Moreover, the imposition
of an additional tariff or consumption tax, which will generally result in higher prices,
may be politically unacceptable, because of the effects on wealth distribution and the
need to ensure the whole population has access to essential commodities. A rent-
snatching tariff may have no effect if the monopolist establishes a subsidiary in the
importing country.66 The use of price controls to extract the foreign monopoly rents
may be more welfare enhancing than the use of similar price controls on a domestic
monopolist, because regulators are less likely to be captured by producers; wealth is
transferred from a foreign country; the monopolist may be able to recover its costs
through monopoly pricing on other markets; and the regulator will have information
on pricing in (p.155) foreign markets. On the other hand, the regulator is likely to
have inadequate information on the costs of the foreign monopolist.
Occasionally, multilateral trade liberalization could reduce the market power of a
monopoly existing with a regional trading area. The problems with the imposition of
tariffs and price controls suggest that a better policy might be a combination of
further trade liberalization and the application of competition law.67 Although most
competition laws cannot directly counteract rents charged by an established foreign
monopolist, the enforcement of competition law may prevent the formation of
monopolies through mergers, cartels, or predatory conduct. Since a supra-national
competition law code is politically infeasible, the foreign formation of foreign
monopolies would need to be addressed by either competition law enforcement action
in the exporting or importing country or some combination of the two.
Extraterritorial Application of Competition Law versus the Application of
Agreed Rules
The extraterritorial application of competition law is likely to be superior to an
international rule that sought to limit the tolerance or encouragement by
governments of anticompetitive business practices that harmed another country. It
would be difficult, if not impossible, to construct an internationally agreed rule, which
was implemented nationally, that prohibited states from tolerating (or encouraging or
compelling) particular types of conduct that might harm other countries without also
prohibiting a significant amount of efficiency enhancing conduct, especially in smaller
countries. For example, a ban on export cartel exemptions could prevent the
formation of export associations that lowered the costs of exporting for the
participants, but which did not possess market power in any other country. The effect
of an export association or any other type of anticompetitive conduct depends on the
relative market sizes of the local and foreign markets and the location of the
producers. Therefore, a rule that prohibited (p.156) export associations, because they
had certain local effects on competition, would prohibit some export associations
irrespective of whether they affected competition in another country. As a
consequence, the efficiency and exports of the exporting country industry could be
reduced and there would be less competition in foreign markets. Although states
might accept a rule that provides that no country should permit conduct that harms
competition in foreign countries, the state where the conduct takes place would not
necessarily have the best information about the harm that its firms cause in other
countries. The country that is harmed may be best placed to enforce the rule. This
might sometimes involve the extraterritorial application of competition law.
Where markets are truly international and integrated, similar competition law rules
will reduce the likelihood of inconsistent decisions and conflict, but not where the
effects of a transaction or course of conduct vary between jurisdictions. The
competitive effects of many international mergers vary between countries, especially
in branded consumer goods markets where the same competitors often have different
market shares in various national markets in which they compete. Competition
problems can often be addressed by requiring the local divestiture of various brand
names.68 The application of national rules to international cases may be necessary to
deal with the different effects of the conduct in question on each affected country.
Therefore, while the extraterritorial application of competition law could be seen as a
costly exercise for small and developing countries, it may not be a net cost on the
budget because of the saving from monopoly overcharges on government
procurement contracts and fines levied. The extraterritorial enforcement of
competition law would be significantly aided if the exporting country assisted the
investigation of the importing country and any resulting judgment or order.
Reconciling Divergent Competition Law Rules
In Chapter 3, it was argued that international convergence of competition laws was
unlikely in the medium term, and that international convergence on competition law
rules that reflect the specific socio-political values of any one particular country was
extremely unlikely. Even within countries there is not an absolutely consistent
approach to competition law, because of the formal requirements of the rules and the
implicit and explicit trade-offs between types of efficiency in each rule. Nonetheless, a
concern to protect consumers from price rises appears to be a common objective of
all modern competition laws.
The extraterritorial application of competition has the potential for one country to
impose its idiosyncratic competition law values onto another country. There is also a
lack of symmetry in the ability of states to impose their idiosyncratic values on other
states. While occasionally small countries may be able to influence major international
transactions, the EU and the US are the only (p.157) competition law jurisdictions
likely to have the resources, capacity and inclination to apply their competition law
globally.
One way to reconcile the need for extraterritoriality and the need to restrict the
extraterritorial application of competition laws that reflect unique values is to adopt a
jurisdiction test that restricts the extraterritorial application of competition law to
cases where foreign conduct harms local consumers. This restriction would not impose
any constraint on a competition law that had local consumer welfare or total welfare
as its sole objective. It would also not prevent a country applying its idiosyncratic
rules to local conduct or foreign conduct, provided that foreign conduct is shown to
harm consumer welfare in the importing country. This approach is broadly consistent
with current rules on competition law jurisdiction (see Part II) and would mean that
countries would not need to amend their substantive competition laws to comply with
such a rule. Compliance could be assured by adopting a jurisdictional rule that limits
the scope of competition law in international cases where the challenged conduct
raised prices or otherwise harmed local consumers. The same analysis applies to per
se rules (and any other competition law rule that is more than simply a prohibition of
conduct that has anticompetitive effects).
In Section 3.1.3 it was observed that different countries apply different economic
theories to determine whether conduct is likely to raise prices. In the GE/Honeywell
merger, for example, the US thought prices would be reduced by the merger, while
the EU thought that prices might temporarily be reduced but would rise in the long
run.69 Different countries will not necessarily reach the same conclusion in all
international competition law cases. However, an international agreement to
standardize antitrust analysis would be impossible to negotiate and undesirable,
because of the evolving state of economic learning and the changing nature of the
markets and transactions being analysed. The same applies to standards of proof and
evidential rules. Greater international dialogue, such as in the OECD or the
International Competition Network (ICN), could lead to greater convergence and
perhaps a recognition of what best practice requires. If competition law decisions are
transparent and reasoned, there may be a natural tendency for some degree of
convergence over time. Furthermore, states are unlikely to enter into enforcement
cooperation or judicial assistance agreements unless they recognize the quality of
each other's competition law. With the exception of the EU and the US, effective
extraterritorial application of competition law in many (if not most) cases is likely to
require cooperation with other countries and therefore the recognition by other
countries that the competition law in question is of a high quality. The desire for such
cooperation would also encourage convergence.
(p.158) A Global Consumer Welfare Standard Reflects the Optimal Balance
between Interests
The rule suggested above is consistent with the principle of subsidiarity and the
acceptance of global consumer welfare as a guiding principle of international
competition law. It provides a basis for reconciling the divergent national interests, but
will not maximize the welfare of all countries in all cases. The rule may still improve
national welfare overall, because no national law currently maximizes national welfare
in all cases. The extraterritorial application of competition law to conduct that would
otherwise raise prices locally should promote global consumer welfare. However, the
extraterritorial application of competition law could sometimes adversely affect the
interests of other countries. The countries where firms subject to the extraterritorial
application of competition law are based could be concerned that efficiency enhancing
conduct (for example a joint venture) may be prohibited, and for the loss of monopoly
rents earned in foreign markets. A country that applies its law extraterritorially may
also be concerned about international wealth transfers and may find that there is no
single rule that will always maximize its welfare. There are a number of factors that
should reduce these concerns.
The possibility of the extraterritorial application of local and foreign competition laws
may affect the strictness of the competition law that a country enacts, or vice
versa.70 The incentives of a country to adopt a strict law or apply its law
extraterritorially will depend on a number of other factors, including the types of cases
that the local competition authority or courts are likely to be dealing with and whether
the types of transactions that local firms are likely to be involved in may attract the
attention of foreign competition law authorities. These incentives could also be
affected by a legal requirement that competition law be applied on a non-
discriminatory basis.
In wholly domestic cases, anticompetitive conduct may result in the transfer of wealth
from consumers to producers, but this does not affect the net wealth of a country. In
international cases, anticompetitive conduct that results in a transfer of wealth from
local consumers to foreign producers will have a negative effect on national welfare.
Therefore, in individual cases the use of a global total economic welfare standard to
guide national competition law would not be in the economic welfare of some
countries, or not be politically acceptable because of anticipated (p.159) job losses or
other factors. Countries will generally have a greater interest in the prohibition of the
formation of foreign monopolies than local monopolies, and therefore have an
incentive to prohibit certain extraterritorial transactions that would not be prohibited if
they occurred locally.
The greater the proportion of competition law cases that involve foreign firms with
market power a country is faced with, the greater the incentive of that country to
have a competition law that has consumer welfare as its objective or to discount
productive efficiency gains by foreign firms that come at the expense of allocative
efficiency. That is, it may not be in the interests of a country to have a rule requiring
the balancing of allocative efficiency against productive efficiency, where the gains
from productive efficiency lead to increased monopoly rents for foreign firms. Thus,
small countries that are well-integrated into the global economy may have an
incentive to apply strict competition law rules, because most of the potentially
anticompetitive mergers would be between foreign or multinational firms. This
concern conflicts with the concern of small countries not to impose too strict
competition rules, which might prevent economies of scale and other efficiencies. In
the EU, for example, some Nordic countries have expressed concern about the
application of EU merger rules. The problem arises because international rules impose
the same standards on all markets within the EU, rather than looking at the EU-wide
effects. A requirement that a country must apply the same rule to local and foreign
mergers would further affect the way that a country calculated the net benefits of
adopting a particular competition law rule or approach to extraterritoriality.
Small countries may therefore prefer to apply a public interest or public benefit
test, rather than a pure efficiency test. Notwithstanding the general disregard of
distributional concerns under the New Zealand Commerce Act, in particular in the
application of the public benefit in authorization proceedings, wealth transfers may be
relevant when the detriments or benefits accrue to foreigners rather than New
Zealanders, because the Act refers to a benefit to the public of New Zealand. 71 Wealth
transfers associated with monopoly pricing are benefits and detriments when
foreigners pay the higher prices and foreign shareholders receive the monopoly profits
(after deduction of additional New Zealand company income tax payments),
respectively.72 The high levels of foreign ownership of many large New Zealand firms
will mean distributional concerns are relevant in many cases. However, in-flows of
foreign capital and exports, in themselves, will not generally be public benefits to New
Zealand.73 There has also been some recognition in Canada that price increases
resulting from a merger that are paid (p.160) by non-residents should be counted
differently from price increases paid by residents in determining whether a merger
should be permitted under the efficiency defence in s 96 of the Competition Act.74
The closure or downsizing of local production after a merger may be seen as a
detriment independent of any price rise and regardless of any cost savings. The
nature and location of any cost savings from a merger may varysometimes one
plant may be closed in one country; sometimes no plants are closed but the share of
total production or type of products produced in each plant may change; and so forth.
The situation can be even more complicated where there is an oligopoly rather than a
monopoly. A counter-example is provided by Fletcher Challenge Ltd, where the
acquisition of a majority interest in an Australian firm by a New Zealand firm would
have created a dominant position in the Australian market for the production and
supply of newsprint. The Trade Practice Commission saw the objectives of ANZCERTA
as reflecting public benefits that need to be taken into account in the context of the
proposed transaction, in particular the rationalization of industry and increased
efficiency. The Trade Practice Commission appeared to accept that rationalization
within a trans-Tasman market would be a public benefit, even if this resulted in the
probable closure of Australian plants.75
The welfare maximizing enforcement decision for a country faced with such a
transaction depends on a number of factors, including the location of customers and
producers, and the ownership of producers. A number of economic models illustrate
the issue. For example, the welfare effects on two countries that are home to firms
that enter into an international cartel or merge may have opposite signs. 76 Indeed, the
welfare effects on one may be worse than under competitive free trade or even
autarky. In a two-by-two general equilibrium model, if markets are not purely
competitive, a country can lose from entering into trade either because its export
industry faces a relatively elastic demand or because it exhibits a relatively low
degree of monopoly. However, a country with both its industries monopolized can lose
from entering into trade with a country having competitively organised industries.
Imperfect Information on Wealth Transfers Suggest Simplifying Competition
Law Analysis
Although the application of a public interest or public benefit test might give a
country the ability to maximize its welfare, there are substantial difficulties in (p.161)
applying such a rule. For example, it is difficult to determine when a reduction in
domestic competition will be compensated by increased foreign monopoly profits. It is
also difficult to determine as an empirical matter whether a merger (or some other
conduct) is necessary for efficiency gains in the domestic market, let alone one or
more foreign market, and whether foreign monopoly profits will in fact arise.
The determination of where the public interest lies may be even more difficult where
the residents of the country where the monopoly has its production facilities are not
the owners of the monopoly. If the owners of the monopoly reside in the country
where the monopoly is exploited, the situation may be similar to the case where the
monopoly is wholly within one country and does not trade. A wholly foreign monopoly
with all of its production facilities located abroad is likely to harm the interests of the
home country, unless there are efficiency gains of such a magnitude that the price to
consumers does not increase, which is likely to be relatively rare. The analysis is
further complicated when the effects of managerial slackness and rent seeking are
taken into account. These variables are unlikely to remain constant over time. A
welfare calculation based on share ownership may be an unsatisfactory basis for
competition law decisions. A merger may be beneficial if its nationals owned 50 per
cent of the shares in the merging entities, but not if they owned only 40 per cent of
the shares. There is also a strong likelihood of events occurring after the merger that
could alter the proportion of shares owned by nationals, which could affect national
welfare. On the other hand, the price at which the shares are sold may reflect a
capitalization of future monopoly rents, which may further complicate the assessment
of national welfare.
Arguably, any competition law rule should focus on relatively permanent structural
features of the market that are normally taken into account in domestic consumer
welfare and efficiency tests. Therefore, the fact that some monopoly profits might go
to foreign firms or their owners, as opposed to local firms and their owners, should
generally be ignored. Given the large number of competition laws that review foreign
mergers under broadly similar substantive rules, very few international mergers will
be permitted that allow firms in one country to exploit the consumers in another
country. Thus, in assessing the national welfare effects of a merger, local competition
authorities could heavily discount any claims that a merger will increase foreign
monopoly profits. With increased cooperation on competition law, the prospect of
foreign monopoly profits may be so heavily discounted that they can be presumed to
be near zero. States would not be giving up much in ignoring pure wealth transfers
from resulting foreign monopoly profits in the assessment of the effects of a merger.
The situation may be different in relation to cartels and abuse of dominant positions,
because enforcement is less certain and generally commences after the relevant
conduct has begun.
Limitations in theory, factual uncertainty and complexity, and non-availability of
necessary evidence, may prevent a country from being able to accurately apply its
competition laws in a welfare maximizing manner. The imperfect information (p.162)
that national courts and competition authorities would have on the relevant variables
means that the costs of attempting to maximize national welfare could outweigh the
potential benefits of doing so. If the costs outweigh the benefits, it may be desirable
or necessary for competition rules that seek to maximize national total welfare to use
long-run consumer welfare as a proxy. This would be consistent with the use of global
consumer welfare as a guiding principle. See Section 3.4.4.
Limited Utility of Exceptions allowing Exploitation of Foreign Customers
A number of studies of export cartels suggest that permitting anticompetitive conduct
intended to exploit foreigners is often harmful to the local welfare, and in most cases
export cartels have only a limited ability to raise prices in foreign markets.77 The
formation of an export cartel could also make it easier for firms to engage in tacit or
overt collusion in the home market. Therefore, export cartels by themselves will rarely
harm competition and welfare in the importing country. The situation may be different
where the export cartel is used to facilitate collusion with firms in other countries.
Some export cartels may allow the participants to reap economies of scale or other
efficiencies. It would appear that firms that are globally significant in concentrated
industries are often able to coordinate without an export association. Export cartel
exceptions appear to be of most use to smaller firms that would not have market
power in foreign markets. If few export associations have the ability to raise prices
abroad, most efficiency enhancing export associations would not be at risk from a
foreign competition law. If an export cartel was able to raise prices in international
markets, any efficiency gains would have to be very significant to outweigh the
deadweight losses and for the cartel to increase economic welfare in the importing
country. The efficiency gains will rarely be so large. Therefore, where the export
cartels do raise prices, it will probably be very rare for the application of the total
welfare and the consumer welfare standard to lead to a different result.
Large Country Consumer Welfare is (almost) Global Consumer Welfare
If pure export cartels are rare, the benefits to large competition law jurisdictions
(namely the EU and the US) from the exploitation of foreigners will rarely (p.163)
outweigh the costs of such cartels exploiting local consumers. In large countries a
much greater number of the affected consumers will be local consumers. Therefore,
the negative welfare effects from an increase in market power will be greater relative
to the wealth transfer from foreign consumers. The market shares (and competitive
strength) of firms involved in international competition law cases are likely to vary
between countries. The country where the firms merging or cooperating have the
highest market shares will often be the home country of those firms. The higher the
market shares that the firms have in a country, the more likely it is that the merger or
conduct under investigation will harm consumers in that country and therefore the
more likely it is that that country will challenge the merger or conduct. As explained in
Section 3.4.4, in large countries, there will only infrequently be a different outcome in
international cases between competition laws that have consumer welfare or total
economic welfare as their objective. Large countries will have less of an incentive to
distinguish between local and foreign consumers in their analysis of the effects of
anticompetitive conduct. Therefore, in large countries, there will rarely be much
difference between national total economic welfare, national consumer welfare and
global consumer welfare. The global consumer welfare standard implies that local and
foreign consumers are treated alike.78
Large country competition laws in fact have not clearly distinguished between local
and foreign consumers in the application of substantive competition rules and have
not adopted a full total welfare analysis. The European Commission has not been
prepared to create a block exemption or grant an individual exemption for vertical
agreements under Article 81(3) of the EC Treaty where the undertakings would have a
dominant position.79 Furthermore, while Article 81(3) allows certain agreements,
decisions, or concerted practices which restrict or distort competition, it requires that
consumers receive a fair share of any benefits resulting from improvements in
production and distribution or technical or economic progress. Decisions under the old
Merger Regulation have made it clear that the Commission is not prepared to allow
the creation of a dominant position, even if the merger would allow the merging firms
to reap substantial efficiency gains.80 Indeed, critics of the Commission view its
decisions as reflecting (p.164) an efficiency offence. An efficiency that cannot be
replicated by remaining competitors post-merger is likely to be viewed as leading to a
progressive reinforcement of the position of the merged entity and so contributing to
a finding of dominance.81 Recital 29 of the new Merger Regulation states that: It is
possible that the efficiencies brought about by the concentration counteract the
effects on competition, and in particular the potential harm to consumers, that it
might otherwise have and that, as a consequence, the concentration would not
significantly impede effective competition . It is unclear to what extent this will lead
to a departure from existing practice.
The rule of reason is well established in US antitrust law. Practices that would
otherwise breach sections 1 or 2 of the Sherman Act may be lawful if they are found
to produce substantial efficiencies.82 In the US, court decisions upholding mergers that
lessen competition but produce efficiencies are lacking, 83 but the presence of
substantial efficiencies has influenced prosecutorial discretion.84 The 1997 Horizontal
Merger Guidelines appear to accept that efficiencies do not justify a merger to
monopoly or near monopoly.85 The US antitrust case-law is generally ambiguous on
whether consumer welfare or efficiency is the objective. If the consumer welfare
standard applies, there are likely to be few cases where the efficiency gains are so
great that they outweigh the price effects from a reduction in the level of competition.
The Supreme Court has also not allowed the gains in one market to offset the harms
to consumers in another market.86 The 1997 Revisions to the Horizontal Merger
Guidelines commented that an agency in its prosecutorial discretion will consider
efficiencies not strictly in the relevant market, but so inextricably linked with it that a
partial divestiture or other remedy could not feasibly eliminate anticompetitive
effects. However, Pitofsky is sceptical that overseas efficiencies would ever be so
compelling and so intertwined with consolidation in the domestic market to justify a
significant anticompetitive effect in the domestic market. He comments, it is an
unattractive prospect to tax United States consumers (as a result of the domestic
anti-competitive effect) (p.165) in order to confer benefits on U.S. exporters and non-
U.S. consumers.87 If, as is stated in the 1995 US DOJ and FTC Antitrust Guidelines for
International Operations, no distinction is made between local and foreign efficiencies
in efficiency analysis under the rule of reason, an unwillingness or inability to offset
gains and harms in different markets will push the US towards the consumer welfare
standard. In other words, in mergers involving companies with international
operations competing in global markets, production efficiency gains wherever located
are relevant only when such gains improve consumer welfare in the global market.
Special Issues with Small Countries
Much of the information needed to assess the competitive constraint posed by foreign
firms that are competitors or potential entrants on the local market will generally be
available within the enforcing jurisdiction.88 On the other hand, the investigation of
some types of anticompetitive conduct, such as predatory pricing, may require careful
scrutiny of the costs and business strategy of a foreign firm, which will often not be
available in the investigating jurisdiction when the defendant firm is located abroad.
Thus, international cooperation may be more necessary in the latter type of cases.
The information gathering and enforcement difficulties associated with the
extraterritorial application of competition law are especially pronounced for small
countries. Small countries could therefore benefit from an international competition
law cooperation agreement. Large countries are less likely to be at the mercy of
foreign monopolists, because of the greater range of domestic industries located
within their borders, and the ability of the firms and governments to exercise
countervailing economic or political power. While large countries have so far entered
into the greatest number of competition law cooperation agreements, they may
ultimately have less interest in cooperation agreement with small countries than small
countries have in entering into such agreement with large countries.
In some cases, small countries might be able to free ride on the enforcement efforts of
large countries. If the EU or the US can prevent the operation of a global cartel, say, in
vitamins, most countries will benefit. Small states have a variety of incentives to defer
to large states on the investigation of international mergers and cases of
monopolization, at least where there is an integrated international market. Only large
states are likely to have the power to enforce a court order against (p.166) a global
multinational enterprise, such as Boeing or Microsoft. In such a case, the presence of
significant assets or a large proportion of global sales in a jurisdiction may be
necessary to secure compliance by the multinational. Where one or more of the large
states review a global merger under standards similar to that which a small country
would have applied, the interests of the small country are likely to be protected by the
large country acting in its own self-interest. Small countries therefore have an interest
in large countries following transparent rules. A small country can save financial
resources (and potentially political resources) by free riding on an investigation by a
large country. Small states that do not have competing producers (or suppliers) are
generally concerned about long-run prices.89 That is, they are concerned about their
long-run consumer welfare, which is likely to be the same as global consumer welfare
and the consumer welfare of large countries. Free riding would increase, but
transaction costs would be reduced, if foreign courts and competition authorities could
receive assistance from, say, the US courts and competition authorities, or all the
private plaintiffs harmed by an international cartel over which, say, the US courts had
jurisdiction, could recover damages in the US courts along with US litigants.
A major concern of US firms that emerged in the US DOJ's International Competition
Policy Advisory Committee report was the possibility of small countries using national
reviews of international transactions as means of extracting some collateral gain from
the parties to the transaction. For example, a guarantee to keep a particular plant
open or invest a certain amount of money could be a pre-condition to the approval of
a merger.90 Even if the small country does not seek to prevent the merger, the
modifications to the transaction requested by the small country may change the
economics of the transaction. Beneficial transactions may be prevented for non-
competition reasons. While small countries may use the threat of derailing an
international merger or requiring divestment of assets that could change the
economics of the transaction, it has been claimed that large countries may also use
their own processes as a mechanism to extract concessions. For example, some
lawyers believe that the US antitrust agencies sometimes use the threat of broad
requests for documents as a means to extract concessions from the merging firms. 91
Similarly, even if the US federal antitrust agencies do not use the merger review
process to extract non-competition concessions, the US state and industry-specific
regulators might pursue non-competition objectives through the merger review
process. See Section 13.6.2.
Thus, while large countries are likely to be significantly self-regulating, small countries
may be prepared to defer to large countries in cases involving integrated (p.167)
markets. Sometimes small countries will want enforcement assistance and large
countries will want to ensure that small countries are not using competition law as a
means of extracting benefits not related to the promotion of competition. This may
provide a basis for mutually beneficial cooperation. The possibility of hold-outs
provides an incentive for large countries to ensure that all countries' claims to
jurisdiction are not broader than necessary. All states would benefit from all other
states agreeing that when enforcing their competition laws they will issue transparent
and reasoned decisions and only take into account the competition law concerns.
Conclusion
The foregoing arguments do not make a case for competition law harmonization or an
international competition law, but suggest that the extraterritorial application of
competition law could improve national welfare. A principle that states should not act
inconsistently with global consumer welfare would provide a general guide to the
resolution of international competition law problems, which is consistent with most
competition laws. It provides guidance for the formulation of rules that could
moderate the extraterritorial application of competition law and minimize most
international competition law externalities.
The extraterritorial application of competition law could sometimes result in the
prohibition of business conduct that does not harm global consumer welfare but which
harms local consumer welfare. This could happen where there are regional markets for
particular goods or services due to the existence of a regional trading arrangement or
geographical considerations. Preferential market access may come at the price of the
prohibition of certain efficiency enhancing conduct or mergers between regional
trading partners.
5.2.6 Competition Law is a Poor Tool for Strategic Trade Policy
Strategic trade policy attempts to condition or alter a strategic relationship between
firms in international oligopolistic markets.92 In many normative models of strategic
trade policy, free trade does not emerge as the optimal policy. Models of strategic
trade policy have become increasingly complex and have analysed many factors.
Public policy intervention is generally aimed at making domestic firm(s) the equivalent
of a Stackelberg leader.93 This usually occurs because the (p.168) active government
is assumed to be able to pre-commit itself in a way that a firm cannot. A strategic
trade policy could increase the gross profits of a local firm by more than the cost of
the policy.
The trade and welfare effects of strategic trade policies are quite sensitive to the
structures and parameters of the models used. Where the government is likely to
have limited information about the parameters needed to design an optimal strategic
trade policy, the policymakers could fall prey to strategic manipulation by local firms
and political pressures.94 The presence of multinational enterprises might also hinder a
government's efforts to promote local firms at the expense of foreign firms and shift
rents.95 While industrial and trade policy may be able to attract investment and jobs in
specific industries, a large portion of any international rents gained by the industrial
policy could accrue to the foreign shareholders. The empirical studies of strategic
trade policy tend to show that intervention would rarely bring significant economic
welfare gains, and general equilibrium considerations confirm the advantages of free
trade as a policy. However, the effects of such policies on trade flows and production
magnitudes are often large. Governments may therefore be tempted to take strategic
trade policy initiatives for a variety of non-economic reasons.
The enforcement of competition law can prevent the formation of market structures
and conditions that are a necessary condition for strategic trade policy, or limit the
potential gains from such a policy. On the other hand, in the right circumstances,
strategic trade policy could also be implemented through competition policy. 96
Competition laws, however, generally do not apply to foreign firms when trade
barriers exclude those firms from the local market. The risk of the strategic use of
competition law is greatest in international competition law cases where trade has
been liberalized, the market is seen as international, and a country has the ability to
influence trade patterns through the adoption, interpretation or application of a
competition law rule. Some strategic trade policy models assume Cournot competition
in the domestic and foreign markets. Such an assumption would rarely be realistic.
The standard justification of Cournot (p.169) competition in the industrial
organization literature is based on the view that firms are price-setters, but are
subject to short-run capacity constraints. Firms are more likely to face only a single,
global capacity constraint.97
In Cournot models, trade liberalization and competition law are no longer substitutes,
and there is no longer a simple trade-off between domestic consumer welfare and
monopoly profits abroad. Bliss, for example, argues that slack competition policy,
which he defines as one that decreases the number of producers in the home market,
will not increase exports, even though it provides the remaining producers with the
benefits of economies of scale. The reason is that, other things being equal, the more
domestic producers there are, the higher will be the level of exports.98 In a simple
model of international trade involving several oligopolistic producers penetrating the
markets of several countries at the NashCournot equilibrium, the effect of the
addition of one more producer (the same as existing producers) will depend on
whether there are increasing returns to scale. Where there are constant marginal
costs, any policy that increases the number of firms promotes exports. At the other
extreme, if there are sharply falling marginal costs, a policy that promotes or allows a
decrease in the number of firms promotes exports. With constant marginal costs, an
increase in the number of identical producers in one country increases their sales in
all markets in which that type of producer is selling and lowers the price in all those
markets. Lower prices must lower the profitability of each producer. It is possible that
lower prices will cause some producers to exit the market. The situation is more
complex when exit and entry are considered. A tough competition policy in the
home market that increased the number of domestic firms, and which will increase
exports under constant marginal costs, may succeed in making foreign producers exit.
The exit of foreign producers will increase prices and benefit the country with the
tough competition policy.
When competition is Cournot, large countries have another incentive to protect local
competition. When a merger does not generate large cost savings, or an abuse of
dominance does not involve significant efficiency enhancing conduct, the most
preferred market structure may not be a local monopoly and foreign competition, or
even an international duopoly, but local competition and foreign (p.170) monopoly.99
Thus, large countries may have an incentive to prevent local mergers and abuses of
dominance, but not to prevent mergers between foreign firms or abuses of dominance
that eliminate foreign firms from the market.
The general thrust of the literature on strategic trade and industrial policy is that no
simple rules of thumb are available to guide policy, and this appears apply a fortiori to
international competition law. The fact that any welfare gains would be small and
uncertain suggests that such policies are likely to be driven by the producer lobbying
or national prestige or security considerations. In realistic market situations, the
optimal policy is likely to be a rather complex combination of industrial and
commercial policies, rather than a single policy measure, as shown in many models. 100
The international disciplines on the use of various trade policy measures and subsidies
may therefore also limit the circumstances where competition law could be
successfully used as a tool of strategic trade policy. The literature on strategic trade
policy is mostly sceptical that governments could efficiently carry out strategic trade
policies, especially in developing countries, because of governments' imperfect
information, the moral hazard arising from governments providing subsidies in order
to commit firms to aggressive strategy, and the risk of policy capture by special
interests.101 Therefore, rules prohibiting the use of competition law as a tool of
strategic trade policy may be individually welfare enhancing for all countries.
Although there is little prospect of states agreeing on whether a competition law
(in)action is part of a strategic trade policy in general or in specific cases, rules
disciplining the strategic use of competition law may be unnecessary. It would be
difficult to implement a strategic trade policy through competition law litigation, 102
because, inter alia, decisions are made by courts and competition authorities on the
basis of imperfect information about the economy and the situation before them.
Competition law decisions tend to be irreversible decisions as a result of practical
considerations and legal rules, such as res judicata, which means that a country
implementing a strategic policy through competition law would find it difficult to
adjust its policy in response to changing conditions. Competition rules that contain a
national interest or public benefit test, or allow export promotion or import
substitution to be taken into account, might allow strategic industrial policy to be
pursued on an ad hoc basis. However, (p.171) most competition law rules are not
well designed to systematically implement a strategic trade policy.
The small size of many economies makes many of the strategic trade policy
arguments irrelevant to them.103 Small size precludes the exploitation of scale
economies in the domestic market, making the import-protection-as-export-promotion
argument irrelevant. Small countries are not usually the location of industries where
strategic trade policy is possible and small size may also prevent a small country
acting as a credible first mover for political and economic reasons. Therefore,
international rules prohibiting the use of competition law as an instrument of strategic
trade policy probably need only apply to large countries to be effective.
The enforcement of a competition law actively and non-discriminatorily by all large
countries would reduce the prospects of highly concentrated industries and
segmented national markets, and the scope for most types of strategic trade policy. A
competition law that promoted consumer welfare would be a very blunt instrument to
implement a strategic trade policy. Finally, the rent shifting argument presupposes the
existence of international markets. Therefore, more than one country is likely to be
able to assert jurisdiction over any anticompetitive conduct that contributes to
strategic trade policy. Thus, the use of competition law to advance strategic trade
policy may be undermined by the actions of another country.
5.3 Transnational Exclusionary and Predatory Conduct
5.3.1 Application of Competition Law to International Predatory and Exclusionary
Conduct
The economic and social organization of a country may lead to a greater propensity
by firms located in that country to dump. For example, it has been said that Japanese
firms are more likely to engage in predatory pricing, because they aim to maximize
market share rather than profits, which gives rise to below cost sales.104 This could
happen where the incentives of the managers are not be aligned with the interests of
the shareholders, even if there was no plausible expectation of an increase in long run
profits from doing so. Sales-maximizing behaviour is more plausible in imperfectly
competitive markets.105
(p.172) While competitors might suffer from the extra output depressing price, their
losses will be more than made up for by the gains to consumers. Sales maximization
could lead to below cost or price discrimination dumping and may eventually force
competing firms in the importing country out of business. If the sales maximization
behaviour by the foreign firms is likely to continue indefinitely, say, because it is
dependent on relatively permanent features of the social or economic organization
within a country, the dumping will not be temporary and the importing country could
rationally choose to just accept the cheap imports. However, such behaviour is seen
as involving unfair trade and may expose importing countries to risk of exploitation
at some later stage.
These concerns have led a number of commentators to argue that dumping should
not be subject to only domestic rules on predatory pricing. For example, in the context
of proposals to reform antidumping laws, it has been argued that the pricing threshold
for a test of international predatory pricing should be higher than average variable
costs, which is the threshold used in domestic cases in some jurisdictions.106 However,
pricing conduct that had a legitimate business justification might be caught. 107 Where
there are economies of scale it may be advantageous for a firm to export some
quantity at a price not covering average costs, if the increased production can lower
overall costs sufficiently so that greater domestic profit more than outweighs export
losses.108 Such pricing is more likely to be evidence of trade barriers protecting the
domestic market of the exporting firm than of predatory intent. The trade barriers can
and should be addressed independently of whether or not dumping is caused by such
barriers.
These suggestions raise the more general question of whether international predatory
or exclusionary conduct needs to be subject to different rules than the competition
rules that prohibit monopolization or an abuse of dominance within a single economy.
If the concerns about sales maximizing behaviour and pricing above avoidable costs
had substance, why is that conduct not prohibited in wholly domestic cases? Under
ANZCERTA, Australian and New Zealand competition laws provide for the application
of essentially the normal domestic abuse of a dominant position rules to trans-Tasman
trade when antidumping duties on trans-Tasman trade were abolished. See Section
13.4.4. Competition law, like antidumping laws, could have been used to chill foreign
competition, if different (p.173) rules applied to local and foreign defendants. The
application of the same rules to national and international predation does not preclude
the peculiar features of international predatory or exclusionary conduct being taken
into account, such as the existence of multiple markets, multiple regulatory regimes
and protected home markets. Specific practices relating to international trade may
end up being prohibited, but such a decision should be rationalized in accordance with
the existing competition law jurisprudence. It should not be assumed that because the
defendants are foreign, they behave differently to domestic firms.
The assessment of market power may be more complex in cases where multinational
firms compete against each other in many different markets.109 The small initial
market share of a foreign firm that is alleged to be engaged in predatory pricing may
not be a reliable indicator of its chances of success in a predatory campaign.110 In
international cases, the concept of recoupment may need to be interpreted more
widely to include recoupment through monopoly profits in another geographical or
product market, especially where economies of scale extent beyond a single state.
Claims that there was a predatory pricing campaign in Matsushita Electric Indus Co v
Zenith Radio Corp 111 might have been more credible if the role of the Japanese
government was more fully considered.112 Governments have the ability to ignore the
market constraints that individual firms face. The economic and social conditions
created by a government may mean that a firm has greater fixed costs, protected
home markets, or does not need to cover its total costs in the export market and a
specific incentive to increase sales in a foreign market. Allegations of predatory
exports from Japan tend to have focused on industries that require extensive capital
investment and technological research and developmentconsumer electronics,
semi-conductors, and automobiles. The capital and technological requirements of
such industries necessitate lengthy start-up periods and larger capital investment.
Such requirements for entry translate into lags in market re-entry, which might permit
the recoupment of predatory pricing costs.
On the other hand, there are several obstacles to international predation that will not
usually be present in purely domestic predation. Most obviously, the possibility of
antidumping duties and regulation of monopolized industries. The foreign predator will
usually bear significant additional costs to their intended domestic target, including
transportation costs, tariffs and the risk of exchange rate fluctuations. A predatory
pricing strategy may not be credible if both firms are multinational enterprises
engaged in producing and/or selling their products in more than one market, because
re-entry might be easier. Buyers may wish to (p.174) maintain local suppliers to
ensure security of supply and therefore may be willing to aid the intended victims
(their suppliers) through long-term contracts.
The internationalization of business may mean that the appropriate trade-off between
the need for simple and easy to apply rules and rules that accurately target predatory
conduct may have changed over the last 30 years or so. In commenting on the
Matsushita case, Scherer indeed suggested that: Determining whether pricing is
sufficiently at odds with attaining market efficiency to be branded predatory
requires a more broad-ranging inquiry into costs functions and market dynamics than
a mere showing that prices were below some measure of cost.113 Efficiency-based
arguments for cost-based tests may not be valid in an international multi-jurisdictional
setting.114 Exchange rate changes, different accounting conventions and economic
and regulatory structures also complicate the measurement of costs and
determination of predatory pricing. However, with substantial uncertainty over what is
best practice in this area, the development of international rules on predatory pricing
seems neither likely nor desirable.
It might also be difficult to prove that a foreign firm had a predatory intent without
access to all of that firm's internal files, which may be difficult if they are located
abroad.115 Although international enforcement cooperation and judicial assistance may
be useful, it is unlikely to occur unless there is a degree of mutual recognition of
competition law. Mutual recognition, in turn, is unlikely if a competition law applied
different standards to local and foreign firms.
5.3.2 Lax Competition Rules may Cause the Cross-Subsidization of Exports and
Dumping
If a protected domestic monopolist is able to export, it will make full use of any tariff
to set marginal cost equal to marginal revenue in the domestic market and then
export at a lower fob price.116 It is more difficult to explain persistent differential-price
dumping in multi-firm industries, because, other things being equal, if one among
many firms can obtain a higher price in their home market than in the export market,
it would be expected to switch its sales to the higher price home market. The price
differential should therefore disappear after some time. The obvious explanation is
that the exporting firms have an agreement on prices (p.175) in their home market,
which they are unwilling to break.117 Viner believed that the absence of keen price
competition in domestic markets was the explanation for the dumping of US exports
early last century.118 More recently, Messerlin has argued that the relaxation of
antitrust rules for joint ventures in the 1980s for manufacturing in the US is likely to
generate price discrimination behaviour, because such a joint venture would probably
have more market power in the US than in world markets.119
One effect of protection of a monopoly or cartel in the exporting country is that
production in the exporting country will respond to prices in the importing country,
which is where the marginal output is sold.120 Domestic consumption in the exporting
country will, however, respond to the cartel price and be lower than would otherwise
be the case. The agreement among the exporting firms will give rise to a higher level
of exports from the exporting country than if the agreement did not exist, and those
exports will be sold at dumped prices.121 Such dumping is often claimed to be
associated with the protection of the home market of the exporters' cartel by various
non-transparent trade barriers (including private restrictive trade practices) or the
result of an international cartel. The existence of non-transparent trade barriers is
clearly hard to prove or disprove.
If demand or supply in the exporter's home country changes, the price fixing
agreements that the excess supply at the agreed price will increase.122 This may in
turn cause a change in the volume and price in the export markets. Such fluctuations
of supply and demand might occur in the absence of the price agreement, but they
will be greater when the price in the exporter's home market is fixed. It has been
argued that dumping by firms that have cartelized their home markets distorts
comparative advantage in favour of the dumpers, who may be less efficient than the
firms in the importing country.123 Over the short run, dumping (p.176) firms could
enjoy lower unit costs than comparable firms in markets where the dumping is
occurring, because the dumpers can operate their plants at higher utilization rates. In
the market where the dumping is occurring, the domestic firms cannot respond in kind
if the market of the exporting firm is closed. Over the longer term, such dumping may
discourage investment in markets where the dumping is occurring, and encourage
higher levels of investment in the protected markets.
Even if these concerns were not overstated, the analysis of the welfare consequences
of the effects described above is more complex.124 So long as the exporting country
does not import the product being exported from its export markets, the price of this
product in the export markets will never be higher with the cartel than it would have
been in its absence. That makes it very unlikely that the price agreement in the
exporting country imposes an aggregate economic loss on the importing country.
However, if the exporting country is a small country facing a competitive world
market, it will suffer a welfare loss by allowing the exploitation of market power in its
domestic market.125 Thus, the governments of such exporting countries would be
protecting and promoting local producers at the expense of local consumers and
foreign producers.
It is also sometimes argued that transnational predatory pricing can be more easily
sustained than wholly national predatory pricing, because of the possibility of cross-
subsidization between national markets.126 However, this does not generally appear to
be credible.127 A producer will only engage in predatory pricing in a market if it
expects that the same market will return all lost profits and investments caused by
the predatory pricing. Therefore, predation will generally occur independently in
independent national markets, despite the (p.177) multinational form of the allegedly
predatory enterprises. However, the situation may be different if there are economic
linkages between the home and export market. For example, economies of scale may
mean a profit maximizing strategy may require that a firm reach a certain level of
sales. In many situations the exporting firm's home market will also be too small to
support a predatory pricing scheme in a large country.128
The tacit or explicit collusion needed for group predation in an export market may be
easier for a group of foreign firms where those firms benefit from weaker competition
laws in their home market and habitually cooperate in that market.129 However, it is
difficult to know what value an impartial court in the importing country could attach to
evidence that the alleged predators had been suspected of engaging in or proven to
have engaged in collusive arrangements in their home market.
If the importing country wished to protect its producers against such unfair trade, it
has three main options (other than using trade remedy laws and negotiating the
removal of trade barriers to the home markets of the exporting country). First, one
country could attempt to attack the cartel or monopoly in the exporters' home market
through the extraterritorial application of its competition law. If competition in the
markets of the importing country was not threatened, under the jurisdictional and
substantive rules of most competition laws there may be no legal basis to attack the
cartel. It would also be hard to show that the foreign cartel harms consumers within
the forum. If closure of the exporting firms' home market allows international
predation, that conduct would have affected competition in the importing country.
Jurisdiction would be available under the effects doctrine. See Chapter 8. Discovery
and evidential problems will increase the costs and complexity of such an
investigation. Thus, when antidumping measures were made inapplicable to trans-
Tasman trade, extensive investigation and judicial assistance provisions were adopted
to facilitate the application of competition to anticompetitive conduct affecting trans-
Tasman trade. See Section 13.4.4. The courts and competition authority of the
exporting country may often be the forum conveniens to investigate anticompetitive
conduct that restricts access to home markets of that country or permits the
exploitation of such markets.
Secondly, an international agreement could attack the source of the supra-
competitive prices in the home market of the exporting firms. Hindley, for example,
has suggested that importing countries should be provided with a GATT right to
request antitrust action against the dumping industry by the (p.178) government of
the exporting country.130 There have been proposals for antidumping remedies to be
restricted to cases where the exporting country had closed or distorted
markets.131 The latter proposals indicate that market closure and supra-competitive
pricing will not always be caused by private anticompetitive conduct. For example,
regulations of agricultural markets that restrict competition on the domestic market
and lead to the cross-subsidization of exports may violate the WTO Agreement on
Agriculture,132 while competition law would not generally apply to government-induced
restrictions on competition.
Finally, if it is agreed that international competition law should be concerned only with
harm to competition, not competitors, it is hard to make a case for special rules
dealing with anticompetitive conduct leading to dumping. The difficulties of relying on
extraterritoriality could be avoided if the exporting country enforced its own
competition law against the conduct that restricted competition in its domestic
markets. Any type of anticompetitive conduct in the exporting country could in theory
be part of an international predatory scheme. Therefore, the exporting countries
should enact and enforce a general competition law. The best method to ensure that
competition laws are enforced is discussed in Section 13.5, as well as Sections 8.2.7
and 11.5.1.
5.3.3 Raising Rivals Costs and Market Access Barriers
The levying of antidumping duties against an importing producer could be export
promoting in the presence of economies of scale.133 When a foreign producer is
required to pay antidumping duties, its marginal cost of serving that particular market
rises. This induces the firm to reduce its exports to that market and the firm may then
be pushed up its learning curve, thereby increasing its marginal cost of production. A
subsequent output contraction occurs, this time in all markets. Domestic firms benefit
from having their rivals' costs raised, and (p.179) they respond by replacing some
foreign sales and move down the learning curve. The effect on the economic welfare
of the country imposing antidumping will depend on many factors, including the size
of the countries and cost characteristics of the products. The most efficient producer
may not survive and world welfare may be reduced. A firm producing similar high
technology products may be at a strategic disadvantage if it does not have
guaranteed access to the markets of large countries. Unequal market access can have
a ripple effect through several sectors of the economy, because a failure in one area
can threaten competitiveness in others. The exclusion of firms from one country that
has the effect of preventing those firms from being able to reap the profits from one
generation of products may also permanently exclude those firms from participating in
that technological field. An imaginative use of a competition law could similarly raise
the costs of foreign rivals, which would be aided by special rules on international
predatory pricing, or that otherwise discriminated against foreign firms.
A permissive approach to anticompetitive conduct might also confer a strategic
advantage in export markets solely as a result of benefits derived by downstream
firms that employ backward linkages as pre-commitment mechanisms. 134 A
downstream firm may be able to enter into an agreement with upstream firms to
create a credible output expansion in the final goods markets by restructuring
production costs between fixed and marginal cost components. The agreement, which
stipulates a below marginal cost input price in the domestic upstream market, thereby
pre-commits the domestic firm to an ex post beneficial output expansion in the
downstream international market. A vertical contract that transfers a share of
downstream equity to the upstream firm provides a method of pre-commitment that is
equivalent to that acquired through the use of an upstream price restraint, because
the downstream firm compensates the upstream firm with a share of the profits in
international markets. It has also been shown that vertically related Cournot
oligopolies produce at a greater level of output when upstream firms own equity
shares of downstream firms.135 Thus, a variety of common business practices, such as
full or partial ownership of vertically related firms, could be used to promote exports.
If both the domestic and foreign countries allow vertical restraints, the formation of a
vertical contract in the foreign country is the best response strategy to the formation
of a vertical contract in the domestic country.136 This would improve global welfare as
downstream firms expand output. The incentive of countries not to prohibit such
vertical restraints may lead to a country adopting an overly lenient approach to
vertical restraints where a general competition law could not specifically target such
industries, which may create market access barriers. An implication of this (p.180)
research is that countries with strict prohibitions on vertical restraints have an
incentive to seek greater convergence of competition laws.
If a country's competition law allows the creation of market access barriers or the
raising of rivals' costs, it could form part of a strategic trade policy. However,
competition laws are far from the optimal instrument to implement a strategic trade
policy. Only the largest economies have the economic size and technology-based
industries to be able to attempt such a rent shifting strategic trade policy. The small
risk of the use of competition law for strategic trade policy does not justify particular
competition law rules, except possibly the obligation of the large industrialized
countries to enforce their competition laws consistently and in a non-discriminatory
manner.
5.4 Transaction and Compliance Costs
5.4.1 Costs to Business in Understanding and Complying with Multiple Legal Regimes
Harmonization may reduce the costs of firms entering foreign markets and
international transactions, by reducing the costs associated with doing business in
multiple jurisdictions with different legal rules, and thereby increasing the level of
competition in national markets.137 Potential rivals of established firms have not
infrequently discovered that identification of the content of local competition law
rules, especially where they are new or have not yet been interpreted by courts, often
requires litigation, which will add to the costs and risks of entry. Some recent calls for
the harmonization of national competition laws within the EU have been justified as
necessary to reduce the business costs of identifying and complying with the
multitude of different national laws when establishing operations in a another country
within the EU, rather than the risk of conflicting national rules.
The legal advice required to understanding local competition laws is a fixed cost for
firms when they enter new jurisdictions, which could be reduced by harmonization. 138
Different competition rules could also prevent a common marketing and distribution
strategy being developed for different jurisdictions. Convergence can promote private
welfare by allowing firms to achieve economies of scale in production and distribution
as a result of the same standards applying in multiple jurisdictions. Differential
regulatory requirements can constitute barriers to entry in foreign markets when there
are diseconomies involved in adapting to (p.181) the specific requirements of one
jurisdiction. While different regulatory standards may not appear to be directly
relevant to harmonization, it is possible that differential restrictions on certain
restrictive practices in distribution arrangements and intellectual property licensing
arrangements could have implications for product design and the ability to achieve
economies of scale in production and distribution. Unlike private law, firms are unable
to contract out of competition law to reduce the costs of dealing with foreign legal
systems.
The similarity of laws across countries makes the judicial and academic output of
many countries available to assist the interpretation and development of the law, in
particular in smaller countries where there are naturally fewer precedents.139 This can
reduce transaction and compliance costs for businesses and regulators. Diversity of
law makes advising on international business transactions more difficult and
expensive. Subject to regulatory constraints, harmonization increases the
international mobility of lawyers, and the ability to export legal services, thereby
improving competition for professional services.140 The desire of lawyers to be able to
work in multiple jurisdictions with little formality may also act as a force for
harmonization.
While convergence could reduce some transaction and compliance costs, it is unclear
whether these costs savings would exceed the costs of negotiating convergence and
the loss of the ability to adapt competition law to local conditions. Furthermore, many
of the benefits of convergence could be achieved through unilateral action. The costs
associated with divergence will depend on the type of laws that are divergent and the
degree to which they diverge. Divergent laws are likely to impose a one-off, most
probably sunk, cost of setting up business in another jurisdiction that is probably small
relative to other entry costs such as adapting to different customs, commercial
practices and technical standards, marketing surveys, plan formulation, setting up
plants, and so on. Moreover, these costs will diminish over time and with economies of
scale. These legal costs may not be a barrier to entry in the sense that that concept is
used in competition law. Market conditions will often differ between countries even in
the same industries. Competition law cases are very fact specific, which reduces
predictability of the outcome in any particular case, even when the law is relatively
clear. Therefore, the similarity of laws will not eliminate the legal costs firms will face.
The costs of negotiating and applying an agreed text for governments and businesses
may also be high. See Section 3.3. An uncertain reduction of legal costs is not an
adequate reason to negotiate to harmonize laws. The case (p.182) for harmonization
and/or convergence to reduce costs may be much stronger when several countries in
the same region all apply their competition laws extraterritorially, and most markets
are regional.
In any event, agreeing to the convergence of national competition laws is unlikely to
substantially reduce compliance costs for business, because of different procedural
rules, different judicial or administrative interpretations of the same rules, the
possibility of enforcement error, and differences in the availability of information to
different national authorities, and different national market conditions. Convergence
will not necessarily improve the transparency of the administration of competition
rules. There are ways that individual countries can improve the transparency, which
may be less costly than convergence, such as the provision of enforcement
guidelines, adopting clear competition law rules with a single objective, limiting the
role of political decision-making in individual cases, and the collection and publication
of summaries of all national legislation and case-law and enforcement practice.
Improved transparency would lower private compliance costs, enhance democratic
accountability, and reduce administrative discretion. International rules requiring
transparency in competition law and its administration could increase certainty for
business and reduce transaction costs. This would help overcome the problems
associated with the asymmetric levels of information (and political influence) of local
and foreign firms and thereby reduce the potential for discrimination.
5.4.2 Multiple Pre-Merger Review
The possibility of international mergers and other transactions being subject to review
by a number of competition law authorities is often seen as problematic.141 Many
transactions have been reviewed by 10 or more competition authorities. There may
also be private actions. The Consolidated Gold Fields takeover of Minorco was cleared
by a number of authorities, including the US DOJ, before being blocked by a private
action in the US.142 The increased transaction and compliance costs that arise from
multiple reviews may be able to be reduced through a number of pragmatic
initiatives, which do not affect the fundamental approaches of national competition
laws.
(p.183) Transaction costs are relevant to both firms and enforcement agencies. They
include the costs of complying with multiple pre-merger notification procedures, which
apply to slightly different ranges of transactions, require notification to be made at
certain defined stages in the consummation of the transaction, require the provision
of different information, or have different timetables. The need to submit a transaction
to multiple reviews may lead to increased lawyers' fees, the need to devote greater
executive time to the transaction, delays in completing a transaction, and greater
uncertainty about the legality of a transaction. All these factors may discourage
socially desirable transactions. Multiple reviews also increase the chance of over-
enforcement errors. These may either be a result of the most restrictive national
standard determining whether the merger goes ahead or the increased chance of one
enforcement agency making a wrong judgment about the likely competitiveness of
markets post-merger. Transborder mergers can increase the cost of enforcement
agencies because of their need to get information from abroad, and the difficulties
this may give rise to, as well as difficulties in enforcing decisions over multinational
enterprises. The most recent EUUS competition law cooperation agreement takes
these considerations into account in dealing with the need for cooperation and
coordination.143
On the other hand, some commentators have argued that there are only small
transaction cost savings from eliminating multiple reviews, because different issues
will be important for different markets and it will be necessary to analyse the
competitive effects on each market separately.144 Furthermore, it will not be in the
interests of some firms to have all the details of a transaction reviewed by only one
central or coordinating agency. This would restrict the strategies used to gain approval
for some transactions, such as through the presentation of a case in a particular way
to each agency. Some agencies may also be influenced in their decision to permit a
transaction if other agencies have also done so. The Whish and Wood study also found
that the smaller the transaction, the greater the potential benefits from cooperation,
since there is a significant fixed cost element to each authority's review process. 145
These transactions are also the ones less likely to generate political conflict.
The nature of the problems caused by multiple reviews of mergers could be reduced
by a number of measures short of either convergence or formal coordination of
merger reviews. Enforcement cooperation is discussed in Chapter 13. First,
coordination between national competition authorities could be undermined if there
are industry-specific regulators in a number of countries that have power to review
mergers in those industries. Industry-specific regulators may be required to pursue
non-competition goals, have uncertain jurisdiction or jurisdiction that overlaps with
the local competition law agency, or lack an enforcement (p.184) cooperation
arrangement with foreign industry-specific regulators or competition agencies. The
allocation of responsibility to review all international mergers to national competition
authorities under the general competition law may assist coordination. Secondly, in
many cases, the costs of multiple reviews could be reduced by restricting notification
requirements and procedures to what is necessary to prevent local anticompetitive
effects. In most countries only a small percentage (one to five percent) of notified
transactions lead to further investigation, and a even smaller percentage lead to
actual enforcement action. The thresholds for notification may be too low or
uncertain. Transaction costs could be reduced by making thresholds clearer (for
example, by avoiding market share tests) and adjusting them so they only capture
international transactions of a size and nature that have they might have local
anticompetitive effects, in particular by having tests that require some nexus between
the firms involved and the enforcing jurisdiction. The same considerations also apply
to the information required as part of a notification and any subsequent request for
further information. There may be scope for coordinating notification requirements
and timetables for merger clearance. Thirdly, as is already happening at the ICN and
elsewhere, the development of best practice guidelines on the procedural aspects of
merger review should lead to increased convergence.
Notes:
(1) OECD, Interim Report on Convergence of Competition Policy (Paris: OECD
GD(94/64), 1994) . See also OECD, Competition and Trade Policies: Their
Interaction (Paris: OECD, 1984) 11 .
(2) See D Ireland, Interactions Between Competition and Trade Policies: Challenges
and Opportunities, Discussion Paper, Bureau of Competition Policy, Consumer and
Corporate Affairs Canada (November 1992) ; P Nicolades, Trade and
Competition Policies: Comparing Objects and Methods (Paris: OECD, 1994)
.
(3) See, eg, Outboard Marine Corp v Pezetel 474 F Supp 168 (D Del 1979, 1769),
stayed Outboard Marine Corp v Pezetel 535 F Supp 248 (D Del 1982, 2536); Music
Center SNC Di Luciano Pisoni & Co v Prestini Musical Instruments Corp 874 F Supp 543
(EDNY 1995); Cheminor Drugs, Ltd v Ethyl Corp F Supp 271 (D NJ 1998), 168 F 3d 119
(3rd Cir), cert denied, 1999 WL 495883 (1999); see also the DOJ's 1988 Antitrust
Enforcement Guidelines for International Operations (the 1988 International
Guidelines), reprinted at (17 November 1988) 55 Antitrust & Trade Regulation Report
890 (Special Supp). See also JT Lang, Reconciling European Community antitrust and
antidumping, transport and trade safeguard policies [1988] Fordham Corporate Law
Institute ch 7, 7.44 .
(4) PA Messerlin, Antidumping regulations or pro-cartel law? The EC chemical cases
(1990) 13 World Economy 465 ; RJ Pierce, Antidumping law as a means
of facilitating cartelisation (2000) 67 Antitrust law Journal 725 . See also
In re Potash Litigation 954 F Supp 1334 (D Minn 1997), upheld, Blomkest Fertilzer, Inc
v Potash Corp of Saskatchewan, Inc 2000 US App LEXIS 2273 (8th Cir 2000); United
States v Nippon Paper Indus Co, Ltd 62 F Supp 2d 173 (D Mass 1999).
(5) See United States v National Board of Fur Farm Organizations, Inc 395 F Supp 56
(ED Wis 1975); see also United States v RP Oldham Co 152 F Supp 818 (ND Cal 1957);
United States v Amax Inc, 19771 Trade Cas 61,467 (ND Ill 1977); 1988 International
Guidelines (above n 3), Case Example 17; US DOJ and FTC, Antitrust Enforcement
Guidelines for International Operations (1995), Example M.

The position in the EU is similar. See Re the IFTRA Rules for Producers of Virgin
Aluminium [1975] 2 CMLR D20, D32D33 (EC Commission); Re the Franco-Japanese
Ballbearings Agreement [1975] 1 CMLR D8, D15 (EC Commission) . See also Case
IV/26.870 Re Aluminium Imports from Eastern Europe [1987] 3 CMLR 813, 88690;
Case 113/77 NTN Toyo Bearing Co v Council [1979] ECR 1185, 1247 (Opinion of
Advocate General Warner).

(6) In re Potash Litigation 954 F Supp 1334 (D Minn 1997), upheld, Blomkest Fertilzer,
Inc v Potash Corp of Saskatchewan, Inc 203 F 3d 1028 (8th Cir 2000), cert denied, 121
S Ct 50, shows that it may be difficult to prove price fixing in the context of the
settlement of an antidumping action.
(7) See American Bar Association, Task Force on Trade and Antitrust Law, Trade and
Competition Policy Issues Posed by Negotiated Resolution of Trade Disputes (ABA,
2001).
(8) See, eg, Council Regulation (EEC) 1361/87 of 18 May 1987, imposing a provisional
anti-dumping duty on imports of ferro-silico-calcim/calcium silicide originating in Brazil
[1987] OJ L129/5, para 12; Council Regulation (EEC) 3365/87 of 9 November 1987,
imposing a definitive anti-dumping duty on imports of ferro-silico-calcim/calcium
silicide originating in Brazil [1987] OJ L322/1, para 7. See also Council Regulation (EC)
1322/2004 of 16 July 2004 [2004] OJ L246/10/ amending Council Regulation 2320/97
of 25 November 1997 imposing definitive anti-dumping duties on imports of certain
seamless pipes and tubes of iron or non-alloy steel originating in, inter alia, Russia and
Romania [1997] OJ L322/1.
(9) 982 F Supp 1138 (ED Va 1997), 1156.
(10) See, eg, A Fels, Competition and globalisation in C Saunders and G Triggs (eds),
Trade and Cooperation with the European Union in the New Millennium (London:
Kluwer Law International, 2002) 15, 21 (discussing the BHP/NZ Steel merger)
; CEJ Bronckers and P Larouche, Telecommunications services and the
World Trade Organization (1997) 31:3 Journal of World Trade 5, 9, n 22 .
See also Section 31 of the Canadian Competition Act, which authorizes the Governor
in Council to lower tariffs if a court or the Competition Tribunal finds that competition
has been lessened and it can be stimulated by removing tariffs.
(22) DJ Encarnation and LT Wells Jr, Evaluating foreign investment in TH Moran (ed),
Governments and Transnational Corporations, vol 7, United Nations Library on
Transnational Corporations (London and New York: Routledge, 1993) 285 .
(11) See, eg, GR Doernhoefer, The American Airlines and British Airways Alliance in
SJ Evenett, A Lehmann, and B Steil (eds), Antitrust Goes Global: What Future for
Transatlantic Cooperation? (Washington: Brookings Institute, 2000) 145 .
(12) In 1971 the US DOJ issued a business review clearance for joint oil company
bargaining in response to demands for higher payments by OPEC members and
Libya's efforts to renegotiate contracts concerning that government's share of the
Libyan crude oil extracted. Summarized in J Davidow, Antitrust, foreign policy, and
international buying cooperation (1974) 84 Yale Law Journal 268, 279, 281
. In United States v Learner Co 215 F Supp 603 (D Hawaii 1963), the
argument that an agreement among US exporters was justified because it helped the
defendants in their negotiations with a foreign cartel was rejected.
(13) See, eg, the Canadian Special Import Measures Act, RSC 1985 c S-15, as
amended, s 45; Council Regulation (EC) 384/96 of 22 December 1995 on protection
against dumped imports from countries not members of the European Community, art
21 [1996] OJ L56/1. In Case C-358/89 Extramet Industry SA v Council of the European
Communities [1991] ECR I-2501; [1992] ECR-I 3183, exceptionally, the ECJ annulled
an antidumping order on the grounds that competition issues had not been
adequately considered. After a further investigation, antidumping duties were,
however, imposed. Council Regulation (EC) 2557/94 of 19 October 1994 imposing a
definitive anti-dumping duty on imports of calcium metal originating in the People's
Republic of China and Russia [1994] OJ L 270/27.
(14) See WTO Antidumping Agreement, Art 3.5 (causation of injury), 6.12
(representations from interested parties), 9.1 (lesser duty rule); Council Regulation
(EC) 384/96, art 9(4) (lesser duty rule). Few cases have taken in account
anticompetitive conduct or limited competition. See, eg, Certain Prepared Baby Foods
Originating in or Exported from the United States of America, Canadian International
Trade Tribunal, Expiry Review No RR-2002-002, 28 April 2003, upheld HJ Heniz Co of
Canada Ltd v Gerber Products Co [2004] FCA 208.

Sometimes a lack of competition between Community producers has influenced the

outcome of antidumping cases. See, eg, Council Regulation (EEC) 2322/85 of 12
August 1985 imposing a definitive anti-dumping duty on imports of glycine originating
in Japan [1985] OJ L218/1, para 23. The Commission has normally equated restoring
effective competition with restoring the competitiveness of Community producers and
does not accept that the application of antidumping duties will impair competition.
See, eg, Commission Decision No 2450/95/ECSC of 19 October 1995 imposing a
provisional antidumping duty on imports into the Community of certain grain oriented
electrical sheets originating in Russia [1995] OJ L252/2, para 389.

(15) There is a large literature. See, eg, D Wood, Unfair trade policy: a competition
based approach (1989) 41 Stanford Law Review 1153 ; BM Steen,
Economically meaningful markets: an alternative approach to defining like product
and domestic industry under the Trade Agreements Act of 1979 (1987) 73 Virginia
Law Review 1459 ; DJ Gifford, Rethinking the relationship between
antidumping and antitrust laws (1991) 6 American University Journal of International
Law & Policy 277 ; RA Cass, Price discrimination and predation analysis
in antitrust and international trade: a comment (1993) 61 Cincinnati Law Review 877
; PKM Tharakan, E Vermulst, and J Tharakan, Interface between anti-
dumping policy and competition policy: a case study (1998) 21 The World Economy
1035 .
(16) See M Williams, Competition Policy and Law in China, Hong Kong and Taiwan
(Cambridge: Cambridge University Press, 2005) ; A Lall, competition
policy in Singapore: there is none in CJ Green and DE Rosenthal (eds), Competition
Regulation in the Pacific Rim (New York: Oceana, 1996) . Singapore has
now enacted a competition law. See Section 13.2.3.
(17) See, eg, J Langenfeld and MW Blitzer, Is competition policy the last thing Central
and Eastern Europe need? (1991) 6 American University Journal of International Law
and Policy 347, 35960 ; RA Boner and R Krueger, The Basics of Antitrust
Policy: A Review of Ten Nations and the European Communities (Washington: World
Bank Technical Paper No 160, 1991) 115 ; WTO Annual Report (1997) 51;
M Williams, Seeds of its own destruction: Hong Kong's dysfunctional competition
policy [2006] Journal of Business Law 52 .
(18) See also the somewhat different argument of M Yano, Trade imbalance and
domestic market competition policy (2001) 42 International Economic Review 729
.
(19) See CR Frischtak with B Hadjimichael and U Zacau, Competition Policies for
Industrializing Economies (Washington: World Bank (Policy and Research Series7),
1989) 910 for examples .
(20) Ibid .
(21) See UNCTAD, World Investment Report 1997: Transnational Corporations, Market
Structure and Competition Policy (New York and Geneva: United Nations, 1997) 2102
.
(23) UNCTAD (n 21 above) 129. On the other hand, competition law may be perceived
as simply another screening mechanism or bureaucratic hurdle that foreign investors
need to overcome, in which case it might hinder rather than promote competition.
(24) APEC, Competition Law for Developing Countries (APEC, 1999) 1517 surveys the
relevant studies .
(25) WM Corden, Trade Policy and Economic Welfare (2nd edn, Oxford: Clarendon
Press, 1997) 11114 .
(26) See Frischtak (n 19 above) 11.
(27) Competition law was seen as preferable to the supranational management of
trade and industry as a means of ensuing supply in the European Coal and Steel
Community. See DG Goyder, EC Competition Law (2nd edn, Oxford: Clarendon Press,
1993) 19 .
(28) See, eg, BM Hoekman and PC Mavroidis, Competition, competition policy and the
GATT (1994) 17 World Economy 121, 127 ; EU Petersmann,
International competition rules for governments and for private business: the case
for linking future WTO negotiations on investment, competition and environmental
rules to reforms of anti-dumping laws (1996) 30:3 Journal of World Trade 5, 18
.
(29) JH Jackson, World Trade and the Law of GATT (Indianapolis: Bobbs-Merrill, 1969)
402, 412 ; JJ Barcel, A history of GATT unfair trade remedy law
confusion of purposes (1991) 14 World Economy 311, 31617 .
(30) See, eg, R Boltuck and R Litan (eds), Down in the Dumps: Administration of Unfair
Trade Laws (Washington: Brookings Institute, 1991) ; B Lindsey and D
Ikenson, Antidumping 101: the devilish details of unfair trade law Cato Institute,
Trade Policy Analysis, 21 November 2002 available from <http://www.cato.org>; B
Lindsey, US antidumping law (2000) 34:1 Journal of World Trade 1 .
(31) See, eg, K Stegemann, The international regulation of dumping: protection made
too easy (1991) 14 World Economy 375, 383 ; IR Feltham, SA Salen, RF
Mathieson, and R Wonnacott, Competition (antitrust) and antidumping laws in the
context of the CanadaUnited States Free Trade Agreement (1991) 17 CanadaUnited
States Law Journal 71 ; M Trebilcock, Competition policy and trade
policy (1996) 30:4 Journal of World Trade 71 ; BM Hoekman and PC
Mavroidis, Dumping, antidumping and antitrust (1996) 30:1 Journal of World Trade
27 .

Antidumping action may hurt domestic consumers or downstream producers who pay
higher prices for imports and goods that compete with those imports. Antidumping
laws can raise rivals' costs and thereby reduce sales in several ways. First, they
increase directly the production costs of foreign plants by, for example, the imposition
of antidumping duties or litigation costs in defending the antidumping action.
Secondly, they can reduce the rate of utilization of the rivals' capacity of production,
which deters investment in foreign plants and/or the future growth of the involved
plants. Thirdly, by limiting market access, the antidumping policy can restrain the
opportunities to spread risks over markets, which can spread the average risk and the
risk variability associated with exports.

(32) See, eg, WTO, Annual Report 2003 (WTO, 2003), 234, 7683 .
(33) A study undertaken for the OECD found that instances that dumping posed no
threat to competition in more than 90% of cases in which the US and EU imposed
antidumping duties in the 1980s. See Trebilcock (n 31 above) 77; G Niels and A Kate,
Trusting antitrust to dump antidumping: abolishing antidumping in free trade
agreements without replacing it with competition law (1997) 31:6 Journal of World
Trade 29, 38 . Other writers more categorically state that there is no
recorded modern antidumping action against genuine predation. Barcel (above n 29)
314; PA Messerlin, Antidumping in JJ Schott (ed), Completing the Uruguay Round: A
Results Oriented Approach to the GATT Trade Negotiations (Washington: ?Institute for
International Economics, 1990) 126 .
(34) For discussions of such proposals see Trebilcock (n 31 above) 789; E-U
Petersmann, International competition rules for governments and for private
business: a trade law approach for linking trade and competition rules in the WTO
(1996) 72 Chicago-Kent Law Review 545 ; TJ Schoebaum, The theory of
contestable markets in international trade: a rationale for justifiable unilateralism to
combat restrictive business practices? (1996) 30:3 Journal of World Trade 161
; GN Horlick and MA Meyer, The international convergence of
competition policy (1995) 29 International Lawyer 65 ; PL Warner,
CanadaUnited States Free Trade: the case for replacing antidumping with antitrust
(1991) 23 Law & Policy in International Business 791 ; Hoekman and
Mavroidis (n 31 above) 31; C Kent, The unsettled business: should antidumping laws
be replaced by competition (antitrust) law under free trade? (1994) 32 Alberta Law
Review 722 ; Niels and Kate (n 33 above); CM Barbuto, Toward
convergence of antitrust and trade law: an international trade analogue to Robinson-
Patman (1994) 62 Fordham Law Review 2047 . Various governments
have made similar suggestion. See, eg, Productivity Commission, International
Cooperation on Competition Policy: An Australian Perspective, Report 96/15
(Canberra: Australian Government Publishing Service, 1996) 47 ; New
Zealand Ministry of Commerce, Trade Remedies in New Zealand: A Discussion Paper
(Wellington: Ministry of Commerce, 1998) .
(35) WH Barringer, Competition policy and cross border dispute resolution: lessons
learned from the U.S.Japan film dispute (1998) 6 George Mason University Law
Review 459, 4745 . Citing President's Advisory Committee on Trade
Policy and Negotiations, ACTPN Report on Competition Policy (1996) .
(36) ANZCERTA is discussed in Section 13.4.4.
(37) See, eg, references and discussion in O Cadot, J-M Grether, and J de Melo, Trade
and competition policy: where do we stand? (2000) 34:3 Journal of World Trade 1, 37
; RM Feinberg and J Shaanan, The relative price discipline of domestic
versus foreign entry (1994) 9 Review of Industrial Organization 211 ;J
Levinsohn, Testing the imports-as-market-discipline hypothesis (1993) 35 Journal of
International Economics 1 ; S Martin, Trade and competition: an
industrial economist's perspective (1999) 22:6 The World Economy: Global Trade
Policy 1999 895, 898 ; WTO Annual Report (WTO, 1997) 50 (conceptual
problems in empirical studies, but theory and practical experience suggest
liberalization promotes competition).
(38) N Vousden, The Economics of Trade Protection (Cambridge: Cambridge University
Press, 1990) 10816 . This conclusion is relatively robust in a range of
domestic market structures. See E Helpman and PR Krugman, Trade Policy and Market
Structure (Cambridge, Mass: MIT Press, 1989) .
(39) For example, in United States v Eastman-Kodak Co 63 F 3d 95, 1029 (2nd Cir
1995), a world market for photographic film was found.
(40) The latter approach may be required by s 3(1A) and (3) of the Commerce Act
(NZ). Cf Air New Zealand Ltd/Qantas Airways Ltd, Commerce Commission Final
Determination, 23 October 2003, available from <http://www.comcom.govt.nz>.
(41) See also WTO Annual Report (WTO, 1997) 49.
(42) See, eg, CR Frischtak with B Hadjimichael and U Zacau, Competition Policies for
Industrializing Economies (Washington: World Bank (Policy and Research Series7),
1989) 610 .
(43) See also Trade Practices Act, s 50(3)(a) (Aust).
(44) OECD Joint Group on Trade and Competition, Complementarities between Trade
and Competition Policies, COM/TD/DAFFE/CLP(98)98/FINAL, 28 January 1999, 67
.
(45) See ACCC, Merger Guidelines (1996) 5.1005.106 ; New Zealand
Commerce Commission, Practice Note 4 (2001) 256 ; US Department of
Justice and Federal Trade Commission, Horizontal Merger Guidelines (1992, 1997)
1.43 ; see also DI Baker and DA Balto, Foreign competition and the
market power inquiry (DOJ and FTC, 1992) 60 Antitrust Law Journal 945 .
(46) Queensland Wire Pty Ltd v The Broken Hill Pty Co Ltd (1989) 167 CLR 177 (HCA,
190); cf Commerce Commission v Southern Cross Medical Care Soc (2001) 10 TCLR
269 (NZ CA).
(47) S Martin, Trade and competition: an industrial economist's perspective (1999)
22:6 The World Economy: Global Trade Policy 1999 895, 897 .
(48) P Krugman, Does the new trade theory require a new trade policy? (1992) 15
World Economy 423, 425 . For surveys see GI P Ottaviano and D Puga,
Agglomeration in the global economy: a survey of the new economic geography
(1998) 21 World Economy 707 ; P Krugman, Increasing returns,
imperfect competition and the positive theory of international trade in GM Grossman
and K Rogoff (eds), Handbook of International Economics, vol 3 (Amsterdam: Elsevier,
1995) 1243 .
(49) N Vousden, The Economics of Trade Protection (Cambridge: Cambridge University
Press, 1990) 11718 .
(50) See WM Corden, Trade Policy and Economic Welfare (2nd edn, Oxford: Clarendon
Press, 1997) 1206 .
(51) Vousden (n 49 above) 1202.
(52) Whether the use of a subsidy to promote an otherwise non-existent industry is
welfare improving depends on the relevant cost and demand curves. There are
difficulties in implementing such policies, because of the monopolist's unique
knowledge of its cost function and its incentives to conceal this from the government
and so increase its subsidy. See Vousden (n 49 above) 118120.
(53) R Pomfret, International trade policy with imperfect competition Special Papers
in International Economics, No. 17 (Princeton: International Finance Section,
Department of Economics, Princeton University, August 1992) 56 .
(54) Corden (n 50 above) 1405.
(55) Restrictions on competition in a number of agricultural markets have been used
to subsidize domestic producers and exports.
(56) AA Auquier and RE Caves, Monopolistic export industries, trade taxes, and
optimal competition policy (1979) Economic Journal 559 .
(57) Ibid .
(58) Trade Practices Act, ss 50, 50A, 88(9), 90(9) (Aust). See also Competition Act, s
96(2), RSC, ch C-34 (1985) (Can).
(59) See also Pasminco Ltd/Australian Mining & Smelting Ltd (1988) ATPR (Com) 50-
082.
(60) New Zealand Commerce Commission, Guidelines to the Analysis of Public
Benefits and Detriments (1997) 15, 17 (withdrawn) .
(61) Ibid 13 .
(62) A small country is one which faces a perfectly elastic demand for its exports and
a perfectly elastic supply for its imports. With respect to supplies by a foreign
monopolist, the small country is unable to affect the monopolist's marginal cost or to
influence the monopolist's pricing decisions in the rest of the world.
(63) Vousden (n 49 above) 1225.
(64) RW Jones and S Takemori, Foreign monopoly and optimal tariffs for the small
open economy (1989) 33 European Economy Review 1691 .
(65) C Kowalczyk, Monopoly and trade policy (1994) 36 Journal of International
Economics 177 .
(66) A regional or global monopoly is unlikely to start manufacturing in a small
country if doing so would mean the loss of economies of scale in production or access
to specific natural or technological resources not available in the small country.
(67) The use of import cartels and monopolies to countervail foreign market power is
possible, but the economic effects are uncertain. See RD Blair and JL Harrison,
Monopsony: Antitrust Law and Economics (Princeton: Princeton University Press, 1993)
ch 6 ; J Davidow, Antitrust, foreign policy, and international buying
cooperation (1974) 84 Yale Law Journal 268 . Nonetheless, a number of
countries appear to have approved the use of such import cartels and monopolies. For
example, the British Restrictive Practices Court upheld the legality of a British import
cartel as necessary to counter a US Webb-Pomerene sulphur association. In re
National Sulphuric Acid Association's Agreement [1963] 4 RP 169; In re National
Sulphuric Acid Association's Agreement (No 2) [1966] LR 6 RP 210; see also Re
Application of the National Sulphuric Acid Association Limited Decision 80/917/EEC
[1980] 3 CMLR 429; Re Application of the National Sulphuric Acid Association Limited
(No 2) Case IV/27.958 [1990] 4 CMLR 612. Foreign buying and import cartels have
been found to violate US antitrust laws, even if formed in response to a cartel formed
among US firms under a statutory exemption to the antitrust laws. See Daishowa Int'l
v North Coast Export Co, 19822 Trade Cas 64,774 (ND Cal 1982) (Webb-Pomerene
association); United States v C Itoh & Co, 19823 Trade Cas 65,010 (WD Wash 1982)
(consent decree, Fishermen's Collective Marketing Act cooperative).
(68) See, eg, the Gillette/Wilkinson Sword, BAT/Rothmans, Coca-Cola/Schweppes
mergers.
(69) See Case No COMP/M.2220 General Electric/Honeywell, Commission Decision 3
July 2001, upheld Case T-210/01 General Electric Co v Commission, judgment 14
December 2005; US Department of Justice Press Release, Statement by Assistant
Attorney-General Charles A. James on the EU's Decision regarding the GE/Honeywell
acquisition 3 July 2001 .
(70) For similar analyses see AT Guzman, Is international antitrust possible? (1998)
73 New York University Law Review 1104 ; AT Guzman, Antitrust and
international regulatory federalism (2001) 76 New York University Law Review 1142
; AT Guzman, The case for international antitrust, JO McGinnis, The
political economy of international antitrust harmonization, and M Trebilcock and E
Iacobucci, National treatment and extraterritoriality: defining the domains of trade
and antitrust policy in RA Epstein and MS Greve, Competition Laws in Conflict:
Antitrust Jurisdiction in the Global Economy (Washington: AEI Press, 2004)
. See also A Tay and G Willmann, Why (no) global competition policy is a
tough choice (2005) 45 Quarterly Review of Economics and Finance 312
.
(71) See Telecom Corporation of New Zealand Ltd v Commerce Commission (1991) 3
NZBLC 102, 340, 102, 386.
(72) See, eg, Air New Zealand Ltd/Ansett Holdings Ltd/Bodas Pty Ltd, Decision No 278,
3 April 1996, paras 44463.
(73) New Zealand Commerce Commission, Guidelines to the Analysis of Public
Benefits and Detriments (1997), 15 .
(74) Canada (Commissioner of Competition) v Superior Propane, Inc (2003) FCA 53,
para 33 (CA); Director of Investigation and Research v Hillsdown Holdings (Canada)
Ltd (1992) 41 CPR (3d) 289, 343 (Comp Trib).
(75) Fletcher Challenge Ltd (1988) ATPR (Com) 50077, 57, 3946. In this case, the
transaction did not appear likely to lead to a rationalization of Australian production
with an increase in New Zealand production.
(76) AA Auquier and BE Caves, Monopolistic export industries, trade taxes, and
optimal competition policy (1979) Economic Journal 559 ; JR Melvin and
RD Warne, Monopoly and the theory of international trade (1973) 3 Journal of
International Economics 117 .
(77) S Martin, Trade and competition: an industrial economists perspective (1999)
22:6 The World Economy: Global Trade Policy 1999, 895, 9002 ; JA
Ordover and L Goldberg, Obstacles to Trade and Competition (Paris: OECD, 1993)
; AP Victor, Export cartels: an idea whose time has passed (1992) 60
Antitrust Law Journal 571 ; JD Whitney, The causes and consequences of
Webb-Pomerene associations: a reappraisal (1993) 38 Antitrust Bulletin 395
; U Immenga, Export cartels and voluntary export restraints between
trade and competition policy (1995) Pacific Rim Law and Policy Journal 93
; SW Waller, The failure of the export trading company programme
(1992) 17 North Carolina Journal of International Law & Commercial Regulation 239
; B Sweeney, Export cartels: Is there a need for global rules? (2007) 10
Journal of International Economic Law 87 .
(78) In Communication from Thailand, WT/WGTCP/W/213/Rev.1, 26 September 2002,
para 2.1, Thailand proposed that a core principle of WTO competition law agreement
should prohibit discrimination between export and non-export firms. This can be read
as a requirement that competition law rules do not discriminate between local and
foreign consumers.
(79) See, eg, Commission Regulation (EC) 2790/1999 of 22 December 1999 on the
application of Article 81(3) of the Treaty to categories of vertical agreements and
concerted practices [1999] OJ L336/21, Art 3.
(80) See, eg, IV/M053 Arospatiae-Alenia/De Havilland [1991] OJ L334/42. Council
Regulation (EEC) 4064/89 of 21 December 1989 on the control of concentrations
between undertakings [1990] OJ L/257/14, as amended by Council Regulation (EC)
1310/97 of 30 June 1997 amending regulation (EEC) 4064/89 on the control of
concentrations between undertakings [1997] OJ L/180/1, replaced by Council
Regulation (EC) 139/2004 of 20 January 2004 on the control of concentrations
between undertakings [2004] OJ L 24/1 (The EC Merger Regulation).
(81) EN Varona, AF Galarza, JF Crespo, and JB Alonso, Merger Control in the European
Union: Law, Economics and Practice (Oxford: Oxford University Press, 2002) 31520
.
(82) Continental T V Inc v GTE Sylvania, Inc 433 US 36 (1977); Broadcast Music, Inc v
Columbia Broadcasting Systems, Inc 441 US 1 (1979); United States v Microsoft Corp
253 F 3d 34 (DC Cir), cert denied, 122 S Ct 350 (2001).
(83) In Federal Trade Commission v H J Heinz Co 116 F Supp 2d 190 (DDC 2000),
rev'd, 246 F 3d 708 (DC Cir 2001), the Courts of Appeals, in reversing a decision not to
grant an injunction, reasoned that the high level of concentration levels present in this
case (a duopoly after the merger) require, in rebuttal, proof of extraordinary
efficiencies, which the companies failed to supply. Observations of the court raise
doubts about the availability of an efficiency defence where concentration is so high.
(84) See IK Gotts and CS Goldman, The role of efficiencies in M&A global antitrust
review: still in flux? [2002] Fordham Corporate Law Institute 201, 20518
.
(85) Ibid . See US DOJ and FTC, Horizontal Merger Guidelines (1992,
amended 1997) 4 .
(86) United States v Philadelphia Nat'l Bank 374 US 321 (1963) 3701.
(87) R Pitofsky, The effect of global trade on United States competition law a-nd
enforcement policies, Fordham Corporate Law Institute, 26th Annual Conference on
International Antitrust Law and Policy, New York, 15 October 1999 .
(88) JR Atwood, Information from abroad: who bears the burden in an antitrust
investigation? (1996) 65 Antitrust Law Journal 227 ; JD Briggs, The
impact of foreign competition on U.S. antitrust enforcement (1996) 65 Antitrust Law
Journal 253 . Foreign firms may, however, be reluctant to disclose
business information that is forward looking in nature, such as business plans and
likely responses to price rises.
(89) A small country that is intending to make significant one-off purchases, such as a
fleet of aircraft, may have different incentives. However, in such a case the small
country is not concerned about competition itself.
(90) International Competition Policy Advisory Committee to the Attorney-General and
Assistant Attorney-General for Antitrust, Final Report (2000) chs 2 and 3 .
(91) Ibid 138, n 123 .
(123) See Howell (n 121 above) 302.
(92) Surveys include D Laussel and C Montet, Strategic trade policies in D
Greenaway and LA Winters (eds), Surveys in International Trade (Oxford: Basil
Blackwell, 1994) 177 ; RE Baldwin, Are economists' traditional trade
policy views still valid? (1992) 30 Journal of Economic Literature 804 ; JA
Brander, Strategic trade policy in GM Grossman and K Rogoff (eds), Handbook of
International Economics, Vol. 3 (Amsterdam: Elsevier, 1995) 1395 .
(93) In the Stackelberg LeaderFollower Model, the leader firm picks its output level
and then the other firms are free to choose their optimal quantities, given their
knowledge of the leader's output. If the leader firm can commit to a relatively large
output level, the follower firms will pick a relatively small output level. The leader
makes a higher profit than the follower relative to the Cournot equilibrium. DW Carlton
and JM Perloff, Modern Industrial Organization (3rd edn, Reading, Mass: Addison-
Wesley, 1999) 1824, 590 .
(94) GM Grossman and G Maggi, Free trade versus strategic trade: a peek into
Pandora's box, Centre for Economic Policy Research Discussion Paper No 1784,
January 1998 .
(95) See Ibid .
(96) See, eg, M Richardson, Trade and competition policies: Concordia discors?
(1999) 51 Oxford Economic Papers 649 (increased number of domestic firms
perceived as a Stackleberg-like commitment to greater output) ; JP Neary
and P O'Sullivan, Beat 'em or join 'em?: export subsidies versus international
research joint ventures in oligopolistic markets, Discussion Paper No 1916, Centre for
Economic Policy Research, June 1998 (where firms compete in research and
development and output and, because of spill-over effects, each firm benefits from
other's research, cooperation can increase research and output) ;K
Morasch, Strategic alliances: a substitute for strategic trade policy? (2000) 52
Journal of International Economics 37 (certain production joint ventures may be
equivalent to subsidies) .
(97) P Krugman, Increasing returns, imperfect competition and the positive theory of
international trade in GM Grossman and K Rogoff (eds), Handbook of International
Economics, vol 3 (Amsterdam: Elsevier, 1995), 126871 .
(98) C Bliss, Trade and competition control in J Bhagwati and RE Hudec (eds), Fair
Trade and Harmonization: Prerequisites for Free Trade?, Volume 1, Economic Analysis
(Cambridge, Mass: MIT Press, 1996) 313 . Other papers along similar lines
include K Head and J Ries, International mergers and welfare under decentralized
competition policy (1997) 30 Canadian Journal of Economics 1104 ; DJ
Neven and L-H Rller, The scope of conflict in international merger control, Centre
for Economic Policy Research, Discussion Paper No 2621, November 2000
; H Horn and J Levinsohn, Merger policies and trade liberalisation
(2001) 111 The Economic Journal 244 ; H Horn and L Persson, The
equilibrium ownership of an international oligopoly (2001) 53 Journal of International
Economics 307 .
(99) Although it could be argued that this possibility may be of limited practical
relevance, because firms are unlikely to want to merge if doing so would reduce local
welfare by reducing producer profits, the broader transaction may be beneficial.
(100) Laussel and Montet (n 92 above) 187.
(101) JD Richardson, The political economy of strategic trade policy (1990) 44
International Organization 107, 11718, n 34 ; A Alam, The new trade
theory and its relevance to the trade policies of developing countries (1995) 18
World Economy 367 .
(102) A very broad rule prohibiting the abuse of a dominant position might provide a
mechanism by which one country can counter the attempts of a firm from another
country to act as a Stackelberg leader.
(103) See Alam (n 101 above) 3801.
(104) See S Semeraro, Distinguishing international from domestic predation: a new
approach to predatory dumping (1987) 23 Stanford Journal of International Law 621,
6434 ; SF Benz, Below-cost sales and the buying of market share
(1990) 42 Stanford Law Review 695, 7089 .
(105) AV Deardorff, Economics perspectives on antidumping law in JH Jackson and
EA Vermulst (eds), Antidumping Law and Practice: A Comparative Study (Ann Arbor:
University of Michigan Press, 1989) 34 .
(106) C Morgan, Competition policy and anti-dumping: is it time for a reality check?
(1996) 30:6 Journal of World Trade 61, 67 ; see also P Nicolaides, The
competition effects of dumping (1990) 24:5 Journal of World Trade 115, 123
; DJ Gifford, Rethinking the relationship between antidumping and
antitrust laws (1991) 6 American University Journal of International Law and Policy
277, 3213 .
(107) The competition laws of some countries recognize that there may be legitimate
business reasons for pricing below costs in certain circumstances. The same is true of
dumping, but not antidumping laws.
(108) This motivation for dumping has been recognized for a long time. See J Viner,
Dumping: A Problem in International Trade (New York: Augustus M Kelley (Reprints of
Economic Classics), 1923/1966) 1234 .
(109) See JA Ordover, AO Sykes, and RD Willig, Unfair international trade practices
(1983) 15 New York University Journal of International Law and Politics 323, 327
 .
(110) Ibid .
(111) 475 US 574 (1986).
(112) MK Morita, Structural Impediments Initiative: is it an effective correction of
Japan's antimonopoly policy? (1991) 12 University of Pennsylvania Journal of
International Business Law 777, 785 .
(113) FM Scherer, Competition Policies for an Integrated World Economy (Washington:
Brookings Institute, 1994) 867 .
(114) See also P Areeda, RA Epstein, WF Schwartz, and AP Victor, Panel discussion on
foreign predation and foreign government subsidies [1984] Fordham Corporate Law
Institute 63 .
(115) In international predatory pricing actions the exporting country does not have
the incentive to cooperate fully with the importing country in evidence gathering and
enforcement. It may also be hard to prove price differences and price discrimination
between national markets and collusion among a group of alleged price fixers in their
home market.
(116) R Pomfret, International trade policy with imperfect competition Special
Papers in International Economics, No. 17 (Princeton: Internationl Finance Section,
Department of Economics, Princeton University, August 1992) 67 .
(117) B Hindley, The economics of dumping and anti-dumping action: is there a baby
in the bathwater? in PKM Tharakan (ed), Policy Implications of Antidumping Measures
(Amsterdam: Elsevier Science Publishers (North-Holland), 1991) 25, 33, 37
.
(118) J Viner, Dumping: A Problem in International Trade (New York: Augustus M Kelley
(Reprints of Economic Classics), 1923/1966) 97 .
(119) PA Messerlin, Antidumping in JJ Schott (ed), Completing the Uruguay Round: A
Results Oriented Approach to the GATT Trade Negotiations (Washington: Institute for
International Economics, 1990) 128 .
(120) See Hindley (n 117 above) 378.
(121) See, eg, TP Stewart, Administration of the antidumping law: a different
perspective in R Boltuck and RE Litan (eds), Down in the Dumps: Administration of
the Unfair Trade Laws (Washington: Institute for International Economics, 1991) 288
; AW Wolff, The problems of market access in the global economy: trade
and competition policy in New Dimensions of Market Access in a Globalising World
Economy (Paris: OECD, 1995) 195 ; TR Howell, Cartels and dumping: a
response (2000) 68 Antitrust Law Journal 297 .

One justification for antidumping is that antidumping action, particularly in a large,

open market like the US, wholly or partially closes the export outlet for dumped
products, and can force those surpluses back into the cartel's home market, which
undermines market stabilisation schemes. See Howell, Ibid, 300 .

(122) The following analysis is taken from Hindley (n 117 above) 38.
(124) DMG Newbery and JE Stigltz, The theory of commodity price stabilisation rules:
welfare impacts and supply responses (1979) Economic Journal 799 .
(125) The situation is more complicated when there are fixed and misaligned
exchange rates, or in the presence of externalities or scale economies that could
justify infant industry protection or strategic trade policy. In any event, subsidies will
normally be the more efficient policy measure to assist infant industries than tariffs
because the former do not permit the abuse of domestic market power.
(126) This was the alleged scenario in Matsushita Elec Indus Co v Zenith Radio Corp
475 US 574 (1986). See also TM Reif and GE Bacher, Trade laws, antitrust laws, and
the process of economic integration (1996) 27 Law and Policy in International
Business 927 (the link between US antidumping action and abuse of a dominant
position in the Mexican cement market) . See also OECD, Restrictive
Business Practices of Multinational Enterprises (Paris: OECD, 1977) 14 .
This strategy is sometimes called war-chesting. It has been argued that cross-
subsidization as a result of cartel or oligopoly profits from a protected home market
may be a substitute for an export subsidy as a tool of strategic trade policy. See, eg,
SF Benz, Below-cost sales and the buying of market share (1990) 42 Stanford Law
Review 695 ; H First, Structural antitrust rules and international
competition: the case of distressed industries (1987) 62 New York University Law
Review 1054 . Other scholars recognize this possibility, but dismiss all
rent shifting policies as of little practical relevance. See KG Elzinga, The new
international economics applied: Japanese televisions and U.S. consumers (1988) 64
Chicago-Kent Law Review 941, 9467 .
(127) See, eg, Elzinga, Ibid, 9614 ; FM Fisher, Matsushita: myth v.
analysis in the economics of predation (1988) 64 Chicago-Kent Law Review 969, 974
5 .
(128) See IB Feltham, SA Salen, RF Mathieson, and R Wonnacott, Competition
(antitrust) and antidumping laws in the context of the CanadaUnited States Free
Trade Agreement (1991) 17 CanadaUnited States Law Journal 71, 112 dismissing the
possibility of the Canadian market subsidising a predatory pricing campaign in the US
.
(129) JA Ordover, AO Sykes, and RD Willig Unfair international trade practices (1983)
15 New York University Journal of International Law and Politics 323, 329 .
(130) B Hindley, The economics of dumping and anti-dumping action: is there a baby
in the bath water? in PKM Tharakan (ed), Policy Implications of Antidumping
Measures (Amsterdam: Elsevier Science Publishers (North-Holland), 1991) 39
.
(131) DJ See Gifford, Rethinking the relationship between antidumping and antitrust
laws (1991) 6 American University Journal of International Law & Policy 277
; New Zealand Ministry of Commerce, Trade Remedies in New Zealand: A
Discussion Paper (Wellington: Ministry of Commerce, 1998) .
(132) See, eg, CanadaMeasures Affecting the Importation of Milk and the
Exportation of Dairy Products, Second recourse to Article 21.5 of the DSU by New
Zealand and the United States, WT/DS103/AB/RW2, WT/DS113/AB/RW2, adopted 17
January 2003.
(133) P Krugman, Import protection as export promotion: international competition in
the presence of oligopoly and economies of scale in H Kierzowski (ed), Monopolistic
Competition and International Trade (Oxford: Clarendon Press, 1984) 180
; H Gruenspecht, Dumping and dynamic competition (1988) 25 Journal of
International Economics 225 ; P Krugman, Market access and
competition in high technology industries: a simulation exercise in H Kierzkowski
(ed), Protection and Competition in International Trade: Essay in Honor of W.M. Cordon
(Oxford: Blackwell, 1987) 128 ; AR Dick, Learning by doing and dumping
in the semiconductor industry (1991) 34 Journal of Law and Economics 133
.
(134) SF Hamilton and K Stiegert, Vertical coordination, antitrust law, and
international trade (2000) 43 Journal of Law and Economics 143 . The
international market effects make this case distinct from that considered in Section
5.2.4.
(135) D Flath, The Keiretsu puzzle (1996) 10 Journal of Japanese and International
Economics 101 .
(136) Hamilton and Stiegert (n 134 above) 153.
(137) RK Rasmussen, A new approach to transnational insolvencies (1997) 19
Michigan Journal of International Law 1, 236 ; M Klauser, Corporations,
corporate law, and networks of contracts (1995) 81 Virginia Law Review 757, 77489
.
(138) G Wagner, The economics of harmonization: the case of contract law (2002)
39 Common Market Law Review 995, 101315 .
(139) See WH Hurlburt, Harmonization of Provincial legislation in Canada: the elusive
goal (198687) 12 Canadian Business Law Journal 387, 394 .
(140) R van den Bergh, The subsidiary principle and the EC competition rules: the
costs and benefits of decentralisation in D Schmidtchen and R Cooter (eds),
Constitutional Law and Economics of the European Union (Cheltenham: Edward Elgar,
1997) 142, 168 claims that lawyers in some European jurisdictions did
not want their countries to adopt US-style competition laws because of the threat of
increased competition from US law firms and lawyers.
(141) See OECD, International Mergers and Competition Policy (Paris: OECD, 1989)
; R Whish and D Wood, Merger Cases in the Real WorldA Study of
Merger Control Procedures (Paris: OECD 1994) ; International Competition
Policy Advisory Committee to the Attorney-General and Assistant Attorney-General for
Antitrust, Final Report (2000) ch 3 ; International Competition Network,
Report on the Costs and Benefits of Multijurisdictional Merger Review, presented by
Notification and Procedures Subgroup of the Mergers Working Group, First Annual
Conference, Napoli, Italy, 2829 September 2002 ; International
Competition Network, Recommended Practices for Merger Notification Procedures,
Second Annual Conference, Merida, Mexico, 2325 June 2003 ;
International Competition Network, Recommended Practices for Merger Notification
Procedures, April 2004 ; Antitrust Modernization Commission, Report and
Recommendations (2007) 217 .
(142) Consolidated Gold Fields v Anglo-American Corp 698 F Supp 487 (SDNY 1988).
(143) See Chapter 13.
 (144) D Wood, A cooperative framework for national regulators (1996) 72 Chicago-
Kent Law Review 521, 5245 .
(145) Whish and Wood (n 141 above).

Private Market Access Barriers

Chris Noonan
DOI:10.1093/acprof:oso/9780199207527.003.0006
Abstract and Keywords

This chapter analyses the case for an international obligation for countries to enact
and enforce a competition law to prevent anticompetitive conduct that creates market
access barriers. It examines Japanese business practices that allegedly created
market access barriers in several major industries, including soda ash, steel,
stevedoring, semiconductors, and supercomputers. It is argued that anticompetitive
conduct may restrict market access and that an international remedy should be
available in limited circumstances. While there may be mutual gains from states
agreeing to prohibit private anticompetitive conduct that restricts market access, the
case for a common set of rules is weak.

Keywords: competition law, Japan, Japanese business practices, anticompetitive

conduct
6.1 Introduction
In Japan, an array of business practices and keiretsu relationships1 are alleged to have
created market access barriers in many important industries, including soda ash,
steel, stevedoring, semiconductors, supercomputers, paper and paperboard,
construction, insurance, amorphous metal transformers, auto distribution, auto parts,
flat glass, and photographic film.2 The types of conduct that have been alleged to
create private market access barriers to the Japanese include:3
Foreign businesses are likely to encounter entrenched company attitudes and long-
established supplier relationships among private firms, which severely limit sales
opportunities.
Distributors and end-users resist purchasing imported goods out of fear of retaliation
or supply disruptions from their major domestic suppliers. These domestic
manufactureruser relationships are so rarely codified in contract or written form that
it is extremely difficult, if not impossible, to obtain evidence of such influence or
control.
(p.186)
Local manufacturers with significant, though not dominant, market positions often
hold minor equity positions in distributors or other intermediaries, which handle or
could handle imported products that compete with domestic sources of supply.
In some sectors, domestic manufacturers employ a variety of financial
arrangements such as progressive rebates, after-sale price adjustment systems and
other mechanisms that serve as serious disincentives for local distributors to abandon
their exclusive distributorship arrangements with local manufacturers.
In some sectors, distributors or dealers are required by contract or practice to notify
or to seek prior approval from domestic suppliers before handling competing imported
products.
In some sectors, consortia of local producers control all of the available warehousing
and storage facilities, making it virtually impossible for significant amounts of
imported product to be stored in existing local facilities.
Trade associations that provide essential services (such as certification, standards
approval, and regulation) for members may be able to restrict entry into an industry.
The trade associations may be given de facto regulatory powers because a Japanese
 Ministry may refuse to grant a regulatory approval without prior consultation with or
approval from the trade association.
Some sectors have been targeted by national industrial policies that have
encouraged particular business practices or contributed to the current structure of the
industry, which have raised market access barriers.

While Japan has some unique features and market structures, allegations that
anticompetitive conduct restricted imports have been made in many countries.
Indeed, after trade or investment liberalization, a significant proportion of challenges
to exclusionary conduct are likely to be brought by foreign or foreign-owned firms that
are potential entrants. The belief that foreign competitors were being excluded from
markets as a result of private anticompetitive conduct became a major source of trade
tension in the 1980s and was an important component of the discussions of
competition law at the WTO.
Private market access barriers may be created by a broad range of anticompetitive
acts, including the abuse of dominant positions, vertical integration and restraints (in
particular exclusive dealing arrangements), and group boycotts. Such private
practices can nullify or impair the expected benefits from a trade agreement and may
lower consumer welfare in the importing country. In certain markets, the exclusion of
foreign competitors from a major market could also affect competition at a global
level.
The role of the local government in any alleged market access barrier will determine
the most appropriate mechanism to address the barrier, in particular the respective
roles of the WTO and national competition law. Government measures, which could
affect competition and market access, normally fall outside the ambit of competition
law. For example, where a government compels (p.187) anticompetitive conduct, the
government should be held responsible, but the compelled firms should generally not
be liable under national competition laws. See Chapter 9. The USTR's annual National
Trade Estimate report must include a section on foreign anticompetitive practices,
the toleration of which by foreign governments is adversely affecting exports of
United States goods or services.4 Government toleration of anticompetitive practices
will generally be not subject to trade disciplines.
Chapter 6 analyses the case for an international obligation for countries to enact and
enforce a competition law to prevent anticompetitive conduct that creates market
access barriers. It concludes that anticompetitive conduct may restrict market access
and that an international remedy should be available in limited circumstances. The
form that the remedy should take is taken up in Chapters 8 (extraterritoriality in
export commerce), 11 and 12 (the WTO and dispute settlement) and 13 (enforcement
cooperation).
6.2 Defining Structural Impediments
In the 1980s, Japanese business practices and the content and enforcement of the
Antimonopoly Law (AML) became a major source of friction in JapanUS trade
relations.5 A number of WTO members claimed that the keiretsu , the multi-layered
distribution system, and restrictive business practices were significant market access
barriers, or structural impediments, to the Japanese market, and facilitated the
exploitation of foreign markets.6 At the same time, many of the same features of
Japanese corporate organization were seen as having played a important role in
Japan's strong economic performance through much of the post-war period.
There are at least three ways to understand, in economic terms, the assertion that
corporate organization might constitute a structural impediment to international
trade.7 First, a structural impediment may be a non-tariff barrier to trade. Just as tariffs
raise the cost of exporting goods to a given country, so do complicated distribution
systems and close inter-firm relations. Secondly, corporate organization may be a
structural impediment in the sense that firms, acting individually or collectively, are
able to erect barriers to entry, as that term is understood in the economics of
industrial organization. The difference between (p.188) the first and second
approaches captures much of the difference in treatment of private market access
barriers by trade and competition officials.8 Thirdly, structural impediments could be
located in the context of the theory of economic organization (or theory of the firm).
The literature on the theory of economic organization views firms and markets as
alternative modes for organizing economic activity. Firms are not just economic agents
that act in markets; firms can also be seen as supplanting, or being supplanted by,
markets. There exists a range of possible organizational forms, with varying degrees
of firm-like and market-like characteristics, possible for any given transaction. 9 An
analysis of structural impediments to trade should involve a consideration of how and
why firms and markets are organized in Japan. Thus, it may be inappropriate to
examine the extent to which markets are open without examining the nature and
extent of the markets in which firms operate.
If countries agreed to standardize their competition laws, the agreement would
implicitly define a structural impediment. The claim that corporate organization should
be analysed in terms of the theory of economic organization embraces the views that
exclusionary but efficient conduct is not a structural impediment and that
harmonization should not require national laws to prohibit business practices that are
exclusionary but still efficiency enhancing. If different countries have different, but
equally efficient patterns of corporate organization,10 but one is more exclusionary,
there may still be an issue as to whether each country should only permit conduct
that is the least exclusionary means of achieving the efficiency gains.
6.3 Trade Arguments for Competition Law to Protect Market Access
The terms-of-trade theory shows that under a variety of production conditions, if the
offer curve a country faces is not completely elastic, foreign trade policies are taken
as fixed, and there are no domestic distortions, an optimum tariff or export tax policy
is better than a free trade policy for a country.11 In other (p.189) words, government
intervention could improve national welfare by exploiting the country's international
market poweralbeit at the expense of that country's trading partners and global
efficiency. Governments and economists, however, have not shown much enthusiasm
for intervention on terms-of-trade grounds. There are a number of likely reasons. The
relevant demand and supply elasticities might be too high for optimal trade taxes to
bring appreciable gains, or there might be too much uncertainty about the values of
those elasticities to accurately calculate the optimum tariff.12 Tariffs are also a rather
blunt instrument to permit for the optimum exploitation of market power, because of
international disciplines, the risk of retaliation, and the difficulty of adjusting tariffs in
response to changing market conditions.
The WTO does not prohibit all market access barriers (or export taxes). Trade
agreements that limit the ability of countries to raise tariffs and impose quantitative
restraints on imports and exports will induce substitution towards trade restraints not
subject to international disciplines, such as private anticompetitive conduct. 13 When a
country's formal trade barriers are lowered it may have an incentive to relax its
competition law rules to facilitate the exploitation of national market power. Private or
government supported import and export cartels may be a good substitute for optimal
tariffs (or export taxes). The existence and the effects of an export cartel may be far
from obvious, which reduces the risk of retaliatory actions from abroad. Private firms
may also be better able to calculate the optimum import or export price than the
government.14 To promote efficiency and protect the benefits of trade liberalization an
international trade agreement may therefore need to impose various disciplines to
prevent public or private exploitation of international market power.
Bagwell, Mavroidis, and Staiger argue that terms of trade externalities are common
and significant, even in small countries.15 If a country was too small to affect its
terms of trade by its tariff choices, exporters would be indifferent to the tariffs faced
there and other governments would not dispute the tariff policy.16 The fact that trade
disputes between small countries are common (p.190) indicates the presence of
terms-of-trade externalities. It is further argued that the terms-of-trade externalities
provide the major economic rationale for trade agreements:17
The central idea is that the import tariff of any one country reduces the terms of trade
for its trading partners (i.e., the export price received by foreign exporters abroad)
and thereby generates a negative pecuniary externality abroad. The consequence is a
terms-of-trade-driven Prisoners' Dilemma, in which tariffs are inefficiently high.

The higher tariffs hurt consumers, but benefit import competing firms and may
generate extra revenue for the government. By weighing these effects, governments
determine what policy to pursue. Governments do not take account of the adverse
effects on the price received by foreign exporters. Unless the country is very small,
some proportion of the cost of the tariff will be absorbed by the foreign exporters,
rather than passed on to the consumers. Since governments do not internalize the full
cost of a tariff, tariffs are higher than would be efficient from a worldwide perspective.
Governments might be willing to agree to reduce tariffs on a reciprocal basis and
thereby reduce the costs that unilateral trade policies impose on each other's
exporters and improve worldwide efficiency. Bagwell and Staiger have extended the
argument to other market access barriers and to domestic policies that affect the
costs of production of import competing industries. This theory may provide a
rationale for an international agreement to prohibit private anticompetitive conduct,
such as import cartels, collective boycotts and exclusionary practices, which restrict,
or raise the costs of, imports. The gains from trade could be increased by agreement
on the prohibition of anticompetitive conduct that restricts market access.
In addition to the terms-of-trade argument, the agreement to reciprocal elimination of
private market access barriers is consistent with many political economy models of
trade negotiations. The interests of export industries in trade liberalization are often
seen as counter-balancing the interests in import competing industries in resisting
trade liberalization. Private market access barriers are most likely to exist in
imperfectly competitive markets, which are often the type of markets that exporters
have most to gain from entering. The toleration of such anticompetitive practices may
undermine the value of negotiated market access commitments, which could
undermine the incentives of WTO members to negotiate commitments in the first
place.
A large number of government policies can affect market access and so justify trade
negotiations. The toleration of anticompetitive conduct is arguably different and
therefore the introduction of international disciplines on competition law would not
imply acceptance that all domestic policies restricting trade should (p.191) be
subject to international rules. The terms-of-trade externality can only exist when a
country has a degree of international market power. The presence of market power
also means that economically harmful anticompetitive conduct is possible. The
majority of WTO members already have competition laws. Local competition laws and
foreign competition laws, when applied extraterritorially, already address some of the
types of anticompetitive conduct that involve the exploitation of international market
power. An international agreement to eliminate private market access barriers might
only require a modest refinement of existing legal rules in many countries. Unlike
environmental or labour standards, if the costs of implementing a competition law are
ignored, the benefits of an international agreement prohibiting private market access
barriers could be in the interests of all countriesdeveloped and developing. In other
words, subject to the considerations outlined in the Section 6.4.1, no country need
adopt a law that harms its welfare. Sometimes it is argued that the WTO can or should
only address government conduct, not private conduct. This is correct. However, a
WTO agreement on competition would only address government regulation of private
conduct, not the private conduct itself.
6.4 The Ambiguous Effects of Competition Law on Market Access
6.4.1 The Welfare Effects of Eliminating Private Market Access Barriers
Market access concerns could in theory justify an international agreement covering all
types of anticompetitive conduct in all sectors that blocks entry or makes entry more
costly in the importing industry. However, any benefits of improved market access
would need to be weighed against the costs associated with any change in national
competition law required to address all private market access barriers.
An importing country could expect several economic benefits from trade liberalization
and the enforcement of a competition law, including increased competition in
domestic markets and greater price competition and consumer choice. An exporting
country (and exporting firms) may benefit in a number of ways from increased market
access, including from improved terms of trade, economies of scale in production, and
a reduced risk that other countries will pursue harmful strategic trade policies. The
elimination of private anticompetitive conduct could improve welfare in all countries.
However, improved market access and increased exports are likely to depress prices.
They may also reduce the sales and/or profits of some or all of the incumbent firms,
because the market was imperfectly competitive before the elimination of the
anticompetitive conduct that restricted market access. While the profits of firms based
in the importing country may be reduced, the profits of firms based in the exporting
country may increase. National consumer welfare and total welfare generally would be
improved by the (p.192) unilateral adoption of a competition law that prohibited
anticompetitive conduct that created market access barriers. However, there are a
number of countervailing forces that limit the incentive of countries to take joint
action to eliminate private market access barriers.
The EU and the US have been the most vocal of the WTO members expressing
concern about the presence of private market access barriers in other countries. They
therefore presumably expect that the enforcement of competition laws in other WTO
members would improve market access opportunities for EU and US firms. The EU and
the US already have actively enforced competition laws. Other countries could not
therefore expect to receive significant increased access to the EU and US markets as a
result of a WTO agreement requiring members to enforce a competition law. While
these other countries could acquire improved access to the markets of other small
countries and the right to compel some sort of enforcement action in all members,
these may not be seen as significant benefits. Small and developing countries without
actively enforced competition laws may face significant implementation costs and
would benefit less than the major industrialized countries. Therefore, it is likely that
small and developing countries would be reluctant to agree to disciplines that required
them to adopt a competition law and enforcement policy significantly different from
what they would adopt without an international agreement. The competition law that
any country would adopt unilaterally is unlikely to single-mindedly seek to eliminate
all private market access barriers.
A country's political assessment of the affect of the elimination of private market
access barriers could depend on the extent to which it values the interests of
producers relative to the interests of consumers. If producers are politically influential,
a country might adopt a competition law that discriminated against foreign producers.
Such a policy could even promote national economic welfare, if it prevented a foreign
firm monopolizing the domestic market and monopoly rents being earned by its
foreign owners. Even without an express bias against foreign firms, large established
producers are likely to have more influence over government policy than potential
entrants, which might lead to a competition law that imposed only limited constraints
on incumbents, especially in relation to conduct that might increase the
competitiveness of local firms. Following trade and investment liberalization, new
entrants are often foreign exporters or foreign owned. Therefore, a lax competition
law that favoured incumbents over entrants would also tend to disfavour foreign
exporters and foreign-owned firms. There are several other, more compelling reasons
why countries should not seek to ban all private conduct that restricts market access.
As many commentators have pointed out, a ban on all conduct that restricted market
access could risk banning many legitimate competitive activities and prevent
incumbents competing on the merits.18 Thus it is not desirable, even if it (p.193) was
possible, for countries to agree to ban conduct simply because it makes it more
difficult for foreign firms to enter a market, without regard to the efficiency of the
incumbent or the potential entrant. Even an international rule requiring the prohibition
of exclusionary conduct, in the sense of conduct that would prevent an equally
efficient rival from competing in a market, would be undesirable. This is not to say
that such a rule should not be adopted at a national level, but merely that it should
not be required to be adopted. The toleration of vertical restraints and other forms of
exclusionary conduct could discriminate against new entrants in favour of incumbent
firms, which will normally, but not always, be local firms. However, exclusionary
conduct may in fact promote consumer welfare, efficiency and development, because
the conduct reduces the costs of business or encourages investment. An international
agreement on competition law designed to address market access concerns should
not require countries to enact a law that would harm the competitiveness or efficiency
of local firms, especially if other countries may be able to reap such benefits because
of their larger markets or less concentrated industrial structures.
The outcome of two cases involving precisely the same facts could differ between
countries that applied the same competition law rules, because the effect of a
particular business practice on market access, consumer welfare and/or efficiency will
depend not only on the relevant market structure, but also on the wider business and
regulatory environment. For example, the limitations on alternative entry strategies
(such as formal restrictions on foreign direct investment, the practical impossibility of
acquiring the controlling interests in companies, prohibitively high prices of land costs,
or limited warehousing capacity) could affect the significance of a vertical restraint for
competition. In a country that has historically had a high level of government
regulation of entry into markets, vertical restraints may facilitate the coordination of
pricing among firms better than in another country with different market conditions
and regulatory practices. Pervasive government intervention in markets and
administration in a country could also provide a monitoring and enforcement
mechanism for cartels and collective boycotts.
Some business practices may restrict market access in a country, but at the same
time enhance national consumer welfare or economic efficiency. The prohibition of all
business practices that restricted market access would be particularly harmful to the
welfare of small countries where markets are generally smaller and more
concentrated relative to larger countries, and adversely affect firms based in small
countries. A rule forcing a country to prohibit efficient business practices is therefore
unlikely to be acceptable as an international competition law rule on market access.
Such a rule would be even less acceptable where some countries could use those
practices, but others could not, and therefore their firms might be put at a competitive
disadvantage.
Long-term business relationships are pervasive in Japan. They are also at the heart of
the many foreign complaints about the distribution and production (p.194) keiretsu .
Exclusive dealing may indeed be the defining characteristic of distribution keiretsu .19
Many other vertical restraints are also widely employed in Japan. Although similar
practices can be found in, for example, Italy and Germany, and to a smaller but
increasing extent in the US,20 it is sometimes claimed that the unusual number of
such restraints employed in many markets and their widespread use across markets
has contributed to making the Japanese distribution system much more tightly
controlled by manufacturers than is the case in Western industrialized nations. 21
While US firms usually have fewer strong, long-term inter-firms relations, they tend to
be considerably more vertically integrated than their Japanese counterparts. For
example, 80 per cent of the purchase value of a General Motors automobile is
provided either by General Motors or its wholly owned subsidiaries, while in Japan an
average of only 25 per cent of an automobile's purchase value is made in-house for
Japanese manufacturers.22 Japanese business units tend to be less vertically
integrated and more narrowly focused than those of a typical Western firm. 23
Horizontally, Japanese firms tend to be quite specialized in terms of the range of
industries in which they operate (typically one), and vertically, the Japanese firm
tends to be relatively disintegrated in terms of the operations and production
activities actually located in-house. Operations such as maintenance, parts supply,
and sales and distribution are often carried out by affiliated firms or subcontractors,
whereas the parent firm concentrates on the core production activities such as
technology-intensive processing and assembly activities.24
Therefore, it cannot be assumed that the Japanese economy is on the whole less
market-oriented or less open than other economies, such as the US. The Japanese
business practices are more vulnerable to scrutiny under competition law, because
competition law generally does not apply to arrangements made within an enterprise.
Strict competition law rules that prohibited certain efficient inter-firm arrangements
could also harm the competitiveness of an economy like Japan's more than the US
economy, and disadvantage firms based in Japan. International competition law
should normally allow firms to select the organizational form that they believe is most
efficient, even where the organization of (p.195) business activities within a country
reflects the peculiar economic and regulatory history of that country. Furthermore,
vertical restraints are generally regarded as posing less competitive concern than
vertical integration through mergers or acquisitions, because the former links are not
permanent. A vertical keiretsu may be an alternative to vertical integration, rather
than open market transactions. If Japan prohibited widely used efficiency enhancing
inter-firm arrangements, increased vertical integration could be the outcome, which
could make Japanese markets more closed than they are now.
A WTO rule could require members to prohibit exclusionary conduct that harmed
efficiency. However, it would sometimes be very difficult to assess whether a practice
was merely exclusionary or whether it promoted efficiency. The development needs of
some countries and the evolving understanding of economic effects of various
business practices could mean that different countries will reach different conclusions
on the exclusionary and efficiency effects and therefore the legality of the same type
of business practice. Few, if any, vertical restraints or abuses of dominant positions
are clearly exclusionary and clearly have no efficiency justification. Countries are,
therefore, unlikely to be able to agree on detailed competition rules on market access.
Many countries have accepted that while certain market structures and conduct may
result in supra-competitive prices or lessen competition, competition law intervention
would not improve welfare.25 Thus, a wide margin of appreciation must be given to
countries when adopting and enforcing a competition law. When evaluating market
access barriers, local regulators should be assumed to have better information and
better understand local business practices.
The uncertain economics and lack of international consensus suggests that the
presumption of subsidiarity should apply where national competition law is applied in
a non-discriminatory and consistent manner. This is consistent with the discussion of
the principles that appear to be emerging and should inform the extraterritorial
application of competition law in export commerce cases and the application of
section 301 of the US Trade Act to the toleration of anticompetitive conduct by foreign
governments. See Sections 8.2.7 and 11.5.1. It would also involve no greater
obligation than that proposed in Section 4.2.
6.4.2 Greater Enforcement Efforts could Reduce Imports
The effects of increased enforcement efforts and the enactment of stricter
competition laws on international trade flows are ambiguous.26 Therefore, (p.196)
foreign exporters as a group have an incentive to limit their demands for strict
competition laws. Haley even goes so far as to argue that more effective enforcement
of competition law in Japan is likely to have a profoundly negative effect on US
trade.27 Stricter competition law rules against vertical marketing restrictions, including
resale price maintenance and exclusive dealerships, could remove effective strategies
for new entry and overcome the reputations of the established firms for quality and
service, and thereby increase foreign imports.28 On the other hand, vertical restraints
sometimes restrict imports. For example, the increased willingness of retail outlets in
Japan to promote discount prices may have lead to increased imports. While the
promotion of discount prices was spurred on by the ongoing recession, it was made
possible by the Japan Fair Trade Commission (JFTC)'s enforcement of the prohibition on
resale price maintenance.29
Improved enforcement of competition law may restrict imports where the law is
applied in a discriminatory way against foreign firms. Section 6 of the AML, for
example, expressly prohibits Japanese enterprises from entering any international
agreement to which a foreign person is a party30 that includes either an unreasonable
restraint of trade or unfair method of competition. To aid enforcement, the statute
formerly provided for the JFTC to review for all international contracts that Japanese
enterprises conclude. The procedure, which was designed to prevent Japanese
enterprises from participating in international cartels, became a means of allowing
Japanese recipients of foreign technology to avoid certain contractual restraints. 31
Private complaints about international agreements were rarely received from third
parties; complaints usually came from the Japanese party to the agreement in the
hope of avoiding certain provisions.32 The US and other countries complained that the
notification requirement was discriminatory against foreign businesses. The US did not
want improved enforcement (p.197) of this provision of the AML, despite complaining
about the lax enforcement of the AML, because improved enforcement would have
disadvantaged foreign licensors.33 Foreign firms objected to their lack of standing in
any subsequent court proceedings or as of right in JFTC proceedings. In 1992, the JFTC
issued new Rules on Filing Notification of International Agreements or Contracts34 and
in 1997 the requirement in section 6(2) for JFTC review was repealed.
There is a risk that a competition law that contained strict rules on the use of vertical
restraints could be applied in a discriminatory way against vertical restraints used by
foreign firms seeking to enter the local market. Discrimination may arise for a number
of reasons, including the exercise of discretion by enforcement authorities and
systematic disregard of efficiency gains accruing to persons outside of the jurisdiction.
Strict competition rules will generally harm local consumers and only rarely will
foreign consumer welfare be harmed. It may also raise the costs of foreign firms and
limit their local sales and/or profits.
The presence of cartels should encourage rather than hinder the entry by foreign
firms because of the high prices charged by the cartel members. Many of the cartel
exemptions from general competition law tend to be available to industries dominated
by small and medium sized enterprises. Therefore, neither the increased enforcement
of competition law nor the elimination of exemptions will increase trade. Indeed, in
Japan, the industries that historically benefited from cartel exemptions also tend to be
the industries that were protected by formal Japanese trade barriers.35 On the other
hand, price fixing cartels may co-exist with or be supported by group boycotts of firms
that deal with foreign competitors or other exclusionary activities of trade
associations.
Strict competition law enforcement could indirectly promote exports, but not in the
expected direction. By ensuring that domestic markets remain competitive, it has
been suggested that competition law enforcement could encourage firms to seek
higher returns in foreign markets and improve their international competitiveness.36
On the other hand, it is possible that cartels and oligopolistic behaviour in the home
market may promote exports, because exports are partially cross-subsidised from
supra-competitive profits in the home market. See Section 5.3.2. The classic
international cartels consisted of market division arrangements that reserved
domestic markets to domestic producers. The elimination of such cartel arrangements
could be expected to promote international trade. However, unlike the early post-war
period, there is no certainty that large firms from the major industrialized countries
would be the ones that would benefit. A complex (p.198) and long-established cartel
arrangement may also mean that such firms would export more with the cartel
arrangement than without the cartel arrangement, especially if their potential rivals
were from new industrialized or developing countries and were latecomers to the
cartel.
Whenever national markets differ, firms may find it possible and profitable to segment
the markets themselves to exploit these differences.37 A strict competition law could
prevent a firm engaging in vertical practices that allow a firm to segment markets. For
example, a firm selling a homogeneous product in competition with other firms can
increase its profit by tying its product with another product or service (such as a
warranty) in order to differentiate its products from those of a competing firm and
segment markets.
6.4.3 The Need for Internal/External Consistency
The merits and impact of a country's complaints about private market access barriers
in another country is undermined where the complainant country is inconsistent in its
condemnation of the practices in question. The US government's attitude to vertical
restraints illustrates this point. Under the Structural Impediment Initiative talks the US
was highly critical of the lax Japanese enforcement of the AML against vertical
restrictive business practices. However, in the US from 1981 through to the end of
1992, neither federal enforcement agency brought a single action against vertical
price or non-price restraints.38 The Clinton administration brought a modest change in
attitude, including some investigations that included vertical issues.39 For a number of
years, the European Commission's strict approach to vertical restraints has been one
of the most criticized aspects of the EU competition policy. Many US firms (and their
legal advisers) were particularly critical. The strict EU policy reflects the hostility
toward restrictions that threaten to interfere with economic integration and a concern
with economic freedom.40 The US government has also stated in one of its
submissions to the WTO that not all practices that restrict business choices represent
a net loss to consumer welfare.41 The criticism of the European Commission and
political tension that followed the Commission's decision to prohibit the GE/Honeywell
merger was inconsistent with the US government's demands for action in relation to
claims (p.199) by US firms that they had been excluded from the Japanese market. 42
While the US actions may have reflected the different views of the enforcement
agencies and the USTR, the inconsistency made the US responses to foreign actions
appear self-interested and unprincipled. The political need for consistency by
countries is itself consistent with the economic interests of exporters as a group not to
demand excessively strict competition law rules. The inconsistency may have been a
factor in the general shift from concerns about private market access barriers to core
principles in the discussions in the WTO Working Group on Trade and Competition
Policy. A workable, principled rule is needed to determine whether foreign
anticompetitive conduct is creating an illegitimate market access barrier.
6.5 Conclusion
In theory, anticompetitive conduct can restrict market access and lower the profits of
foreign firms. In practice, proven cases of private market access barriers have been
rare and will be rare. Most commentators from an antitrust background believe that
competition law should not be distorted to address market access concerns and serve
trade policy goals.43 The modification of competition law to address trade concerns
could negatively affect global welfare. It will be very difficult to reach an international
agreement on common rules for competition laws and enforcement practices relating
to vertical restraints and exclusionary conduct. The EU and the US have distinct
approaches to vertical restraints that neither is likely to change radically in the short-
term. Strict rules on vertical restraints or abuse of dominance may have mixed effects
on overall market access. Many of the efficiency enhancing benefits of vertical
restraints, such as the reduction of free riding, the encouragement of investment in a
new product, and quality control, may be especially valuable to foreign firms entering
a market. The theoretical and empirical research into vertical restraints and
exclusionary conduct does not provide definitive policy guidance on when such
practices should be prohibited.
There has been significant criticism of the lax competition laws in some countries,
most notably Japan. However, a detailed examination of the Japanese AML reveals
that it is probably at least as strict as the EU and US competition laws in most areas.44
The Japanese law appears to only exceptionally permit a respondent (p.200) to avoid
liability merely because the conduct in question was authorized or encouraged by a
government department.45 The major problem is insufficient enforcement and
elaboration of the doctrine and intellectual basis for competition law actions. The
same is probably true of many other competition laws.
The literature on the exclusionary effect and efficiency of Japanese manufacturing and
distribution business practices and relationships suggests that it is futile to generalize
about an industry, let alone an entire country. Foreign observers and competition law
enforcers and trade officials are more likely, and may sometimes have an incentive, to
misunderstand the competitive significance of business practices in another country.
Conclusions about the competitive significance of conduct generally rely on
incomplete information and inconsistent evidence. Often the gaps are filled in by
reference to what a normal or rational firm would do in those circumstances. Japanese
firms may not have the same cost structures or profit expectation, or maximize profits
over the same time frame, as firms based in other countries.46 There may also be
institutional or legal explanations for the prevalence and stability of cartels in Japan, if
that is indeed the case. Predicting what a rational firm would do requires detailed
information about the market in question, in which a local competition law enforcer is
likely to have a significant comparative advantage.
Cultural differences between countries will impact on politicaleconomic behaviour. 47
Some writers believe that the Japanese culture is fundamentally incompatible with the
Western ideological commitment to economic competition. 48 A Japanese cultural
inclination for cooperation and harmony could influence Japanese business culture.
However, Japanese firms often compete intensely among themselves49 and with non-
Japanese firms in international markets. Culture does not provide a valid justification
for not entering into an agreement to prohibit private conduct that creates inefficient
market access barriers.50 Competition law is after all founded on the assumption that
business people are prone to cooperate, rather than compete.
(p.201) Even if international standards could be agreed, disputes would remain over
the application and enforcement of those standards. While competition authorities
and courts may apply the same rules differently for many reasons, differences are
most likely to become trade disputes where transparency is low and enforcement
decisions appear inconsistent and unjustified. The obstacles to effective enforcement
are many and varied.
The JFTC, for example, has always been cautious about undertaking enforcement
actions in the face of political opposition.51 In the past, many in the JFTC probably
shared widely held views in Japan about excessive competition. The JFTC has also
been reluctant to challenge conduct that has taken place under the cover of
administrative guidance from a government agency and cases appear to have not
been pursued because of political pressure.52 During the SII talks, the US put pressure
on Japan to enforce the AML, which was followed by a significant increase in
enforcement activity. Whether or not the Japanese government believed that antitrust
was good economic policy, doing something about antitrust was necessary for
managing Japan's relationship with the US.53 The JFTC, however, maintains that the
trend toward enhancement of AML enforcement is not a response to international
pressure, but the result of the reconsideration of the market system in Japan.54
The failure by the courts and the JFTC to doctrinally develop the AML has maximized
ambiguity and, therefore, the power and discretion of the JFTC.55 It also suggests that
enforcement has been lax. If the JFTC had been aggressive, the restrictions on
business that would have resulted would have been appealed to the courts by the
firms affected. The JFTC has traditionally preferred to use less transparent methods of
enforcement, such as informal negotiations with the alleged violators or the issuance
of warnings, which yield no public record or explanation of the official conduct.56 Since
1997 there has been a steady increase in the number of formal AML hearings by the
JFTC and in the courts.57 This has lead to a greater (p.202) number of applications for
annulment of JFTC decisions.58 There are also an increasing number of taxpayer suits
and suits by local government bodies themselves for compensation for damage
resulting from collusive bid-rigging.
Resort to informal enforcement is also the predominant mode of enforcement of US
antitrust law, where negotiations and threats are used to deter mergers and other
actions.59 Thus, informality itself cannot be the problem. Consistency requires other
countries to moderate their criticism of Japan's informal regulatory processes and
judge effectiveness from a Japanese legal perspective. On the other hand, Japan has
supported a rules-based approach to international trade. Any plurilateral agreement
on competition law should contain provisions requiring the impartial and effective
enforcement of national competition laws. The smooth functioning of the international
trading system may require careful investigation of allegations of private market
access barriers. The international rules and institutions that would be necessary to
ensure that competition law and its enforcement are consistent, non-discriminatory,
transparent, effective, and properly rationalized are discussed in Part III.
Not only should countries have significant freedom to formulate their own competition
laws, but also to determine the appropriate procedures to enforce these laws.60 There
may indeed be constitutional obstacles to wholesale reform of criminal, civil or
administrative competition law procedures in some countries. The effectiveness of the
legal system in deterring violations of competition law and compensating those
harmed by breaches of competition law needs to be assessed in the context of a legal
system. The parties to an international agreement on competition law should be
expected to provide effective remedies and violations of competition law should be
treated no less seriously than breaches of comparable laws. For example, the general
policy in Japan criminal law enforcement is not to incarcerate people, and therefore
the (non-)enforcement of the criminal portions of AML is not exceptional.61 For Japan to
adopt US practice with respect to antitrust violations would mean that AML violations
would be treated in a much stricter way than other crimes and to treat competition
law violation more strictly than most countries.
(p.203) If market access barriers relating to competition law are investigated, the
applicable rules of procedure and rules of evidence will affect the outcome of the
case. Sometimes the available evidence on the effects of any particular business
practice could support a number of alternative conclusions under a competition law. If
it is accepted that a wider range of competition laws and systems of administrative,
civil or criminal competition law enforcement systems are equally acceptable,
different systems will produce different outcomes, which should not in itself be seen
as illegitimate. Competition law is supported by the perceived legitimacy of
administrative or judicial decision-makers. That perception of legitimacy becomes
more important the greater the differences in opinion on the appropriate policy
towards exclusionary conduct. Thus, the effectiveness of a competition law must be
judged relative to the rest of its host legal system, and the legitimacy of competition
rests in part on the fact that it is part of a broader legal system.
On the other hand, short of the social stigma of criminal prosecution, there is no
evidence that Japanese firms respond to the deterrence of fines and damages awards
differently than firms from other countries.62 This perspective is behind the
identification by foreign commentators63 and study groups associated with the JFTC64
of a number of weaknesses in the investigatory tools, criminal penalties, and
administrative remedies available under the AML. Many of the weaknesses are slowly,
if not always completely, being addressed through the statutory amendments and the
issuance of new guidelines by the JFTC. What was not well-understood or achieved
during the SII process is now taking place without intense foreign pressure.
In Japan, private actions do not provide any credible deterrent for anticompetitive
conduct. This is not a matter of a cultural preference to avoid dispute settlement
processes, but the product of a number of institutional constraints and procedural
rules.65 Overcoming many of the obstacles to private actions (p.204) would require
significant reform of civil procedure laws. Similar obstacles exist in many countries. 66
An absence of private actions is more problematic where public enforcement is not
consistent or effective.
Several general obligations that could be included in an international agreement to
encourage effective enforcement, including the requirements for the competition
authority or court to be able to order adequate penalties and remedies so as to deter
breaches and restore competition, and for private rights of action for compensation
and the restoration of competition or rights to require an investigation by the local
competition authority. However, with the current variations between national
procedures, for an international body to determine that national enforcement
mechanisms are ineffective could be politically difficult and pose legitimacy problems.
Harmonization may need to be soft and reform internally driven.
Notes:
(1) See, eg, GK Bader, The keiretsu distribution system of Japan: its steadfast
existence despite heightened foreign and domestic pressure for its dissolution (1994)
27 Cornell International Law Journal 365, 366 ; SC Miller, A double
standard: the United States' plea for per se illegality of the Japanese keiretsu (1993)
19 Brooklyn Journal of International Law 1101, 1111 (citing statements by US
Congressmen) . For other views see Y Miwa, KG Nishimura, and JM
Ramseyer (eds), Distribution in Japan (Oxford: Oxford University Press, 2002)
; JR Lincoln and ML Gerlach, Japan's Network Economy: Structure,
Persistence and Change (New York: Cambridge University Press, 2004) ;Y
Miwa and JM Ramseyer, The Fable of the Keiretsu: Urban Legends of the Japanese
Economy (Chicago: University of Chicago Press, 2006)
(2) See M Kotabe and KW Wheiler, Anticompetitive Practices in Japan: Their Impact on
the Performance of Foreign Firms (Westport, Conn: Praeger, 1996) ; HB
Cortesi (ed), Unilateral Application of Antitrust and Trade Laws: Toward a New
Economic Relationship Between the United States and Japan (New York: The Pacific
Institute/The Asia Institute, 1994) ; CF Bergsten and M Noland,
Reconcilable Differences? United StatesJapan Economic Conflict (Washington:
Institute for International Economics, 1993) ; EJ Lincoln, Japan's Unequal
Trade (Washington: Brookings Institute, 1990) ; EJ Lincoln, Troubled
Times: U.S.Japan Trade Relations in the 1990s (Washington: Brookings Institute,
1999).
(3) See ME Janow, Public and private restraints that limit access to markets in OECD,
Market Access After the Uruguay Round: Investment, Competition and Technology
Perspectives (Paris: OECD, 1996) 101, 10910.
(4) Uruguay Round Agreements Act, Pub L No 103465, 311(a)(1)(C), 108 Stat 4809,
4938 (1994), amending 19 USC 2241(b)(2).
(5) For a fuller discussion see CG Noonan, The Emerging Principles of International
Competition Law, PhD Thesis, University of Auckland, 2004, 23787.
(6) See, eg, GATT, Trade Policy ReviewJapan, vol 2 (Geneva: GATT, 1995) 6575
(Minutes of Council Meeting).
(7) P Sheard, The Economics of Japanese Corporate Organisation and the Structural
Impediments Debate (Canberra: AustraliaJapan Research Centre Pacific Economic
Paper No 205, 1992) 38.
(8) See OECD Joint Group on Trade and Competition, Competition and Trade Effects of
Vertical Restraints, COM/DAFFE/CLP/TD(99)54, 21 May 1999.
(9) See, eg, OE Williamson, Transaction cost economics in R Schmalensee and RD
Willig (eds), Handbook of Industrial Organization, Volume 1 (Amsterdam: North-
Holland, 1989) 135.
(10) The Japanese distribution system, for instance, is often alleged to be a barrier to
the entry of foreign goods, but some studies (exceptionally) have found that it is no
less efficient than the US distribution system. See, eg, T Ito and M Maruyama, Is the
Japanese distribution system really inefficient? in P Krugman (ed), Trade with Japan:
Has the Door Opened Wider (Chicago: National Bureau of Economic Research, 1991)
149.
(11) See WM Corden, Trade Policy and Economic Welfare (2nd edn, Oxford: Clarendon
Press, 1997) 81103.
(12) RE Baldwin, Are economists' traditional trade policy views still valid? (1992) 30
Journal of Economic Literature 804, 809.
(13) J Ederington, Environmental duties and international harmonization of
standards (2001) 68 Southern Economic Journal 418 makes a similar argument in
relation to environmental taxes.
(14) The use of import and export cartels might not be as effective as optimal tariffs
to exploit international market power, because of the extraterritorial application of
competition law, the difficulty of enforcing national export and import cartels without
state intervention, and the existence of multinational enterprises. On the relationship
between private market power and the optimal tax see Corden (n 11 above) 8990,
2489.
(15) K Bagwell, PC Mavroidis, and R Staiger, It's a question of market access (2002)
96 American Journal of International Law 56, 58 ; see also K Bagwell and
RW Staiger, The Economics of the World Trading System (Cambridge, Mass: MIT Press,
2002) ch 11.
(16) Ibid .
(17) K Bagwell, PC Mavroidis, and R Staiger, It's a question of market access (2002)
96 American Journal of International Law 57 ; K Bagwell and RW Staiger,
Domestic policies, national sovereignty, and international economic institutions
(2001) 116 The Quarterly Journal of Economics 519.
(18) See, eg, P Marsden, A Competition Policy for the WTO (London: Cameron May,
2003).
(19) HP Marvel, Contracts and control in Japanese distribution (1993) 14 Managerial
and Decision Economics 151, 153.
(20) J McMillan, Why does Japan resist foreign market-opening pressure? in JN
Bhagwati and RE Hudec (eds), Fair Trade and Harmonization: Prerequisites for Free
Trade? Volume 1: Economic Analysis (Cambridge, Mass: MIT Press, 1996) 515, 535.

(21) Marvel (n 19 above).

(22) GR Saxonhouse, Japan, SII and the international harmonization of domestic
economic practices (1991) 12 Michigan Journal of International Law 450, 467
. See also AY Seita, U.S.Japan antitrust cooperation (1993) 24 Law and
Policy in International Business 1081, 1084.
(23) P Sheard, The Economics of Japanese Corporate Organisation and the Structural
Impediments Debate (Canberra: AustraliaJapan Research Centre Pacific Economic
Paper No 205, 1992) 12.
(24) Ibid 13 . Citing Nihon Keizai Chsa Kygika, Wagakuni Kigy no
Keizokuteki Torihiki no Jittai ni Tsuite [On the Actual State of Continuous Transactions
Among Japanese Firms] (Tokyo: Nihon Keizai Chsa Kygika, 1989).
(25) See, eg, the famous TurnerPosner debate. D Turner, The definition of agreement
under the Sherman Act: Conscious parallelism and refusals to deal (1962) 75 Harvard
Law Review 655 ; R Posner, Oligopoly and the antitrust laws: a
suggested approach (1969) 21 Stanford Law Review 1562.
(26) See, eg, JO Haley, Weak law, strong competition, and trade barriers:
competitiveness as a disincentive to foreign entry into Japanese markets in K
Yamamura (ed), Japan's Economic Structure: Should it Change? (Seattle: Washington
University Press, 1990) 203 ; Saxonhouse (n 22 above); Sheard (n 23
above).
(27) JO Haley, Japanese antitrust enforcement: implications for United States trade
(1991) 18 Northern Kentucky Law Review 335, 360.
(28) Ibid 3612 ; HP Marvel, Contracts and control in Japanese
distribution (1993) 14 Managerial and Decision Economics 161 . The use
of exclusive dealerships to facilitate entry into the US market by a foreign firm has
been recognized by the US courts. See Yamaha Motor Co v FTC 657 F 2d 971, 9834
(8th Cir 1981)|cert denied, 456 US 915 (1982).
(29) H First, Antitrust enforcement in Japan (1995) 64 Antitrust Law Journal 137, 172.

(30) RG Grice, Joint ventures with Japanese companiesproblems of Anti-Monopoly

Law in H Oda and RG Grice (eds), Japanese Banking, Securities and Anti-Monopoly
Law (London: Butterworths, 1988) 129, 135.
(31) See J Davidow, The new Japanese Guidelines on Unfair Practices in Patent and
Know-How Licenses: an American View (1989) 12 World Competition 5 ;
RD Taylor, CL O'Rourke, and C Marchese, A comparison of international intellectual;
property licensing guidelines in the United States and Japan (1991) 9 UCLA Pacific
Basin Law Journal 104 ; JA Newberg, Technology licensing under
Japanese antitrust law (2001) 32 Law and Policy in International Business 359
; HS Harris, Competition law and patent protection in Japan: a half-
century of progress, a millennium of challenges (2002) 16 Columbia Journal of Asian
Law 71 ; JO Haley, Antitrust in Germany and Japan: The First Fifty Years,
19471998 (Seattle: Washington University Press, 2001) 54, 72, 105.
(32) Grice (n 30 above) 135.
(33) Haley (n 27 above) 3625.
(34) See Y Hamabe, Changing antimonopoly policy in the Japanese legal systeman
international perspective (1994) 28 International Lawyer 903, 91718.
(35) Haley (n 27 above) 361.
(36) See CR Frischtak with B Hadjimichael and U Zachau, Competition Policies for
Industrializing Economies (Washington: World Bank (Policy and Research Series7),
1989) 11, 203.
(37) See O Shy, Industrial Organization: Theory and Applications (Cambridge, Mass:
MIT Press, 1995) 36973.
(38) In the same period the DOJ and the FTC both attacked one vertical merger, but
both of these mergers also had important horizontal elements. MH Riordan and SC
Salop, Evaluating vertical mergers: a post-Chicago approach (1995) 63 Antitrust
Law Journal 513, 514.
(39) Ibid 51415.
(40) BE Hawk, System failure: vertical restraints and EC competition law (1995) 32
Common Market Law Review 973.
(41) Communication from the United States, WT/WGTCP/W/66, p 15, 26 March 1998.
(42) Compare Case No COMP/M.2220General Electric/Honeywell, 3 July 2001, upheld
on appeal, Case T-210/01 General Electric Company v Commission of the European
Communities, 14 December 2005, with US DOJ, Antitrust Division Submission for
OECD Roundtable on Portfolio Effects in Conglomerate Mergers, Range Effects: The
United States Perspective, 10 December 2001.
(43) See, eg, SW Waller, Antitrust and American business abroad today (1995) 44
DePaul Law Review 1251, 1283 ; D Wood, A cooperative framework for
national regulators (1996) 72 Chicago-Kent Law Review 521, 523.
(44) See JO Haley, Antitrust in Germany and Japan: The First Fifty Years, 19471998
(Seattle: Washington University Press, 2001) ; CG Noonan, The Emerging
Principles of International Competition Law, PhD Thesis, University of Auckland, 2004,
ch 6.
(45) See Section 9.4.2, n 221.
(46) H First, Antitrust enforcement in Japan (1995) 64 Antitrust Law Journal 137, 140.

(47) DI Okimoto, Between MITI and the Market: Japanese Industrial Policy for High
Technology (Stanford: Stanford University Press, 1989) 2378.
(48) See, eg, M Ariga and LV Rieke, The Antimonopoly Law of Japan and its
enforcement (1964) 39 Washington Law Review 437 ; I Hiroshi, Antitrust
and industrial policy in Japan: Competition and cooperation in GR Saxonhouse and K
Yamamura (eds), Law and Trade Issues of the Japanese Economy: American and
Japanese Perspectives (Seattle/Tokyo: University of Washington Press/University of
Tokyo Press, 1986) 56, 61 ; see also DE Rosenthal and M Matsushita,
Competition in Japan and the West: can the approaches be reconciled? in EM
Graham and JD Richardson (eds), Global Competition Policy (Washington: Institute for
International Economics, 1997) 313, 3134.
(49) First (n 46 above) 1412; EM Hadley, Antitrust Law in Japan (Princeton: Princeton
University Press, 1970).
(50) This also appears to have been the official position of the US government during
the Structural Impediments Initiative talks. See MK Morita, Structural Impediments
Initiative: is it an effective correction of Japan's antimonopoly policy? (1991) 12
University of Pennsylvania Journal of International Business Law 777, 806.

(51) See First (n 46 above); Haley (n 44 above); D Boling, The role of prosecutors in
Japanese Antimonopoly Law criminal cases (2003) 17:2 Antitrust 90.
(52) First (n 46 above) 1745. See K Sanekata, Preface to Stephen Wilks, The
Revival of Japanese Competition Policy and its Implications for EUJapan Relations
(London: Royal Institute for International Affairs, 1994) xxi, xiixiii for a recent
example of the use of political pressure to modify JFTC policy.
(53) See First (n 46 above) 174; Y Hamabe, Changing antimonopoly policy in the
Japanese legal systeman international perspective (1994) 28 International Lawyer
903, 905 ; Sanekata (Ibid) ix.
(54) Hamabe (Ibid) . Citing Shoei Shibata et al, Dokusenkinshiho No
Kaisetsu [Commentary on the Antimonopoly Act] (1993) introduction.
(55) First (n 46 above) 1768.
(56) JO Haley, Administrative guidance versus formal regulation: resolving the
paradox of industrial policy and H Iyori, Antitrust and industrial policy in Japan:
competition and cooperation in GR Saxonhouse and K Yamamura (eds), Law and
Trade Issues of the Japanese Economy: American and Japanese Perspectives
(Seattle/Tokyo: University of Washington Press/University of Tokyo Press, 1986) 107,
11011 and 56, 656 and nn 346 respectively.
(57) See K Takeshima, Chairman, JFTC, Toward the new design of competition policy
in Japan, address intended to be presented before the American Bar Association
Section on International Law and Practice and Section on Antitrust Law, 18 September
2003 ; A Uesugi, Secretary-General of the JFTC, Enforcement activities
against cartelswhat is going on in Japan, address before the American Bar
Association, International Cartel Workshop, 5 February 2004.
(58) For example, the Tokyo High Court invalidated a JFTC decision on the grounds that
one of the five members of the Commission who decided the case had been Chief of
the Investigations Bureau at the time the JFTC staff initiated the preliminary
investigations. Toshiba Chem K K v Fair Trade Commission, Tokyo High Court
judgment, 25 February 1994. See JO Haley, Competition and trade policy: antitrust
enforcement: do differences matter? (1995) 4 Pacific Rim Law & Policy Journal 303,
312.
(59) WG Shepherd, Letter to the editor (May/June 1983) Regulation 2 .
Quoted in JO Haley, Japanese antitrust enforcement: implications for United States
trade (1991) 18 Northern Kertucky Law Review 335, 362.
(60) Cf TRIPS, Art 41:5.
(61) Haley (n 59 above) 3547.
(62) This assumption is made in a number of works analysing Japan's competition law
enforcement. See, eg, Y Miwa and JM Ramseyer, Towards a theory of jurisdictional
competition: the case of the Japanese FTC (2005) 1 Journal of Competition Law and
Economics 247.
(63) See JO Haley, Antitrust in Germany and Japan: The First Fifty Years, 19471998
(Seattle: Washington University Press, 2001).
(64) See, eg, Report of the Study Group on the Antimonopoly Act, October 2003, JFTC
translation 21 November 2003. Recommendations included the introduction of a
leniency programme; increasing the level of surcharges and the range of conduct to
which they can be applied; giving the JFTC compulsory powers appropriate to
conducting a criminal investigation; removing the exclusive jurisdiction of the Tokyo
High Court to hear criminal AML cases; increasing penalties related to the obstruction
of investigations and non-observance of decisions; and streamlining the procedures
under which surcharges orders can be made. See also, Revised Japanese
antimonopoly law may impose higher fines for bid-rigging, Daily Yomuri Online 10
June 2007, http://www.yomiuri.co.jp/dy/national/20070610TDY01004.htm.
(65) See, eg, JM Ramseyer, The costs of the consensual myth: antitrust enforcement
and institutional barriers to litigation in Japan (1985) 94 Yale Law Journal 604
; J Tamura, Market access issues in Japan's Antimonopoly Law, M
Murayama, Private enforcement of antitrust law in Japan and S Seryo, Private
enforcement and new provisions for damages and injunctions in Japan in CA Jones
and M Matsushita (eds), Competition Policy in the Global Trading System (The Hague:
Kluwer Law International, 2002) 143, 243, 255 ; Haley (n 63 above); S
Kusunoki, Shaping an Anti-monopoly Law sanction regime against cartels or bid
collusion: a perspective on Japan's choice (2002) 79 University of Detroit Mercy Law
Review 399 ; Miwa and Ramseyer (n 62 above) 2535.
(66) See Commission of the European Communities, Commission Staff Working Paper,
Annex to Green Paper, Damages Actions for Breach of the EC Antitrust Rules,
COM(2005)672 final, which discusses collective actions, requirement for fault, burden
and standard of proof, collection and presentation of evidence, evidential value of
competition authority decisions, quantification of damages, time limitations, costs,
and applicable law in the EU.

Competition Law Jurisdiction under International Law

Chris Noonan
DOI:10.1093/acprof:oso/9780199207527.003.0007
Abstract and Keywords

This chapter discusses the broad limits that customary public international law
imposes on states that wish to regulate international or foreign anticompetitive
conduct. It argues that customary international law rules on state jurisdiction are
unable to resolve conflicts over the extraterritorial application of competition law, but
provide broad constraints on the scope of the application of competition laws. While
customary international law on jurisdiction may not be the same for all legal fields,
both civil and criminal competition law actions appear to be subject to the same
jurisdictional limits. The territorial principle is the key basis for competition law
jurisdiction. The assertion of jurisdiction on the basis of economic effects caused by
foreign conduct is consistent with international law and state practice.

Keywords: international business activity, competition law, territorial principle,

nationality principle, anticompetitive conduct
7.1 Introduction
The regulation of international business activity takes place around a system of
formally equal states with limited territorial jurisdiction. Legislatures and courts have
responded to the need to protect local residents by applying national competition laws
to international and foreign business conduct, testing the limits of their jurisdiction.
The international conflicts resulting from the extraterritorial application of competition
law reflect not only the many differences between competition laws, but also different
views on the allocation of authority within the system of states and divergent national
interests. The battles have mainly taken place in national courts in accordance with
the relatively formalized rules of court procedure and jurisdiction.
The effects doctrine is now generally accepted. Conflicts between countries have
become more technical, albeit not always free of tension. National competition law
is and will remain the primary source of regulation of anticompetitive conduct
affecting international trade. States will therefore need to be able to apply their
competition laws extraterritorially and adapt to the extraterritorial application of
competition law of other states. Part II, building on the conclusions of Part I, argues
that most state practice on jurisdiction and conflicts of laws rules applicable to
competition law is broadly consistent with the principles proposed in Part I. Additional
rules should be developed to further facilitate the management of international
competition law litigation.
Much of the writing on international competition law has tended to treat
harmonization and conflicts of laws as distinct fields of inquiry. Conflict of laws rules
are, however, an integral part of any discussion of harmonization, and vice-versa, and
the two should be considered together. The more policy-oriented literature in both
fields addresses many of the same issues, often using similar analytical frameworks.
Some observers believe that differences in national laws and interests lie at the heart
of conflicts over jurisdiction.1 The harmonization of (p.208) substantive competition
law rules has therefore often been proposed as a solution to conflicts over jurisdiction.
Other observers see an international agreement on conflicts of laws rules as an
alternative to harmonization as a means to reduce conflict within the international
competition law system.2 However, in the post-war period, significant differences
between national competition policies and the close legal and practical linkages
between substantive and jurisdictional competition rules made the conclusion of an
agreement on competition law jurisdiction impossible.
The links between competition law conflicts of laws rules and harmonization are more
than merely alternative policy options. Any agreement to harmonize cannot avoid
dealing with conflicts issues. Agreements to harmonize substantive laws often only
address international activities, because states have limited interest in purely
domestic activities in other states and harmonization may be more politically
acceptable if long-established national legal concepts and business practices can be
quarantined off and preserved. While the existence of an international agreement
containing substantive rules may displace the need for resort to the usual conflicts of
laws rules, the determination of whether an issue is covered by a treaty will often be
determined by the conflicts rules of the forum. In the EU, Articles 81 and 82 of the EC
Treaty only apply to conduct that affects trade between member statesan inner
effects doctrine. The outer limits of the application of a harmonization agreement
will be determined by some specified connection between the case and one or more
contracting state. Tests for internationality in international agreements raise many
of the same issues and use similar concepts to those associated with the
determination of the scope of the extraterritorial application of competition law. 3
General obligations under trade liberalization agreements, such as national treatment
or mutual recognition, also influence the choice of law or jurisdictional rules that a
state can apply. For example, Country A may not be able to apply different or more
disadvantageous regulations to firms or products from Country Bthan it applies to
local firms or products, which in most cases will require the same choice of law for
both sets of products.
Chapter 7 seeks to identify the broad limits that customary public international law
imposes on states that wish to regulate international or foreign anticompetitive
conduct. Chapter 8 outlines the geographic scope of application of national antitrust
laws in the US, the EU and Japan. Chapter 9 examines the so-called international
competition law defences. Chapter 10 explores how best to resolve or reduce the
conflicts in this area.
(p.209) 7.2 International Law Limits on National Jurisdiction
7.2.1 Jurisdiction in International Law
The jurisdiction of a state in international law is a part of the general legal
competence of states and a manifestation of its sovereignty. International law imposes
limitations on the exercise of jurisdiction, which, when breached, will result in that
exercise of jurisdiction amounting to an international wrong.4 The international law
governing state jurisdiction is primarily customary international law, which is
evidenced by a general and consistent practice of states followed by them out of a
sense of legal obligation.5 The existence and content of many customary international
law rules are often contested. Many rules are therefore formulated in broad and
imprecise terms so that they can command general acceptance. Uncertainty is almost
inevitable when state practice unevenly responds to changing global economic and
political circumstances and state practice is both the primary source of international
law and the subject of dispute between states. National courts often reach different
conclusions on the international law rules governing national jurisdiction. International
customary law is unlikely to be able to directly resolve many disputes on the scope of
application of competition law.
Nevertheless, international law imposes some constraint on national competition laws.
Customary international rules may have concrete consequences in national courts and
international tribunals. Customary international law may be directly applicable in
national legal systems or influence the interpretation of statutes and treaties. As an
empirical matter, states tend to operate within the broad limits imposed by
international law and tend to rationalize their international actions to other states in
terms of international law. International law, however, does not operate beyond
international politics. National competition law jurisdiction and the international law on
state jurisdiction are likely to track the interests of the more powerful states. Where
the customary international law applicable to competition law applies to other legal
fields, the political factors shaping international law might make it harder or more
risky for the powerful states to change the international law applicable to competition
law, which could (p.210) increase the incentive of states to adhere to the
international law rules applicable to competition law.
In the SS Lotus case, the Permanent Court of International Justice famously stated:6
Far from laying down a general prohibition to the effect that States may not extend
the application of their laws and the jurisdiction of their courts to persons, property or
acts outside their territory, it leaves them in this respect a wide measure of discretion
which is only limited in certain cases by prohibitive rules; as regards other cases,
every State remains free to adopt the principle which it regards as best and most
suitable.
 The idea that a state may exercise extraterritorial jurisdiction provided there is no rule
prohibiting its exercise has been rejected by nearly all the great scholars, 7
downplayed or rejected in later cases,8 and inconsistent with much state practice.9
The absence of a clear presumption further limits the influence of international law on
extraterritorial competition law jurisdiction.
If extraterritorial jurisdiction is possible, concurrent jurisdiction of states is inevitable.
The function of the rules of state jurisdiction in international law, therefore, cannot be
to indicate the one state that has exclusive jurisdiction in a particular case.10 While
states may have a wide measure of discretion, their sovereign equality and
interdependence requires them to exercise moderation and restraint as to the extent
of their jurisdiction.11 Many courts and commentators agree that assertions of
jurisdiction are subject to a doctrine of proportionality or reasonableness.12 In most
cases where competition law jurisdiction is contested, no state will be clearly acting in
breach of international law. The issue will be whether the exercise of jurisdiction is
proper or reasonable in light of (p.211) the conflicting state interests and claims
to jurisdiction. The important question is therefore what is proper or reasonable.
Higgins argues: [w]ithout [functional purposes] one slides back into mere invocation
of sovereignty for its own sake and one has lost the touchstone for appropriate choice
when jurisdictional alternatives or choices present themselves.13 Attentiveness to
functional purposes would suggest that some exercises of jurisdiction may be
unreasonable in light of the purpose of competition law and the interests of other
states. Furthermore, modern problems may require modern rules. 14 The rules
governing state jurisdiction need to respond to a more economically interdependent
world and the need for a changing approach to the scope of regulation. The functional
purposes are not exhausted by the need for effective regulation. Attention should also
be paid to the interests of other states and the subject of the regulation when
determining whether an exercise of competition law jurisdiction is reasonable or
proportionate.
7.2.2 Types of Jurisdiction
There are many facets to jurisdiction and they can be categorized in a number of
ways.15 Some international lawyers consider that international law lays down a limited
set of accepted grounds for jurisdiction, each with defined limits. Others argue that
international law does not limit the bases for prescriptive jurisdiction, but merely
requires that there is a sufficient link between the state and the situation over which it
wants to exercise prescriptive jurisdiction. The latter gives states more flexibility. The
failure to identify any limits on what are acceptable links may permit extravagant
assertions of jurisdiction. On the other hand, flexibility may encourage states to
consider regulatory interdependence before asserting jurisdiction and allow
jurisdictional rules to be tailored to the needs of (p.212) specific legal areas. Too
much flexibility, however, risks undermining the already limited constraint that
international law imposes on assertions of jurisdiction.
Section 401 of the Restatement (Third) of the Foreign Relations Law of the United
States distinguishes three types of jurisdiction.16 The terms used in national legal
systems, such as subject matter jurisdiction and personal jurisdiction, frequently do
not correspond with those used in international law. According to the Restatement
(Third): Under international law, a state is subject to limitations on
(a) jurisdiction to prescribe, i.e., to make its law applicable to the activities, relations,
or status of persons, or the interests of persons in things, whether by legislation, by
executive act or order, by administrative rule or regulation, or by determination of a
court;
(b) jurisdiction to adjudicate, i.e., to subject persons or things to the process of its
courts or administrative tribunals, whether in civil or in criminal proceedings, whether
or not the state is a party to the proceedings;
 (c) jurisdiction to enforce, i.e., to induce or compel compliance or to punish
noncompliance with its laws or regulations, whether through the courts or by use of
executive, administrative, police, or other nonjudicial action.

Mann, however, argued that the international jurisdiction to adjudicate is merely an

emanation of the international jurisdiction to legislate: a state's right of regulation is
exercised by legislative jurisdiction, which includes adjudication.17 Meessen takes this
line of reasoning to its logical conclusion: State jurisdiction is about regulating
conduct by law and therefore always a matter of prescriptive jurisdiction.18
Furthermore:19
To establish separate rules of jurisdiction dealing with adjudication and enforcement
as a whole is at odds with the requirements of practice and even liable to produce
inaccurate results. However, instead of forming two separate categories of
prescriptive jurisdiction to cover all the problems of adjudication and enforcement, a
greater number of categories of prescriptive jurisdiction in the procedural law on
personal jurisdiction, on taking evidence abroad and so on, and in the law on the
different aspects of non-judicial enforcement could and, indeed, should be formed.

Meessen favours a breakdown of jurisdiction according to the various fields of law. It

is indeed by investigating the particular constellation of regulatory (p.213) interests
that more specific rules will have to be formulated both de lege lata and de lege
ferenda.20 A totally flexible approach has not displaced the traditional differentiation
between categories of jurisdiction. However, the higher degree of differentiation that
is taking place has tended to focus greater attention on the functional purposes of
jurisdictional rules. In other words, the requirement for an exercise of competition law
jurisdiction to be reasonable or proportionate may require the conventional bases of
jurisdiction to be adjusted in light of the particular needs of the international
competition law system.
7.2.3 Public and Private Competition Law Actions
Most legal systems distinguish between civil and criminal jurisdiction. International
law has also traditionally drawn a distinction between public and private law.21
Underlying the difference between public and private law, it is said, is the notion that
public laws prohibit what are deemed to be public rather than private injuries and are
generally enforced by governments. Since public laws reflect a sovereign's notions of
ordre public and are enforced by the sovereign itself, the potential for international
conflicts is considered greater in public than in private law cases. 22 International law is
generally accepted as imposing limits on criminal jurisdiction. Views differ on whether
international law governs the exercise of jurisdiction in civil matters.23 Whatever the
situation is in relation to traditional private law actions, international law imposes
limits on competition law jurisdiction in all types of cases.
The labels criminal or civil often may not accurately reflect any real distinction in
the degree to which the prescribing state is exercising its sovereign powers to control
conduct.24 Some scholars who believe jurisdiction in civil matters is not constrained by
international law, therefore, accept that where the civil jurisdiction of the state is an
instrument of state policy, such jurisdiction ought to be subject to the same governing
rules of international law that govern criminal (p.214) jurisdiction.25 Competition laws
are considered by many commentators to be public laws, with their application to
foreign conduct limited in the same manner as more traditional public laws, such as
criminal laws.26 Jennings argues that the question is not whether the matter is
properly called criminal in municipal law, but whether it is penal for the purpose of
international law, and this is a question not merely of procedure but of substance.27
The fact that the public/private distinction is not a major doctrinal force in common
law countries and that the public/private distinction varies among civil law countries
and is often uncertain suggests that the distinction does not provide a useful basis for
determining the scope of competition law jurisdiction.28
Private competition law actions do not neatly fit on either side of the publicprivate
line. In some countries competition law enforcement procedures may not be either
clearly civil or criminal. In the US, the anticompetitive conduct can give rise to both
criminal charges and civil claims, treble damages are available in civil actions, and
both public and private plaintiffs can seek equitable remedies. In New Zealand, public
enforcement takes place in ordinary civil proceedings where defendants may be
required to pay pecuniary penalties rather than criminal fines and, until recently,
only single compensatory damages were available in private actions. In many
countries, anticompetitive conduct may be subject to both public and private action.
Akehurst suggests, based on an analogy with the law of crimes and torts, that the
internationally permissible reach of antitrust law varies according to the nature of the
proceedings instituted in any given case.29 Therefore, suits for equitable relief by
either of the US enforcement agencies should be classified as criminal enforcement
actions, while suits by private individuals for equitable relief should be classified as
civil. Private competition law actions may not be analogous to tort law, because the
purpose of such actions is primarily to promote competition for the public benefit.
Indeed, most competition law rules generally aim to protect competition not
competitors; that is, the state's policy objectives rather than the well-being of a
particular firm or group of firms. Furthermore, the provision for multiple damages for
competition law infringements in some countries is also evidence that the purpose of
competition laws is the promotion of a state's (p.215) interests.30 The fact that many
states have objected to private antitrust actions under the Sherman Act, where
plaintiffs have sought triple damages, suggests private competition law actions are
subject to the same or similar limits as criminal or administrative actions.
Competition laws do not generally distinguish between criminal, administrative and
civil proceedings for the purpose of defining the scope of application of the
competition law. The First Circuit Court of Appeals in the US expressly held that the
subject matter jurisdiction of the Sherman Act was the same in both criminal and civil
proceedings.31 Civil, criminal and administrative competition law proceedings
therefore appear to be subject to the same rules of customary international law on
state jurisdiction. However, even if the exercise of jurisdiction in private law matters
should be consistent with public international law, public international law fails to
provide concrete solutions to the practical problems faced by international
competition law.32
7.3 Bases of Jurisdiction
There is a general tendency in the literature on jurisdiction to identify the rules
governing jurisdiction in the form of principles on which jurisdiction is commonly
based.33 An examination of the recognised bases of jurisdiction does not provide much
assistance in reducing conflicts over jurisdiction, because the application and
interpretation of the principles varies between states, and conflicts arise from
concurrent legitimate assertions of jurisdiction. However, the bases are part of a
broadly accepted framework that structures how states think about jurisdiction.
7.3.1 The Territorial Principle
The territorial principle is the primary principle governing jurisdiction. 34 It is axiomatic
that a state has the right to regulate conduct within its territory. (p.216) However,
territorial jurisdiction has never been regarded as absolutely exclusive.35 The territorial
principle allows the assertion of prescriptive jurisdiction where the prescribed conduct
consists of a series of events and only some of those events have been committed
within a state's territory. Some state must have jurisdiction in such cases if the
offence astride the frontier is not to escape punishment altogether.36 The critical
issue is what events need to take place in the state before it can legitimately assert
territorial jurisdiction. It is generally accepted that states may assume jurisdiction if
one of the constituent elements of the crime has been committed within its territory. 37
Furthermore, accomplices can be tried in the state where the principal offence
occurred, even though they never entered the state.38 A state also has jurisdiction
over attempts and conspiracies to commit a crime on its territory, even though the
actus reus of the attempt or conspiracy occurred abroad.39
In the Lotus case, the Permanent Court of International Justice recognized objective
territoriality as a basis for jurisdiction under international law.40 The court observed:41
the courts of many countries, even of countries which have given their criminal
legislation a strictly territorial character, interpret criminal law in the sense that
offenses, the authors of which at the moment of commission are in the territory of
another State, are nevertheless to be regarded as having been committed in national
territory, if one of the constituent elements of the offense, and more especially its
effects, have taken place there.

Commentators disagree on whether the court intended to recognize that jurisdiction

could be exercised even where no act that was a constituent element of an offence
was committed within a territory but the offence has effects within the territory.42 This
is the so-called effects doctrine adopted in Alcoa,43 (p.217) which permitted the
extraterritorial application of US antitrust law where the challenged conduct
occurred wholly outside the US.44
In the abstract, the distinction between a state assuming jurisdiction where the
conduct takes place within its territory, and where the conduct produces some
effect within its territory, but no part of the conduct constituting the offence
occurred inside the territory, seems clear. However, on closer inspection the
distinction becomes problematic. Jennings argues that: Once we move out of the
sphere of direct physical consequences, however, to employ the formula of effects is
to enter upon a very slippery slope; for here the effects within the territory may be no
more than an element of alleged consequential damage which may be more or less
remote.45 In an attempt to reconcile the constituent element approach and the Alcoa
effects doctrine, and restrict the potential scope of the latter, it has been argued that
in both cases an event could serve as a predicate for a claim of legislative authority
over actions taken abroad if, but only if, that event occurred within the territory of the
state asserting that authority and was an element of an offence against the law of
that state, and was caused by actions taken abroad.46 Specifically, if foreign conduct
has an anticompetitive effect in the US market, this permits the US to exercise
jurisdiction under the principle of objective territoriality, because an anticompetitive
effect is a constitutive element of a violation of the Sherman Act.
The constituent element approach, however, requires the characterization of any
particular law as either a competition law or a non-competition law, and certain
assumptions about the objectives of competition laws. If a competition law rule only
prohibits certain conduct when the conduct harms competition, the effect is an
essential ingredient of the crime and not an element of consequential damage. Most
per se competition rules prohibit collusive behaviour without proof of harm to
competition. A foreign export cartel may be found to be unlawful even though all the
elements of the crime take place abroad, because of the (assumed) economic
effects of that cartel on the prosecuting state. Therefore, as Jennings feared, an
effects approach could allow assertions of jurisdiction without limit if the relevant
effects are identified solely by reference to individual national statutes. With the
increasing globalization of commerce, a distinction between (p.218) non-physical
constituent elements, such as anticompetitive effects, and consequential damage
could undermine many types of economic regulation.47 Any distinction between
physical consequences, effects, and consequential damage will need to be justified by
reference to policy conclusions about the desirable scope of application of national
laws. International consensus is required on the fundamental objective of competition
law and that competition law jurisdiction should be restricted to what is necessary to
accomplish those objectives. In Part I, it was argued that the common, fundamental
objective was to prevent anticompetitive conduct harming consumer welfare. If
accepted, the proportionality or reasonableness principle would limit national
competition law jurisdiction to what is necessary to protect national consumer welfare.
Between 1927 and 2002, very few international tribunals considered the limits of
jurisdiction in relation to economic activity.48 In the Case Concerning the Arrest
Warrant of 11 April 2000 (Democratic Republic of Congo v Belgium), several judges
appeared to recognise the legitimacy of the assertion of territorial jurisdiction based
on effects or impacts.49 The state practice discussed in Chapter 8 also reveals the
gradual acceptance of the regulation of foreign business conduct under the effects
doctrine. However, the more practically important questions about the nature,
strength, directness, and so forth of the effect and the relevant territory have not
been answered. This issue is addressed in Chapter 10.
7.3.2 The Nationality Principle
There is general agreement that a state may prescribe the conduct of its own
nationals abroad. The nationality or active personality principle is more widely used in
civil law countries than in common law countries. There are wide variations in the
application of the principle and some states require double criminality and/or restrict
the principle to the more heinous crimes.50 It is generally recognized that the state
applying its law to a national located abroad cannot require conduct that is illegal
under the lex loci delicti commissi.51 In international competition law (p.219) cases,
with the exception of the production or discovery of documents located abroad, most
courts have recognized the inappropriateness of ordering a individuals or enterprises
from doing something abroad that would cause that person to breach the law of the
place where the act would be performed. See Chapter 9 and Section 13.3.4.
At various times, a number of developing countries have argued that developed
countries should prevent their multinationals from engaging in restrictive business
practices in developing countries,52 which would require the extraterritorial application
of competition laws on the basis of nationality. However, no major country has applied
its competition law extraterritorially solely on the basis of nationality.53 There are
several compelling reasons for this. First, the link of nationality may be no more than
prima facie evidence that the person's conduct is properly the concern of the state of
nationality, and it is not necessarily evidence of a close connection between the
legislating state and the subject matter of the legislation.54 Thus, a legitimate interest
in regulating business practices that takes place exclusively within another state is not
created merely by virtue of the participants' nationality.
Applying competition law on the basis of nationality could give rise to conflicts with
host countries, because the host country would regard such an exercise of jurisdiction
as an inference with its domestic policies in many instances and an invasion of its
sovereignty. Extraterritorial application of competition law may not be acceptable to
many countries, unless the host country could control when and how the home
country applied its competition law. Reliance on nationality as a basis for jurisdiction
will be more contentious when the law applied has industry- or economy-wide effects.
Such a power would give the home states of multinationals the power to regulate
most of the world economy. It could discourage liberalization of foreign direct
investment. If host countries could choose when the home country could apply its
laws, the legal nature of competition law and its predictability would be undermined,
because international political considerations would inevitably enter into enforcement
decisions.55
(p.220) The use of nationality as a basis for the extraterritorial application of
competition law may unduly disadvantage the overseas operations of firms from
countries that applied their laws on the basis of nationality relative to firms from
countries that did not. It would also raise the risks for foreigners doing business with
firms whose home country competition law follows them abroad. Should there be
jurisdiction over a whole transaction wherever in the world it was entered into and
wherever the effects were felt merely because one party to the transaction was from a
country whose home country competition law followed that party abroad?
Where a country does not have an effective and enforceable antitrust law, or a small
country does not have the power or the will to enforce its law against a multinational,
the application of US antitrust law to its export trade and commerce could sometimes
be in the interest of some countries. However, the discriminatory standing rules and
lack of control over US courts or enforcement agencies suggest that few countries will
see the benefits outweighing the costs.
Although nationality has not been used to provide truly extraterritorial jurisdiction, it
has sometimes provided an additional connecting factor or been used to determine
the rights and obligations of the parties in international competition law cases. For
example, Australia and New Zealand have used nationality as a basis for giving their
competition laws some extraterritorial effect.56 However, nationality was not the sole
connection between the conduct and the competition law jurisdiction. While neither
the US Congress nor the US courts have generally favoured the extraterritorial
application of US law on the basis of nationality,57 the US courts have frequently
emphasized the nationality of the plaintiffs and defendants when determining whether
or not to decline jurisdiction or find that another forum was a more convenient forum
in international competition law cases. See Section 8.2.
However, even such a limited use of nationality may not be sustainable. National
treatment involves the application of regulations to foreign persons in the same way
that they apply to nationals. If the scope of application of regulations is determined by
nationality, the national treatment provisions in the WTO agreements or bilateral or
regional trade or investment agreements might be breached. See Chapter 11.
Reliance on nationality as a connector provides a bad set of incentives for regulators
regulators may be subject to political pressure to be lenient with national companies.
(p.221) 7.3.3 Other Principles
Arguments have been made for the absorption of extraterritoriality into the protective
principle.58 The passive personality principle might, in theory, provide a basis for the
application of competition to foreign conduct that harms citizens of the forum state,
but produces no direct effects in the home country, by analogy with Article 14 of the
French Civil Code. However, the application of either of the principles to
anticompetitive conduct would also seem inconsistent with their generally accepted
limits,59 and give rise to enormous commercial uncertainty.
7.4 Summary
Customary international law rules on state jurisdiction are not able to resolve conflicts
over the extraterritorial application of competition law, but provide broad constraints
on the scope of the application of competition laws. While customary international law
on jurisdiction may not be the same for all legal fields, both civil and criminal
competition law actions appear to be subject to the same jurisdictional limits. The
territorial principle is the key basis for competition law jurisdiction. The assertion of
jurisdiction on the basis of economic effects caused by foreign conduct is consistent
with international law and state practice. States should limit themselves to reasonable
exercises of jurisdiction to protect their legitimate interests, which requires states to,
inter alia, consider the nature, magnitude, and directness of any effects before
exercising jurisdiction. (p.222)
Notes:
(1) See, eg, J Shenefield, U.S. antitrust in the international arenathe problem and
some solutions (1982) 15 Swiss Review of International Competition Law 3, 5.

(2) See R Goode, Reflections on the harmonization of commercial law in R Cranston

and R Goode (eds), Commercial and Consumer Law: National and International
Dimensions (Oxford: Clarendon Press, 1993) 3, 20.
(3) See A Rosett, Unification, harmonization, restatement, codification, and reform in
international commercial law (1992) 40 American Journal of Comparative Law 683,
687 ; Goode (n 2 above) 1316.
(4) I Brownlie, Principles of Public International Law (5th edn, Oxford: Oxford
University Press, 1998) 313 ; FA Mann, The doctrine of international
jurisdiction revisited after twenty years (1984) 186 Recueil des Cours 3, 21
; L Bartels, Article XX of GATT and the problem of extraterritorial
jurisdiction: the case of trade measures for the protection of human rights (2002) 36
Journal of World Trade 353, 369.
(5) KM Meessen, International law limitations on state jurisdiction in CJ Olmstead
(ed), Extra-Territorial Application of Laws and Responses Thereto (Oxford: International
Law Association/ESC Publishing, 1984) 38, 39 . On the sources and
evidence of a rule of international law see the Statute of the International Court of
Justice, Art 38; American Law Institute, Restatement (Third) ofForeign Relations Law
of the United States (1987) 102, 103 (hereinafter Restatement (Third) of Foreign
Relations Law of the United States); Brownlie (n 4 above) ch 1.
(6) SS Lotus (France v Turkey) (1927) PCIJ, Series A, No 10, 1819.
(7) See P Weil, International law limitations on state jurisdiction in CJ Olmstead (ed),
Extra-territorial Application of Laws and Responses Thereto (Oxford: International Law
Association/ESC Publishing, 1984) 32, 323.
(8) See, eg, Anglo-Norwegian Fisheries (United Kingdom v Norway) (1951) ICJ Rep
116, 132; Legality of the Threat of Use of Nuclear Weapons, Advisory Opinion (1996)
ICJ Rep 226, 2389, 270, 3946; Case Concerning the Arrest Warrant of 11 April 2000
(Democratic Republic of Congo v Belgium), 14 February 2002 (ICJ), Separate Opinion
of President Guillaume, paras 1315, Joint Separate Opinions of Judges Higgins,
Kooijmans, and Buergenthal, paras 4951, cf Dissenting Opinion of Judge Van den
Wyngaert, para 51.
(9) See R Jennings, Extraterritorial jurisdiction and the United States anti-trust laws
(1957) 33 British Yearbook of International Law 146, 1523 ; AV Lowe,
Blocking extraterritorial jurisdiction: the British Protection of Trading Interests Act,
1980 (1981) 75 American Journal of International Law 257, 2623.
(10) Nuclear Tests (Australia v France) (1974) ICJ Rep 99, 131, Dissenting Opinion of
Judge Ignacio-Pinto.
(11) Barcelona Traction, Light and Power Co Ltd (Belgium v Spain) [1970] ICJ Rep 3,
105, Separate Opinion of Judge Fitzmaurice.
(12) F Hoffman-La Roche Ltd v Empagran SA 542 US 155, 163 (2004) ([T]his Court
ordinarily construes ambiguous statutes to avoid unreasonable interference with the
sovereign authority of other nations . This rule of construction reflects principles of
customary international law ); Brownlie (n 4 above) 313; Restatement (Third) of
Foreign Relations Law of the United States, 403.
(13) R Higgins, The legal bases of jurisdiction in CJ Olmstead (ed), Extra-Territorial
Application of Laws and Responses Thereto (Oxford: International Law Association/ESC
Publishing, 1984) 3.
(14) American Law Institute, Restatement of the Law (Second) of the Foreign
Relations Law of the United States (1965) 18; Restatement (Third) of Foreign
Relations Law of the United Sates, pt IV, ch 1(A), introductory note; GB Born, A
reappraisal of the extraterritorial reach of U.S. law (1992) 24 Law and Policy in
International Business 1, 69 ; AF Lowenfeld, Public law in the
international arena: conflict of laws, international law, and some suggestions for their
interaction (1979) 163 Hague Recueil 322, 311 ; FA Mann, The doctrine
of jurisdiction in international law (1964) 111 Recueil des Cours 1 ,
reprinted in FA Mann, Studies in International Law (Oxford: Oxford University Press,
1973) 28 ; SL Snell, Controlling restrictive business practices in global
markets: reflections on the concepts of sovereignty, fairness, and comity (1997) 33
Stanford Journal of International Law 215, 284 ; SW Waller, Antitrust and
American business abroad today (1995) 44 DePaul Law Review 1251, 1275
; AC Swan, The Hartford Insurance Company case: antitrust in the
global economywelfare effects and sovereignty in JS Bhandrari and AO Skyes (eds),
Economic Dimensions in International Law: Comparative and Empirical Perspectives
(Cambridge: Cambridge University Press, 1997) 530, 5568 . See also the
obiter dictum of Judge Alvarez (dissenting) in Anglo-Iranian Oil Co (United Kingdom v
Iran) (1952) ICJ 93, 128.
(15) Higgins (n 13 above) 3.
(16) See also M Akehurst, Jurisdiction in international law (19723) 46 British
Yearbook of International Law 145 ; Lowenfeld (n 14 above) 3267; G
Gilbert, Crimes sans frontiers: jurisdictional problems in English law [1992] British
Yearbook of International Law 415, 416 . Previously, only prescriptive and
enforcement jurisdiction were distinguished.
(17) FA Mann, The doctrine of international jurisdiction revisited after 20 years
(1984) 186 Recueil des Cours 3, 67 and n 47; see also I Brownlie,
Principles of Public International Law (5th edn, Oxford: Oxford University Press, 1998),
313.
(18) KM Meessen, Conflicts of jurisdiction under the new Restatement (1987) 50 Law
and Contemporary Problems 47, 50.
(19) Ibid 51 . See also Higgins (n 13 above) 14.
(20) Ibid 52 . See also AF Lowenfeld, International Litigation and
Arbitration (St Paul, Minn: West Publishing, 1993) 2.
(21) B Hawk, United States, Common Market and International Antitrust: A
Comparative Guide (2nd edn, Englewood Cliffs: Prentice Hall Law and Business, 1991
supp), vol 1, 81 ; Lowenfeld (n 20 above) 1.
(22) See Hawk, Ibid, 81 . Ascribing this view to R Jennings, General
course on principles of international law (1967) 121 Recueil des Cours 327.

(23) Compare Akehurst (n 16 above) 1707; DW Bowett, Jurisdiction: changing

patterns of authority over activities and resources [1983] British Yearbook of
International Law 1, 34 ; R Jennings, The limits of state jurisdiction
(1962) 32 Nordisk Tidsskrift for International Ret 209, 21011 ; with
Brownlie (n 17 above) 3023; Mann (n 14 above) 4351, 609; O Schachter, General
course in public international law (1982) 178 Recuiel de Cours 2468 ,
nn 505, 506. Other commentators see the distinction between public and private
international law breaking down and a conflict of laws approach to public law
developing. See Lowenfeld (n 14 above) 3236; Restatement (Third) of Foreign
Relations Law of the United States, 4013.
(24) Bowett (n 23 above) 2; Brownlie (n 17 above) 3023.
(25) Bowett (n 23 above) 4.
(26) Compare Hawk (n 21 above) with Brownlie (n 17 above) 3023.
(27) R Jennings, Extra territorial jurisdiction and the United States anti-trust laws
(1957) 33 British Yearbook of International Law 146, 147.
(28) Re State of Norway's Applications (Nos 1 and 2) [1990] 1 AC 723 (HL) 808, per
Lord Goff, quoting Charles Szladits' contribution to the International Encyclopaedia of
Comparative Law, vol 2, ch 2, paras 25 and 57. See also Case Concerning the Arrest
Warrant of 11 April 2000 (Democratic Republic of Congo v Belgium), 14 February 2002
(ICJ), Joint Separate Opinion of Judges Higgins, Kooijmans, and Burgenthal, para 72.
(29) M Akehurst, Jurisdiction in international law (19723) 46 British Yearbook of
International Law 145, 192 n3 .
(30) Cf Akehurst ( Ibid) 191 n 1. (The fact that damages exceed the loss
suffered makes no difference as to whether an action brought by a private party
should be considered a criminal action.)
(31) Nippon Paper Industries Co Ltd v United States 944 F Supp 55 (D Mass 1996),
rev'd 109 F 3d 1 (1st Cir 1997), cert denied, 1998 US LEXIS 31 (1998).
(32) See J Hill, The exercise of jurisdiction in private international law in P Capps, M
Evans, and S Konstadinidis (eds), Asserting Jurisdiction: International and European
Legal Perspectives (Oxford: Hart Publishing, 2003) 41, 44.
(33) See, eg, DW Bowett, Jurisdiction: Changing patterns of authority over activities
and resources [1983] British Yearbook of International Law ; G Gilbert,
Crimes sans frontiers: jurisdictional problems in English law [1992] British Yearbook
of International Law 415 ; M Goode, The tortured tale of criminal,
jurisdiction (1997) 21 Melbourne University Law Review 411.
(34) Laker Airways v Sabena, Belgian World Airlines 731 F 2d 909, 921 (DC Cir 1984);
Restatement (Third) of Foreign Relations Law of the United States, 402, comment c;
Akehurst (above n 29) 152.
(35) See Jennings (n 27 above) 14861. On the other hand, there is general
agreement that a state may not, unless by permission, exercise its power in a physical
sense in the territory of another state. See S S Lotus (France v Turkey) (1927) PCIJ,
Series A, No 10, p 18.
(36) Jennings (n 27 above) 156.
(37) Bowett (n 33 above) 67; Gilbert (n 33 above) 430.
(38) Akehurst (n 29 above) 152.
(39) See Harvard Research in International Law, Codification of international law
(1935) 29 American Journal of International Law, Supplement 5068 ;
Akehurst (n 29 above) 154, n 2 .
(40) Harvard Research ( Ibid) 486, 487 states that the objective territorial
principle establishes jurisdiction of the State to prosecute and punish for crime
commenced without the State but consummated within its territory and the
subjective territorial principle establishes the jurisdiction of the State to prosecute
and punish for crime commenced within the State but completed or consummated
abroad. See also R Jennings, Extraterritorial jurisdiction and the United States anti-
trust laws (1957) 33 British Yearbook of International Law 146, 15661.
(41) (1927) PCIJ, Series A, No 10, 23.
(42) Compare Harvard Research (n 39 above) 501; Jennings (n 40 above) 15661; FA
Mann, The doctrine of jurisdiction in international law (1964) 111 Recueil des Cours
1 , reprinted in FA Mann, Studies in International Law (Oxford: Oxford
University Press, 1973) 35, 104.
(43) United States v Aluminium Co of America 148 F 2d 416 (2nd Cir 1945).
(44) Some courts and scholars argue that the effects doctrine does not involve the
assertion of extraterritorial jurisdiction. See, eg, Laker Airways v Sabena, Belgian
World Airlines 731 F 2d 909 (DC Cir 1984), 923. Others argue that the effects
doctrine is a basis of jurisdiction independent of the territorial principle. The use of
two ill-defined labels should not prejudge an analysis of the real issues involved in
delimiting national competition law jurisdiction. On terminology see AC Swan, The
Hartford Insurance Company case: antitrust in the global economy welfare effects
and sovreignty in JS Bhandari and AO Skyes (eds), Economic Dimensions in
International Law: Comparative and Empirical Perspectives (Cambridge: Cambridge
University Press, 1997) 54951 ; see also S Dutson, The territorial
application of statutes (1996) 22 Monash University Law Review 69, 87 ;
L Bartels, Article XX of GATT and the problem of extraterritorial jurisdiction: the case
of trade measures for the protection of human rights (2002) 36 Journal of World
Trade 3535 , n 56.
(45) Jennings (n 40 above) 159 (footnote omitted).
(46) Swan (n 44 above) 578.
(47) GB Born, A reappraisal of the extraterritorial reach of U.S. law (1992) 24 Law
and Policy in International Business 1, 214.
(48) The most important exception is the dicta in Barcelona Traction, Light and Power
Co Ltd (Belgium v Spain) (1970) ICJ Rep 3, 105, 1667, Separate Opinions of Judges
Fitzmaurice and Jessup.
(49) 14 February 2002, ICJ No 121, Separate Opinion of President Guillaume, para 14,
Joint Separate Opinion of Judges Higgins, Kooijmans and Burgenthal, paras 34, 47.
(50) G Gilbert, Crimes sans frontiers: jurisdictional problems in English law [1992]
British Yearbook of International Law 415, 41718.
(51) DW Bowett, Jurisdiction: changing patterns of authority over activities and
resources [1983] British Yearbook of International Law 1, 78 . See also
M Akehurst, Jurisdiction in international law (19723) 46 British Yearbook of
International Law 145, 1567 . The US Restatement (Second) of Foreign
Relations Law of the United States, 30 suggests a state may not direct a national to
engage in activities without regard to harmful consequences to another State, but no
similar statement appears in the Restatement (Third) of Foreign Relations Law of the
United States.
(52) See UN Doc TD/B/600 (1976) para 7 (cited in J Davidow and L Chiles, The United
States and the issue of the binding or voluntary nature of international codes of
conduct regarding restrictive business practices (1978) 72 American Journal of
International Law 247, 259 ) and the discussion of the WTO negotiations
in Section 11.2.2. See also J Bhagwati and TN Srinivasan, Trade and the environment:
does environmental diversity detract from the case for free trade? in J Bhagwati and
RE Hudec (eds), Fair Trade and Harmonization: Prerequisites for Free Trade? Volume
1: Economic Analysis (Cambridge, Mass: MIT Press, 1996) 158, 17879.
(53) Akehurst (n 51 above) 206 reports that Yugoslav antimonopoly legislation used to
apply to all acts of Yugoslav corporations, regardless of where they occured.
(54) Bowett (n 51 above) 8; FA Mann, The doctrine of jurisdiction in international law
(1969) 111 Recueil des Cours 1 , reprinted in FA Mann, Studies in
International Law (Oxford: Oxford University Press, 1973) 28, 834.
(55) See also Davidow and Chiles (n 52 above) 2601.
(56) See C Noonan, The extraterritorial application of New Zealand competition law
(2007) 22 New Zealand Universities Law Review 369.
(57) See Born (n 14 above) 903. The general tendency is confirmed by the antitrust
cases Laker Airways v Sabena, Belgian World Airlines 731 F 2d 909 (DC Cir 1984),
921, 937; Nippon Paper Industries Co Ltd v United States 944 F Supp 55 (D Mass
1996), rev'd 109 F 3d 1 (1st Cir 1997), cert denied, 1998 US LEXIS 31 (1998).
(58) See, eg, R Jennings, Extraterritorial jurisdiction and the United States anti-trust
laws (1957) 33 British Yearbook of International Law 146, 155 ; J Rahl
(ed), Common Market and American Antitrust (New York: McGraw-Hill, 1970) 397401
; PM Roth, Reasonable extraterritoriality: correcting the balance of
interests (1992) 41 International and Comparative Law Quarterly 245, 284
; Akehurst (n 51 above) 207. See also the Restatement (Third) of Foreign
Relations Law of the United States, 402 Comment f (The protective principle may be
seen as a special application of the effects principle.)
(59) See Akehurst (n 51 above) 1579, 1626; Bowett (n 51 above) 1011; I Brownlie,
Principles of Public International Law (5th edn, Oxford: Oxford University Press, 1998)
3067 ; Gilbert (n 50 above) 41922; Mann (n 51 above) 401, 77;
Restatement (Third) of Foreign Relations Law of the United States, 402.

The Scope of Application of Competition Laws

Chris Noonan
DOI:10.1093/acprof:oso/9780199207527.003.0008
Abstract and Keywords

This chapter examines the scope of application of the competition laws in the US, the
EU, and Japan. A number of legal rules determine the effective scope of application of
competition laws. The analysis suggests a trend towards acceptance of the exercise of
jurisdiction based on anticompetitive effects.

Keywords: US, EU, Japan, competition law jurisdiction, antitrust laws

8.1 Contrasting Approaches to Jurisdiction
There are fundamental differences in national conflict of laws rules.1 Modern American
conflicts law has often favoured multifactor tests and open-ended methodologies. In
the US, policy and practical concerns may be taken into account on a more or less ad
hoc basis in individual cases, whereas in Europe they are usually taken into account at
the rule-making stage. As a general matter, European conflicts law is marked by a
comparatively greater preference for certainty and stability of rules and predictability
of results over substantive justice in the individual cases. Conflicts rules in non-federal
states deal with inter-country rather than inter-state issues, which may have lead to a
greater attachment to territorial criteria.2 On the other hand, in federal states, inter-
country conflicts rules may be influenced by inter-state conflicts rules, despite the
very different constitutional and political context.
The authority or power of a court to adjudicate is referred to as jurisdiction in
common law jurisdictions, but competence in civil law jurisdictions. In
Commonwelath common law countries, jurisdiction is normally based on the service of
process upon the defendant. Civil law countries base competence on the existence of
certain defined contacts between the forum and the defendant or the legal
relationship involved in the legal action in question. In practice, the two approaches
may produce similar results because of the limits on service outside of the jurisdiction.
A substantial connection between the defendant or the action and forum is not
generally needed when the defendant is present in a common law jurisdiction. A
common law court may, however, stay an action where there is little connection
between the forum and the defendant and the court is forum non conveniens. In most
civil law countries, courts have no discretion to decline jurisdiction. 3
(p.224) This chapter examines the scope of application of the competition laws in the
US, the EU, and Japan. Most competition law jurisdictional controversies have focused
on prescriptive jurisdiction and the effects doctrine. The effects doctrine may not
enlarge the scope of application of a competition law if the defendants must be
present or have carried on some activity in the jurisdiction in order for the court to
exercise judicial jurisdiction. A proper analysis of the scope of competition laws
requires consideration of a bundle of legal rules, including subject matter jurisdiction,
constitutional law, competence, personal jurisdiction, public international law, service,
proper venue, choice of law rules,4 appropriate forum, anti-suit injunctions, comity,
the international competition law defences, discovery, and the recognition and
enforcement of foreign judgments.
8.2 The United States Antitrust Laws
8.2.1 Historical and Statutory Context
The US federal courts have subject matter jurisdiction in cases arising under the
federal antitrust laws.5 The scope of application, or prescriptive jurisdiction,6 of the US
antitrust law is limited by the power of the US Congress to regulate commerce and the
terms of the antitrust laws. The Commerce Clause of Article III of the US Constitution
allows the Congress to regulate conduct that is in or affects interstate or foreign
commerce, even where the target conduct and persons are outside of US territory or
the law violates international law.7 With no significant constitutional constraints,8 the
extraterritorial reach of federal legislation has turned almost entirely upon questions
of statutory construction. For nearly 200 years the US courts have relied on a rule of
statutory construction that legislation of Congress, unless a contrary intent appears,
is meant to apply only within (p.225) the territorial jurisdiction of the United States.9
There is a further presumption that Congress does not ordinarily intend its legislation
to violate public international law.10
Hawk identifies three concerns in the legislative history of the antitrust laws that may
influence the scope of their application: the importance of imports to US domestic
competition; the concern that the Act not be evaded through jurisdiction hopping by
US firms; and the promotion of US export opportunities and for such opportunities not
to be hindered by the application of the Sherman Act.11 Others have argued that the
US international antitrust policy is informed by a desire, inter alia, to protect
competition in all international trade12 and to minimize conflicts with foreign nations.13
The legislative history of the foreign commerce clause of the Sherman Act contains no
comment on the intended scope of application of the Sherman Act.14 The result has
been that the scope of application of the Sherman Act has been determined by
contemporary ideas about jurisdiction and conflict of laws, and the general objectives
of the antitrust laws. The twentieth century US conflict of laws rules revolution, which
rejected strict territoriality, strongly influenced antitrust law. It is also scarcely
coincidental that the increasing extraterritorial application of the antitrust laws
followed the rise in dominance of the US in the twentieth century.15
The scope of the Sherman Act is affected by whether foreign trade or commerce
includes not only trade in goods and services, but also foreign investments and the
licensing of intellectual property.16 In United States v Westinghouse Elec Corp, for
example, the US government unsuccessfully challenged a network of arrangements
between Westinghouse and two large Japanese firms.17 Westinghouse granted certain
Japanese firms exclusive manufacturing rights in (p.226) Japan under a patent licence
and agreed establish to a manufacturing facility in Japan. Westinghouse was free to
export to Japan from its US plants. Although the decision is not clear, the court may
have found there was no illegal restraint, as there appeared to be no inhibition on
Westinghouse's export of products, and therefore no US commerce was restrained.
The importance of foreign investment and technology to the US economy and the
likelihood that a transaction involving either would impact on the trade in goods and
services suggests that US courts will be reluctant to find a licensing transaction not to
be foreign commerce.
The Sherman Act contains the most general of the US antitrust rules and the most
expansive claim to jurisdiction. The Sherman Act originally applied to all restraints and
monopolization in trade or commerce among the several States, or with foreign
nations.18 The Sherman Act and the FTC Act were amended by the Foreign Trade
Antitrust Improvements Act (FTAIA) of 1982.19 Both Acts now only apply to export or
wholly foreign conduct where the conduct has a direct, substantial and reasonably
foreseeable effect on US domestic commerce or on the trade of a person engaged in
US export commerce.20
Section 5 of the Federal Trade Commission Act (FTC Act) prohibits unfair methods of
competition in or affecting commerce and unfair or deceptive acts or practices in or
affecting commerce. In 1975, the FTC Act was amended to extend the Commission's
jurisdiction from matters in commerce to those in or affecting commerce.21 The
FTC takes the position that the import foreign commerce jurisdiction should be
construed identically to the Sherman Act.22
The other US antitrust statutes have a more limited scope of application,23 often
because they are limited to particular types of business practice and these limitations
are expressed in territorial terms. Section 7 of the Clayton Act is, for example, limited
to merger transactions which could lessen competition or which tend to create a
monopoly within any section of the US.24 Section 7 of the Clayton Act applies to
persons engaged in commerce or in any activity affecting commerce.25 Thus, the
application of the merger provisions is co-extensive with the power of the Congress
under the Commerce Clause. Despite the slightly different language, the US
enforcement agencies have stated that they will apply the same principles that are
applied to determine whether a case with a foreign element falls within the scope of
section 7 as they apply to Sherman Act cases.26
(p.227) 8.2.2 Judicial and Administrative Jurisdiction
Whether or not a US court may compel a foreign individual or corporation to appear
before it and answer allegations of antitrust violations is dependent on the concepts of
personal jurisdiction, service, and venue.27 Few defendants whose actions have a
direct, substantial and reasonably foreseeable effect on the US will escape personal
jurisdiction. Personal jurisdiction requires that there must be adequate contact
between the defendant and the forum to satisify due process requirements.
International Shoe Co v Washington held that due process requires only that in order
to subject a defendant to a judgment in personam, if he not be present within the
territory of the forum, he have certain minimum contacts with it such that the
maintenance of the suit does not offend traditional notions of fair play and substantial
justice.28 The International Shoe requirements apply to actions against foreign
states,29 and in both civil and criminal antitrust cases.30 There are two prongs to the
due process requirement.31 First, the defendant must have some minimum contacts
with the forum state (or district) resulting from an affirmative act of the defendant by
which the defendant purposively avails itself of the privilege of conducting activities
in the forum and invokes the benefits and protections of the forum's laws. Secondly, it
must be fair and reasonable to require the defendant to come into the forum state (or
district) and defend the action, which depends on the strength of the interest of the
forum state in hearing the litigation, in light of the interests of other states and
nations in the matter, and the significance of the burden placed on the defendant in
litigating in the forum.32 It appears that if an American person is the plaintiff, only in
exceptional circumstances will the assertion of jurisdiction be found to be
unreasonable.33 If the defendant is a US domiciliary or citizen, or is otherwise served
in the US, the minimum contacts test does not apply.34
In an antitrust action in a federal court, the normal minimum contacts analysis is
applied, but the relevant forum for contacts is not the state in which (p.228) the
particular federal court where the suit is brought sits, but the entire US. If an alien has
minimum contacts with the US as a whole, there is due process no matter which state
the case is brought in.35 This rule may sometimes disadvantage foreign defendants.36
If the defendant has substantial and continuous activities within the forum, the court
may assert general personal jurisdiction, which allows the court to hear all types of
claim against the defendant.37 The lower courts generally have required actual
physical contacts by the defendant in the state for a finding of general jurisdiction,
such as an actual place of business, corporate headquarters or a permanent force of
sales agents.38
Where the defendant has only limited contacts with the forum, the court may
nonetheless have specific personal jurisdiction over the defendant. Specific
jurisdiction only supports claims arising from or related to the defendant's purposeful
availment or minimum contacts with the forum.39 What is required for specific
jurisdiction is some act by which the defendant purposefully avails itself of the
privilege of conducting activities within the forum (p.229) state, thus invoking the
benefits and protections of its laws.40 Minimum contacts are likely to be found
through purposeful availment where the defendant has made efforts to market a
product in the state, whether directly by in-state sales or indirectly through a
distribution network or stream of commerce.41 The mere ownership of a US patent is
probably not enough to confer personal jurisdiction over a foreign firm, but little more
will be required where the antitrust claim relates to the manner in which the foreign
firm exercises its patent rights.42 Calder v Jones has been read as providing that a
defendant will be found to purposefully avail itself of the forum when it has
intentionally created a harmful effect in the forum, even if the defendant never
entered the forum physically or through an agent.43 Although antitrust subject matter
jurisdiction can be founded on intentional effects and local plaintiffs are usually the
target of the defendant's activities, the test for person jurisdiction appears to be
stricter.44 Acts of co-conspirators in the forum in furtherance of a conspiracy may be
attributed to non-resident co-conspirators as purposeful contacts.45
Although separate corporate entities are generally respected even where there is 100
per cent ownership and a commonality of officers and directors, purposeful activity in
the US can be found through the activities of a corporate affiliate within the forum. 46
Any significant evidence showing that the business of a US subsidiary is integrated
with that of the foreign parent so that, as a practical matter, they operate as a single
enterprise, makes it likely that the parent will be found to be doing business in the
US.47 Purposeful contact between the defendant and the forum may also be found
where the non-resident has, expressly or impliedly, authorized an agent to act on its
behalf in the forum, regardless of whether the agent is a totally independent
corporation or an affiliate.48
The second requirement for personal jurisdiction is compliance with the statutory rules
for service of process in both civil and criminal cases. There are two aspects to service
of process: the rules governing the physical process of service; and the need for
statutory authorization for the service of summons.49 A number of statutory
provisions, including section 12 of the Clayton Act, rule 4 of the Federal Rules of Civil
Procedure, and the long-arm statutes of the state in which the federal court sits,
ensure that there is generally adequate authorization and means to effect service in
antitrust cases. State law typically permits service by registered mail addressed to an
alien at his or her residence or principal place of business overseas or by personal
service there.50
In criminal proceedings, Federal Rule of Criminal Procedure 4 provides for arrest
warrants and summons to appear in court at a stated time and place. Unless there are
relevant extradition treaties or mutual legal assistance treaties, the warrant must be
executed or the summons served at a place within the jurisdiction of the US.
The issues of venue and the due process has been said to be virtually congruent.51
The antitrust venue requirements do not impose any significant (p.230) additional
constraints on the application of the antitrust laws in international cases.52
8.2.3 The Traditional Territorial Analysis
The Supreme Court first considered the extraterritorial application of US antitrust law
in 1909. American Banana Co v United Fruit Co was a private suit between two US
corporations.53 American Banana alleged that United Fruit had conspired to
monopolize the production and export of bananas from Central America to (primarily)
the US by instigating the Costa Rican government to seize both United Fruit's
plantation and its railway link with the coast. The conspiracy was allegedly hatched in
the US. The court, however, upheld dismissal of the complaint on the grounds of a
lack of jurisdiction, because the relevant acts (the inducement of the seizure) took
place outside the US.54 The decision was consistent with the then current approach to
the choice of law in tort actions, the long-established principle that US statutes are not
to be construed to apply to acts abroad,55 and contemporary pronouncements on the
judicial jurisdiction of the US states.56
Between World Wars I and II, the authority of the America Banana case was repeatedly
recognized by the Supreme Court.57 Where the court applied a statute
extraterritorially, American Banana was recognized as authority for both the general
rule against the extraterritorial application and against the extraterritorial application
of the Sherman Act.58 American Banana was not expressly overruled until 1990.59 The
assessments of how well the American Banana decision was adhered to in antitrust
cases between 1909 and 1945 vary.60 Writers favouring (p.231) the effects doctrine
found evidence of the assertion of jurisdiction based on effects on US commerce alone
in several early cases, while other writers interpreted the same cases as liberal
applications of the territorial principle requiring some act in pursuance of a
conspiracy, agreement, or monopolization to have occurred within the US.61 The latter
seems to be the better historical view.62 However, the cases did not provide clear
guidance on what type and how much conduct needed to occur in the US before there
was jurisdiction.
During this period, restrictions on US exports received little attention. 63 The Sherman
Act was invoked against German agents who attempted to prevent the export of
military equipment during World War I,64 and international cartels that prevented US
participants from exporting to certain foreign markets.65 A combination of watch case
and watch movement companies supplying foreign markets was upheld by a lower
court based on findings that foreign commerce was expanded rather than restrained. 66
8.2.4 The Development on a New Jurisdictional Principle in the Post-War Period
During the 1940s and 1950s, the US DOJ successfully brought criminal and civil
actions against international cartels in many industries.67 The DOJ claimed (p.232)
that international cartels had retarded mobilization in the US. The actions against
cartels can be seen as part of a broader US interest in the liberalization of
international trade.68 A few of the international cartel cases seemed to herald an
expanded scope of application of the Sherman Act based on some effect on US
commerce.69 However, in most cases there was some activity pursuant to the cartel
arrangement within the US and foreign cartel participants were often not named as
defendants. Large American corporations participated in all of these cartels. Thus, in
virtually all of these cases, the finding of jurisdiction was or could have been
rationalized in traditional territorial terms.
The seminal case was United States v Aluminium Co of America (Alcoa ),70 which
was decided by the Court of Appeals for the Second Circuit sitting as a special
statutory court of last resort, which added to its weight as a precedent.71 While the
case involved foreign commerce, the main thrust of the case was the monopolization
of the US domestic aluminium market by Alcoa. The US government civil action under
section 1 of the Sherman Act alleged that Aluminium Limited (Limited) and a Canadian
company related to Alcoa72 had conspired with several foreign companies to restrain
American commerce. The international cartel operated through a Swiss corporation. A
1936 agreement provided (p.233) for a complicated system of royalty payments
among the members and production quotas.73 The court accepted that Alcoa and
Limited operated at arms length and that Alcoa was not a party to the international
cartel.74 Limited had participated in the international cartel and violated the Sherman
Act.75 Judge Learned Hand considered that in determining whether Congress chose to
attach liability to the conduct outside the United States of persons not in allegiance to
it, the Sherman Act should be read with regard to the limitations customarily
observed by nations upon the exercise of their powers; limitations which generally
correspond to those fixed by the Conflict of Laws.76 The court held that the Sherman
Act covers an agreement that is intended to affect imports or exports, and its
performance is shown actually to have had some effect upon them.77 Judge Hand
recognized that this jurisdictional test was breaking new ground by not requiring overt
acts within the US territory.
The 1936 agreement was found to be intended to affect imports into the US,
notwithstanding an earlier finding that it was not the purpose of the agreement to
suppress or restrain the exportation of aluminium into the United States for sale in
competition with Alcoa.78 The District Court had also found that the agreement did
not materially affect foreign trade or commerce of the United States, because the
imports of ingot increased after the agreement was made.79 The Court of Appeals,
however, considered that we do not mean to infer from this that the quota system of
1936 did in fact restrain imports ; but we do mean that nothing is to be inferred
from the gross increase of imports.80 Being able to infer nothing, Judge Hand
concluded that once an intent to affect imports is shown, the burden of proving the
absence of effect shifts to the defendants.81
Judge Hand saw the intended effects test as one that would minimize or avoid
conflicts with foreign nations.82 Unless a specific intent to affect US commerce was
required, the intent requirement would be unlikely to reduce international conflicts. If
the showing of intent reverses the burden of proof for effects, the court will be
presumed to have jurisdiction whenever conduct is intended to affect or (not and)
affects US commerce. Later decisions shed little light on the intent requirement. 83 The
courts appear to require no more than a general intent (p.234) or the foreseeability
of consequences.84 In 1993, Hartford Fire Ins Co v California revived the intent
requirement, but did not specify the level of intent required.85
The effects test has been reformulated many times. The reformulations have
generally sought to specify the type of the effects on domestic and foreign commerce
that are sufficient to give rise to jurisdiction, while de-emphasizing the intent part of
the test. Some writers claim the relevant intent is the intent to affect the volume of
US exports or imports and not a more demanding intent to restrain trade or
monopolize, the latter going to the substantive issue of liability.86 It was once argued
that the intent requirement only applies to foreign firms acting abroad, not American
firms acting abroad.87 In cases where the effect on US commerce was clear and/or the
defendants were American, the requisite intent has been quickly assumed,88 but the
more doubtful the case the more likely it was that the court emphasized a specific
intent.89 Intent is likely to serve as indirect evidence of an effect on US commerce and
a justification for jurisdiction over future conduct.
The Alcoa decision itself caused no protests by foreign governments at the time.90
Limited was merely ordered not to participate in any cartels that cover imports into
the US. After Alcoa, 249 cases were filed through until May 1973 involving foreign
trade and none were dismissed for lack of jurisdiction.91 However, it was not until
1996, 50 years later, when a US court had to decide in Nippon Paper Industries Co Ltd
v United States an antitrust case involving conduct wholly outside the US by non-US
firms.92
(p.235) In Continental Ore Co v Union Carbide & Carbon Corp, the defendants
allegedly conspired to restrain, by monopolizing, and by attempting and conspiring to
monopolize, trade and commerce in vandium, thereby eliminating the plaintiffs from
the Canadian market as a result of the actions of a Canadian subsidiary of an
American corporation.93 The Supreme Court ruled that the lower courts were wrong to
exclude evidence showing that the defendant was improperly excluded from the
Canadian market on the ground that the Canadian subsidiary was acting as an agent
of the Canadian Government for the purpose of acquiring and supplying vanadium for
Canadian industry during World War II. In so doing, the court opined that [a]
conspiracy to monopolize or restrain domestic or foreign commerce of the United
States is not outside the reach of the Sherman Act just because part of the conduct
complained of occurs in foreign countries.94 In this case, the conspiracy was within
the reach of the Act because it was effectuated both here and abroad.95 However,
the case contained some observations that could be read as approving the effects
doctrine.96
Zenith Radio Corp v Hazeltine Research, Inc did little to clarify the scope of the
Sherman Act.97 Hazeltine and its parent corporation, both American firms, violated
section 1 of the Sherman Act by conspiring with a Canadian patent pool to deny
licenses of Canadian patents they owned to companies seeking to export American-
made goods to Canada and hence restrain exports from the US.98 The court did not
discuss jurisdiction. The case could be rationalized on the basis that some parts of the
conspiracy took place in the US. The application of the Sherman Act to export markets
was a consequence of territorial jurisdiction rather than an independent basis for
jurisdiction. The Canadian patent pool had been set up with official encouragement of
the Canadian Government. While not compelled by Canadian law, the Canadian
Government encouraged the patent pool to sublicense only for manufacture in, rather
than importation into, Canada. It seems clear that the patent pool had no effect on
competition within the US market and a Canadian Government commission had
reached a similar conclusion with respect to the Canadian market.99 The case suggests
that a liberal approach to territorial jurisdiction could be broader than the effects
jurisdiction in some cases.
Zenith embodied an antitrust policy of protecting competitors and not competition,
which has subsequently been rejected for US domestic markets, but not so clearly for
foreign export markets. The expansive antitrust law of the 1960s and (p.236) 1970s
led to an equally expansive assertion of jurisdiction. In Pacific Seafarers, Inc v Pacific
Far East Line, Inc,100 the plaintiff alleged a conspiracy among the defendant American
shipping lines and two conferences to which they belonged to destroy the plaintiff's
business of carrying cement and fertilizer cargoes between Taiwan and South
Vietnam. The court held that the plaintiff shipping line, in participating in the market
for supplying the service of transportation in US-flagged vessels financed by the US
Agency for International Development, was engaged in the foreign commerce of the
US, and Congress intended the Sherman Act to be applicable to the alleged restraint.
The court considered that Congress did not intend an application [of the Sherman
Act] that would violate principles of international law,101 and that considerations of
comity are appropriate in construction of the antitrust laws.102 In the present case,
such considerations supported the application of the Sherman Act because the
interests of foreign parties are insubstantial.103 Neither territoriality nor effects on US
foreign commerce were the test for the applicability of the Sherman Act.104 The court
found the Sherman Act to be applicable on the grounds that the events had a definite
nexus with significant interests of the United States.105 Three considerations lead to
this conclusion: the trade is entirely a product of the US policy of subsidizing its
merchant marine; only Americans were parties; and there were few possible
international complications.106
Between 1945 and 1975, the courts became increasingly confident to assert
jurisdiction solely on the basis of effects, but clear guidance on the nature of the
effect required was lacking. Nonetheless, in virtually all cases, subject matter
jurisdiction was consistent with international law under either the territorial or
nationality principles, and the exercise of jurisdiction could have been rationalized on
more traditional grounds. Indeed, in Fleischmann Distilling Corp v Distillers Co Ltd, the
effects doctrine was invoked for conduct that essentially all took place in the US.107
The nature of the cases also became more varied. In addition to international cartels,
the antitrust laws were applied to export and import distribution arrangement, and
foreign cartels organized by foreign governments. During this period US hegemony
was at its height and US domestic antitrust policy was at its most expansive. Antitrust
actions interfering with foreign government policies drew particularly strong protests
from foreign governments. Little attempt had been made to relate the exercise of
jurisdiction to US policy interests. Some commentators felt that the extraterritorial
application of antitrust was also harming US firms attempting to compete to abroad.
(p.237) 8.2.5 The Formulation of a Rule to Balance between US and Foreign Interests
A Rule of Reasonablenes
Like Alcoa, Timberlane Lumber Co v Bank of America, NT & SA marked the beginning
of a new era in antitrust jurisdiction.108 The facts have some similarities with American
Banana.109 Timberlane, an Oregon partnership, sought to develop alternative sources
of lumber for delivery to the US from Honduras. It purchased an interest in an existing
but financially unstable lumber mill. The other two owners, however, refused to sell
their interests in the mill to Timberlane. Timberlane alleged that Bank of America
refused to sell its share because it wanted to protect its interest in other competiting
lumber mills by driving Timberlane out of the Honduran lumber market. Furthermore,
the Bank of America and the other owner disputed Timberalne's interest in the mill
and did a number of things to shut down Timberlane's operation in Honduras.
Eventually, the claims were resolved in the Honduran court system against
Timberlane.
While the Honduran proceedings were pending, Timberlane brought an antitrust
action against the Bank of America and its Honduran subsidiaries. In 1974 the District
Court dismissed the complaint. The Court of Appeals reversed it. Judge Choy had no
doubt that American antitrust laws extend to some conduct in other nations, 110
whether by aliens or Americans.111 After noting that this has given rise to foreign
protests and allegations of breaches of international law, comity and good
judgment,112 Judge Choy concluded that it is evident that at some point the interests
of the United States are too weak and the foreign harmony incentive for restraint too
strong to justify an extraterritorial assertion of jurisdiction.113
Judge Choy proposed a tripartite analysis to determine whether the courts had
subject matter jurisdiction.114 First, does the alleged restraint affect, or was it intended
to affect, the foreign commerce of the US? In step one, only a de minimis actual or
intended effect on US imports or exports is required.115 Secondly, is the alleged effect
 of such a type and magnitude as to be cognizable as a violation of the Sherman Act?
116
Thirdly, as a matter of international comity and fairness, should (p.238) the
extraterritorial jurisdiction of the US be asserted to cover it? That is, whether the
interests of, and links to, the US are sufficiently strong, vis--vis those of other
nations, to justify an assertion of extraterritorial authority.117 Therefore, a more
comprehensive inquiry is necessary and the field of conflict of laws contains the
proper approach.118 This required the weighing of seven factors:119
1. the degree of conflict with foreign law or policy;
2. the nationality or allegiance of the parties and the locations or principal places of
business of corporations;
3. the extent to which enforcement by either state can be expected to achieve
compliance;
4. the relative significance of effects on the United States as compared with those
elsewhere;
5. the extent to which there is explicit purpose to harm or affect commerce;
6. the foreseeability of such effect; and
7. the relative importance to the violations charged of conduct within the United
States as compared with conduct abroad.

Although the first two elements were satisfied, the dismissal was reversed because of
the absence of a comity analysis.120 Seven years later, the District Court again
dismissed the complaint and the Court of Appeals reached the same conclusion on
doing its own comity analysis.
In Mannington Mills, Inc v Congoleum Corp, an US manufacturer of floor coverings
brought an antitrust action against another US manufacturer alleging that foreign
patents were secured by fraud by the second manufacturer (which owned patents in
the US and 26 other countries for vinyl floorings).121 The complaint alleged that the
defendant enforced the foreign patents by bringing and threatening the institution of
infringement suits in foreign countries, which allegedly restricted the foreign business
of the plaintiff and other US competitors and demonstrated an intent to monopolize.122
The plaintiff argued that litigation in a single forum would further judicial efficiency. 123
The Third Circuit appeared to accept the Alcoa intended effects as a basis for antitrust
subject matter jurisdiction, but was not clear on the role of intention or whether the
effects must adversely and materially affect American trade or be substantial
effects.124 (p.239) The court held that when two American litigants are contesting
alleged antitrust activity abroad that results in harm to the export business of one, a
federal court does have subject matter jurisdiction,125 but if foreign nations are
involved in an antitrust action between American companies, foreign policy,
reciprocity, comity, and limitations of judicial power are considerations that should
have a bearing on the decision of the federal court to exercise or decline to exercise
jurisdiction.126 The court listed 10 factors that should be considered.127 The decision on
whether to exercise jurisdiction will not necessarily be the same in all 26 foreign
countries.128 Unsurprisingly, the record was insufficient to decide whether jurisdiction
should be exercised.
Timberlane treats the quantitative significance of US effects as part of the balancing
process. Mannington Mills does not, but requires a greater magnitude of the effects
before reaching the balancing test. If the plaintiff does not have to prove significant
effects at stage one, and the standard of proof is modest,129 even cases in which the
US has only a trivial interest will survive the first stage, which would then necessitate
costly discovery and lengthy proceedings in the balancing stage. There is also a
greater risk of the US exercising jurisdiction in cases where there is no antitrust policy
justification for it doing so.130 A de minimis test would also permit antitrust
enforcement to be abused for seemingly political purposes.131
The advent of balancing tests did not stop the development of other aspects of the
effects test. In Daishowa International v North Coast Export Co, North Coast, a Webb-
Pomerene export association of American lumber companies engaged solely in the
export of wood chips, alleged that Daishowa, a Japanese paper company that
purchased wood chips in America (through its wholly owned American subsidiary) and
elsewhere, and other Japanese importers formed a buyer's cartel, divided American
suppliers among themselves, and engaged in price fixing and (p.240) boycotting of
North Coast.132 This was alleged to have caused a depression of the market price of
wood chips and threatened the viability of North Coast. The court, following
Timberlane, required only a de minimis actual or intended effect as sufficient to satisfy
the first step. The court subsequently issued a preliminary injunction against the
boycott. The case is interesting because it involved exports and the relationship
between effects and territorial jurisdiction. Daishowa sought to have the antitrust
action dismissed on the ground that American antitrust law should not be applied in
this case on the basis of the Timberlane analysis. North Coast contended that the
Timberlane analysis did not apply to this case because all of the alleged conduct
occurred in the US. The court rejected this argument, because Daishowa disputed
whether any of the alleged illegal conduct occurred in the US and the court found that
export trade and the extraterritorial effects caused thereby are at issue. The same
issue re-surfaced under the FTAIA.133
In National Bank of Canada v Interbank Card Ass'n, the Second Circuit took a different
approach to moderating antitrust jurisdiction. Without questioning the pertinence of
the third test identified in Timberlane, it held that the [jurisdictional] inquiry should
be directed primarily toward whether the challenged restraint, have, or be intended to
have, any anticompetitive effect on United States commerce, either commerce within
the United States or export commerce from the United States.134 The court drew on
the concept of antitrust injury in Brunswick Corp v Pueblo Bowl-O-Mat.135 Unlike some
later cases,136 the assessment of an anticompetitive effect required a loss of
competition, not merely a loss to a competitor. The court held that the termination of
the plaintiff's membership of the Interbank Card Association and its right to use the
Master Charge trademark by Interbank in accordance with the licensing agreement
(because the only other Canadian bank then licensed as a Master Charge bank
objected) cannot be foreseen to have any appreciable anticompetitive effects on
United States commerce, although the court was able to hypothesize some
indeterminate effects.137 Possible harm to Canadian merchants alone was irrelevant. In
the following decade, some cases appeared to follow or were at least consistent with
National Bank,138 some did not,139 and others were non-committal.140
(p.241) Following the enactment of the FTAIA, several courts considered that the
Timberlane comity test still applied, albeit in a modified form, because the FTAIA
required the challenged conduct to have a direct, substantial, and reasonably
foreseeable effect on American commerce as a threshold matter.141
Following Laker Airways v Sabena, Belgian World Airlines the balance started to tip
against balancing tests.142 The case essentially involved an allegation that a group of
established airlines conspired to drive Laker from the trans-Atlantic passenger market
through predatory pricing and unlawful interference with its refinancing
arrangements. Although some of the alleged anticompetitive actions occurred within
the US, most of the conspiratorial actions took place in other countries.143 The DC
Circuit Court considered that: As long as the territorial effects are not so
inconsequential as to exceed the bounds of reasonableness imposed by international
law,[] prescriptive jurisdiction is legitimately exercised.144 With respect to US
antitrust laws, the court said jurisdiction exists whenever conduct is intended to, and
results in, substantial effects within the United States.145 The court rejected the idea
that in cases of concurrent jurisdiction, the nationality of the plaintiff gives the
plaintiff's state paramouncy over other states.146 The court's decision is based on the
view that the source of the jurisdictional conflict is strongly mandated legislative
policies and there is little that the courts can do to eliminate conflict.147 With the
benefit of hindsight, the Timberlane, National Bank of Canada, and Laker cases may
not be as far apart as they may first seem.
The enforcement agencies, however, claim that once an enforcement agency has
decided that there are no comity grounds to refuse to exercise jurisdiction, the courts
have no discretion but to exercise jurisdiction.148 This argument was accepted in a
dictum in United States v Baker Hughes Inc,149 but has been strongly criticized.150
(p.242) Application of the Balancing Test
The balancing tests in Timberlane, Mannington Mills, section 403 of the Restatement
(Third), and Section 3.2 of the 1995 International Guidelines are broadly similar and
share many of the same factors.151 Mannington Mills refers to the possible effect upon
foreign relations if the court grants relief; whether an order for relief would be
acceptable in this country if made by the foreign nation under similar circumstances;
and whether a treaty with the affected nations has addressed the issue. The
Restatement included the expectation of the parties and the traditions of the
international system. Two of the factors included in the 1995 International Guidelines
were derived from cooperation with the EU, namely the extent to which the
enforcement activities of another country with respect to the same persons, including
remedies resulting from those activities, may be affected; and the effectiveness of
foreign enforcement as compared to US enforcement action.152
Notwithstanding the long lists of factors and the differences between the lists, the
primary determinants of antitrust jurisdiction or its exercise under a balancing test has
been the nature and level of any effects on US domestic or foreign commerce and the
location of the challenged conduct. See for example Timberlane III, Montreal Trading,
National Bank of Canada, In re Uranium, and Mitsui. Unless a foreign sovereign
compelled the challenged conduct, the courts are very unlikely to decline to exercise
jurisdiction over that conduct in import commerce cases if effects were substantial.
In several cases, the courts have found that the application of antitrust law would
conflict with foreign laws and policies that were intended to create a particular type of
business environment, but did not actually require any actions by the defendants
inconsistent with the US antitrust laws. The courts concluded that unless outweighed
by other factors, [that conflict] would by itself be reason to decline exercise of
jurisdiction.153 However, where there were substantial effects on US commerce the
courts did not decline to excerise jurisdiction.154 The result was the same as in cases
where the alleged conflicts were given little weight or defined narrowly.155 Rivendell
Forest appears to be the only import commerce case where a court found the antitrust
laws were not applicable, notwithstanding substantial effects on US commerce,
because doing so would disrupt foreign policies. The only distinguishing feature was
the long-running trade (p.243) dispute between the US and Canada over lumber in
which the US has alleged that Canada has been subsidising lumber production.
In general, the courts have been reluctant to dismiss suits if the plaintiffs were
American.156 In private antitrust suits the requirement of antitrust injury (and later the
FTAIA) has prevented foreign plaintiffs recovering under the antitrust laws for harm
arising from conduct that had substantial effects on US commerce. 157 Some courts
have been willing to hear related matters (whether involving multiple defendants or
multiple plaintiffs) where jurisdiction over all individual matters may be uncertain. 158
These decisions on antitrust jurisdiction may in reality be better conceived as
decisions on the appropriate forum to decide particular issues. See Sections 8.2.9 and
10.4.3.
Tradition, reciprocity, and systemic concerns have generally failed to move the courts.
In Daishowa, the court was unconcerned that an US export cartel was suing a
Japanese import cartel. Similarly, in the Betchel case, the US authorities asserted a
very broad jurisdiction to advance US foreign policy goals.
The 1995 Guidelines endorse the restrictive definition of a true conflict adopted in a
decision of the Supreme Court in 1993, which is discussed in Section 8.2.6, but state
that the enforcement agencies also take full account of comity factors beyond
whether there is a conflict with foreign law.159 The 1991 ECUS antitrust cooperation
agreement also recognizes the need for sensivity where antitrust enforcement affects
conduct required, encouraged, or approved by a foreign government. 160 Waller
concludes that the US government has thoroughly assimilated the lessons of comity in
its enforcement decisions and for all practical purposes puts pure extraterritorial
enforcement far behind cooperation with other agencies around the world and notions
of positive comity as its day-to-day enforcement strategy.161 However, where there is a
direct, substantial and reasonably foreseeable effect on US commerce, comity is only
likely to lead to a decision not to exercise jurisdiction in unusual circumstances.162
In a number of cases the DOJ moderated its enforcement actions and intervened in a
few private cases where significant US foreign policy concerns were (p.244) raised by
an antitrust action.163 It may now be especially hard for governments to convince US
authorities to settle foreign and international cartel cases on a civil rather than a
criminal basis, since the US has publicly committed itself to a criminal law approach to
cartels. The large number of civil and criminal investigations of international cartels
conducted by the DOJ and international mergers reviewed by the DOJ and FTC has
produced little diplomatic reaction.
8.2.6 Hartford Fire Insurance and Afterwards
In Hartford Fire Insurance Co v California, 19 states and numerous private parties
brought antitrust suits against a number of domestic primary insurers and reinsurers
(the domestic defendants ) together with London-based reinsurers (the foreign
defendants ), some of which were subsidiaries of American corporations.164 It was
alleged that the defendants had engaged in conspiracies to force the other domestic
primary insurers to change their standard terms of domestic general liability
insurance, so that they conformed to the policies that the alleged conspirators wanted
to sell. The Supreme Court clearly accepted the effects doctrine. It held that the
Sherman Act applies to foreign conduct that was meant to produce and did in fact
produce some substantial effect in the United States.165
Although the court purported to rely on the Restatement (Third) of Foreign Relations
Law,166 its approach to comity was narrower and inconsistent with the Restatement.
Justice Souter, writing for a five to four majority, held there was no true conflict,
because the defendants did not face conflicting demands under US and UK statutes.
The majority ignored the comprehensive regulatory scheme governing the London
reinsurance markets and collapsed the reasonableness of the exercise of jurisdiction
into the foreign compulsion defence.167 The majority wrote that [w]e have no need in
this case to address other considerations [other than conflicting laws] that might
inform a decision to refrain from exercising jurisdiction on grounds of international
comity.168 In other words, foreign compulsion may not even be an absolute defence,
but a threshold for the application of a comity analysis. The minority, on the other
hand, applied the methodology (p.245) of the Restatement and came to the
conclusion that the assertion of jurisdiction by the US in this case was unreasonable.169
The court saw the case as involving imported services.170 It therefore did not decide
the case under the FTAIA and expressly refused to decide whether the FTAIA's
jurisdictional rules merely codified or amended the existing law.171 Nor did the court
consider whether the effects need to be effects on competition. Souter J regarded it as
open to doubt whether a court may abstain from exercising jurisdiction on grounds of
comity once the requirements of the FTAIA have been met.
One court read Hartford Fire as saying that in the absence of a true conflict and in
the presence of substantial effects on US commerce, the other factors were
insufficient to warrant abstention.172 Most courts, however, required a true conflict.173
Prior to Hartford, the courts rarely declined jurisdiction on the grounds of comity
where there were substantial effects on the US, unless the conduct was compelled by
the foreign state. In one sense, the Supreme Court confirmed existing practice.
Unable to rely on Timberlane, a number of courts have resorted to other devices to
restrict the scope of application of the antitrust laws. Many, if not most, cases have
required the conduct to have an effect on competition in a US market. 174 In Metro
Industries, Inc v Sammi Corp, the Ninth Circuit stated that the application of the per
se rule is not appropriate where the conduct in question occurred in another
country.175 The court also considered that the jurisdictional inquiry is substantially
intertwined with the merits of Metro's Sherman Act claim, which requires a factual
inquiry into markets, market power, and other factors necessary to find a substantive
violation of the Sherman Act. While sufficient allegations of an effect on competition in
the US were made to state a claim, the court dismissed the action because a finder of
fact could not conclude that the Korean design registration system in question could
have had a negative impact (p.246) on competition or consumer welfare in the US, so
Metro could not show that it has suffered antitrust injury.176
Some have considered staying antitrust actions under traditional private law
doctrines, like forum non conveniens and lis alibi pendens, which primarily consider
the interests of the parties to the litigation and the burden on and competence of the
courts, rather than government interests. In Eskofot A/S v EI DuPont de Nemours &
Co, a Danish company, Eskofot, brought an antitrust action against DuPont and
DuPont UK.177 The defendants argued that the court should dismiss or stay the action
on the grounds of international comity and judicial efficiency under the court's
inherent powers, because the plaintiff had commenced as action based on the same
facts in England, claiming breach of contract and violation of Article 82 of the EC
Treaty, more than four months prior to commencing the US antitrust action.178
Although the court recognized a number of similar issues needed to be resolved in the
US and English actions and that the court had power to stay this proceeding based on
comity and judicial efficiency, the court found that many important issues would not
be reached in the English action (for example, US antitrust law was not at issue in the
English action and a foreign court's findings under Article 82 would not greatly impact
on a US court's findings under US antitrust law), Du Pont US was not a party to the
English action, and the English action may not be concluded in the near future. That
argument is unconvincing where the actions concern the same conduct and the same
antitrust injury.179
Filetech SARL v France Telecom involved a dispute over access to the subscriber lists
of France Telecom to which Filetech wanted access in order to compete in the
provision of marketing lists with a subsidiary of France Telecom.180 The US subsidiary
of Filetech had yet to conduct any business in the US and France Telecom sold very
few subscriber details in the US. The dispute was the subject of a series of legal
proceedings in France involving French privacy and competition law and EU
competition law. The District Court held that all of the Timberlane factors favoured
dismissing the complaint on the grounds of international comity.181 The parties only
seemed to dispute the effects of France Telecom's conduct upon the US, and the
extent to which there was an explicit purpose to harm or affect US commerce, and the
foreseeability of such an effect.182 Given the relative effects on France and the US, and
the other comity factors, the US would appear to be forum non conveniens. This
indeed appears to have motivated the court's decision.183 The (p.247) Court of
Appeals rejected the District Court's comity analysis, but ruled that in light of the
factual disputes about whether internet access to the databases was available in the
US and the marketing of these databases in the US, it was an error to accept the mere
allegations of the complaint as a basis for finding jurisdiction over France Telecom
under the Foreign Sovereign Immunities Act, FTAIA and the case-law governing the
jurisdiction under the Sherman Act.184 The Court of Appeals indicated that the
jurisdictional test under the FTAIA is different from the test under the general law.
In Nippon Paper Industries, the court rejected the Metro Industries v Sammi Corp
approach to foreign price fixing and applied the intended substantial effects test for
jurisdiction.185 The court held the correct approach to a foreign price-fixing conspiracy
is something akin to a per se plus test, adding to the traditional domestic analysis
the requirement that the government show substantial effects by a showing a
substantial connection to the United States market.186 The government did not need
to show that the defendants had market power in the US, but the substantial effects
test could be satisfied by showing any of the following: the volume of commerce
affected by the conspiracy was substantial; the share of the market allegedly
impacted by the alleged conspiracy was substantial; or the conspiracy as a whole
substantially lessened competition in the relevant market.187 The government lost on
the factsthere was no proven price fixing conspiracy not time barred by the statute
of limitations and the conspiracy did not have intended and substantial effects on US
commerce. The defendant had sales of approximately $6 million in the US, and
Japanese thermal fax paper manufacturers as a whole had a 30 per cent market share
at the beginning of 1990. The relevant time was the end of 1990, at which time
market conditions prevented any possibility of price rises and the US market for
Japanese thermal fax paper was virtually extinguished. US companies had driven out
Japanese competition through competition and threats of antidumping proceedings,
and had sufficient capacity to supply the whole market.
8.2.7 Non-Import Commerce and the Foreign Trade Antitrust Improvements Act
Legal Uncertainty and Conflicting Policy Interests
Although the effects doctrine is gaining international acceptance, the application of
antitrust law in non-import cases remains controversial. Non-import commerce cases
are an eclectic group. Many international cartels affect both US (p.248) imports and
exports.188 In the 1960s and 1970s, several cases involved one group of Americans
hindering the exports of another as a result of exclusive dealing arrangements with
foreign distributors or other restrictive practices.189 The most controversial cases
involved foreign import cartels190 and exclusionary conduct in foreign markets.191 More
recently, some cases have involved allegations of worldwide monopolization schemes
involving coordinated exclusionary conduct in several markets.192
The application of antitrust law to non-import commerce has been driven by a number
of factors. The Sherman Act expressly refers to trade or commerce with foreign
nations. The application of antitrust to conduct in the US that hinders exports from
other US firms is clearly justified as within the US's territorial jurisdiction. Domestic
antitrust policy also favours the prohibition of anticompetitive conduct that targeted
foreign markets, but had spill-over anticompetitive effects in the US domestic
market.193 It would be consistent with the US trade policy initiatives challenging
foreign market access barriers caused by private anticompetitive conduct, for the
prevention of the foreclosure of US exporters or the monopolization of export markets
to be a distinct policy objective of the antitrust laws.194 In the past, the anticompetitive
effects on consumers and traders in foreign markets were sometimes seen as a
legitimate target of US antitrust law,195 in part, because it would be hypocritical to
tolerate the exploitation of foreign markets given that the US applied its antitrust laws
to similar foreign arrangements that harmed the US.196
The extraterritorial application of the antitrust laws may be a burden on US firms
competing abroad. The US may have no interest in restraining the actions (p.249) of
US firms that harm only foreign consumers and therefore in allowing foreign
consumers to sue US firms under its antitrust laws. The application of antitrust to US
exporters could hinder their ability to compete abroad, especially where competitors
are not subject to similar constraints. The assertion of jurisdiction in non-import
commerce cases can involve substantial problems and costs in evidence gathering
and assertion of jurisdiction over firms and individuals located outside of the US. Some
assertions of jurisdiction in non-import cases are controversial under international law
and are objected to by many governments.
These considerations complicate the assessment of US policy options. The
implications of the alternative legal rules are not always clear, often because there is
not necessarily any correlation between competition, export volumes, and national
economic welfare. The uncertain policy rationale fuels a foreign perception that the
purpose of the application of antitrust laws to export commerce is to protect or
promote US firms in foreign markets. Section 8.2.7 analyses the law relating to the
application of antitrust law in non-import commerce cases. It seeks to identify a
general trend and argues that the application of antitrust law to non-import commerce
cases is only justified when the bulk of the conduct in question occurs in the US or
harms US consumer welfare.
The Application of the FTAIA
The FTAIA altered the scope of application of the Sherman Act and section 5 of the FTC
Act. The courts have also applied the FTAIA to Clayton Act claims.197 The Sherman Act
now applies to conduct involving export trade or commerce only where that conduct
has a direct, substantial, and reasonably foreseeable effect on US domestic or
import trade or commerce, or on the export trade or commerce of a person engaged
in export commerce.198 The House Report to HR 5235 indicated that FTAIA was
intended to address two concerns: the business perception that the antitrust laws
prohibited joint activity and inhibited exports, and the uncertainty in the verbal
formulation of the nature and quantum of effects necessary to support antitrust
jurisdiction.199 The Supreme (p.250) Court has observed that: The FTAIA seeks to
make clear to American exporters (and to firms doing business abroad) that the
Sherman Act does not prevent them from entering into business arrangements (say,
joint-selling arrangements), however anticompetitive, as long as those arrangements
adversely affect only foreign markets.200 Several areas of uncertainty remain.
Section 6a provides that the Sherman Act shall only apply to conduct involving trade
or commerce (other than import trade or import commerce) with foreign nations
unless . The requirement in section 6a(1) and (2) that such conduct has a direct,
substantial, and reasonably foreseeable effect and the effect gives rise to a claim
implies that conduct does not refer to each individual act (such as a single
telephone call), but the whole course of conduct of the defendant201 that together
gives rise to the claim. In Kruman v Christie's Intern PLC, the court considered the
conduct to be the essence of the alleged violation.202 The illegal act was therefore
not the imposition of high prices pursuant to, or in furtherance of, an illicit agreement,
but the alleged agreement by the defendants to fix prices in foreign auction
markets.203
The rules on jurisdiction in section 6a appear to apply if the conduct that gave rise to
the claim included conduct involving trade or commerce (other than import trade or
import commerce) with foreign nations, regardless or whether the conduct in question
took place inside or outside the US. The FTAIA was after all intended to prevent the
application of the Sherman Act to the conduct of US firms that might affect the export
activities of other US firms. In Kruman v Christie's Intern PLC, the court stated when
there is conduct directed at reducing the competitiveness of a foreign market such
conduct involves foreign trade or commerce, regardless of whether some of the
conduct occurred in the United States.204 However, the courts have not always found
it easy to distinguish conduct involving import commerce from conduct not involving
such commerce, especially in service industries or cartels that affect imports and
exports,205 and therefore whether the Hartford Fire or the FTAIA rules apply. (p.251)
The broad jurisdictional rule for domestic commerce articulated in McLain v Real
Estate Bd of New Orleans,206 rather than Hartford Fire, applies where the participants,
acts, targets, and effects involved in an asserted antitrust violation are primarily
domestic rather than primarily foreign.207 Thus, not only do the two rules lead to
different tests for jurisdiction and other legal consequences, but it is also unclear that
the line between the domestic cases and Hartford Fire cases is the same as the line
between domestic cases and FTAIA cases.208 Thus, while not clear, it appears that the
FTAIA applies when the bulk of the conduct giving rise to the claim, or the essence of
the violation, involves export or wholly foreign commerce.
The words trade or commerce (other than import trade or import commerce) with
foreign nations, were used so that the FTAIA jurisdiction rules could apply to conduct
involving neither exports nor imports, as occurred in the Pacific Seafarers case.209
Thus, notwithstanding the words with foreign nations in sections 1, 2 and 6a of the
Sherman Act,210 wholly foreign conduct is covered by the FTAIA.211 For example, if a
foreign manufacturer's distribution arrangements effectively excluded foreign goods
from that market.212
Effects on export commerce provided a basis for antitrust jurisdiction in pre-FTAIA
case-law, but nearly all the cases involved some conduct in the US or conduct by US
persons.213 Several export cases were allowed to proceed where (p.252) there were
only minimal effects on US commerce.214 Antitrust jurisdiction now requires either a
direct, substantial, and reasonably foreseeable effect on domestic or import
commerce; or a direct, substantial, and reasonably foreseeable effect on export
commerce of a person engaged in such trade in the US. No jurisdiction lies over
conduct, whether occurring in the US or abroad, which has effects only in foreign
markets.215 A price fixing conspiracy directed solely at products or services consumed
abroad with no spill-over effect on the domestic market would not normally have the
requisite effect on domestic or import commerce. However, if the conduct affects the
export commerce of another person doing business in the US, jurisdiction is preserved
insofar as there is injury to that person.216
Although the jurisdictional standard in the FTAIA is similar to that contained in the
case-law on import commerce, some courts have suggested the FTAIA test is
stricter.217 The elements of the test require some comment. A domestic effect is direct
if it follows as an immediate consequence of the defendant's activity.218
Substantiality is the principal element, because it effectively assesses the importance
of the challenged conduct to US interests in light of the policy objectives of the
antitrust laws. Unlike Timberlane, a de minimis effect is insufficient. Unlike Alcoa, the
intent to affect alone is insufficient. The language of the tests contained in FTAIA and
Hartford Fire suggests that the conduct in issue must actually have affected US
commerce. This could prevent the exercise of jurisdiction over agreements that have
not yet been put into effect or the deeming of certain conduct to have anticompetitive
effects. The courts, however, have been prepared to find jurisdiction if the activity
would potentially have an effect on US commerce.219 Reasonable foreseeability is
intended to provide an (p.253) objective and practical standard.220 The legislative
history contains a neutral position on the balancing test or any consideration of
comity once direct, substantial, and reasonably foreseeable effects are shown.221 It
appears that the FTAIA was intended to codify the rule in National Bank of Canada v
Interbank Card Ass'n 222 that the requisite effects must be of an anticompetitive nature
and not simply economic or commercial without competitive significance. 223 The
antitrust laws will apply to anticompetitive conduct directed at foreign markets only if
such conduct injures domestic commerce by either reducing the competitiveness of
the domestic market, or making possible anticompetitive conduct directed at
domestic commerce. The Supreme Court agrees, in relation to section 6a as a whole if
not the concept of effect, that our courts have long held that application of our
antitrust laws to foreign anticompetitive conduct is nonetheless reasonable, and
hence consistent with principles of prescriptive comity, insofar as they reflect a
legislative effort to redress domestic antitrust injury that foreign anticompetitive
conduct has caused.224
The cases under the FTAIA generally fall into one of three categories: monopolization
of foreign markets and the termination of distributorships in foreign markets;
anticompetitive conduct in transnational markets; and international cartels. The courts
were most likely to decline jurisdiction in cases falling within the first category,
because the plaintiffs failed to allege a coherent theory of antitrust injury,225 or explain
how foreign conduct might cause more than de minimis antitrust injury in the US.226
(p.254) The requirements of the FTAIA have been satisfied in several cases involving
transnational markets and businesses organized on a multinational basis. In these
cases, US consumer welfare could more plausibly be argued to have been harmed.
With a clarification of the rules, fewer cases may survive summary judgment. Coors
Brewing Co v Miller Brewing Co concerned a North American strategic alliance formed
between three brewing companies Miller (US), Molson (Canada) and Fosters
(Australia), whereby Miller bought 20% of Molson and acquired the exclusive licence
over Molson's and Foster's beer brands in the US.227 Coors challenged the
arrangement under section 1 of the Sherman Act and section 7 of the Clayton Act,
because a Molson subsidiary was the distributor of Coors brands of beer in Canada,
which Coors alleged would have given Miller access to Coor's vital North American
proprietary and strategic information. Coors claimed that access to this confidential
information would restrain its power to act as an independent competitive force in the
US and Canada, which would allow Miller and Anheuser-Busch to have a duopoly in the
US. The court found that the defendants' conduct satisfied both subsections (1)(A) and
(B) of the FTAIA because it had a direct, substantial, and reasonably foreseeable effect
not only on Coors' export trade with Canada, but also, albeit less directly, on the US
beer market and the consumers in that market. Underlying the finding appeared to be
the presence of an integrated international market. As the court observed: Given the
integrated nature of the North American beer market and the fact the principal parties
are American companies competing in that market, it seems a fine distinction indeed
to assert defendants' alleged conduct impacts Canadianbut not Americanmarkets,
producers or consumers.228
In other cases, the conduct has appeared to involve separate anticompetitive acts in
various countries, but directed by multinational firms based in or operating in the US.
In these cases, it is arguable that the allegedly anticompetitive conduct would affect
US consumer welfare and the US courts may be the most efficient forum to deal with
the claims, rather than a number of separate but related claims being dealt with
under the competition laws of many countries. In Information Resources, Inc v Dun
and Bradstreet Corp, for example, IRI alleged that Nielsen engaged in a variety of
anticompetitive acts in the US and abroad, with the purpose of destroying IRI as
competition in the retail tracking services industry.229 It was alleged, inter alia, that
Nielsen would offer favourable pricing if Nielsen's services were purchased in a
number of countries, including at least one where IRI was present. The Circuit Court
found that it lacked jurisdiction to hear the appeals. The case, however, raises
complex issues of whether IRI (p.255) had standing to bring claims for harm suffered
in foreign markets; whether the court lacked subject matter jurisdiction under the
FTAIA; and whether the court should exercise supplemental jurisdiction under Article
82 of the EC Treaty. The issue of standing hinged on the relationship between IRI and
its foreign affiliates. IRI contended that the relationship was akin to a manufacturer
and independent dealers, while Nielsen characterized IRI as a mere supplier of one
inputdata processing.
In Caribbean Broadcasting System, Ltd v Cable & Wireless plc, the plaintiff, CBS, and
one defendant, CCC, owned competing FM radio stations located in the Eastern
Caribbean.230 The other defendants, C&W and its subsidiary C&W (West Indies),
operate a worldwide telecommunications system and publish the local telephone
directory in the Caribbean. During the mid-1980s, C&W (and its subsidiary) and CCC
entered into a joint venture in which CCC was to develop a Caribbean-wide FM
broadcasting system that C&W would then use to offer an FM paging system.
Beginning in 1984, CBS tried without success to sell advertising on its nascent FM
broadcast station based in the British Virgin Islands. CBS attributed its failure to
anticompetitive and deceptive actions by C&W and CCC to gain and keep a monopoly
for CCC's Radio GEM. The DC Circuit Appeals Court found that the allegations in the
complaint, if proven, would have the requisite effect upon an aspect of US commerce
sufficient to confer subject matter jurisdiction:231
The complaint both describes a relevant marketthe market for English-language
radio broadcast advertising in the Eastern Caribbeanand alleges that CCC and C&W
engaged in intentional conduct that gave them monopoly power and injured
consumers in this market . Moreover, the complaint alleges specifically that U.S.
customers in the relevant market suffered antitrust injury, to wit, they paid excessive
prices for advertising because of the unlawful actions of CCC and C&W . It also
alleges that CBS was and remains foreclosed from selling advertising to many of those
U.S. companies that had purchased advertising time from CCC .
In this context it appears that antitrust injury to CBS is ultimately a harm to U.S.
purchasers of radio advertising.

In distinguishing The In Porters, SA v Hanes Printables, Inc,232 the court considered

that the alleged injury was to advertisers in the US and, consequently, clause 1(A),
which deals with domestic and import commerce, rather than clause 1(B), which deals
with export commerce, governs.233 Although the conduct may affect consumer welfare
in the US, the effects were not direct and a forum in the Caribbean might have been a
more appropriate forum because the bulk of the conduct and effects were felt within
the Caribbean.
(p.256) Access Telecom, Inc v MCI Telecommunications Corp may be inconsistent
with the general pattern suggesting that the foreign conduct needs to harm US
consumer welfare.234 The plaintiff exported US phone services to customers in Mexico,
which allowed Mexican customers to place US-based phone calls directly from Mexico.
The Fifth Circuit concluded that the defendants' actions had a direct, substantial, and
reasonably foreseeable effect on the US export market for switching services, which
was a definite and sizable export market.235 While the court did not espressly require
the effect to be an anticompetitive effect, it observed that the defendants' actions
were allegedly aimed at shutting down the market for re-origination services. The
court also considered that its conclusions on jurisdiction did not preclude the fact that
the relevant market for antitrust liability may ultimately be found to be the Mexican
long-distance market.236
The language of the FTAIA has also required the courts to consider the relationship
between the effects on US commerce and the antitrust claim. The issue has risen
most prominently in international cartel cases, but will affect other types of case.
Settling a split between the circuits,237 the Supreme Court held that price-fixing
activity that is in significant part foreign, that causes some domestic antitrust injury,
and that independently causes separate foreign injury, does not fall within the
FTAIA.238 Thus, non-US victims of an international cartel that raised prices in the US
and abroad could not recover under the US antitrust laws, because the injury suffered
by the foreign plaintiff did not arise out of the effect on the US. The court rationalized
its decision primarily in terms of international comity and the purposes of the FTAIA.
The holding requires potentially problematic determinations of the location of the
injury in a multinational group that had a global procurement strategy. For example, in
Re Vitamins Antitrust Litigation, before the Supreme Court's decision, the District
Court distinguished the claims that arise in that action from those of the foreign
plaintiffs in the Empagran action.239 The plaintiffs were US companies or subsidiaries
of US (p.257) companies that had purchased substantial volumes of vitamins for
delivery both in the US and abroad as part of a global procurement strategy
formulated and directed in the US by the US parent companies, whereby the plaintiffs
suffered ultimate financial injury in the US. Such an approach appears to provide
favourable treatment for US nationals.
In summary, where the bulk of the conduct giving rise to the claim, or the essence of
the violation, involves export or wholly foreign commerce, plaintiffs will need to allege
conduct that has an anticompetitive effect on US commerce that could harm US
consumer welfare to satisify the FTAIA.
Standing of Foreign Plaintiffs to bring Antitrust Suits
In addition to the FTAIA requirement that the effect on US commerce give rise to a
claim (section 6a (2)) and the restriction of standing to US businesses in export
commcerce cases (section 6a, second sentence), private plaintiffs must have standing
under the antitrust laws (which includes the need to show antitrust injury) and the
right to recover damages.240 In several cases, the antitrust standing requirement has
prevented foreign plaintiffs bringing antitrust claims in the US courts. For example, in
Raubal v Engelhard Minerals & Chemicals Corp, the plaintiffs were held not to have
standing under section 4 of the Clayton Act because the defendants' actions
(restraining trade in Chilean copper) did not have an impact on United States
commerce so far as these plaintiffs are concerned, since the plaintiffs did not import
any Chilean copper into the US.241 In Pfizer, Inc v Government of India, the Supreme
Court considered whether the foreignness of the plaintiffs disqualified them from
suing under section 4 of the Clayton Act,242 but the uncertainties in the majority's
opinion and statutory amendments have limited its value as a precedent. 243
The FTAIA has modified Pfizer by restricting relief to injury to export business in the
United States from conduct not involving import trade or commerce that affects US
export trade or commerce. When the jurisdictional base is foreclosure of US export
opportunities, only the foreclosed exporter or persons engaged in US export trade
have standing. For example, in The In Porters, SA v Hanes Printables, Inc, a French
outerwear distributor was held not to have standing under the FTAIA to claim that its
US supplier/manufacturer and a European firm conspired to take over the distributor's
territory in breach of its exclusive distributorship agreement with the manufacturer,
even if the defendant's (p.258) conduct injured US export trade.244 The House Report
on FTAIA made clear that substantive rules concerning antitrust injury and antitrust
standing generally were not intended to be affected by the special rule restricting
standing in cases of foreclosure of export opportunities.245 If the foreign defendants
can establish injury-in-fact or threatened injury-in-fact caused by the defendant's
alleged wrongdoing,246 and the injury is of a type that the antitrust laws are designed
to protect against,247 where the defendants' global conspiracy harmed US commerce,
the mere fact that the foreign purchasers bought goods in foreign markets will not
mean that the foreign purchasers would always lack standing to sue under the
Clayton Act.248 Pfizer left unclear whether foreign consumers have standing to recover
damages against a restraint that has an impact on both domestic and export markets,
or foreign plaintiffs where they purchase products in the US but export their purchases
for foreign consumption.
In Transnor (Bermuda) Ltd v BP North America Petroleum, the foreign plaintiff had
standing in relation to anticompetitive activity that allegedly affected the purchase of
oil on the Brent Market for North Sea oil, because any market with the slightest ties to
US commerce was not an exclusively foreign market.249 However, after the decision of
the Supreme Court in Empagran, which emphasized the need to show domestic
antitrust injury, it is not clear how the mere fact that the anticompetitive conduct's
domestic effects were linked to the foreign harm would provide a basis for a foreign
plaintiff to recover unless certain types of injury that occur in international markets
occur in no specific place in such a market.250 The Empagran case also appears to
require a determination of whether the injury is viewed as occurring at the time of the
consumption (India in Pfizer) or the time of purchase (US in Pfizer). Such a
determination could lead to arbitrary results, such as where a US parent company
chose the suppliers for its subsidiaries abroad.
(p.259) The extent to which the plaintiffs are proper plaintiffs would also appear to
depend on a number of factors: the directness of the injury, whether the claim for
damages is speculative, the existence of more direct victims, the potential for
duplicative recovery, and the complexity of apportioning damages.251 The application
of these factors has changed as the world economy has become more integrated,
allowing a greater range of claims. For example, in De Atucha v Commodity
Exchange, Inc, a purchaser of silver contracts on the London Metals Exchange brought
suit under US antitrust law on the theory that the defendants' alleged attempt to
monopolize and restrain the US silver market caused him injury on the London
market.252 While acknowledging the economic connections between the US and
London markets, the court concluded that the plaintiff had been injured entirely
outside of the United States commerce and dismissed the claim because of the
speculative nature of the alleged antitrust injury.253 By contrast, in Metallgesellschaft
AG v Sumitomo Corp of America, the plaintiffs were found to be injured in the US
market and the alleged foreign activities, a conspiracy to artificially increase the price
of copper and copper futures on the London Metals Exchange (LME), had a direct,
substantial and reasonably foreseeable effect on US non-import commerce. 254 The suit
was therefore not precluded by the FTAIA. In other cases, it may be hard for the
plaintiff to establish injury in fact, because of the presence of trade barriers or
commercial factors that limit the ability of a US firm to enter a foreign market. 255 The
current law is uncertain and results are unpredictable.
Exercise of Export Jurisdiction by the Enforcement Agencies
The policy of the 1977 Antitrust Guide for International Operations in relation to export
commerce was to protect American export and investment opportunities against
private imposed restraints.256 The 1988 International Guidelines stated in footnote
159 that, as a matter of prosecutorial discretion, the DOJ would pursue enforcement
actions against only those restraints that harmed US consumers by reducing output
and raising prices, and not those that only harmed US exports. In April 1992, the DOJ
ended the policy and declared it would take enforcement action against overseas
conduct that restrained US exports, whether or not there was direct harm to US
consumers.257 The 1992 policy change was confirmed in (p.260) the 1995
International Guidelines: the Agencies may, in appropriate cases, take enforcement
action against anticompetitive conduct, wherever occurring, that restrains U.S.
exports, if (1) the conduct has a direct, substantial and reasonably foreseeable effect
on exports of goods or services from the United States, and (2) the U.S. courts can
obtain jurisdiction over persons or corporations engaged in such conduct.258 If the
conduct is unlawful under the importing country's antitrust laws, the agencies are
prepared to work with that country's competition authority if it is better situated to
remedy the conduct.259
The 1995 International Guidelines devote four sections and six illustrative examples to
the FTAIA. Illustrative Examples D and E contain slightly different criteria to assess
whether there is subject matter jurisdiction under the FTAIA. The Guidelines state that
a boycott of US products or technology is likely to have a direct and foreseeable effect
on US exports, because it is aimed at US exports.260 Illustrative Example D states that
foreclosure of exports in a single country may satisfy the requirement for a substantial
effect on US exports if the country's market accounts for a significant part of the
export opportunities for US firms. If a country is one of the biggest markets for a
product in the world, this requirement will be satisfied. However, Illustrative Example
E states that only if the exclusion from a particular country were so de minimis in
terms of actual volume of trade that there would not be a significant effect on US
export commerce would jurisdiction be lacking. This is problematic. If, as the
Guidelines state, the same substantive rules are applied in export commerce cases,
markets will normally need to be defined and both the pro- and anticompetitive
effects of the business practice will need to be considered. Unless the market is
regional or global, the market will be a market in another country. The enforcement
agencies will therefore be effectively applying US antitrust law as if they were
standing in the shoes of a foreign competition law enforcement agency. This is
contrary to the dicta of the Supreme Court in Matsushita and Empagran.261 Recent
court decisions also cast doubt on the agencies' view that the effect for the
purposes of the FTAIA need not be an anticompetitive effect.
The 1992 policy change noted above was driven by US domestic trade politics, in
particular the failure of the Structural Impediment Initiative talks to address private
market access barriers in Japan.262 So far the antitrust laws have only been applied to
the activities of European multinationals that are perceived as (p.261) hindering the
ability of US firms to compete in international markets. Favourably interpreted, these
enforcement actions could be rationalized as designed to protect competition in
international markets and ultimately US and global consumer welfare.
United States v Pilkington, plc was the first case prosecuted and settled in response to
the revocation of footnote 159.263 The complaint alleged that the conduct of
Pilkington, an English firm, had a direct, substantial, and reasonably foreseeable effect
on exports from the US. Pilkington's licensing agreements unlawfully restricted the
ability of its US licensees from designing and building new float glass plants, or
sublicensing third parties to do so, outside their licensed territories. The consent
decree applied only to the US glass industry. Pilkington owned and licensed
intellectual property rights in the US and owned 80 per cent of a US-based
glassmaker. Thus, the complaint as a whole appears to be similar to Zenith Radio Corp
v Hazeltine Research Corp, which involved contractual limitations in licensing
agreements that had the effect of dividing world markets.264 In other words, the case
may not need to be seen as involving only export restrictions.
In United States v MCI Communications Corp, the DOJ alleged that a proposal by
British Telecommunications to purchase 20 per cent of the shares of MCI
Communications and form a joint venture providing global telecommunications
services was a violation of section 7 of the Clayton Act on the grounds that the
resulting vertically integrated joint venture would give British telecommunications
companies an unfair advantage over US telecommunications companies in ease of
access to the UK network, which would raise the price of international phone calls and
other telecommunication services.265 BT and MCI agreed to publish rates, terms and
conditions of access to the BT network, and provisions designed to prevent
discrimination against US carriers in offering international telecommunications
services. According to the DOJ, the terms of the decree were structured to avoid direct
US governmental involvement in BT's network.266 Although the decision assisted US
firms to access facilities in the UK, the decision protected competition for the sales of
certain telecommunications services in the US.
(p.262) US Government Aid and Purchases
In United States v Concentrated Phosphate Export Ass'n, the Supreme Court held that,
where USAID regulated and paid for the purchase of fertilizer, sales of fertilizer by an
US export association to be exported to Korea and where Korea was the other party to
the contract, such sales were not exempt from the Sherman Act by the Webb-
Pomerene Act.267 The 1995 Antitrust Enforcement Guidelines for International
Operations assert more generally that the agencies may take enforcement action
when the US government is a purchaser, or substantially funds the purchase, of goods
or services for consumption or use abroad.268 In a number of cases, USAID-financed
transactions are likely to involve some conduct in the US. The goods and services
often originate in the US. Therefore, many such transactions fall within the scope of
the antitrust laws under established principles.
More problematic is the US claim that there is also jurisdiction in cases involving
procurement by US military bases and other facilities located in foreign countries of
supplies in the host country.269 An Assistant Attorney-General for Antitrust suggested
antitrust jurisdiction is available in cases like Yokosuka and Yokota where the impact is
on U.S. consumers either in a consumption capacity or in a taxpayer capacity.270 The
effects on taxpayers could be construed as an affect on US domestic commerce,
because the cartel overcharge results in less consumption in the US, thereby
adversely affecting US domestic commerce.271 The assertion of jurisdiction by the US
in such cases is generally inappropriate. The law of the host country is the appropriate
antitrust law to govern private and governmental purchases in that country. There will
generally be no anticompetitive effect in a domestic US market and therefore arguably
no legally cognizable effect on domestic trade and commerce. The US position also
has similarities with the much criticised assertions of jurisdiction by some civil law
countries over any claims where the plaintiff is a national of the forum. Claims that
the bid rigging on US government procurement abroad hindered exports,272 and is
therefore subject to the US antitrust laws, are also generally unsustainable.273
(p.263) One court recently held that the FTAIA (and its restrictions on antitrust
claims) does not apply to government programmes, such as those of USAID, where US
companies bid to supply goods and services in foreign countries.274 However, the
FTAIA makes no exception for US government-financed exports in its definition of non-
import trade and commerce, and the Pacific Seafarers case being cited in the House
Report as an example of non-import commerce supports this position. 275
Spill-Over Effects on the Domestic Market
Sometimes export-related conduct that may harm competition in foreign markets,
such as export cartels, may also have a spill-over effect on the domestic market. 276
Spill-over effects may arise in two main ways. First, ostensibly export-related conduct
could affect the price of goods sold in the US. For example, the participants of an
export cartel could trade information that facilitates collusion in the domestic
market,277 or an export cartel could affect the price of products used as inputs in
products ultimately resold in the US.278 Second, a spill-over effect may occur where
the volume of export sales results in a domestic surplus, shortage or price
disruption.279 The effects may be felt in the domestic market for goods and services
that are exported, the components or ingredients of those products, substitutes for
the exports, or products that incorporate the exports.
The jurisdictional and substantive issues involved with the exercise of jurisdiction over
spill-over effects are unlikely to be of direct interest to foreign nations. Most of the
relevant conduct is likely to take place within the US and be engaged in by US firms.
The US enforcement action may also incidentally limit the ability of US firms to fully
exploit their aggregate market power abroad. Other countries concerned about US
export cartels might be keen to point out spill-over effects to US enforcement
agencies. On the other hand, if the same substantial effect on commerce must be
shown for jurisdiction under the FTAIA in cases involving spill-over effects and for
cases involving import commerce, then there should be an in-built restraint on overly
broad assertions of jurisdiction by the US in the latter type of case.
(p.264) Foreclosure of Foreign Markets
The antitrust laws should not apply in cases where the only effect is a loss of export
opportunities to an American firm. Where the actions of firms in a foreign market have
the effect of closing that market to import competition, and thereby harming
competition in that market, both the conduct and the legally significant effects will
have taken place outside of the US.
It has been argued that protecting US export opportunities is one of the policy
objectives of the US antitrust laws. This is questionable. In enacting several of the
antitrust statutes Congress sought not to protect US export opportunities, but to relax
or clarify the antitrust laws out of a concern they were inhibiting US exports. Even if
export foreclosure is an objective, it is unclear what this means and what standards
should be applied to determine whether exports have been foreclosed. Hawk
suggests:280
The antitrust significance of foreclosure rests on several subsidiary factors which
courts have rarely examined: the amount of export commerce foreclosed; the extent
to which foreclosed competitors have access to other foreign markets; the duration of
any foreclosure; and business justifications for the challenged restraint and overall
arrangement. The amount of foreclosure should be measured primarily in light of the
importance of the export market to U.S. exporters and the share of the export market
pre-empted or foreclosed by the vertical restraint. Access to other foreign markets
may reveal the inappropriateness of limiting the market to a single foreign country
and indicate that foreclosure should be measured by taking into account all foreign
markets available to U.S. exporters.

This provides little guidance. If US policy does not simply provide a means to increase
the welfare of US exporters by raising the costs of rivals in their home markets, some
criteria grounded in antitrust policy are needed to judge whether foreclosure is
justified. The stated economic approach and substantive policy of the antitrust laws
suggests that the policy should be linked to US, foreign, or global welfare. Chapters 5
and 6 argued that in a few instances, private market access barriers in one country
could lower the welfare of another country or world welfare to justify an international
remedy, in particular where the anticompetitive conduct had international spill-over
effects. In other words, where US consumer welfare and global consumer welfare are
harmed by the private market access barriers, the US should be able to assert
jurisdiction on the basis of economic effects felt within the US. Therefore, a coherent
policy objective in applying antitrust to export commerce would be to promote US
consumer welfare.
If the objective of protecting US export opportunities is not to promote US consumer
welfare, Congress, when enacting the FTAIA, was not simply asserting (p.265) the
jurisdictional reach of the antitrust laws, but was also providing substantive antitrust
rules that apply to export commerce. This view could support both jurisdiction and
liability where an export restraint harms or forecloses a US exporter or an export-
connected business, without proof of anticompetitive effects on the US domestic
market. Some commentators view a properly defined export market in terms of export
opportunities. Although some earlier decisions may support this approach, they were
decided before it became clear that the antitrust laws have consumer welfare as their
objective. Furthermore, for effects on US commerce to give rise to a private claim
under the Sherman Act, a plaintiff must have standing under the antitrust laws, which
requires some firms to suffer a type of injury that the antitrust laws were designed to
protect against. If the same substantive antitrust rules apply to all cases, foreign
practices that foreclose US export opportunities can only be found illegal after a
market has been properly defined and the pro- and anticompetitive effects are
assessed.
A properly defined market for foreclosed export opportunties for a good or service
should, therefore, be defined primarily in terms of reasonable substitutability from the
perspective of the relevant foreign consumers. It is not clear that a market for
foreclosed exports, defined using the standard methdolgy, would be something other
than an ordinary foreign national (or regional) market for the product in question or a
global or regional market that included the US domestic market for the product in
question. The first option does not appear to be a permissible market of concern
under US antitrust law. The Supreme Court in Matsushita Elec Ind Co, Ltd v Zenith
Radio Corp stated that the [r]espondents cannot recover antitrust damages based
solely on an alleged cartelization of the Japanese market, because American antitrust
laws do not regulate the competitive conditions of other nations economies. 281 Even if
a plaintiff is excluded from selling its products to the consumers in a particular
country, it may be hard to establish that some injury in fact resulted, when the
products could be exported elsewhere or firms from other countries could have
entered, and what the appropriate measure of damages should be.282
The courts and competition authority located where the alleged anticompetitive
conduct occurred are the best-placed and most legitimate bodies to decide (p.266)
whether a business practice enhances that country's welfare. The welfare benefits for
the exporting country (the US) of applying its competition rules to prohibit efficient
but exclusionary business practices in a foreign country are unclear.
The DOJ stated at the time of the decision to rescind footnote 159 that the aim of
export jurisdiction was said to be to protect export opportunities, rather than to
enhance them.283 The distinction between protection and enhancement is unclear. The
statement may simply mean that the DOJ did not intend to use the antitrust laws to
advance US trade interests. It could also mean that the antitrust laws would only be
used where private market access barriers nullify or impair negotiated market access
concessions. However, as will be argued in Section 11.5.1, such an application of
competition law may be inconsistent with the spirit if not the letter of the WTO.
Supporters of the post-1992 US enforcement policy argue that US law is one of the
few weapons that Americans have to combat unfair trade practices in other
countries.284 So far, the DOJ has been more bark than bite. International Competition
Policy Advisor Committee (ICPAC) reports that the US has filed 44 cases since 1912 in
which the US claimed that defendants were engaged in conduct that restrained US
exports abroad.285 Most of these involved international cartels. Since 1978, only five
cases brought by the US have involved export restraints.286 As the ICPAC recognizes,
none of the cases brought by US are directed at the prototypical market access
problem, where non-US private firms or firms located outside of the US, perhaps with
the support of the host government, engage in anticompetitive conduct that restricts
exports to that market and inhibits access by US firms.287 Consistent with the low
number of private cases challenging export restraints, it also appears that few firms
have even discussed the possibility of using antitrust law to gain market access with
the DOJ.288 This may reflect several considerations, including the limited significance
of private market access barriers, obstacles to antitrust enforcement and the
availability of more powerful trade remedies.
(p.267) On the other hand, the US government's handling of the Yokosuka and Yokota
cases met with general approval in the US.289 The US government has conceded it
obtained redress against those companies without US affiliates or assets largely
because of the active cooperation of Japanese authorities.290 Limitations on personal
jurisdiction and discovery may have prevented a successful US court action. 291 Thus,
what appears to be a successful example of the threatened extraterritorial application
of antitrust law was in fact an example of international cooperation. In other cases,
foreign authorities may not be so cooperative. The US appears to intend to focus its
enforcement in export markets on group boycotts and collusive pricing, rather than
the more subtle forms of exclusionary behaviour associated with vertical restraints
and the keiretsu. These are areas where the problematic task of market definition may
be avoided, and where there is international consensus on the illegality of the conduct
and therefore a greater prospect of cooperation and local enforcement action. Rill has
recognized that: In most cases conduct that harms our exporters also harms foreign
consumers, and may be actionable under the other country's antitrust laws.292
If the conduct in question is illegal under foreign law, objections to the extraterritorial
application of US law to private market access barriers tends to be based on a
perceived infringement of its sovereignty and/or international law. Canadian, EU,
Japanese and UK officials all protested the withdrawal of footnote 159.293 Japan, for
example, called the revived US policy a violation of national sovereignty that is
contrary to international law,294 and has repeatedly insisted that antimonopoly
violations in the Japanese market should be punished only in Japan, within its own
legal framework.295 Japan would prefer to strengthen its own laws and cooperate with
the US authorities in international cases, rather (p.268) than have the US apply its
law extraterritorially.296 There were also hints from Japan that a blocking statute may
be enacted to restrict the scope of US antitrust law.297 In a prototypical market access
problem case, blocking and clawback statutes would often be effective, because of
the location of the parties and the necessary evidence. Many commentators also
believe that the extraterritorial application of antitrust to foreign markets to address
trade problems is inconsistent with national sovereignty and will result in few
successful cases and escalate trade tensions.298
Even if the US enforcement action is consistent with local law and policy, it may
undermine the foreign competition law agencies and courts and increase transaction
and compliance costs for firms. The US enforcement agencies have stated that they
would prefer to work with antitrust authorities in the importing country and that
extraterritorial enforcement will be used only after attempts to obtain enforcement by
foreign authorities have failed.299 Such a US policy may encourage other states to
adopt and enforce their own competition laws. The local enforcement authorities and
courts will have numerous advantages over US enforcement authorities and courts in
applying competition law to their local markets. In other words, in addition to an
absence of jurisdiction, the US courts should determine that they are forum non
conveniens and the US enforcement agencies should not act, if at all, until it is clear
their foreign counterparts will not act. Such an approach would be consistent with the
trend in other fields of international and transnational laws.300
The failure to justify the application of antitrust law to export commerce in terms of
the consumer welfare paradigm undermines any US leadership in international
competition law. If the US is to exercise such jurisdiction, it is important that the same
substantive rules apply as apply in domestic cases to ensure that the rules applied
internalize both the pro- and anticompetitive effects of the application of any
particular competition law rule. Suppose that the US and the EU were concerned
about foreclosure in Japan. EU firms could benefit from the application of US antitrust
law to Japanese markets. However, if American and Japanese firms reach some market
sharing agreement, EU firms will have no (p.269) remedy under US or EU competition
law and (by assumption) Japanese competition law. Export market foreclosure cases
could create conflict between the US and third countries, and encourage other
countries to assert jurisdiction in cases of export foreclosure. Smaller countries will
find it impractical to assert jurisdiction in export foreclosure cases. If national antitrust
law applied to export commerce had to be applied in a non-discriminatory way, there
would be fewer incentives to overreach. This means that if Country A applies its laws
to its export market in Country B, firms operating in Country B or attempting to
operate in Country B, whatever their nationality, can use the laws of Country A to
attack anticompetitive conduct of firms operating in Country B, whatever their
nationality. In a multi-country situation, firms from all countries involved would be
bound by the competition law that is the strictest of those countries able to secure
personal jurisdiction. Such a result would be unpalatable to the US, because of
increased compliance costs, and its more permissive treatment of abuse of dominance
and vertical restraints. If export jurisdiction is assumed, and the US is not forum non
conveniens (perhaps because the case is like Dun and Bradstreet), the law of the
country from which a firm is excluded should apply. This would be consistent with the
focus of competition law on consumer welfare.
8.2.8 Merger Cases
The scope of application of section 7 of the Clayton Act was noted above. The
implementing regulations under the Hart-Scott-Rodino Act exempt certain foreign
transactions from the pre-merger notification requirements.301 However, where there
is an obligation to notify a merger, the DOJ has vigorously enforced this against
foreign firms.302 Although many of the transactions that must be notified will not have
a substantial effect on competition in a US market, or possibly even a substantial
economic effect on US commerce, the extraterritorial application of the notification
requirements can be justified as a necessary mechanism to determine whether a
merger in fact has such effects. However, such notification requirements should be no
broader than necessary and take into account the substantial compliance costs of
firms. See Section 5.4.2.
There are many cases involving the acquisition by a US firm of foreign companies that
are competitors or potential competitors in the US market, or conversely of a foreign
firm seeking to acquire a US firm. The antitrust analysis proceeds much as if the
merger was a purely domestic merger, taking into account (p.270) the factors that
may affect the ability of the foreign firm to compete in the US market.303 Where a
merger involving two foreign firms affects a US market, the analysis is the same, but
the outcome of the process may be affected by whether the US has personal
jurisdiction over the parties to the transaction, or one or both of the entities has US
production facilities or substantial distribution assets in the US.304 There are likely to
be few mergers that have anticompetitive effects in the US where neither of the
parties to the merger has significant assets in the US. There appear to be no reported
cases in which challenges under US antitrust laws have been successfully mounted
against mergers between two foreign firms transacting no business in the US.305 Not
infrequently, the US enforcement authorities have attempted to fashion structural
relief in cases involving mergers between US and non-US firms in such a way that the
merger can continue but with the US anticompetitive concerns addressed.306 The 1995
International Guidelines state that if effective relief is difficult to obtain, the case may
be one where the agencies seek to coordinate their efforts with other authorities that
are examining the transaction.307
8.2.9 Forum Selection and the Application of Foreign Law
Forum non Conveniens
Forum non conveniens is a common law doctrine, which allows a court to dismiss at
its discretion a suit even though jurisdiction and venue requirements are satisfied, if
the defendant can show that the chosen forum is extremely inconvenient in terms of
the presentation of witnesses and the interests of the forum, and that another forum
is much more convenient.308 Dismissal is often conditional on the defendant waiving
the defence of lack of jurisdiction in the more convenient forum. Several older cases
held that the doctrine of forum non conveniens was inapplicable in antitrust cases.309
The reasons given include Supreme Court precedent;310 the foreign country had no
antitrust law; the foreign country will not apply the Sherman Act and therefore the
application of the doctrine is equivalent to (p.271) saying certain conduct is beyond
the reach of the Sherman Act;311 or the US public interest in applying the antitrust laws
makes the doctrine inapplicable.312 In some cases the application of the doctrine was
rejected on the merits.313
The results, if not the reasoning, are consistent with the leading case on forum non
conveniens. In Piper Aircraft Co v Reyno, the court ruled that the possibility that an
alternative forum might apply law less favourable to the plaintiffs should ordinarily
not be given conclusive or even substantial weight.314 However, if the remedy
provided by the alternative forum is so clearly inadequate that it is no remedy at all,
the unfavourable change in the law [that would result from dismissal] may be given
substantial weight, and it noted that dismissal would not be appropriate where the
alternative forum does not permit litigation of the subject matter of the dispute.315
Many countries now provide for remedies for private loss as a result of antitrust
violations and, therefore, genuinely provide alternative forums. The doctrine is not
applicable in government enforcement actions. However, the application of a full
comity analysis by the US enforcement agencies and the preference for enforcement
of local competition law in export commerce cases could result in a similar allocation
of cases between jurisdictions.
The application of forum non conveniens to antitrust cases is consistent with other
legal developments. In Mannington Mills, the court listed the availability to the plaintiff
of a foreign remedy as one factor in the balancing process.316 After the Supreme Court
upheld an arbitration clause that covered antitrust claims,317 US courts may be less
likely to automatically reject foreign courts as a more appropriate forum for certain
international competition law cases, notwithstanding the US interest in adjudicating
antitrust cases. In private antitrust cases, there are signs that the doctrine of forum
non conveniens will be applied.318
In Virgin Atlantic Airways v British Airways, the court applied the doctrine of forum
non conveniens to an antitrust case.319 The plaintiff alleged a wide variety of
anticompetitive conduct concerning air routes between the US and the UK. (p.272)
The parties disputed the availability of an adequate alternative forum and submitted
expert opinions on English and EU law. The court declined dismissal on the basis of
the factors in Gulf Oil Corp v Gilbert.320 Capital Currency Exch, NV v National
Westminster Bank, Plc is the first known use of forum non conveniens in international
antitrust litigation.321 The case involved a claim that English banks and their
employees had conspired to deny banking services to a competitor and attempted to
monopolize the market for international currency transfers. The court briefly examined
the usual forum non conveniens factors and concluded that the private interests
strongly favoured trying the case in England, given the predominance of both English
witnesses and documents in the case. The court held that English tort law, which
provides a claim for single damages based on Articles 81 and 82 of the EU Treaty,
provided an adequate remedy despite some doubt as to whether the plaintiff
ultimately would be able to prevail under English law.322 A foreign plaintiffs' choice of
forum is given less weight than the choice of a US citizen or resident.323 It is likely that
few actions commenced by local plaintiffs will be dismissed.
The doctrine of lis alibi pendens allows a court to stay its proceedings in favour of
foreign parallel proceedings. It is often argued in the alternative to forum non
conveniens and similar considerations are relevant. Eskofot A/S v E.I. DuPont de
Nemours & Co appears to be an example of where the doctrine of lis alibi pendens
was argued in an antitrust case.324
Application of Foreign Competition Law
Foreign competition law may be applied by a US federal court pursuant to 28 USC
1367, which provides that in any civil action of which the district courts have
original jurisdiction, the district courts shall have supplemental jurisdiction over all
other claims that are so related to claims in the action within such original jurisdiction
that they form part of the same case or controversy under Article III. The foreign
competition law claim must be related to a US antitrust claim brought by the same
plaintiff. There are number of grounds on which a court may dismiss claims under
foreign law.325 Although the consolidation of suits against an international cartel
commenced in several countries could increase judicial efficiency, this is only likely if
the actions in other countries could be stayed in favour of US proceedings.326 The
Supreme Court also suggests that comity might generally require allowing foreign
courts to adjudicate claims under foreign competition laws.327
(p.273) US antitrust actions under section 4 of the Clayton Act are tortious in nature.
Some US courts have also treated competition law actions under US state antitrust
statutes as tortious in nature and applied the tort choice of law rules to that statute to
determine the applicability of that law.328 While the US courts will not enforce foreign
penal law,329 a private competition law action for damages is likely to be treated as a
tortious action. Therefore, the application of foreign competition law in an action for
damages will depend on ordinary tort choice of law rules.
8.3 The European Union Competition Law
8.3.1 The Economic Entity and Implementation Doctrines
The EU has been given powers as extensive as that of any state in relation to the
international application of competition law.330 The territorial scope of application of
EU competition law is primarily determined by the language of the EC Treaty,
secondary legislation, and public international law. Many EU competition law decisions
have involved non-EC conduct and/or undertakings, but relatively few have tested the
limits of EU jurisdiction. The European Commission has long claimed that any
undertaking, wherever resident, domicile, or incorporated, is liable to have
proceedings brought against it if its actions can be shown to have the effects set out
in Articles 81 and 82.331 The European Court of Justice (ECJ)'s initial response was to
neither accept nor reject the effects doctrine.332
In the Dyestuffs case, Imperial Chemical Industries (ICI), together with undertakings
from Germany, France, Italy, and Switzerland, was alleged to have engaged in
concerted practices relating to price increases for various dyestuffs by giving
appropriate price instructions to its wholly owned subsidiary incorporated in
Belgium.333 The parent company was neither directly present in nor trading with the
EU. Advocate General Mayras relied on the effects doctrine, but argued that the
effects had to be direct and immediate, reasonably foreseeable, and substantial
before action could be taken solely on the basis of effects.334 The ECJ avoided either
accepting or rejecting the findings of the Advocate General. It found against ICI on the
basis of the group economic unit theory. Under this (p.274) theory, competition law
can be applied extraterritorially by attributing the acts of the subsidiary to a foreign
parent company, where the parent was able to influence, in a decisive manner, the
sale price policy of its subsidiaries in the Common Market, and in fact made use of this
power.335 The large number of exporters that have local subsidiaries to conduct
marketing, distribution, or manufacturing activities in the EU means that the economic
entity doctrine provides an important basis for jurisdiction in international cases.
The ECJ and Commission have relied on the economic entity doctrine on a number of
occasions to extend the application of EU competition law.336 The doctrine has been
criticized because it fails to respect the independent legal personalities of the
companies concerned and very little evidence is required to find unity of the group.
In Dyestuffs, the ECJ relied upon evidence of ICI's majority shareholding, the ability to
influence the subsidiary's sales policy, one example where ICI had determined the
subsidiary's selling price, and no contrary evidence. The ability of a parent to control a
subsidiary company has frequently been relied upon, regardless of whether this
control has in fact been exercised.337 However, economic entity doctrine does not
provide the flexibility or coverage that the combination of long-arm jurisdiction
statutes and the effects doctrine do in the US. Nor does it catch all foreign conduct
that may affect competition in the EU.
After the emergence of the economic entity doctrine, the Commission continued to
assert the applicability of the effects doctrine.338 In Aluminium Imports from Eastern
Europe, the Commission found a series of agreements to be in breach of Article
81(1).339 Under the agreements, the main aluminium producers of Western Europe
committed themselves to buy limited quantities of aluminium from certain Eastern
European state trading organizations, which in turn agreed to only sell to these
Western producers. Some of the participants in the agreements, whose headquarters
were outside the EU, had branches or subsidiaries in the EU, but others sold directly to
the EU. The Commission found there is no reason to distinguish in such horizontal
agreements between the restrictions accepted towards each other by those within the
Common Market and those (p.275) outside, subject always to the overall requirement
that there be a substantial effect on trade between Member States.340 In the Wood
Pulp case, decided on the same day, the Commission invoked the effects doctrine
against another international cartel case. Following the opinion of Advocate General
Mayras in Dyestuffs, it relied on effects that were substantial, intended, and the
primary and direct result of the agreements and practices in question. 341
The Wood Pulp case was appealed.342 After a review of the literature and American
case-law, Advocate General Darmon concluded that there is no rule of international
law which is capable of being relied upon against the criterion of the direct,
substantial and foreseeable effect. Nor does the concept of international comity, in
view of its uncertain scope, militate against that criterion either.343 The ECJ did not
refer to Darmon's opinion and appeared to accept the approach urged by the UK
government. It declared void the decision of the Commission with respect to KEA, an
American export association, which had neither subsidiaries nor agents within the EU
and did not implement the agreements in the EU.344 The court stated that:345
an infringement of Article [81], such as the conclusion of an agreement which has had
the effect of restricting competition within the common market, consists of conduct
made up of two elements, the formation of the agreement, decision or concerted
practice and the implementation thereof. If the applicability of prohibitions laid down
under competition law were made to depend on the place where the agreement,
decision or concerted practice was formed, the result would obviously be to give
undertakings an easy means of evading those prohibitions. The decisive factor is
therefore the place where [the agreement] is implemented.

The court concluded that the Community's jurisdiction to apply its competition rules
to such conduct is covered by the territoriality principle as universally recognized in
public international law.346 The original agreements on the pricing of the wood pulp
was formed outside the EU in most cases, but the implementation of those
agreements by the announcement of prices from time to time by the various
producers and subsequent sales and purchases within the EU at those prices took
place within the EU, which was sufficient for EU law to apply. It did not matter whether
such sales were made directly through branches or whether made through subsidiary
companies and agencies. Although not all commentators agree, 347 the court did not
adopt the effects doctrine.348 What is less clear (p.276) is the extent to which the
analysis of formation and implementation reaches the same result as the effects
doctrine.
The major difference between the effects doctrine and the implementation approach
is that the latter does not cover activities like refusals to buy from or sell to
undertakings in the EU. Some commentators have, however, argued that the Wood
Pulp implementation approach includes both positive conduct within the EU and
omissions, such as foreign undertakings agreeing not to export to the EU.349 Under this
interpretation, the implementation and effects doctrines would be virtually
indistinguishable. A claim that EU competition law jurisdiction is based on objective
territoriality would then be impossible to sustain because there would be no
consummating act or constituent element of the offence within the EU.350 The
implementation approach has some similarities to the US Supreme Court decision in
Sisal Sales,351 and many of the early post-Alcoa decisions, which sought to identify
some act performed in the US to make the conspiracy effective.
An agreement is implemented in the EU when it concerns the price, quantity, or
quality of a product sold by a non-EU seller to a buyer in the EU.352 However, it is not
clear how the implementation doctrine would apply to an abuse of dominance under
Article 82. The ECJ's judgment might also be read to suggest that Article 81 will only
apply to non-EC undertakings if there is an actual effect in the Community, while for
EC undertakings even conduct having the object of restraining competition will
infringe Article 81. This means that an agreement that has not (yet) been executed
only creates problems for EU undertakings.353 On the other hand, if the
implementation approach is applied liberally, it is possible that EU competition law
jurisdiction would be, in some areas, more expansive than many versions of the
effects doctrine in the US.354
(p.277) Since the Wood Pulp decision, the Commission has used the implementation
doctrine where possible, but has resorted to the effects doctrine where necessary.355
The Commission has asserted jurisdiction over Austrian, Finnish and Norwegian
producers of low density polyethylene that allegedly participated in an agreement
between producers to fix prices and set target quotas on the basis that the
agreements were implemented within the EU, and over a Spanish company whose
activities took place before Spain became a member of the EU, to the extent that its
involvement in the cartel affected competition within the Community.356 The
Commission has imposed fines on a significant number of firms that participated in a
significant number of international cartels.
The Commission has not always clearly distinguished between the inquiries into
whether Articles 81 and 82 apply to the extraterritorial conduct, and, if they do,
whether the application to the conduct in issue is contrary to public international law
on state jurisdiction. In Gencor Ltd v Commission, however, the Court of First Instance
(CFI) saw these issues as distinct under the Merger Regulation.357
8.3.2 The Scope of Application of the Merger Regulation
The EU Merger Regulation is complex.358 It generally applies to any concentration
with a Community dimension, which is defined according to a turnover test that
includes the requirement that the aggregate worldwide turnover of all the
undertakings concerned is more than ECU 5,000 million, and at least two of the
undertakings concerned each have a turnover in the EU that exceeds ECU 250
million.359 The concept of a Community dimension provides both an internal and
external jurisdictional test. Turnover is calculated on a group (p.278) basis,360 and
according to the value of the products sold and services provided to purchases in the
EU.361 Thus, two merging companies may be subject to the Merger Regulation even if
they only have subsidiaries in the EU or no physical presence in the EU, provided the
requisite level of sales are made to customers in the EU.362
The Merger Regulation only prohibits a merger with a Community dimension where
the merger leads to the creation of a concentration that would significantly impede
competition in the common market or in a significant part of it, in particular as a result
of the creation or strengthening of a dominant position.363 Not all concentrations that
have a Community dimension will have an actual or potential effect on competition in
the Community.364 Thus, neither the application of the waiting period before a merger
can be implemented nor the authority of the Commission to impose sanctions for
failing to comply with the pre-merger notification requirements depend on the location
of the undertakings concerned or whether the merger will have any effect in the
Community.365
The Merger Regulation is silent on whether the Commission has extraterritorial
enforcement jurisdiction. However, the language used in Woodpulp suggests all
competition rules are governed by the principle of territoriality.366 In Gencor/Lonrho,
the Commission blocked the merger of the South African platinum interests of the
British firm, Lonrho plc, and the South African firm Gencor Ltd on the grounds that it
would create a duopoly in the supply of platinum and rhodium, and therefore was
incompatible with the common market and the functioning of the EEA Agreement.367
There were no production facilities in the EU. The CFI upheld the decision of the
Commission. It treated the competence of the Commission under the Regulation as a
separate issue to the compatibility of the decision with international law. In relation to
the first issue, the CFI considered that Article 1 of the Merger Regulation does not
require, in order for a concentration to have a Community dimension, that the
undertakings in question are established in the Community or that the production
activities covered by the (p.279) concentration are carried out within the
Community.368 The Regulation does not, for the purposes of defining its territorial
scope, ascribe greater importance to production operations than to sales operations.
Thus, the concentration was implemented in the Community, because the criterion
as to the implementation of an agreement is satisfied by the mere sale within the
Community, irrespective of the location of sources of supply and the production
plant.369
The CFI considered that the application of the Regulation was justified under public
international law when it is foreseeable that a proposed concentration would have an
immediate and substantial effect in the Community.370 The CFI examined each
criterion individually. The court rejected the argument that the creation of a dominant
duopoly position in the medium term (after Russian stocks are exhausted) was not an
immediate effect. The concentration would have had the direct and immediate effect
of creating the conditions in which abuses were not only possible, but economically
rational, because the concentration would have significantly impeded effective
competition in the market by giving rise to a lasting alteration to the structure of the
markets concerned.371 A substantial effect was established through evidence showing
that the proposed merger would create a dominant duopoly in the world market, the
market share of the proposed entity, and sales in Western Europe accounted for about
20 per cent of world demand.372 The merger would have created substantial effects in
terms of the lessening of competition in the EU, the volume of EU trade affected, and
the volume of EU trade affected relative to total world demand. The structure of the
CFI decision means that it cannot be seen as an acceptance of the effects doctrine as
the basis for the application of EU competition law, but it is an acceptance of the
validity of the effects doctrine under international law.
8.3.3 The Application of Competition Law to Export Commerce
The stated opposition of the EU to US export commerce jurisdiction suggests that the
Commission would not seek to apply its competition law in such circumstances. The
Community courts might also find that such an action would be contrary to
international law. In any event, Articles 81 and 82 can only apply to conduct in export
markets if the conduct may affect trade between Member States and restrain
competition within the common market or constitute an abuse of dominance within
the common market or a substantial part of it.373 Conduct that is confined to a single
member state and has no perceptible (p.280) repercussions outside that territory will
not fall within Article 81(1).374 An agreement relating solely to trade outside the EU
may not affect trade between member states.375 These criteria prevent the EU
applying its competition law to conduct that creates market access barriers to foreign
markets without affecting competition in the EU. However, if an agreement or conduct
has repercussions for an undertaking based within the EU, it does not matter that
those repercussions arise as a result of the undertaking's activities outside the EU. 376
A recent case showing the application of EU competition to export trade involved an
exclusive agreement relating to the distribution of luxury perfume outside of the EU.377
The EU manufacturer discovered that the distributor, after obtaining the perfume
under a contract prohibiting its sale in the EU, had imported it. As a defence to the
manufacturer's breach of contract action, the distributor contended that Article 81(1)
applied and the restraint was void, because the contract barred it re-exporting the
perfume back to the EU. The ECJ agreed. The contract's ban on re-export to the EU
could, in the particular circumstances, have had an appreciable effect on trade
between member states. The court held that Article 81 would apply where the
Community market for the product concerned is oligopolistic or where there is an
appreciable difference between Community prices for the product and the price in the
foreign country concerned and where the producer's market position for production
and sales in the EU is such that the prohibition on sales outside the third country
concerned entails a risk of an appreciable effect on the pattern of trade between
member states so as to undermine the attainment of the objectives of the single
market. Thus, anticompetitive conduct that affects competition in world markets will
affect the structure of competition in EU markets and therefore trade among member
states. It is also possible that the exclusion of EU producers from a foreign market
could affect competition in a world market and therefore within the EU.
Conduct that takes place outside the EU would need to fulfil the Wood Pulp
implementation test and, accordingly to Gencor, conform to public international law.
Consider the Boeing/McDonnell Douglas merger.378 A major concern to the Commission
was the three exclusive dealing arrangements that Boeing signed with three large US
airlines before and after the merger was announced. Those arrangements could have
foreclosed 11 per cent of the world market, or more than 30 per cent of the US
market, for 20 years to Airbus and so reducing EU exports to (p.281) the US. The
Commission approved the merger on condition that Boeing did not enter further
exclusive arrangements for 10 years and did not enforce its exclusive rights under the
existing three arrangements. The arrangements arguably had nothing to do with the
merger and if the Commission had concerns it should have applied Articles 81 and 82.
However, the exclusive dealing arrangements between US firms in the US might not
be found satisfy the ECJ's implementation test.379 Gencor indicates that the assertion
of jurisdiction could be justified under public international law, provided that the
Commission's analysis of the competitive effects of the exclusive dealing
arrangements was correct.
8.3.4 The Limited Role for Comity
While geopolitics and the logic of competition law impelled the EU institutions to
accept the effects doctrine, there were few factors compelling the adoption of a
doctrine of international comity. In Aluminium Imports from Eastern Europe, the
Commission observed that:380
There is no prohibitive rule of international law which prevents the application of
Community law to all the participants in the Brandeis arrangements. Moreover there
are no reasons of comity which militate in favour of self restraint in the exercise of the
jurisdiction by the Commission. The exercise of jurisdiction by the Commission does
not require any of the undertakings concerned to act in any way contrary to the
requirements of domestic laws, nor would the application of Community law adversely
affect important interests of a non-member State. Such an interest would have to be
so important as to prevail over the fundamental interest of the Community that
competition within the common market is not distorted (article 3(f) of the EEC Treaty),
for that is an essential means under the Treaty for achieving the objectives of the
Community.

However, comity considerations have apparently never outweighed the EU's interest
in undistorted competition in any case. The ECJ and the CFI have also indicated that
international comity does not require, or possibly even entitled the Commission to
decline to enforce the EU competition law where the Community has jurisdiction,381 at
least where the undertakings concerned are not required to act in any way contrary to
the requirements of domestic laws.382 It is irrelevant to the exercise of jurisdiction that
a merger may be of more concern to another competent body, or other parts of the
world are more affected (p.282) than the Community.383 One exception may be the
Boeing/McDonnell Douglas merger, where the Commission took account of the
defence concerns of the US government by limiting its review to the civil side of the
operations of the merging companies.384
8.3.5 Private Competition Law Actions in National Courts
Member states' courts are obliged to award damages for a breach of EU competition
law.385 In addition to actions for damages or injunctions for breach of competition law,
EU competition law may be raised as a defence in EU member states in actions for
breach of contract or infringement of an intellectual property right. The situation
under English law can be used to illustrate the key requirements for the application of
EU law in international cases.
Under Article 2 of Council Regulation (EC) 44/2001 a plaintiff is entitled to bring an
action for damages for a breach of EU competition law in the courts of the domicile of
the defendant,386 as action in tort.387 A plaintiff may therefore sue in the courts of the
place where the harmful event occurred or may occur. This has been interpreted to
mean at the place where the damage occurred or at the place of the event that gave
rise to the damage.388 The position under Regulation 44/2001 and the English rule
applicable to tort defendants that are not domicile in a participating state is broadly
the same.389
In Article 81 cases, the place of the event giving rise to the damage will be the place
where the prohibited agreement was implemented.390 Under Article 23 of (p.283)
Regulation 44/2001, a choice of forum and law clause in a contract for the sale of
goods or services may, however, be drafted broadly enough such that claims relating
to overcharges for goods or services must be commenced in the courts of a particular
country.391 National laws that bar agreement on jurisdiction, such as section 98(2)
GWB of the German competition law, are accordingly overridden.392 In Article 82
cases, the place of the event giving rise to the damage will be where the actions
and/or the use of rights constituting an abuse of dominance took place.393
In relation to the place where the damage occurred, damage occurs in the place
where direct economic loss to the plaintiff was sustained. In other words, the place
where the goods are purchased at an inflated price or the business is lost.394 Where
business is lost in several countries, because the relevant firms compete in several
jurisdiction affected by the anticompetitive conduct, the plaintiff may need to sue in
each country where business is lost or in the place where the defendant is domicile or
the harmful event occurred in respect of damage suffered in all countries.395
Article 2 of Regulation 44/2001 provides that where a person domiciled in a member
state is one of a number of defendants, that person may be sued in the courts of the
place where any one of them is domiciled, if the claims against each defendant are so
closely connected that it is expedient to hear and determine them together.396 This
provision could facilitate actions against international cartels.
Even if an English court has jurisdiction, the issue of whether local or foreign
competion law rules apply arises. Regardless of the law to which a contract is subject,
an English court will still apply the provisions of Articles 81(1) and 82 to any conduct
falling within the territorial scope of application of those provisions.397 Where the
contract dispute arises in a non-member state court, the ability to raise (p.284)
Articles 81 and 82 as defences will depend on: (a) whether the conduct falls within the
territorial scope of those provisions; (b) whether the law of a member state is the law
governing the agreement; and (c) whether the forum court applies conflict rules that
render agreements which are unlawful under the place of performance unenforceable.
Although a private action for single damages under a foreign competition law is likely
to be characterized as a tort for the purposes of English choice of law rules, an English
court may not apply foreign competition laws if they are viewed as penal or other
public laws or conflict with the principles of public policy.398 Section 11 and 12 of the
Private International Law (Miscellaneous Provisions) Act 1995 (UK) would appear to
give the courts considerable flexibility in choosing the applicable law in international
competition cases. The decision of the ECJ that the doctrine of forum non conveniens
is incompatible with Regulation 44/2001 will reduce the flexibility of the English
courts.399
8.3.6 Summary
The economic entity and implementation doctrines allow the extraterritorial
application of EU competition law when a foreign firm directs the activities of an EU
subsidiary or the actions of the foreign firm affect its sales in the EU. The scope of the
implementation doctrine is uncertain, but so far the extraterritorial application of
competition is generally more restrained than in the US. The CFI has accepted that the
effects doctrine is consistent with international law, but requires that the effects be
immediate and substantial. The case-law is consistent with a requirement that the
effects doctrine requires the effects to be effects on competition. The EU will not be
able to apply its competition law in the paradigm market access case, but, consistent
with the consumer welfare paradigm, the EU can apply its competition law where the
conduct affects sales within the EU. Consistent with the approach to conflicts of laws
in civil law countries, the European courts do not see comity as limiting EU jurisdiction
where the challenged conduct has the requisite effects on the EU, unless the foreign
conduct is compelled by a foreign state. However, it is possible that the Commission
could decline to proceed in a case if it believed that another competition authority
was better placed to do so. The Brussels Convention applies to competition law, which
facilitates private actions in international competition law cases and provides a
framework for international judicial cooperation.
(p.285) Section 98 of the German Act against Restraints of Competition applies the
effects doctrine in Germany,400 which may have influenced the EU institutions.401 The
acceptance of the implementation and effects doctrines by the EU institutions may, in
turn, influence member states, especially in light of the obligation to apply EU
competition law in national courts.402
8.4 The Japanese Antimonopoly Law
8.4.1 Introduction
Most Japanese commentators believe that the AML neither recognizes nor excludes
the possibility of its extraterritorial application.403 The full picture is more complex
picture. The application of the AML in international cases will depend on a number of
factors, which are discussed below. The institutional barriers to private actions under
the AML suggest that jurisdictional issues are most likely to arise in public
enforcement actions. However, limited public enforcement action means that neither
the JFTC nor the Japanese courts have had much opportunity to explore jurisdictional
issues. When taking decisions, the JFTC and the courts would be conscious of the
Japanese government's stated objections to the extraterritorial application of US
antitrust law.404
8.4.2 Judicial Competence
The competence of a Japanese court in a transnational case generally requires the
defendant or the underlying transaction to have one of several contacts with Japan of
the kind specified in sections 4 to 22 of the Code of Civil Procedure (p.286) (CCP).405
Judicial competence loosely resembles the circumstances where service ex juris is
permitted in Commonwealth jurisdictions.
A suit can generally be brought before a Japanese court, as a person's general
forum, if that person is dominciled or has a place of residence in Japan.406 Section
4(4) of the CCP provides that: The general forum of a juridicial person or any other
association or foundation shall be determined by the place of its principal office or
principal place of business, or when there is no such office or place of business, by the
domicile of the representative or principal person in charge of its affairs in Japan. If a
foreign corporation establishes a branch office or place ofbusiness in Japan, it is
subject to Japanese jurisdiction generally without regard to whether the particular
cause of action is connected with the operation of the Japanese branch.407 Where a
foreign corporation has no fixed, physically visible office or place of business in Japan,
the Japanese courts seem to hesitate to assume jurisdiction over a corporation, even
if it is doing business in the US sense.408 Where a foreign company employs an
agent with a general authority to negotiate and conclude contracts on behalf of the
foreign company in Japan, the agent may be held to be a person in charge of the
business affairs in Japan.409 A subsidiary or joint venture corporation established in
Japan by a foreign corporation will not of itself constitute an office or place of business
of the foreign corporation.410
Japanese law provides for a number of special bases of jurisdiction. Section 5(i) of the
CCP provides that any non-family action can be brought before the court sitting at the
place of performance of the obligation involved in the suit. Section 5(i) has been
invoked almost exclusively as a basis of jurisdiction on contract.411 Section 5(ix) of the
CCP provides that an action relating to tort may be brought before the court of the
place of the tort.412 A tort consists of two elements: misconduct and injury. Where the
misconduct took place in one place and the injury (p.287) occurred in another, each
element provides a basis of jurisdiction over the same tort case.413 The Tokyo District
Court has held that the place of the tort may be where the alleged injury occurred in
whole or in part.414 An action for damages for breach of the AML will be a tort. If some
of the challenged conduct occurs in Japan or the challenged conduct causes injury in
Japan, a Japanese court may be competent.
8.4.3 Service
In the past, only foreign enterprises with resident representatives or a branch office or
agency in Japan could be served by the JFTC,415 which inevitably limited the
extraterritorial application of the AML. Recently, the AML was amended to permit the
JFTC to initiate proceedings against a foreign enterprise by service abroad. 416 In 2004,
the JFTC was able to issue a recommendation decision against Microsoft (the parent
company in the US).417
8.4.4 Import Commerce Jurisdiction
The JFTC has two basic criteria for deciding whether the AML applies to a particular
foreign activity: whether the conduct violates the AML and whether enforcement
would be consistent with international law.418 The AML is generally applicable to
conduct undertaken within Japan by foreign entrepreneurs, whether or not the foreign
entrepreneurs reside in Japan, which is consistent with the territorial limits of Japanese
criminal law.419 If any portion of the acts corresponding to the material elements of a
crime occurs within Japan, then the entire crime is considered to have been
committed in Japan.
Section 6 of the AML provides that: No entrepreneur shall enter into an international
agreement or an international contract which contains such matters as (p.288)
constitute unreasonable restraint of trade or unfair trade practices.420 In a few cases,
foreign entrepreneurs have been made respondents under this provision and ordered
to cancel international agreements.421 While section 6 has been applied to
international cartels in which Japanese firms participated,422 it is also been used to
help Japanese firms avoid onerous licensing provisions in technology transfer
agreements. Although it is unclear when such an agreement would be found to be an
unreasonable restraint of trade or an unfair trade practice, section 6 may apply to
international agreements that regulate exports from Japan.423 In the Asahi Denka case,
for example, a post-licence restriction on exports by a Taiwanese firm in a technology
licensing agreement was found to be contrary to section 6. The decision allowed the
foreign company to export (to Japan) after the expiration of the licence, possibly
enhancing competition in Japan.424
In contrast to section 6, the general business practices provisions of AML, sections 3, 8
and 19, do not expressly refer to international arrangements or foreign enterprises. A
number of theories have been advanced to explain the relationship between section 6
and the other provisions, but these do not determine the scope of the AML.425 Most
Japanese laws designed to apply outside Japan have special provisions allowing for the
extraterritorial application of the statute.426 Therefore, the general principles of
territorial jurisdiction will probably determine the scope of the AML. While section 19
applies only to employing unfair business practices and is only applied against the
person imposing such unfair business practices, section 6 prohibits all the parties to
an international agreement or contract from entering into such an agreement or
contract containing unfair business practices.427 Thus, when an overseas entrepreneur
utilizes unfair business practices against a Japanese entrepreneur, but has no personal
connection with the territory of Japan, section 6 could still be breached.
There is some uncertainty about when conduct will be found to have occured within
the territory of Japan and therefore be subject to the AML. The Far Eastern Freight
Conference case, which is one of the few cases under the AML to discuss (p.289)
jurisdiction, held that the fact that an agreement was made in a foreign country does
not immunize it from Japanese jurisdiction.428 An agreement among Japanese and
foreign shipping companies on the terms they would impose on shippers was
determined to be an unfair business practice, because the terms agreed upon in a
foreign country were enforced vis--vis Japanese shippers in Japan, such enforcement
was ocurred in Japan, and, therefore, would be subject to Japanese jurisdiction. This
case involves a common fact pattern in international competition law cases. In 1998,
the JFTC investigated Nordion, a Canadian company, which is the primary producer of
molybdenum 99 in the world.429 Nordion attempted to exclude competitors from
selling the substance in Japan by concluding contracts with Japanese purchasers for
the whole of their requirements. The JFTC emphasized that the contracts were signed
and executed in Japan, but the AML was applied to a foreign respondent that had no
business activity in Japan except for exporting the product from Canada to Japan.
Nordion agreed to abolish the exclusive arrangement. This case could be seen as
being endorsed by the Diet of amendments to the AML in 2002 to permit service on
foreign respondents. The JFTC now seems to take the same approach to section 19 of
the AML.430
The Japanese approach to the scope of application of the AML and foreign competition
laws appears to be reasonably consistent. In 1995, the Chairman of the JFTC, Masami
Kogayu, reiterated his government's opposition to cross-border enforcement of
national antitrust law.431 In an amicus curiae brief in the US Court of Appeals for the
First Circuit, the Japanese government reiterated its preference for a strict territorial
approach to antitrust jurisdiction.432 Yet the Japanese government, at the request of
the US DOJ, had obtained evidence from Japanese manufacturing companies located
in Japan, because a central element of the conspiracy to fix the price of fax paper was
a meeting in Tarrytown, New York. However, objection was taken to the assertion of
jurisdiction over a conspiracy between Japanese manufacturers that occurred wholly
within Japan. At a meeting in Tokyo, Japanese companies agreed to fix prices of fax
paper to be sold in the US. The fax paper was sold to independent trading companies
in Japan. Only after title passed from the defendants was the paper imported (p.290)
into the US. The brief implied acceptance of jurisdiction if the Japanese manufacturers
took any action, or conspired with others who took action, in the US in furtherance of
the conspiracy, but if the Japanese manufacturers merely directed the trading
companies to increase prices in the US and monitored the trading companies'
transactions with US customers to ensure that the directed prices were charged. 433
From 1 January 1999, the AML has regulated and required notification of certain
mergers and acquisitions involving companies outside of Japan. 434 The changes were
made to the conduct regulated by sections 10, 15, and 16 of the AML, which prohibit
stockholdings, mergers and acquisitions if: (a) the effect is to substantially restrain
competition in any particular field of trade or (b) where unfair trade practices have
been employed to carry out the conduct in question. For example, section 15(3)
extends the coverage from the situation where the merger involves one company in
Japan with total assets of more than ten billion yen and another party to the
transaction is another company in Japan with more then one billion yen in total
assets, to the situation where any of the parties to the transaction has ten billion yen
of sales in Japan.435 The JFTC is able to review mergers that are implemented outside
Japan between two foreign companies.436 The requirement for sales in Japan ensures
the parties to the transactions will have a significant (physical) connection with Japan.
It is not the adoption of the effects doctrine, but it is getting close to the EU
implementation doctrine.
Recent developments suggest a growing acceptance of extraterritoriality in Japan.
Some Japanese commentators believe that the principle of objective territoriality
(kyakkanteki-zokuchi-shugi) and the effects-oriented principle (kka-shugi) have
already been accepted in international law.437 A study done on behalf of the JFTC on
how the AML should be enforced in international cases appears to flag the interest of
the JFTC (if not the rest of the Japanese government) in a broader jurisdiction. 438 The
Report notes that there is in practical terms no (p.291) substantial difference
between objective territorial doctrine and the effects doctrine in antitrust cases,
because of procedural considerations. The Report further suggests there is an
important role for international comity.
8.4.5 Export Commerce Jurisdiction
The most intense Japanese criticism of extraterritorial antitrust enforcement has been
reserved for the US's threat to apply its laws to conduct that restricts exports.439 After
the US DOJ announced that it was revoking the so-called footnote 159 in its Antitrust
Enforcement Guidelines for International Operations of 1988, protests were voiced by
the Japanese Foreign Ministry, the MITI, and the JFTC.440 The US action was a response
to market access barriers and bid rigging on contracts for work at US military bases in
Japan. The Japanese response ignored the fact that the conduct was clearly illegal
under the AML, and complained about the unilateral nature of the US action; a lack of
international harmony on standards for illegality, procedures and remedies; the
violation of Japan's sovereignty and international law; and harm to Japan's legitimate
economic interests.441 There were hints about enacting blocking and clawback
statutes.442 Japan believed that the importing country should apply its competition law
in such a situation because the primary purpose of such laws is to protect the
consumers' interests.443
Like the EU, Japan saw entering an enforcement cooperation agreement with a
positive comity clause as the best response to the threat of the application of US
antitrust law to Japanese domestic markets.444 Concern about the (p.292)
extraterritorial enforcement of US antitrust law pervades the Agreement between the
Government of the United States of America and the Government of Japan concerning
Cooperation on Anticompetitive Activities, which was entered into on 7 October 1999,
including in the definition of important interests of the parties, and provisions on
coordination and positive and negative comity.
8.4.6 Declining Jurisdiction in Exceptional Cases
There are a variety of reasons why plaintiffs who have a choice will generally not
select Japan as the forum for their dispute to be heard, including the limited discovery
opportunities; difficulty in proving the necessary degree of proximate causation
between illegality and the harm to the plaintiff; little chance of prompt resolution;
limited role of strong counsel advocacy before the court; and expensive lawyers. On
the other hand, Japanese law contains few options for a litigant seeking to have the
proceedings transferred to another jurisdiction.445 Nor do the Japanese courts have the
power to issue an anti-suit injunction.446 Although Japanese judges are not totally blind
to the need for individual justice, they give more weight to the protection of the
parties' expectations than to particularized justice.447
Following the Malaysian Airlines case,448 a few lower courts have denied jurisdiction,
despite the venue provisions of the Code of Civil Procedure being satisfied. 449
However, the circumstances must be exceptional, such when as only de minimus
grounds for jurisdiction exist and relief appears to be available to the plaintiff in
another forum. The inquiry is not entirely dissimilar to a very strict doctrine of forum
non conveniens.450 Secondly, the requirement of good faith in civil litigation in section
2 of the Code of Civil Procedure may mean that where an exercise of jurisdiction by a
Japanese court will inflict extreme hardship on a foreign defendant, it may be seen as
an abuse of rights.451 Finally, in Miyakoshi (p.293) Kik KK v Gould, Inc, the court
appeared to accept that a rather modest doctrine lis pendens was part of Japanese
law.452 While the Japanese courts have limited means to regulate parallel competition
law proceedings, the jurisdictional and practical obstacles to litigating a transnational
competition law case in Japan means that only rarely would a Japanese court be likely
to, or be likely to be requested to, decline to proceed in an AML case.
8.4.7 Applying Foreign Law
Several provisions of the Hrei affect the application of Japanese and foreign
competition law in civil actions.453 Section 11(1) provides that: The creation and
effect of claims arising from unlawful acts are governed by the law of the place
where the facts giving rise to the claim occur. According to the prevailing view, the
lex loci delicti governs all torts, but opinions differ as to the determination of the loci
delicti in cases where the damage occurs in a country other than the country in which
the wrongful conduct occurs.454 Sections 11(2) and (3), which provide that paragraph
(1) does not apply where facts occurring in a foreign country are not unlawful under
Japanese law, and that even if the facts occurring in a foreign country are unlawful
under Japanese law the injured person cannot recover damages or have any other
remedy not available under Japanese law. This appears to be similar to the common
law double actionability rule, which is still applied in New Zealand. How section 11 will
be applied to a statutory tort with a limited territorial scope of application is unclear.
The limited territorial scope of the AML could prevent the application of foreign
competition law.
The Hrei rules are generally formulated as universal conflict rules. Only in a few
cases must Japanese law be applied. Parties are generally free to specify which law
governs a contract.455 The Hrei does not specifically address mandatory rules and the
opinion of Japanese scholars appears to be divided.456 According to the theory of
Sonderanknpfung, mandatory rules of a foreign country, which could include
competition law, with which the contract is closely connected should be (p.294)
applied in preference to the law chosen by the parties. In particular, the AML will
probably apply regardless of the law the parties choose to govern the contract if the
contract is closely connected to Japan.
With regard to the application of Japanese mandatory law, section 33 of the Hrei
provides that: The law of a foreign country shall not govern if the application of its
provisions are contrary to public policy and good morals. The prevailing opinion of
commentators is that section 33 is not violated simply by the fact that the application
of the governing law contravenes a mandatory provision of a Japanese statute. The
application of the governing law only violates the public policy limitation if it
seriously damages the legal order of Japanese society under its private law. 457 One
district court, however, held that the principle of party autonomy, as adopted by
section 7 of the Hrei, is limited by the labor law embodying our public policy which
has a territorially restricted effect, and that the dismissal of a worker in this case in
accordance with the applicable foreign law is invalid because it is incompatible with
our public policy embodied in subparagraph 1 of Article 7 of the Labor Union Act. 458
The strong opposition of the Japanese government to the application of US antitrust
law to conduct taking place exclusively in Japan suggests a court would not apply US
law in a case involving allegations of market access barriers or export cartels wholly
within Japan. A Japanese court may also find such an application of US antitrust law to
be contrary to the principles of public international law. The enforcement of a US
punitive damages award has been found to be against public policy, therefore the
application of a law that imposed treble damages may also be against public policy.
8.4.8 Summary
Japan has traditionally been seen as a target rather than a source of extraterritorial
competition law enforcement. While it may have exercised self-restraint in this area,
the application of the AML was hindered by certain procedural rules, especially service
of process, which meant that the outer limits of the AML were never explored. More
recently, some of these rules have been amended and the JFTC has expressed greater
interest in applying the AML in international cases. The territorial scope of the AML
remains uncertain, but appears to be limited by the requirement that the defendant's
conduct has some physical connection with Japan, even if only the making of sales in
Japan. There appears to be nothing (p.295) equivalent to the economic entity
doctrine. The failure to link the scope of application of the AML to harm to Japanese
consumer welfare may lead to some excessive applications of the AML, unless such
economic effects are seen as an additional condition that must be satisfied under
international law. The Japanese government has strongly opposed the application of
US antitrust law to Japanese domestic markets. In civil actions the competence of the
Japanese courts is not dissimilar to other civil law countries. The rules do not give the
Japanese courts much discretion to decline jurisdiction. The dismissal of actions
cannot be made conditional on foreign proceedings or merely to facilitate the
consolidation of multi-country litigation. It is unclear when, if ever, a Japanese court
would apply a foreign competition law.
8.5 Conclusion
The Hartford Fire and Wood Pulp and Gencor decisions suggest there has been a
convergence of the positions of the EU and US towards the effects test and the limited
role of international comity. Other major trading nations have also adopted the effects
or the implementation doctrines. France and Germany apply the effects doctrine.459
The UK applies the implementation doctrine.460 Countries adopting a competition law
for the first time have also tended to adopt the effects doctrine. For example,
notwithstanding Singapore's Commonwealth common law background, the
Singaporean Competition Act 2004 expressly states that it has extraterritorial
application.461
The convergence towards a similar set of jurisdictional rules will likely increase the
number of international competition law dipsutes between the US and the EU, and
between the US, the EU, and third countries. The inter-governmental cooperation
agreements on antitrust enforcement attempt to reduce conflict and waste resulting
from the broad scope of application of many competition laws. While competition law
authorities may be able to apply a comity test as part of their enforcement discretion,
private litigants are not so constrained. However, there appear to be signs that even if
balancing tests are unworkable, the US may not always be the most appropriate
forum to hear a particular competition law dispute. Several cases have applied forum
non (p.296) conveniens principles to private competition law actions in the US.
Forum non conveniens involves a much narrower range of considerations than
balancing tests. Instead of balancing one state's policies against another state's
policies, the doctrine of forum non conveniens seeks to identiy the most appropriate
forum for a dispute to be litigated in. The future is likely to see a rise in private
competition law litigation in Europe, which may increase US concern about foreign
extraterritorial jurisdiction. It is argued in Chapters 10 and 13 that an agreement on
jurisdiction and/or the allocation of cases would be desirable and feasible.
Many of the judicial attempts to moderate the extraterritorial application of US
antitrust laws appear to have been a reaction to the strong foreign governmental,
business, and academic protests about the extraterritorial application of US antitrust
law. The judicial attempts at moderation were of three kinds: (1) adjectivala wide
range of different adjectives were used to restrict the effects that resulted in there
being jurisdiction; (2) balancinga wide variety of factors were taken into account in
assessing whether the US had a sufficiently strong interest in a cases vis--vis other
countries that it was reasonable to exercise jurisdiction; and (3) sovereigntythe
sovereign authority of a foreign state would have been directly undermined if the US
had asserted jurisdiction. The first and third categories have proved to be the most
significant. In Chapter 10, it is argued that it would be desirable to clarify the
qualifications to the effects doctrine by international agreement and agree to a slight
enlargement of the international antitrust defences.
Japan, Australia, and New Zealand have clung to traditional concepts of jurisdiction.
The determination of the scope of application of the laws in these countries is far from
straightforward and in some cases their competition laws may be applied to conduct
that is not harmful to the local jurisdiction. All three jurisdictions appear to accept the
legitimacy of the effects doctrine under international law. In Japan, the limited private
litigation and self-constrained JFTC has prevented the exploration of the territorial
limits of the AML. Nonetheless, Japanese jurisdiction appears to be most restrictive
and therefore there is less pressure to develop judicial comity and doctrines to allow a
court to decline to hear a case. Australia has not permitted private litigants to proceed
against extraterritorial conduct as of right.462 New Zealand has expressly adopted the
effects doctrine for mergers, but applied civil law doctrines to allow the courts to
decline jurisdiction.463 Competition law has been effectively applied extraterritorially
where a local person acts on behalf of a foreign person. The evolving approach of
Australia and New Zealand to territorial jurisdiction over conduct that occurs partly in
the (p.297) jurisdiction may be similar to the implementation doctrine espoused by
the ECJ. If correct, it is possible that Australia and New Zealand competition law could
reach most harmful conduct of concern to these countries. The current law is,
however, complex and uncertain, which increases litigation costs and does not send a
clear message to foreign firms. Even if there is a basis for jurisdiction, a court may
decline to exercise that jurisdiction under the doctrine of forum non conveniens or the
application of statutory rules. An Australasian court could apply a foreign competition
law when that foreign law is the proper law of a contract or in a private tort action. To
simplify and clarify the law, it would be desirable for both countries to adopt an
appropriately qualified effects doctrine by statute.
In all countries, the existence of jurisdiction does not overcome the many obstacles to
litigating international competition law cases, in particular the access to information
and enforcement of remedies. (p.298)
Notes:
(1) M Reimann, Conflict of Laws in Western Europe: A Guide Through the Jungle (New
York: Transnational Publishers, 1995) ch 1 ; WE O'Brien, The Hague
Convention on Jurisdiction and Judgments: the way forward (2003) 66 Modern Law
Review 491.
(2) Reimann, Ibid 234.
(3) Cf Swiss Federal Law on Private International Law, Art 5.
(4) While competition law is mandatory, some courts may apply the competition laws
of both the forum and other states. See the Convention on the Law Applicable to
Contractual Obligations (Rome Convention) [1998] OJ C27/34, Art 7(1); Swiss Federal
Law on Private International Law, Art 19; 28 USC 1367.
(5) 28 USC 1331; American Law Institute, Restatement (Third) Foreign Relations Law
of the United States (1987) (hereinafter the Restatement) 401, comment c.
(6) On the difference between subjective matter and prescriptive jurisdiction in
relation to antitrust see Hartford Fire Ins Co v California 509 US 764 (1993), 8124 per
Scalia J; cf Souter J, Ibid, 796, n 22. See also United Phosphorous, Ltd v Angus
Chemical Co 322 F 3 942 (7th Cir 2003) (discussing the Foreign Trade Antitrust
Improvements Act (FTAIA)).
(7) See GB Born, A reappraisal of the extraterritorial reach of U.S. law (1992) 24 Law
and Policy in International Business 1, 26, 801 ; SL Snell, Controlling
restrictive business practices in global markets: reflections on the concepts of
sovereignty, fairness, and comity (1997) 33 Stanford Journal of International Law
215, 2603.
(8) Timberlane Lumber Co v Bank of America 549 F 2d 597 (9th Cir 1976), 613, n 27.
See L Brilmayer and C Norchi, Federal extraterritoriality and fifth amendment due
process (1992) 105 Harvard Law Review 1217 ; L Brilmayer, The
extraterritorial application of American law: a methodological and constitutional
appraisal (Summer 1987) 50 Law and Contemporary Problems 11.
(9) Equal Employment Opportunities Comm'n v Arabian American Oil Co 499 US 244
(1991).
(10) Born (n 7 above) 621.
(11) See B Hawk, United States, Common Market and International Antitrust: A
Comparative Guide (2nd edn, Englewood Cliffs: Prentice Hall Law and Business, 1991
supp), vol 1, 96.197 ; cf SW Waller, James R. Atwood and Kingman
Brewsters's Antitrust and American Business Abroad (3rd edn, New York: Clark
Boardman Callaghan, 1997), vol 1, 2.3 (hereinafter Atwood, Brewster, Waller), who
identify the first two, but not the third, in the legislative history.
(12) JA Rahl, Antitrust and international transactionsrecent developments (1978)
46 Antitrust Law Journal 965, 969 ; JA Rahl, American antitrust and
foreign operations: what is covered? (1974) 8 Cornell International Law Journal 1, 6
8.
(13) Hawk (n 11 above) 78.
(14) Hawk (n 11 above) 96.1; EW Kintner and JP Griffin, Jurisdiction over foreign
commerce under the Sherman antitrust act (1977) 18 Boston College Industrial and
Commercial Law Review 199, 2012.
(15) See, eg, WD Whitney, Sources of conflict between international law and the
antitrust laws (1954) 63 Yale Law Journal 655 ; EL Rholl, Inconsistent
application of the extraterritorial provisions of the Sherman Act: a judicial response
based upon the much maligned effects test (1990) 73 Marquette Law Review 435,
4412.
(16) See Atwood, Brewster, Waller (n 11 above) 7.4, 7.5; Hawk (n 11 above) 97102.
See also US DOJ and FTC, Antitrust Guidelines for the Licensing of Intellectual Property
Rights (DOJ and FTC, 1995) 3.2.2, 3.2.3, and Examples 2 to 4.
(17) 471 F Supp 532 (ND Cal 1978), 542, aff'd, 648 F 2d 642 (9th Cir 1981).
(18) 15 USC 12.
(19) 15 USC 6a and 45(1)(3).
(20) See also the Shipping Act 1984, 46 USC 1706(a)(3).
(21) 15 USC 45(a).
(22) Massachusetts Bd of Registration in Optometry 110 FTC 549 (1988), 609; 1995
International Guidelines, 3.1.
(23) See, eg, the Wilson Tariff Act 1894, 15 USC 811.
(24) See Clayton and Robinson-Patman Acts, 15 USC 13, 13a, and 14.
(25) Antitrust Procedural Improvements Act 1980, 15 USC 12.
(26) US DOJ and FTC, Antitrust Guidelines for International Operations (DOJ and FTC,
1995), 3.14 (1995 International Guidelines) . See also The In Porters SA
v Hanes Printables, Inc 663 F Supp 494 (MD NC 1987), 497 n 2.
(27) See generally American Bar Association, Section of Antitrust Law, Antitrust Law
Developments (Fifth) (Chicago: ABA, 2002) 116478 ; see also 1995
International Guidelines, 4.1.
(28) International Shoe Co v Washington 326 US 310, 316 (1945) (citations omitted).
See also Asahi Metal Indus Co v Superior Ct of Cal 480 US 102 (1987), 107.
(29) See, eg, Texas Trading & Milling Corp v Federal Republic of Nigeria, 647 F 2d 300
(2nd Cir 1981), cert denied, 454 US 1148 (1982).
(30) United States v Nippon Paper Industries Co, Ltd 944 F Supp 55 (D Mass 1996), 59.
(31) World-Wide Volkswagen Corp v Woodson 444 US 286 (1980).
(32) Asahi Metal Indus Co v Superior Ct of Cal 480 US 102 (1987), 111.
(33) See Atwood, Bewster, Waller (n 11 above) 5.4; B Hawk, United States, Common
Market and International Antitrust: A Comparative Guide (2nd edn, Englewood Cliffs:
Prentice Hall Law and Business, 1991 Supp), vol 1 651652.2 . For
examples of antitrust claims dismissed against foreign defendants see Core-Vent Corp
v Nobel Industries, AB 11 F 3d 1482 (9th Cir 1993); Karsten Mfg Corp v United States
Golf Ass'n 728 F Supp 1429 (D Ariz 1990).
(34) Burham v Superior Court 495 US 604 (1990).
(35) See, eg, Go-Video, Inc v Akai Electric Company, Ltd 885 F 2d 1406 (9th Cir 1989),
1414; Access Telecom, Inc v MCI Telecommunications Corp 197 F 3d 694 (5th Cir
1999), rehearing en banc denied, 210 F 3d 365 (2000), cert denied, 121 S Ct 292
(2000); Dee-K Enterprises, Inc v Heveafil SDS BHD 982 F Supp 1138 (ED Va 1997),
1146, n 15.
(36) See Hawk (n 33 above) 6568.
(37) Hall v Helicopteros Nacionales de Colombia SA 466 US 408 (1984).
(38) Hawk (n 33 above) 64950.1.
(39) See, for example, the summary of factors in American Bar Association, Section of
Antitrust Law, Antitrust Law Developments (Fifth) (Chicago: ABA, 2002) 1171.

(40) Hanson v Dencla 357 US 235 (1958), 253.

(41) See Worldwide Volkswagen v Woodson 444 US 286 (1980).
(42) See Atwood, Brewster, Waller (n 11 above) 5.13. See also the special
jurisdictional provision in s 293 of the Patent Code, 35 USC 293.
(43) 465 US 783 (1984).
(44) See generally B Hawk, UnitedStates, Common Market and International Antitrust:
A Comparative Guide (2nd edn, Englewood Cliffs: Prentice Hall Law and Business,
1991 supp), vol 1, 6434 ; Atwood, Brewster, Waller (n 11 above) 5.5.
Although the inquiry is similar to the subject matter jurisdiction effects doctrine, the
effects test for personal jurisdiction requires a high degree of foreseeability. See, for
example, Eskofot A/S v EI Du Pont de Nemours & Co 872 F Supp 81 (SDNY 1995), 87
8, n 8 (no jurisdiction based on effects).
(45) Hawk (n 44 above), 6445.
(46) See Atwood, Brester, Waller (n 11 above) 5.105.11; Hawk (n 44 above) 6447.
(47) The courts have considered a number of factors in making this determination.
See, eg, Zenith Radio Corp v Matsushita Elec Indus Co 402 F Supp 262 (ED Pa 1975),
3278. In some cases a foreign affiliate or subsidiary of an American parent may also
be held to be subject to US jurisdiction. See United States v Watchmakers of
Switzerland Info Center 133 F Supp 40 (SDNY 1955), rehearing denied, 134 F Supp
710 (SDNY 1955); Industria Siciliana Asfalti, Bitumi, SpA v Exxon Research & Eng'r Co,
19771 Trade Cas 61,256 (SDNY 1977).
(48) See Atwood, Brewster, Waller (n 11 above) 5.9; Hawk (n 44 above) 647648.1.
(49) Omni Capital International v Rudolf Wolff & Co 484 US 97 (1987). See generally
Hawk (n 44 above) 65964; Atwood, Brewster, Waller (n 11 above) 5.16; American
Bar Association, Section of Antitrust Law, Antitrust Law Developments (Fifth) (Chicago:
ABA, 2002) 11748.
(50) ABA (n 49 above) 1164.
(51) See generally ABA (n 49 above) 11649; Atwood, Brewster, Waller (n 11 above)
5.15.
(52) Section 4 of the Clayton Act authorizes private treble-damage actions against
individuals and corporations in any district in which the defendant resides or is found
or has an agent. Section 12 of the Clayton Act states that venue is proper as to
corporate defendants in any judicial district where the defendant is an inhabitant, is
found, or transacts business. 15 USC 15, 22. The general federal venue statute
also allows an alien to be sued, inter alia, in any judicial district. 28 USC 1391.
(53) American Banana Co v United Fruit Co 213 US 347 (1909). For the conclusion of
the case see United States v United Fruit Co 1958 Trade Cas 68,941 (ED La 1958);
19781 Trade Cas 62,001 (ED La 1978).
(54) Ibid 3557.
(55) The Schooner Charming Betsy 2 Cranch 64 (US 1804), 118 per Marshall CJ; The
Appollen 9 Wheat 361 (US 1824), 367.
(56) Pennoyer v Neff 95 US 714 (1877), 720.
(57) Foley Brothers v Filardo 336 US 281 (1949), 287, n 3; Jackson v S S Archimedes
275 US 463 (1928), 467; New York Central Railway Co v Chisholm 268 US 29 (1925),
32; Sandberg v MacDonald 248 US 185 (1918), 195; Cuba Railroad Co v Crosby 222
US 473 (1912), 478.
(58) Strassheim v Daily 221 US 280 (1911), 285; United States v Bowman 260 US 94
(1922), 97; Blackmer v United States 284 US 421 (1932), 437; United States v Curtis-
Wright Export Corp 299 US 304 (1936), 318; Skiriotes v Florida 313 US 69 (1941), 73.
(59) W S Kirkpatrick & Co v Environmental Tectonics Corp, Int'l 493 US 400 (1990),
407.
(60) Compare WD Whitney, Sources of conflict between international law and the
antitrust laws (1954) 63 Yale Law Journal 655, 657 ; RY Jennings,
Extraterritorial jurisdiction and the United States antitrust laws [1957] British
Yearbook of International Law 146, 1624 ; AD Neale and ML Stephens,
International Business and National Jurisdiction (Oxford: Clarendon Press, 1988) 40
with AF Lowenfeld, Public law in the international arena: conflict of
laws, international law, and some suggestions for their interaction (1979) 163 Hague
Recueil 322, 374 ; B Hawk, United States, Common Market and
International Antitrust: A Comparative Guide (2nd edn, Englewood Cliffs: Prentice Hall
Law and Business, 1991 supp), vol 1, 104 ; EL Rholl, Inconsistent
application of the extraterritorial provisions of the Sherman Act: a judicial response
based on the much maligned effects test (1990) 73 Marquette Law Review 435 439.

(61) United States v American Tobacco Co 221 US 106 (1911), 149, 153, 1713, 184,
187, 189; United States v Pacific & Arctic Railway & Navigation Company 228 US 87
(1913), 1056; Thomsen v Cayser 243 US 66 (1917), 88; United States v Hamburg-
Amerikanisihe Packetfahrt-Actien Gesellschaft 200 Fed Rep 806 (1911); 239 US 466
(1916); United States v Sisal Sales Corp 274 US 268 (1927), 2756.
(62) Continental Ore Co v Union Carbide & Carbon Corp 370 US 690 (1962), 704, 705.
See also Sanib Corp v United Fruit Co 135 F Supp 764 (SDNY 1955).
(63) See Hawk (n 60 above) 11; Atwood, Brewster, Waller (n 11 above) 2.8.
(64) Lamar v United States 260 F 561 (2d Cir 1919), cert denied, 250 US 673 (1919);
United States v Bopp Crim Nos 5885 and 5870 (ND Cal, filed 11 February 1916). See
also United States v Ray Crim No 2553 (ED La, filed 14 February 1908).
(65) United States v American Tobacco Co Equity No 1-216 (SDNY 1911) (consent
decree). See also United States v Aluminium Co of America Equity No 159 (WD Pa
1912).
(66) United States v Keystone Watch Case Co 218 F 502 (ED Pa 1915), 513, appeal
dismissed, 257 US 664 (1921).
(67) These industries include: United States v General Dyestuff Corp 57 F Supp 642
(SDNY 1944) (dyes); United States v Aluminium Co of America 148 F 2d 416 (2nd Cir
1945) (aluminium); United States v National Lead Co 63 F Supp 513 (SDNY 1945),
aff'd, 332 US 319 (1947) (titanium pigments); United States v General Elec Co 80 F
Supp 989 (SDNY 1948) (tungsten carbide); United States v United States Alkali Export
Ass'n 86 F Supp 59 (SDNY 1949) (alkali); United States v Minnesota Mining & Mfg Co
92 F Supp 947 (D Mass 1950) (coated abrasives); Timken Roller Bearing Co v United
States 341 US 593 (1951) (antifriction bearings); United States v Imperial Chem
Industries Co 100 F Supp 504 (SDNY 1951) (nylon), see also 105 F Supp 215 (SDNY
1952) (remedies); United States v General Elec Co 82 F Supp 753 (DNJ 1949), 115 F
Supp 835 (DNJ 1953) (incandescent lamps); United States v Holophane Co, Inc 119 F
Supp 114 (SD Ohio ED 1954), affirmed, 352 US 903 (1956) (prismatic glassware);
United States v Oldham Co 152 F Supp 818 (ND Cal SD 1957) (wire nails).
(68) See W Wells, Antitrust and the Formation of the Postwar World (New York:
Columbia University Press, 2002).
(69) Timken Roller Bearing Co v United States 83 F Supp 284 (ND Ohio ED 1949), 308
9, affirmed, 341 US 593 (1951) (direct and influencing effect ); United States v
Oldham Co 152 F Supp 818 (ND Cal SD 1957), 8212 (direct and substantial
restraint ); United States v Imperial Chem Industries Co 100 F Supp 504 (SDNY 1951),
592 (intended to affect and affected US commerce); United States v General Elec Co
82 F Supp 753 (DNJ 1949), 8901 (direct and substantial effect ); United States v
Watchmakers of Switzerland Information Center, Inc 1963 Trade Cas 70,600 (SDNY
1962), 77,456 (direct and substantial restraint ); Sabre Shipping Corp v American
President Lines, Ltd 285 F Supp 949 (SDNY 1968), 953, cert denied 407 F 2nd 173 (2d
Cir 1969), cert denied, 395 US 922 (1969) (affects the trade and commerce of the
United States ); Occidental Petroleum Corp v Buttes Gas & Oil Co 331 F Supp 92 (CD
Cal 1971), 1023, affirmed 461 F 2d 1261 (9th Cir), cert denied, 409 US 950 (1972)
(any effect that is both not insunstantial and indirect ); Todhunter-Mitchell Co v
Anheuser-Busch, Inc 383 F Supp 586 (ED Pa 1974), 587 (directly affected the flow of
commerce out of this country ). See also In re Grand Jury Investigation of Shipping
Industry 186 F Supp 298 (DDC 1960), 31314.
(70) 148 F 2d 416 (2nd Cir 1945).
(71) American Tobacco Co v United States 328 US 781 (1946), 811. See also Zenith
Radio Corp v Hazeltine Research, Inc 395 US 100 (1969), 113, n 8; Continental Ore Co
v Union Carbide & Carbon Corp 370 US 690 (1962), 704.
(72) In 1929 Limited was incorporated in Canada to takeover Alcoa's properties
located outside the US. Shares in Limited were issued to the holders of Alcoa's
common shares pro rata to their holdings in Alcoa. By 1931 no common officers
remained between the two companies. The trial judge found that by 1935 they were
completely separated, even though in 1939 the same small group of individuals still
held 48.9% of Alcoa's shares and 48.5% of Limited's shares and the chairmen of the
companies were brothers.
(73) 148 F 2d 416 (2nd Cir 1945), 443.
(74) Ibid 43942.
(75) Ibid 444.
(76) Ibid 443.
(77) Ibid 4434.
(78) Ibid 444.
(79) Ibid.
(80) Ibid.
(81) Ibid 4445.
(82) Ibid.
(83) Atwood, Brewster, Waller (n 11 above) 6.6 note that the major cartel cases all
involved findings of specific intent to restrain US commerce, as well as the actual
accomplishment of that purpose. Therefore, the issue of intent was not brought to a
head. See, eg, United States v General Elec Co 82 F Supp 753 (DNJ 1949), 88891;
United States v Imperial Chem Indus, Ltd 100 F Supp 504 (SDNY 1951), 592; United
States v National Lead Co 63 F Supp 513, 5245, aff'd, 332 US 319 (1947).
(84) See Zenith Radio Corp v Matsushita Elec Indus Co 494 F Supp 1161 (ED Pa 1980),
1184, 1189, n 65, revd on other grounds, 723 F 2d 238 (3rd Cir 1983), rev'd, 475 US
574 (1986); Fleischmann Distilling Corp v Distillers Co, 395 F Supp 221 (SDNY 1975),
227; see also Timberlane Lumber Co v Bank of America, NT & SA, 749 F 2d 1378 (9th
Cir 1984), 1385.
(85) 509 US 764 (1993, 796). See also 1995 International Guidelines, 3.1 and
Illustrative Example A.
(86) See, eg, B Hawk, United States, Common Market and International Antitrust: A
Comparative Guide (2nd edn, Englewood Cliffs: Prentice Hall Law and Business, 1991
Supp), vol 1, 114 , cf AC Swan, The Hartford Insurance Company case:
antitrust in the global economywelfare effects and sovereignty in JS Bhandrari and
AO Skyes (eds), Economic Dimensions in International Law: Comparative and
Empirical Perspectives (Cambridge: Cambridge University Press, 1997) 530, 5695.

(87) J Rahl (ed), Common Market and American Antitrust (New York: McGraw-Hill,
1970) 86.
(88) See, eg, Sanib Corp v United Fruit Co 135 F Supp 764 (SDNY 1955), 766;
Fleischmann Distilling Corp v Distillers Co 395 F Supp 221 (SDNY 1975), 2267.
(89) See also Atwood, Brewster, Waller (n 11 above) 6.6.
(90) KM Meessen, Antitrust jurisdiction under customary international law (1984) 78
American Journal of International Law 783, 793.
(91) SW Waller, Antitrust and American business abroad today (1995) 44 DePaul
Law Review 1251, 1260 , n 68. Citing SW Waller, International Trade and
U.S. Antitrust Law (St. Paul, Minn: West Group, 1995) 5.03 , n 12.
(92) 944 F Supp 55 (D Mass 1996), rev'd 109 F 3d 1 (1st Cir 1997), cert denied, 118 S
Ct 685, 1998 US LEXIS 31 (1998). See also JP Griffin, Possible resolutions of
international disputes over enforcement of U.S. antitrust laws (1982) 18 Stanford
Journal of International Law 279, 285 ; Hawk (n 86 above) 115, n 46.
(93) 370 US 690 (1962).
(94) Ibid 704.
(95) Ibid 706.
(96) Ibid 705. See also WS Kirkpatrick & Co v Environmental Tectonics Corp 493 US
400 (1990), 407.
(97) 395 US 100 (1969).
(98) Ibid 113, n 8.
(99) AC Swan, The Hartford Insurance Company case: antitrust in the global economy
welfare effects and sovereignty in JS Bhandrari and AO Skyes (eds), Economic
Dimensions in International Law: Comparative and Empirical Perspectives (Cambridge:
Cambridge University Press, 1997) 530, 5445.
(100) 404 F 2d 804 (DC Cir 1968), cert denied, 393 US 1093 (1969).
(101) Ibid 814.
(102) Ibid 814, n 31.
(103) Ibid.
(104) Ibid 811.
(105) Ibid 816.
(106) Ibid 816. Other cases have held that exports financed by US foreign aid are
subject to the Sherman Act. United States v Concentrated Phosphate Export Ass'n 393
US 199 (1968); United States v Standard Tallow Corp 19881 Trade Cas 67,913
(SDNY 1988).
(107) 395 F Supp 221 (SDNY 1975), 227.
(108) Timberlane Lumber Co v Bank of America, NT & SA 549 F 2d 597 (9th Cir 1976)
( Timberlane I), on remand, 574 F Supp 1453 (ND Cal 1983) ( Timberlane II), aff'd, 749
F 2d 1378 (9th Cir 1984) ( Timberlane III), cert denied, 472 US 1032 (1985).
(109) See Timberlane III, 749 F 2d 1378, 1380.
(110) 549 F 2d 597, 608.
(111) Ibid 609.
(112) Ibid 610.
(113) Ibid 609.
(114) Ibid 615.
(115) Timberlane III, 749 F 2d 1378, 1383.
(116) Courts and commentators had difficulty in determining the nature of the second
step. See Timberland III, 749 F 2d 1378, 1383; EL Rholl, Inconsistent application of
the extraterritorial provisions of the Sherman Act: a judicial response based on the
much maligned effects test (1990) 73 Marquette Law Review 435, 452
; Atwood, Brewster, Waller (n 11 above) 6.11.
(117) 549 F 2d 597, 613.
(118) Ibid 613. The intellectual origin of this approach is Kingman Brewster, Antitrust
and American Business Abroad (New York: McGraw-Hill, 1958) 4456.
(119) Ibid 614.
(120) Ibid 615.
(121) 595 F 2d 1287 (3rd Cir 1979).
(122) Ibid 1295. See also Section 9.3.
(123) Ibid 12901.
(124) Ibid 12912.
(125) Ibid 1292.
(126) Ibid 1296. The inclusion of a balancing test as part of the jurisdictional rule
rather than a discretionary rule allowing a court to decline to exercise has significant
procedural implications. See also In re Uranium Antitrust Litig 617 F 2d 1248 (7th Cir
1980) (discretionary); In re Insurance Antitrust Litigation 938 F 2d 919 (9th Cir 1991),
931, 934 (exercise of jurisdiction).
(127) Ibid 12978.
(128) Ibid 1298.
(129) Zenith Radio Corp v Matsushita Elec Indus Co 494 F Supp 1161 (ED Pa 1980),
1177.
(130) See, eg, Dominicus Americana Bohio v Gulf & Western Industries, Inc 473 F
Supp 680 (SDNY 1979), 6878. In other cases, jurisdiction was declined, often after
several years and court hearings, because the effects on the US were no more than
de minimis. El Cid, Ltd v New Jersey Zinc Co 551 F Supp 626 (SDNY 1982);
Conservation Council of Western Australia, Inc v Aluminium Company of America 518
F Supp 270 (WD Pa 1981); Montreal Trading Ltd v AMAX Inc, 661 F 2d 864 (10th Cir
1981), cert denied, 455 US 1001 (1982); Industrial Inv Development Corp v Mitsui &
Co Ltd 19781 Trade Cas 62,130 (SD Tex 1978), summary judgment reversed 594 F
2d 48 (5th Cir 1979), cert denied, 445 US 903 (1980), the district court again granted
summary judgment which was again reversed, 671 F 2d 876 (1982), vacated on other
grounds, 460 US 1007 (1983), prior holding reaffirmed, 704 F 2d 785 (1983), cert
denied, 464 US 961 (1983), trial judgment affirmed 855 F 2d 222 (1988).
(131) See, eg, United States v Bechtel Corp, 19791 Trade Cas 62,429; 62,430 (ND
Cal 1979), affirmed, 648 F 2d 660 (9th Cir), cert denied, 454 US 1083 (1981). See
Section 9.4.1, n 211.
(132) 19822 Trade Cas 64,774 (ND Cal 1982).
(133) See Section 8.2.7.
(134) 666 F 2d 6 (2nd Cir 1981). See also Bulk Oil (Zug) AG v Sun Company, Inc 583 F
Supp 1134 (SDNY 1983). The idea that the effects should be anticompetitive dates
back to at least the Report of the Attorney General's National Committee to Study
Antitrust Laws (US Government Printing Office, 1955).
(135) 429 US 477 (1977), 489.
(136) See Eskofot A/S v E I DuPont de Nemours & Co 872 F Supp 81 (SDNY 1995).
(137) 666 F 2d 6, 9.
(138) See, eg, Rivendell Forest Products, Ltd v Canadian Forest Products, Ltd 810 F
Supp 1116 (D Col 1993).
(139) See, eg, In re Japanese Electronic Products Antitrust Litigation 723 F 2d 238, 306
(3rd Cir 1983).
(140) See, eg, Matsushita Elec Ind Co, Ltd v Zenith Radio Corp 475 US 574 (1986), 582
and n 6.
(141) In re Insurance Antitrust Litigation 938 F 2d 919 (9th Cir 1991), 931; O N E
Shipping, Ltd v Flota Mercante Grancolombiana, S A 830 F 2d 449 451 (2nd Cir 1987),
457, cert denied, 488 US 923 (1988); McElderry v Cathay Pacific Airways, Ltd 678 F
Supp 1071 (SDNY 1988), 1077; McGlinchy v Shell Chemical Co 19852 Trade Cas
66,672 (ND Cal 1985), affirmed, 845 F 2d 802 (9th Cir 1988), 81314, n 8.
(142) 731 F 2d 909 (DC Cir 1984).
(143) Ibid 9234.
(144) Ibid 922, 923 (footnote omitted).
(145) Ibid 925.
(146) Ibid 9357.
(147) See, eg, Ibid 915, 916.
(148) US DOJ, Antitrust Enforcement Guidelines for International Operations (DOJ,
1988) 5 n 167; 1995 International Guidelines, 3.2.
(149) 731 F Supp 3 (D DC 1990), 6, n 5, aff'd, 908 F 2d 981 (DC Cir 1990). Approved in
United States v Timer Warner, Inc 1997 US Dist LEXIS 2752 (DDC 1997), 18.
(150) See, eg, The American Bar Association, Section of Antitrust Law, Report of the
Special Committee on International Antitrust (ABA, 1991) 156, 158 , n 38;
JP Griffin, EC and U.S. extraterritoriality: activism and cooperation (1994) 17
Fordham International Law Journal 353, 3814 ; Restatement (Third) of
Foreign Relations Law 443 n 8.
(151) Restatement (Third) of Foreign Relations Law, 402, 403, 415. See also the
illustrative list of factors in AF Lowenfeld, Public law in the international arena:
conflict of laws, international law, and some suggestions for their interaction (1979)
163 Hague Recueil 322, 3289 and the shorter list of factors in the 1965
Restatement (Second) of Foreign Relations Law of the United States, 40.
(152) 1995 International Guidelines, 3.2.
(153) See, eg, Timberlane III 749 F 2d 1378, 1384; In re Insurance 938 F 2d 919, 932
4.
(154) In re Insurance Antitrust Litig 723 F Supp 464, 48990 (ND Cal 1989), overruled,
938 F 2d 919, 9324.
(155) See, eg, Daishowa 19822 Trade Cas at 71, 789.
(156) See, eg, Timberlane III 749 F 2d 1378, 1384; Daishowa International v North
Coast Export Co., 19822 Trade Cas 64,774 (ND Cal 1982), 71,789; see also In re
Insurance Antitrust Litig 938 F 2d 919, 923.
(157) Raubal v Engelhard Minerals & Chemicals Corp. 364 F Supp 1352 (SDNY 1973)
and National Bank of Canada v Interbank Card Association 666 F 2d 6 (2nd Cir 1981).
(158) Mannington Mills Inc v Congoleum Corp 595 F 2d 1287 (3rd Cir 1979); In re
Insurance Antitrust Litig 938 F 2d 919 (9th Cir 1991), 923.
(159) 1995 International Guidelines, 3.2.
(160) See Section 13.2.2.
(161) SW Waller, From the ashes of Hartford Fire: the unanswered questions of
comity, Fordham Corporate Law Institute Twenty-Fifth Anniversary Conference on
International Antitrust Law and Policy, 2223 October 1998, 26.
(162) AK Bingaman (1993) 8 Antitrust 8, 9 . Quoted in RP Alford, The
extraterritorial application of antitrust laws: a postscript on Hartford Fire Insurance Co
v California (1993) 34 Virginia Journal of International Law 213, 217.
(163) See Atwood, Brewster, Waller (n 11 above) 4.14 n 1, 8.3 n 8. See also, W Wells
Antitrust and the Formation of the Postwar World (New York: Columbia University
Press, 2002) 187201.
(164) Hartford Fire Insurance Co v California 509 US 764 (1993).
(165) Ibid 796. The court may not have positively ruled whether intent alone, or
whether some effect less than a substantial effect coupled with intent, may suffice.
Dee-K Enterprises, Inc v Heveafil Sdn Bhd 299 F 3d 281 (4th Cir 2002), 289 n 5, cert
denied, 123 S Ct 2638 (2003).
(166) AF Lowenfeld, International litigation and the quest for reasonableness: general
course on private international law (1994) 245 Hague Recueil 23, 51, 57, 58.

(167) Some non-antitrust decisions interpreted Justice Souter's requirement for a true
conflict narrowly or distinguished Hartford Fire. See, eg, Maxwell Comm Corp v
Barclays Bank 1994 Bankr LEXIS 1173 (Bankr SDNY 1994), 501; In re Maxwell
Communication Corp plc 93 F 3d 1036 (2nd Cir 1996), 104950; Sterling Drug, Inc v
Bayer AG 14 F 3d 733 (2nd Cir 1994), 747.
(168) 509 US 764, 799.
(169) Ibid 819. For criticism of Scalia J's application of comity see KW Dam,
Extraterritoriality in an age of globalization: the Hartford Fire case [1993] Supreme
Court Review 289 ; Lownefeld (n 166 above) 4958; PM Roth,
Jurisdiction, British public policy and the United States Supreme Court (1994) 110
Law Quarterly Review 194, 198.
(170) Cf In re Insurance Antitrust Litigation 723 F Supp 464 (ND Cal 1989), 486, 938 F
2d 919 (9th Cir 1991), 932 (finding the FTAIA applicable). See also Dee-K Enterprises,
Inc v Heveafil Sdn Bhd (4th Cir 2002), 299 F 3d 281, 292 n 6, cert denied, 123 S Ct
2638 (2003).
(171) 509 US 764, 796 n 23.
(172) Virgin Atlantic Airways, Ltd v British Airways, Plc 872 F Supp 52 (SDNY 1994),
6061.
(173) See, eg, Metro Industries, Inc v Sammi Corp 82 F 3d 839 (9th Cir 1996), 8478;
Nippon Paper Industries Co Ltd v United States 944 F Supp 55 (D Mass 1996), rev'd
109 F 3d 1 (1st Cir 1997), cert denied, 118 S Ct 685, 1998 US LEXIS 31 (1998). The
broad view of a true conflict taken in Trugman-Nash, Inc v New Zealand Dairy Board
954 F Supp 733 (SDNY 1997) was disapproved in Filetech SARL v France Telecom SA,
1997 US Dist LEXIS 14002 (SDNY 1997), 978 F Supp 464 (SDNY 1997), vacated and
remanded, 157 F 3d 922 (DC Cir 1998), 932.
(174) See, eg, Eskofot A/S v EI DuPont de Nemours & Co 872 F Supp 81 (SDNY 1995),
85, 86; Alpha Lyracom Communications, Inc v Communications Satellite Corp 19931
US Dist LEXIS 3825 (SDNY 1993).
(175) Metro Industries, Inc v Sammi Corp 82 F 3d 839 (9th Cir 1996), 8445.
(176) Metro Industries, Inc v Sammi Corp 82 F 3d 839 (9th Cir 1996), 8478.
(177) Eskofot A/S v EI DuPont de Nemours & Co 872 F Supp 81 (SDNY 1995), 85, 86.
(178) Ibid 8990.
(179) See also Section 8.2.9.
(180) 1997 US Dist LEXIS 14002 (SDNY 1997), 978 F Supp 464 (SDNY 1997), vacated
and remanded, 157 F 3d 922 (2nd Cir 1998).
(181) 1997 US Dist LEXIS 14002, 5060.
(182) Ibid 57.
(183) Ibid 467.
(184) 157 F 3d 922, 9312. The case was eventually dismissed on sovereign immunity
grounds. Filetech SA v France Telecom SA 212 F Supp 2d 183 (SDNY 2001), 304 F 3d
180 (2nd Cir 2002).
(185) United States v Nippon Paper Industries Co, Ltd 944 F Supp 55 (D Mass 1996),
rev'd 109 F 3d 1 (1st Cir 1997), cert denied, 118 S Ct 685 (1998), 62 F Supp 2d 173 (D
Mass 1999).
(186) 62 F Supp 173, 194.
(187) Ibid 195.
(188) See, eg, United States v National Lead Co 63 F Supp 513 (SDNY 1945); United
States v Addison-Wesley Publishing Co 19762 Trade Cas 61,225 (SDNY 1976).
(189) See, eg, United States v Minnesota Mining & Manufacturing Co 92 F Supp 947 (D
Mass 1950), 966; Sulmeyer v Seven-Up Co 411 F Supp 635, 6434 (SDNY 1976);
Pacific Coast Agric Export Ass'n v Sunkist Growers, Inc 19752 Trade Cas 60 (9th Cir
1975), 617.
(190) United States v C Itoh & Co, Ltd 198283 Trade Cas 65,010 (WD Wash 1982);
Daishowa International v North Coast Export Co 19822 Trade Cas 64,774 (ND Cal
1982).
(191) Fewer practical problems applying US law were encountered when the foreign
firm had a US parent or subsidiary. See, eg, Continental Ore Co v Union Carbide &
Carbon Corp 370 US 690 (1962), 7034; Zenith Radio Corp v Hazeltine Research, Inc
395 US 100 (1969); United States v Pilkington Plc 19942 Trade Cas 70,842 (D Ariz
1994).
(192) See, eg, Information Resources, Inc v Dun and Bradstreet Corp 294 F 3d 447
(2nd Cir 2002).
(193) See, eg, United States v Minnesota Mining & Mfg Co 92 F Supp 957 (D Mass
1950).
(194) See, eg, Zenith Radio Corp v Hazeltine Research, Inc 395 US 100 (1969);
Todhunter-Mitchell & Co v Anheuser-Busch, Inc 375 F Supp 610 (ED Pa 1974),
modified, 383 F Supp 586 (ED Pa 1974); Pacific Coast Agricultural Export Ass'n v
Sunkist Growers, Inc 526 F 2d 1196 (9th Cir 1975), cert denied, 425 US 959 (1976);
Dominicus Americana Bohio v Gulf & Western Industries, Inc 473 F Supp 680 (SDNY
1979); 1995 International Guidelines, 3.122.
(195) See, eg, United States v General Dyestuff Corp 57 F Supp 642 (SDNY 1944),
647. Recent cases are clear that American antitrust laws do not regulate the
competitive conditions of other nations' economies. Matsushita Elec Indus Co v
Zenith Radio Corp 475 US 574 (1986), 582; United States v Western Electric Co, Inc
604 F Supp 256 (D DC 1984), 2612.
(196) Atwood, Brewster, Waller (n 11 above) 9.5.
(197) The In Porters, SA v Hanes Printables, Inc 663 F Supp 494 (MDNC 1987);
McElderry v Cathay Pacific Airways, Ltd 678 F Supp 1071 (SDNY 1988); United
Phosphorous v Angus Chem Co 1994 US Dist LEXIS 14786 (ND Ill 1994).
(198) 15 USC 6a and 45(a)(3). Section 6a provides that: [T]his title shall not apply
to conduct involving trade or commerce (other than import trade or import
commerce) with foreign nations unless(1) such conduct has a direct, substantial,
and reasonably foreseeable effect(A) on trade or commerce which is not trade or
commerce with foreign nations, or on import trade or import commerce with foreign
nations; or (B) on export trade or export commerce with foreign nations, of a person
engaged in such trade or commerce in the United States; and (2) such effect gives
rise to a claim under the provisions of this Act, other than this section. If this Act
[sections 1 to 7 of this title] applies to such conduct only because of the operation of
paragraph (1)(B), then this Act shall apply to such conduct only for injury to export
business in the United States.
(199) See Eurim-Pharm GmbH v Pfizer, Inc 593 F Supp 1102 (SDNY 1984), 11056;
Liamuiga Tours v Travel Impressions, Ltd 617 F Supp 920 (DCNY 1985), 923; The In
Porters, SA v Hanes Printables, Inc 663 F Supp 494 (MDNC 1987), 4989.
(200) F Hoffman-La Roche Ltd v Empagran SA 542 US 155 (2004).
(201) Carpet Group Int'l v Oriental Rug Importers Ass'n, Inc, 227 F 3d 62, 712 (3rd Cir
2000).
(202) 84 F 3d 384 (2nd Cir 2002), 398.
(203) Ibid 399. See also Empagran SA v F Hoffman-LaRoche 315 F 3d 338 (DC Cir
2003), 344.
(204) 284 F 3d 384 (2nd Cir 2002), 395, 396. See also Sniado v Bank of Austria 352 F
3d 73 (2nd Cir 2003) (US traveller to Europe brought action against European banks
for conspiracy to fix currency exchange fees in Europe and the US); cf Den Norske
Stats Oljeselskap As v HeereMac vof 241 F 3d 420 (5th Cir 2001), 426, cert denied,
sub nom, Statoil ASA v HeereMac vof 534 US 1127 (2002) (the court looked at the
location of the transactions entered by the plaintiff, on which it claimed to have paid
higher prices, to determine whether the conduct was foreign); Turicentro, SA v
American Airlines Inc 303 F 3d 293 (3rd Cir 2002), 3012(travel agents located in Latin
America sued airline association and US airline members, alleging that an agreed
reduction in their commissions was a form of horizontal price fixing).
(205) See n 170 above. See also ONE Shipping Ltd v Flota Mercante Grancolombiana,
SA 830 F 2d 449 (2nd Cir 1987), 455, 456, cert denied, 488 US 923 (1988), per Circuit
Judge Cardamone, dissenting (foreign flag carrier operating out of the US may be
involved in both export and import commerce).
(206) 444 US 232 (1980).
(207) Compare Dee-K Enterprises, Inc v Heveafil Sdn Bhd 299 F 3d 281 (4th Cir 2002),
294, cert denied, 123 S Ct 2638 (2003) (bulk of the conduct occurred abroad and
Hartford Fire was found to be applicable) with Carpet Group Int'l v Oriental Rug
Importers Ass'n 227 F 3d 62 (3rd Cir 2000) (the conduct was found to have occurred
primarily in the US and McLean was applied). See also F Hoffman-La Roche Ltd v
Empagran SA 542 US 155 (2004), where the court only addressed conduct that was
in significant part foreign.
(208) Dee-K Enterprises 299 F 3d 281, 2903 (the Hartford Fire rule does not apply
only when the conduct is wholly foreign ); cf Carpet Group Int'l v Oriental Rug
Importers Ass'n 227 F 3d 62 (3rd Cir 2000), 75; United States v Nippon Paper Indus Co
Ltd 109 F 3d 1 (1st Cir 1997), 9.
(209) 404 F 2d 804 (DC Cir 1968), cert denied, 393 US 1093 (1969). HR Rep No 868,
97th Cong, 2nd Sess 78.
(210) See Den Norske Stats Oljeselskap As v HeereMac vof 241 F 3d 420 (5th Cir
2001), 426, cert denied, sub nom, Statoil ASA v HeereMac vof 534 US 1127 (2002).
(211) F Hoffman-La Roche Ltd v Empagran SA 542 US 155 (2004).
(212) Kruman v Christie's Int'l PLC 284 F 3d 384 (2nd Cir 2002), 396; Turicentro, SA v
American Airlines Inc 303 F 3d 293 (3rd Cir 2002), 3012.
(213) See, eg, Continental Ore Co v Union Carbide & Carbon Corp 370 US 690 (1962);
United States v The Learner Co 215 F Supp 603 (D Hawaii, 1963); Zenith Radio Corp v
Hazeltine Research, Inc 395 US 100 (1969); Joseph Muller Corp Zurich v Societe
Anonyme de Gerance et D'Armement 451 F 2d 727 (2nd Cir 1971), cert denied, 406
US 906; Todhunter-Mitchell & Co v Anheuser-Busch, Inc 375 F Supp 610 (ED Pa 1974),
modified, 383 F Supp 586 (ED Pa 1974); Sulmeyer v Seven-Up Co 411 F Supp 635
(SDNY 1976); Platt Saco Lowell Ltd v Spindelfabrik Suessen-Schurr 19781 Trade Cas
61,898, (ND Ill 1977)at 73,775; Industria Siciliana Asfalti, Bitumi, SpA v Exxon
Reasearch & Eng'g Co 19772 Trade Cas 61,636 (SDNY 1977); Waldbaum v
Worldvision Enter, Inc 19782 Trade Cas 62,378 (SDNY 1978); AGS Electronics, Ltd v
BSR (USA) Ltd 460 F Supp 707 (SDNY 1978), aff'd without comment 591 F 2d 1329
(2nd Cir 1978); Daishowa International v North Coast Export Co 19822 Trade Cas
64,774 (ND Cal 1982); El Cid, Ltd v New Jersey Zinc Co 551 F Supp 626 (SDNY 1982).
United States v C Itoh & Co 198283 Trade Cas 65,010 (WD Wash 1982), a civil
action settled by consent decree, seems to be the only case the US government has
brought against an all-foreign buying cartel. A group of Japanese shellfish buyers were
charged with price-fixing in their purchases from American Alaskan crab processors
(who were exempt from US antitrust law). All of the conspiratorial participants were
foreign and all of the conduct apparently occurred outside the US. See Proposed Final
Judgment & Competitive Impact Statement. United States v C Itoh & Co Ltd, 47 Fed
Reg 30, 311.
(214) See, eg, Dominicus Americana Bohio v Gulf & Western Industries 473 F Supp
680 (SDNY 1979).
(215) F Hoffman-La Roche Ltd v Empagran SA 542 US 155 (2004). See also McGlinchy
v Shell Chemical Co 845 F 2d 802 (9th Cir 1988); Liamuiga Tours v Travel Impressions,
Ltd 617 F Supp 920 (EDNY 1985).
(216) See, eg, United States v Timer Warner, Inc 1997 US Dist LEXIS 2752 (DDC 1997),
1214.
(217) Compare ONE Shipping, Ltd v Flota Mercante Grancolombiana, SA 830 F 2d 449
(2nd Cir 1987), 451, 457, cert denied, 488 US 923 (1988) (FTAIA intends the same
standard to apply to all cases); McGlinchy v Shell Chemical Co 19852 Trade Cas
66,672 (ND Cal 1985), affirmed, 845 F 2d 802, 81315 (9th Cir 1988) (same);
Liamuiga Tours v Travel Impressions, Ltd 617 F Supp 920, 924 (EDNY 1985) (FTAIA is
stricter); Papst Mortoren GMbH & Co v Kanematsu-Goshu (USA) Inc 629 F Supp 864,
8689 (SDNY 1986) (FTAIA is stricter); Hartford Fire Insurance Co v California 509 US
764 (1993), 7967, n 23 (refusing to decide).
(218) Lantec, Inc v Novell, Inc 2000 US Dist LEXIS 19905, 16.
(219) See, eg, MM Global Services, Inc v Dow Chemical Co Civil No 3:02cv 1107 (AVC),
US District of Connecticut, 12 September 2003 (resale price maintenance in India
presumed to have an anticompetitive effect in the US). See also 1995 International
Guidelines, 3.121, Illustrative Example B.
(220) Eurim-Pharm GmbH v Pfizer, Inc 593 F Supp 1102 (SDNY 1984), 1106, n 4;
McElderry v Cathay Pacific Airways, Ltd 678 F Supp 1071 (SDNY 1988), 1077.
(221) HR Rep No 868, 97th Cong, 2nd Sess 13 (1982). See section 8.2.4, n 141. The
issue has become les important since Hartford Fire Insurance Co v California 509 US
764 (1993). See Section 8.2.5.
(222) 666 F 2d 6 (2nd Cir 1981).
(223) See Kruman v Christie's Int'l PLC 284 F 3d 384 (2nd Cir 2002), 401; HR Rep No
686, 97th Cong Sess, 11.
(224) F Hoffman-La Roche Ltd v Empagran SA 542 US 155 (2004), 163.
(225) CED Mobilephone Communications, Inc v Harris Corp 19851 Trade Cas 66,386
(SDNY 1985); Papst Motoren Gmbh & Co KG v Kanematsu-Goshu (USA) Inc 629 F Supp
864 (SDNY 1986), 869; McElderry v Cathay Pacific Airways, Ltd 678 F Supp 1071
(SDNY 1988), 10778.
(226) Eurim-Pharm GmbH v Pfizer, Inc 593 F Supp 1102 (SDNY 1984), 1107; Liamuiga
Tours v Travel Impressions, Ltd 617 F Supp 920 (EDNY 1985), 9245; McGlinchy v
Shell Chemical Co 1985-2 Trade Cas 66,672 (ND Cal 1985), affirmed, 845 F 2d 802
(9th Cir 1988), 81315; Optimum, SA v Legent Corp 926 F Supp 530 (WD Pa 1996),
5323; Turicentro, SA v American Airlines Inc 303 F 3d 293 (3rd Cir 2002), 3046;
United Phosphourus, Ltd v Angus Chemical Co 332 F 3d 942, 952953 (7th Cir 2003);
cf Galavan Supplements, Ltd v Archer Daniels Midland Co 1997 US Dist, LEXIS 18585,
8 (spill-over effects from international cartel); MM Global Services, Inc v Dow Chemical
Co Civil No 3:02cv 1107 (AVC), US District of Connecticut, 12 September 2003, pp 16
17 (foreign restraints to protect US prices). After F Hoffman-La Roche Ltd v Empagran
SA 417 F 3d 1267 (DC Cir 2005), cert denied, 126 S Ct 1043 (2006), it may be harder
to show that foreign conduct has the requisite spill-over effects on US commerce.
(227) 889 F Supp 1394 (D Col 1995).
(228) Ibid 1398. National Hockey League Players v Plymouth Whalers Hockey 325 F 3d
712 (6th Cir 2003) is an example of an antitrust claim arising in an even more
integrated North American market. The FTAIA issue, however, was not properly before
the court.
(229) 294 F 3d 447 (2nd Cir 2002). See also United States v Timer Warner, Inc 1997
US Dist LEXIS 2752 (DDC 1997).
(230) 148 F 3d 1080; 1998 US App LEXIS 16286 (DC Cir 1998).
(231) Ibid 1720.
(232) 663 F Supp 494 (MDNC 1987).
(233) 1998 US App LEXIS 16286, 1617.
(234) 197 F 3d 694 (5th Cir 1999). Other aspects of the case are discussed in Section
9.3.1, n 161 .
(235) Ibid 712.
(236) Ibid 712 , n 5.
(237) Den Norske Stats Oljeselskap As v HeereMac vof 241 F 3d 420 (5th Cir 2001),
cert denied sub nom, Statoil ASA v HeereMac vof 534 US 1127 (2002); Kruman v
Christie's Int'l PLC 284 F 3d 384 (2nd Cir 2002); Empagran SA v F Hoffman-LaRoche,
Ltd 315 F 3d 338 (DC Cir 2003); Metallgesellschaft AG v Sumitomo Corp of America
325 F 3d 836 (7th Cir 2003), 840; United Phosphorous, Ltd v Angus Chemical Co 322 F
3d 942 (7th Cir 2003). See also Eurim-Pharm GmbH v Pfizer, Inc 593 F Supp 1102
(SDNY 1984), 1106.
(238) F Hoffman-La Roche Ltd v Empagran SA 542 US 155 (2004). Arguments that a
cartel needed to be international to be successful, and therefore the effect on US
commerce and foreign injury are not independent, have so far been rejected. See
Empagran SA v F Hoffman-La Roche, Ltd 417 F 3d 1267 (DC Cir 2005), 1271; In re
Monosodium Glutamate Antitruist Litig 477 F 3d 535 (8th Cir 2007); see also Antitrust
Modernization Commission, Report and Recommendations (April 2007) 228
. The issue has attracted considerable commentary in the US. See, eg, JM
Suhr, Keeping the door ajar for foreign plaintiffs in global cartel cases after
Empagran (2007) 105 Michigan Law Review 779.
(239) 2001 WL 755852 (DDC 7 June 2001).
(240) See, eg, Metallgesellschaft AG v Sumitomo Corp of America 325 F 3d 836 (7th
Cir 2003), 842; Empagran SA v F Hoffman-LaRoche, Ltd 315 F 3d 338 (DC Cir 2003),
3579.
(241) 364 F Supp 1352 (SDNY 1973), 1356.
(242) 434 US 308 (1978).
(243) See Atwood, Brewster, Waller (n 11 above) 9.9; B Hawk, United States,
Common Market and International Antitrust: A Comparative Guide (2nd edn,
Englewood Cliffs: Prentice Hall Law Business, 1991 Supp), vol 1, 554.1.
(244) 663 F Supp 494 (MDNC 1987). Several older antitrust cases may therefore be
decided differently today. See Waldbaum v Worldvision Entertainment, Inc 19782
Trade Cas 62,378 (SDNY 1978); Industria Siciliana Asfalti, Bitumi, SpA v Exxon
Research & Eng Co 19771 Trade Cas 61,256, 19772 Trade Cas 61,636 (SDNY
1977); Todhunter-Mitchell & Co v Anheuser-Busch, Inc 375 F Supp 610 (ED Pa 1974),
modified in part, 383 F Supp 586 (ED Pa 1974).
(245) HR Rep No 868, 97th Cong, 2nd Sess 11 (1982).
(246) Associated Gen Contractors of Cal, Inc v Cal State Council of Carpenters 459 US
519 (1983), 535.
(247) Brunswick Corp v Pueblo Bowl-O-Mat, Inc 429 US 477 (1977), 489.
(248) Empagran SA v F Hoffman-LaRoche, Ltd 315 F 3d 338 (DC Cir 2003), 358. See
also McGlinchy v Shell Chemical Co 845 F 2d 802 (9th Cir 1988), 8105, affirming the
District Court, 19852 Trade Cas 66,672 (1984); 19852 Trade Cas 66,673 (1985).
(249) Transnor (Bermuda) Ltd v BP North America Petroleum 738 F Supp 1472 (SDNY
1990), 1476. The UK government protested against the decision: [1990] British
Yearbook of International Law 569.
(250) See also Galavan Supplements, Ltd v Archer Daniels Midland Co No 97-3257,
1997 WL 732498 (ND Cal 1997), *4; In re Microsoft Corp Antitrust Litig 2001 WL
119908 (D Md 2001), *13; Empagran SA v F Hoffman-LaRoche, Ltd 2001 WL 761360
(DDC 2001), *5; Turicentro, SA v American Airlines Inc 303 F 3d 293 (3rd Cir 2002),
307.
(251) Associated Gen Contractors of Cal, Inc v Cal State Council of Carpenters 459 US
519 (1983), 5425.
(252) 608 F Supp 510 (SDNY 1985).
(253) Ibid 518.
(254) 325 F 3d 836 (7th Cir 2003), 840.
(255) See United States v Westinghouse Electric Corp 471 F Supp 532 (ND Cal 1978),
543; see also Zenith Radio Corp v Hazeltine Research, Inc 395 US 100 (1969), 1269.
(256) US DOJ, Antitrust Guide for International Operations (DOJ, 1977) 5.
(257) Justice Department's April 3 statement of enforcement policy (9 April 1992) 62
Antitrust and Trade Regulation Report 483; Japanese trade ministry to study plan by
U.S. to extend reach of Japanese antitrust law (9 April 1992) 62 Antitrust and Trade
Regulation Reporter 479.
(258) 1995 International Guidelines, 3.122.
(259) Ibid.
(260) Ibid, Illustrative Example D.
(261) See text at nn 2812.
(262) See AB Lipsky, Antitrust law and foreign market access [1995] Private
Investments Abroad 2.1 ; The Antitrust Practice Group, Stroock & Stroock
& Lavan, Convergence of trade laws and antitrust laws: unilateral, extraterritorial U.S.
antitrust enforcementcan it work to open Japan's markets? in HB Cortesi (ed),
Unilateral Application of Antitrust and Trade Laws: Toward a New Economic
Relationship Between the United States and Japan (New York: The Pacific Institute/The
Asia Institute, 1994) 113.
(263) 19942 Trade Cas 70,842 (D Ariz 1994) (proposed consent decree); 59 Fed Reg
30506 (14 June 1994) (competitive impact statement).
(264) 395 US 100 (1969).
(265) 7 Trade Reg Rep (CCH) 50,761 (D DC 1994) (proposed consent decree); 59 Fed
Reg 33009 (27 June 1994) (competitive impact statement).
(266) See RD Shank, The Justice Department's recent antitrust enforcement policy:
toward a positive comity solution to international competition problems (1996) 29
Vanderbilt Journal of Transnational Law 155, 1701 . A few weeks after
the consent decree, the British Department of Trade and Industry announced that
AT&T would be granted a licence to provide services throughout the UK. See also
United States v Sprint Corp Civ Action No 95-CV1304 (consent decree proposed
alliance between Sprint/France Telecom/Deutshe Telekom), 60 Fed Reg 44,049 (24
August 1995). Discussed in RS Schlossberg and CH Aronson, Mergers and
Acquisitions: Understanding the Antitrust Issues (Chicago: American Bar Association,
2000) 33940.
(267) United States v Concentrated Phosphate Export Ass'n 393 US 199 (1968).
(268) 1995 International Guidelines, 3.13. See, eg, United States v The Standard
Tallow Corp 19881 Trade Cas 67,913 (SDNY 1988).
(269) See M Lao, The jurisdictional reach of the U.S. antitrust laws: Yokosuka and
Yokota, and footnote 159 cases (1994) 46 Rutgers Law Review 821 for details of bid
rigging on contracts for construction at US military bases in Japan, and the US threats
of litigation in Japanese and US courts.
(270) 60 minutes with the Honorable James F Rill, Assistant Attorney-General,
Antitrust Division, U.S. Department of Justice (1991) 60 Antitrust Law Journal 217,
22930.
(271) Lao (n 269 above) 855, 862.
(272) DOJ, NEC subsidiary will pay U.S. $34 million to settle bid rigging scheme (9
May 1991) . Cited in Lao (n 269 above) 859. See also p 854, n 165 and
references cited therein.
(273) In exceptional circumstances bid rigging could affect US imports or domestic
commerce, which may justify the assertion of jurisdiction by the US. See also Lao (n
269 above) 8601.
(274) United States v Anderson 326 F 3d 1319 (11th Cir 2003).
(275) HR Rep No 868, 97th Cong, Sess 2, 78. Citing Pacific Seafarers, Inc v Pacific Far
East Line, Inc 404 F 2d 804 (DC Cir 1968), cert denied, 393 US 1093 (1969).
(276) See generally JF Bruce and JC Pierce, Understanding the Export Trading
Company Act and using (or avoiding) its antitrust exemptions (1983) 38 Business
Lawyer 975 ; CL Ansari, Limiting spillover and foreclosure through Title III
of the Export Trading Company Act of 1982 (1984) 52 Fordham Law Review 1300
; Department of Commerce, International Trade Administration,
Guidelines for the Issuance of Export Trade Certificates of Review (2nd edn) 50 Fed
Reg 1786 (1985).
(277) See United States v Minnesota Mining & Mfg Co 92 F Supp 947 (D Mass 1950).
(278) 1995 International Guidelines, 3.122.
(279) See United States v Alkali Export Ass'n 86 F Supp 59 (SDNY 1949), 68, 7780;
1995 International Antitrust Guidelines, 3.122.
(280) B Hawk, United States, Common Market and International Antitrust: A
Comparative Guide (2nd edn, Englewood Cliffs: Prentice Hall Law and Business, 1991
Supp), vol 1, 197 (footnotes omitted) . See also Address of Assistant
Attorney-General Baxter, Before the National Association of Manufacturers (10 May
1983), reprinted in 5 Trade Reg Rep (CCH) 50,447 (23 May 1983).
(281) 475 US 574 (1986), 582 (citations omitted). F Hoffmann-La Roche Ltd v
Empagran SA 542 US 155 (2004), 161, 165 is even clearer on this point: The FTAIA
seeks to make clear to American exporters (and to firms doing business abroad) that
the Sherman Act does not prevent them from entering into business arrangements
(say, joint-selling arrangements), however anticompetitive, as long as those
arrangements adversely affect only foreign markets. But our courts have long held
that application of our antitrust laws to foreign anticompetitive conduct is nonetheless
reasonable, and hence consistent with principles of comity, insofar as they reflect a
legislative effort to redress domestic antitrust injury that foreign anticompetitive
conduct has cuased. (original emphasis)
(282) The exclusion of one firm from a market is unlikely to give rise to concern under
the antitrust laws if the probable effect is no decrease in output or increase in price,
because there is competition between local firms in the market or not all other US and
non-US firms are excluded. However, practices that are per se unlawful under US
antitrust law may be caught, such as boycotts, even though there has been no
reduction in competition.
(283) AD Smith, Bringing down private trade barriersan assessment of the United
States' unilateral options: section 301 of the 1974 Trade Act and extraterritorial
application of U.S. antitrust law (1994) 16 Michigan Journal of International Law 241,
293.
(284) A Lipsky, Why Barr should change the Rule rule Legal Times, 23 March 1992,
p 23.
(285) International Competition Policy Advisor Committee to the Attorney-General and
Assistant Attorney General for Antitrust, Final Report (2000) 244 (ICPAC).
(286) Ibid 244 . Citing United States v Westinghouse Electric Corp 471 F
Supp 532 (ND Cal 1978), affirmed in part, reversed in part, 648 F 2d 642 (9th Cir
1981); United States v Gulf Oil Corp [US Antitrust Cases, Summaries, Complaints,
Indictments, Developments 19701979 Transfer Binder] Trade Reg Rep (CCH) 45,078,
53,722723 (WD Pa 1978), United States v Betchel Corp 19791 Trade Cas 62,429;
62,430 (ND Cal 1979), affirmed , 648 F 2d 660 (9th Cir), cert denied, 454 US 1083
(1981); United States v C Itoh & Co, Ltd 19823 Trade Cas 65,010 (WD Wash 1982);
United States v Pilkington plc 19942 Trade Cas 70,842 (D Ariz 1994).
(287) ICPAC, n 285 above.
(288) Ibid 245.
(289) M Lao, The jurisdictional reach of the U.S. antitrust laws: Yokosuka and Yokota,
and footnote 159 cases (1994) 46 Rutgers Law Review 821 863 , n 192.
(290) Hearing of the Asian and Pacific Subcommittee and the International Economic
Policy and Trade Subcommittee of the House Foreign Affairs Committee; U.S.Japanese
Trade, Federal News Service, 13 March 1992 (testimony of James F Rill, Assistant
Attorney-General, Antitrust Division, Department of Justice). Cited in Lao (n 289
above) 8645.
(291) For example, in Yokosuka only 26 of the 140 companies involved were
threatened with law suits in the US courts because personal jurisdiction was not
available over the other companies.
(292) James F Rill in Department of Justice will challenge foreign restraints on U.S.
exports under antitrust laws, 3 April 1992 . Quoted in RP Alford, The
extraterritorial application of antitrust laws: the United States and European
Community approaches (1992) 33 Virginia Journal of International Law 1, 23
. See also Justice Department's April 3 statement of enforcement policy
(9 April 1992) 62 Antitrust and Trade Regulation Report 483.
(293) Y Ohara, The new U.S. policy on the extraterritorial application of antitrust
laws, and Japan's response (1994) World Competition 49 ; ICPAC (n 285
above) 248.
(294) Ohara (n 293 above) 52; see also LB Morgan and H Rosenbaum, U.S.
Department of Justice antitrust enforcement policy (1993) 34 Harvard International
Law Journal 192, 203 ; Lao (n 289 above) 867 (and references cited
therein).
(295) Lao (n 289 above) 867. Citing FTC opposes U.S. antitrust move Jiji Press Ticker
Service, 13 April 1992.
(296) Lao (n 289 above) 869. Citing Paul Blustein, Japanese spurn plan to break up
cartels; idea to use antitrust law draws reaction Washington Post, 25 February 1992,
D1.
(297) Lao (n 289 above) 868. Citing Japan issues objection to U.S. antitrust move Jiji
Press Ticker Service, 9 April 1992; Bill Clifford, Japan contests U.S. antitrust shift;
protests stirred by Washington move against foreign firms Nikkei Weekly, 18 April
1992, 1.
(298) See articles cited in Lao (n 289 above) 863, n 192, 193. J Davidow, Keiretsu and
U.S. antitrust (1993) 24 Law and Policy in International Business 1035, 1048
, n 87 notes that the State Department and the USTR's Office are
reportedly sceptical about the value of antitrust prosecution and prefer negotiation.
(299) See Justice Department's April 3 statement of enforcement policy (9 April
1992) 62 Antitrust and Trade Regulation Report 483.
(300) See, eg, Rome Statute of the International Criminal Court, 17 July 1998, 2187
UNTS 3, Art 17(1)(a) and (b). See also DF Donovan and A Roberts, The emerging
recognition of universal civil jurisdiction (2006) 100 American Journal of International
Law 142, 1589.
(301) 15 USC 18a; 16 CFR 802.50802.52. See
<http://www.ftc.gov/bc/hsr/hsr.shtm>.
(302) See, eg, United States v Mahle GmbH 19972 Trade Cas 71,868 (DDC 1997).
Other examples are given in RS Schlossberg and CH Aronson, Mergers and
Acquisitions: Understanding the Antitrust Issues (Chicago: American Bar Association),
2000 335 ; JP Griffin, EC and U.S. extra-territoriality: activism and
cooperation (1994) 17 Fordham International Law Journal 353, 3701 ; JP
Griffin, Extraterritoriality in U.S. and EU antitrust enforcement (1999) 67 Antitrust
Law Journal 159, 1701.
(303) MR Joelson, An International Antitrust Primer (The Hague: Kluwer Law
International, 2001) 1817.
(304) See also United States v CIBA Corp 1970 Trade Cas 73,269 (SDNY 1970).
(305) JP Griffin, EC and U.S. extraterritoriality: activism and cooperation (1994)
Fordham International Law Journal 353, 370 ; Griffin (n 302 above) 170.
(306) See, eg, Hanson plc 5 Trade Reg Rep (CCH) 23,107 (FTC, 9 March 1992) and
other cases cited in Griffin (n 305 above) 370, n 96; Griffin (n 302 above) 16970.
(307) 1995 International Guidelines, 3.14. See also Schlossberg and Aronson (n 302
above) 3378.
(308) Gulf Oil Corp v Gilbert 330 US 501 (1947).
(309) See El Cid, Ltd v New Jersey Zinc Co 444 F Supp 845 (SDNY 1977), 846; Laker
Airways Ltd v Pan American World Airways 568 F Supp 811 (D DC 1983), 813;
Timberlane Lumber Co v Bank of America 749 F 2d 1378 (9th Cir 1984); see also
Ferguson v Ford Motor Co 77 F Supp 425 (SDNY 1948), 4301; Centronics Data
Computer Corp v Mannesmann, AG 432 F Supp 659 (D NH 1977).
(310) United States v National City Lines 334 US 573 (1948), 5812; United States v
National City Lines 337 US 78 (1949). The effect of these decisions is disputed.
(311) See Industrial Inv Dev Corp v Mitsui & Co 671 F 2d 876 (5th Cir 1982), 891,
vacated on other grounds, 460 US 1007 (1983), reaff'd, 704 F 2d 785 (5th Cir 1983),
cert denied, 464 US 961 (1983).
(312) See Laker Airways v Pan American World Airways 568 F Supp 811 (D DC 1983),
817.
(313) See American Rice, Inc v Arkansas Rice Growers Co-op Ass'n 701 F 2d 408 (5th
Cir 1983), 4167.
(314) 454 US 235 (1981), 247.
(315) Ibid 254, n 22.
(316) Mannington Mills, Inc v Congoleum Corp 595 F 2d 1287 (3rd Cir 1979), 1297.
(317) Mitisubishi Motors Corp v Soler Chrysler-Plymouth, Inc 473 US 614 (1985).
(318) For commentary in support of the application of the doctrine see Atwood,
Brewster, Waller (n 11 above) 6.17; E Nijenhuis, Antitrust suits involving foreign
commerce: suggestions for procedural reform (1987) 135 University of Pennsylvania
Law Review 1003, 103741 ; JB Sandage, Forum non conveniens and the
extraterritorial application of United States antitrust law (1985) 94 Yale Law Journal
1693.
(319) 872 F Supp 52 (SDNY 1995), 612. See also Shepdard Niles Crane & Hoist Corp
v FIAT, SpA 84 FRD 299 (WDNY 1979).
(320) Gulf Oil Corp v Gilbert 330 US 501 (1947).
(321) 96 Civ 6465 (SDNY 29 August 1997), affirmed, 155 F 3d 603 (2nd Cir 1998).
(322) 155 F 3d 603 (2nd Cir 1998), 611.
(323) Piper Aircraft Co v Reyno 454 US 235 (1981).
(324) 872 F Supp 81 (SDNY 1995), 8990.
(325) 28 USC 1367(c).
(326) MM Global Services Inc v Dow Chemical Co 283 F Supp 2d 689 (D Conn 2003).
(327) Empagran SA v F Hoffman-LaRoche, Ltd 542 US 155 (2004).
(328) MM Global Services, Inc v Dow Chemical Co Civil No 3:02cv 1107 (AVC), US
District of Connecticut, 12 September 2003, p 32.
(329) Wisconsin v Pelican Insurance Co 127 US 265 (1887).
(330) Cases 4857/69 Imperial Chemical Industries Ltd v Commission of the European
Communities [1972] CMLR 557, 602 per Advocate General Mayras.
(331) See, eg, Grosfillex-Fillstorf (1964) 3 CMLR 237; DyestuffsAniline Dyes Cartel
(1969) 8 CMLR D23, D33.
(332) Case 22/71 Beguelin Import Co v G L Import Export SA [1972] CMLR 81, 95.
(333) Cases 4857/69 Imperial Chemical Industries Ltd v Commission of the European
Communities [1972] CMLR 557 ( Dyestuffs).
(334) Ibid 6024.
(335) Cases 4857/69 Imperial Chemical Industries Ltd v Commission of the European
Communities [1972] CMLR 557 ( Dyestuffs) 6289.
(336) See Case 6/72 Europemballage Corp & Continental Can Co v European
Commission (Continental Can) [1973] CMLR 199, para 14; Cases 67/73 Instituto
Chemioterapico Italiano & Commercial Solvents Corp v European Commission
(Commercial Solvents) [1974] CMLR 309, paras 37, 39, 41, and the Opinions of
Advocates General Roemer and Warner. The latter case expanded the economic entity
doctrine by finding that general commercial control by the foreign parent was not
necessary, but united action could be found with regard to the particular activity
that is the subject of the case. See also Aluminium Imports from Eastern Europe
[1987] 3 CMLR 813; Wood Pulp [1985] OJ L85/1.
(337) DG Goyder, EC Competition Law (2nd edn, Oxford: Clarendon Press, 1993) 462
3.
(338) See, eg, Notice Concerning Imports Into the Community of Japanese Goods
Falling within the Scope of the Treaty of Rome [1972] OJ C111/13; Re the Franco-
Japanese Ballbearings Agreement [1975] 1 CMLR D8, D14D15 (EC Commission); Re
the French and Taiwansese Mushroom Packers [1975] 1 CMLR D83.
(339) Case IV/26.870 [1987] 3 CMLR 813.
(340) Ibid para 14.6.
(341) Wood Pulp [1985] OJ L85/1, para 79.
(342) Cases 89, 104, 114, 116, 117, 125129/85 A Ahlstrm Oy v EC Commission
(Woodpulp) [1988] ECR 5193.
(343) Ibid 5227.
(344) Ibid 5245.
(345) Ibid 5243.
(346) Ibid.
(347) See JJ Friedberg, The convergence of law in an era of political integration: the
Wood Pulp case and the Alcoa effects doctrine (1992) 52 University of Pittsburgh Law
Review 289, 31822.
(348) See, eg, RP Alford, The extraterritorial application of antitrust laws: the United
States and European Community approaches (1992) 33 Virginia Journal of
International Law 1 ; L Brittan, Competition Policy and Merger Control in
the Single European Market (Oxford: Hersch Lauterpacht Memorial Lectures, Grotius
Publications, 1991) ; JP Griffin, EC and U.S. extraterritoriality: activism and
cooperation (1994) 17 Fordham International Law Journal 353 ;P
Torremans, Extraterritorial application of E.C. and U.S. competition law (1996) 21
European Law Review 280.
(349) See, eg, T Christoforou and DB Rockwell, European Economic Community law:
the territorial scope of application of EEC antitrust law (1989) 30 Harvard
International Law Journal 195, 204.
(350) Alford (n 348 above) 36.
(351) United States v Sisal Sales Corp 274 US 268 (1927), 276.
(352) DDF Lange and JB Sandage, The Wood Pulp decision and its implications for the
scope of EC competition law (1989) 26 Common Market Law Review 137, 161
. When many omissions are examined closely, such as boycott, positive
acts are likely to be found.
(353) Lange and Sandage, Ibid .
(354) See, eg, Alford (n 348 above) 401. Indeed, one criticism of the Wood Pulp
decision was the fact that the ECJ had applied an effects doctrine, without qualifying
the type of effects that give jurisdiction. AF Bavasso, Boeing/McDonnell Douglas: did
the Commission fly too high? (1998) European Competition Law Review 243, 245.

(355) See K Van Miert, Analysis and guidelines on competition policy, Address before
the Royal Institute of International Affairs, London, 11 May 1993 . Quoted
in Griffin (n 348 above) 3612.
(356) Case IV/31.866 Re The LdPE Cartel: The Community v Atochem SA [1990] 4
CMLR 382, 40910. See also Case IV/31.865 Re The PVC Cartel: The Community v
Atochem SA [1990] 4 CMLR 345, 370; Case IV/C/33.833 Re The Cartonboard Cartel,
The Community v Buchmann GmbH [1994] 5 CMLR 547, 626.
(357) [1999] 4 CMLR 971, para 77.
(358) Council Regulation (EC) 139/2004 of 20 January 2004 on concentrations
between undertakings [2004] OJ L 24/1, which replaced Council Regulation (EEC)
4064/89 of 21 December 1989 on the control of concentrations between undertakings
[1990] OJ L/257/14, as amended by Council Regulation (EC) 1310/97 [1997] OJ L/180/1
(the Merger Regulation). In 1997, supplementary criteria were added to the definition
of mergers that have a Community dimension. A merger will not have a Community
dimension if each of the merging parties achieves more than two-thirds of its
aggregate Community-wide turnover in one and the same member state. In some
cases, a merger with a Community dimension may be reviewed by a national
competition authority or a merger without a Community dimension may be reviewed
by the Commission. See generally EN Varona, AF Galarza, JF Crespo, and JB Alonso,
Merger Control in the European Union: Law, Economics and Practice (Oxford: Oxford
University Press, 2002) ch 4.
(359) Merger Regulation, art 1(2).
(360) Merger Regulation, art 5.
(361) Ibid.
(362) The Commission has, for example, exerted jurisdiction over the acquisition of
joint control over a non-EU undertaking by an EU undertaking and a non-EU
undertaking ( Gencor/Lonrho [1997] OJ L/11/11); the acquisition of sole control of a
non-EU undertaking by a non-EU undertaking ( Boeing/McDonnell Douglas [1997] OJ
L/336/16); the acquisition of joint control over a non-EU undertaking by non-EU
undertakings (Case IV/M.346 JCSAT/SAJAC, 30 June 1993); and the merger of two non-
EU undertakings (Case IV/M.985 Credit Suisse/Winterthur, 15 October 1997).
(363) Merger Regulation, art 2(3).
(364) See, eg, Case IV/M.346 JCSAT/SAJC, 30 June 1993, 11.
(365) AR Fiebig, International law limits on the extraterritorial application of the
European merger control regulation and suggestions for reform [1998] European
Competition Law Review 323, 329, however, suggests the extraterritorial notification
obligations must be proportionate and necessary to achieve the underlying regulatory
objective.
(366) [1988] ECR 5193, 5243.
(367) Decision 97/26/EC, 24 April 1996, [1997] OJ L11/30; Case T-102/96 [1999] 4
CMLR 971.
(368) [1999] 4 CMLR 971, para 79.
(369) Ibid para 87.
(370) Ibid para 90.
(371) Ibid para 94.
(372) Ibid para 97.
(373) See Commission Notice, Guidelines on the effect on trade concept contained in
Articles 81 and 82 of the Treaty [2004] OJ C101/81.
(374) Case 22/78 Hugin v Commission [1979] 3 CMLR 345; cf Re the Industrieverband
Solnhofener Natursteinplatten eV [1981] 2 CMLR 308; Re the Association Bancoria
Italiana [1989] 4 CMLR 238; Case IV31.499 Re the Application of the Nederlandise
Bankiersvereniging [1990] 4 CMLR 768.
(375) Case 174/84 Bulk Oil v Sun International [1986] ECR 559, para 44;
Beckaert/BHP, Answer to Written Question No 201/86 [1986] OJ C299/53; Distillers
Company Ltd [1978] 1 CMLR 400.
(376) Cases 67/73 Commercial Solvents v Commission [1974] ECR 223, paras 334;
Case 22/79 Greenwich Film Production v SACEM [1980] 1 CMLR 629, paras 1214.
(377) Case C-306/96 Javico Int'l v Yves Saint Laurent Parfums SA [1998] ECR I-1983,
para 17.
(378) [1997] OJ L336/16.
(379) B Zanettin, Cooperation between Antitrust Agencies at the International Level
(Oxford: Hart Publishing, 2002) 33 . On the other hand, the merger in
Gencor was found to have been implemented in the EU, because sales from the
merged entity would be made in the EU. On this basis, it might be arguable that an
exclusive dealing arrangement in the US would be implemented in the EU, if sales
from one of the parties to the arrangement in the EU were affected by the
arrangement.
(380) Aluminium Imports from Eastern Europe [1987] 3 CMLR 813, para 14.7.
(381) Cases 60/81R and 190/81R IBM v Commission [1981] ECR 2639, 2655; Wood
Pulp [1988] ECR 5193, 5244.
(382) Gencor Ltd v Commission [1999] 4 CMLR 971, para 103.
(383) Ibid para 98.
(384) Commission of the European Communities, Twenty-Seventh Report on
Competition Policy (1998) 317, 323.
(385) Case C-453/99 Courage v Crehan [2001] ECR 1. For the position in the UK see
Garden Cottage Foods Ltd v Milk Marketing Board [1984] AC 130 (HL); Provimi Ltd v
Aventis Animal Nutrition SA [2003] ECC 29, para 376.
(386) Discussion of the European Community Convention on Jurisdiction and the
Enforcement of Judgements in Civil and Commercial Matters of 1968 (the Brussels
Convention); its replacement Council Regulation 44/2001 (EC) [2001] OJ L12/1, which
came into force on 1 March 2002; the parallel Lugano Convention [1988] OJ L391/9, or
the EEC Convention on the law applicable to contract obligations of 1980 (the Rome
Convention [1980] OJ L266) is beyond the scope of this study. Broadly speaking, the
Lugano Convention and Regulation 44/2001 are applicable when there is an
international case involving a civil or commercial matter and the defendant is
domiciled in a participating state. Defendants not domiciled in a participating state
are in general subject to national rules of jurisdiction applicable in the state where the
action is commenced.
(387) Council Regulation (EC) 44/2001, Art 5(3). See, eg, Provimi Ltd v Aventis Animal
Nutrition SA [2003] ECC 29, para 363. See also JJ Fawcett and P Torremans, Intellectual
Property and Private International Law (Oxford: Clarendon Press, 1998) 423
.
(388) Case C-21/76 Handelswkerij G J Bier BV v Mines de Potasse d'Alsace SA [1976]
ECR 1735.
(389) See Civil Procedure Rules 1998 (SI 1998/3132), r 6.20(8); Metall und Rohstoff AG
v Donaldson Lufkin & Jenrett Inc [1990] 1 QB 391, (CA) 437; Bastone & Firminger Ltd
v Nasima Enterprises (Nigeria) Ltd [1996] CLC 1902; see also Fawcett and Torremans
(n 387 above) 4246.
(390) This would be consistent with the ECJ's opinion in Wood Pulp and appeared to be
assumed in Provimi Ltd v Aventis Animal Nutrition SA [2003] ECC 29.
(391) Provimi Ltd v Aventis Animal Nutrition SA [2003] ECC 29.
(392) G Walter and R Dalsgaard, The civil law approach in C McLaughlin and P Nygh
(eds), Transnational Tort Litigation: Jurisdictional Principles (Oxford: Clarendon Press,
1996) 41, 50.
(393) See Oberlandesgericht Hamm in Germany, Judgment of 3 October 19789U
278/77, D-Series I-5.3-B9. Cited in Fawcett and Torremans (n 387 above) 424.
(394) Tribunale di Monza in Italy, Judgement of 28 September 1979, Candy SpA v
Schell and Stoecker Reinshagen GmbH Foro pad. 1979, I, 225, Note: Magelli; Riv dir int
priv proc 1980, 429. Cited in Fawcett and Torremans (n 387 above) 4245.
(395) See C Withers, Jurisdiction and applicable law in antitrust tort claims [2002]
Journal of Business Law 250, 2612 . Drawing an analogy from Case C-
68/93 Shevill v Press Alliance SA [1995] ECR I-415. It is uncertain how the economic
entity doctrine under EU competition law will be reconciled with Regulation 44/2001.
The economic entity doctrine may give plaintiffs a greater ability to sue for damages
arising in several states in the courts of a single state. See Provimi Ltd v Aventis
Animal Nutrition SA [2003] ECC 29.
(396) This provision was applied in Provimi Ltd v Aventis Animal Nutrition SA [2003]
ECC 29.
(397) See also Rome Convention on the law applicable to contractual relationships
[1998] OJ C27/34, Art 7(2). Although Art 7(1) does not have the force of law in the UK,
in certain circumstances the courts will not enforce a contract insofar as the
performance of the contract is unlawful under the law of the place where the contract
was to be performed. See, eg, Regazzoni v K C Sethia (1944) Ltd [1958] AC 301 (HL);
Ralli Brothers c Compania Naiera Sota Aznar [1920] 2 KB 287 (CA).
(398) Private International Law (Miscellaneous Provisions) Act 1995 (UK), s 14(3). See
L Collins (ed), Dicey and Morris on Conflict of Laws (13th edn, London: Sweet &
Maxwell, 2000), paras 35-022, 35-023.
(399) Case C-281/02 Owusu v Jackson [2005] ECR I-1-383. For a discussion of the
application of the proposed Regulation on the law applicable to non-contractual
obligations to competition law see J Adolphsen, The conflict of laws in cartel matters
in a globalised world: alternatives to the effects doctrine (2005) 1 Journal of Private
International Law 151 ; J Drexel, Which law protects consumers and
competition in conflict with intellectual property rights? in J Basedow (ed),
Intellectual Property in the Conflicts of Laws (Tubigen: Mohr Siebeck, 2005).

(400) See D Gerber, The extraterritorial application of German antitrust laws (1983)
77 American Journal of International Law 756 ; H Steinberger, The
German approach in C Olmstead (ed), Extraterritorial Application of Laws and
Responses Thereto (Oxford: International Law Association/ESC Publishing, 1984) 77.

(401) B Zanettin, Cooperation between Antitrust Agencies at the International Level

(Oxford: Hart Publishing, 2002) 16.
(402) See V Rose (ed), Bellamy and Child, Common Market Law of Competition (4th
edn, London: Sweet & Maxwell, 1993) 130 ; Camera Care v Victor
Hasselblad [1986] 1 FTLR 348; cf R Whish, Competition Law (2nd edn, London:
Butterworths, 1989) 3867 ; V Lowe, Can the European Community bind
the member states on questions of customary international law? in M Koskenniemi
(ed), International Law Aspects of the European Union (The Hague: Kluwer Law
International, 1998) 149.
(403) H Iyori and A Uesugi, The Antimonopoly Laws and Policies of Japan (New York:
Federal Legal Publications, 1994) 277 ; GATT, Trade Policy ReviewJapan
1994 (Geneva: GATT, 1995), vol 1, 86 ; cf Y Hamabe, Changing
antimonopoly policy in the Japanese legal systeman international perspective
(1994) 28 International Lawyer 903.
(404) See, eg, Industrial Investment Development Corporation v Mitsui & Co Ltd 671 F
2d 876 (5th Cir 1982); Daishowa International v North Coast Export Co and North
Coast Export Cooperative Inc 1982-2 Trade Cas 71,785 (ND Cal 1982); United States
v C Itoh, 198283 Trade Cas 65,010 (WD Wash 1982); Matsushita Electric Industrial
Co Ltd v Zenith Radio Corporation 475 US 574 (1986).
(405) The Code of Civil Procedure is translated in CCH Asia Pacific, Japan Business Law
Guide (CCH Asia Pacific, 1988) 82500 . See Y Fujita, Japanese rules of
jurisdiction (1970) 4 Law in Japan 55 ; Y Fujita, Transnational litigation
conflicts of laws in Z Kitagawa (ed), Doing Business in Japan (New York: Matthew
Bender, 1982) Part XIV, chapter 5 ; EL Hayes, Forum non conveniens in
England, Australia and Japan: the allocation of jurisdiction in transnational litigation
(1992) 26 University of British Columbia Law Review 41, 5663 ;T
Matsuo, Jurisdiction in transnational cases in Japan (1989) 23 International Lawyer 6
; M Pryles and K Iwasaki, Dispute Resolution in AustraliaJapan
Transactions (Sydney: Law Book Co, 1983) ; JO Haley, The adjudicatory
jurisdiction of Japanese courts in transnational litigation in JAR Nafziger and SC
Symeonides (eds), Jaw and Justice in a Multistate World: Essays in Honor of Arthur T.
von Mehren (New York: Transnational Publishers, 2002) 705.
(406) Japanese Code of Civil Procedure, s 4(2). See Fujita, Japanese rules of
jurisdiction (n 405 above) 5860.
(407) Fujita, Japanese rules of jurisdiction (above n 405) 612 . See also
s 479 of the Commercial Code.
(408) Ibid 63.
(409) Ibid 64.
(410) Ibid .
(411) Ibid 648.
(412) See Tsuburaya Productions Co, Ltd v Sompote Saengduencha (The Ultraman
Case), Supreme Court, Judgment 8 June 2001 (2002) 45 Japanese Annual of
International Law 151.
(413) Fujita, Japanese rules of jurisdiction (above n 405) 6870.
(414) Ibid 69.
(415) The JFTC's interpretation of the now repealed s 692 further limited the ability
for process to be served on foreign companies. Far East Freight Conference JFTC
Decision, 18 August 1972, 19 KTIS 57; In the matter of A/B Svenska Ostasiatiska
Kompaniet et al JFTC Decision, 18 August 1972, 19 KTIS 197. See H Iyori and A Uesugi,
The Antimonopoly Laws and Policies of Japan (New York: Federal Legal Publications,
1994) 2834 ; Y Ohara, International application of the Japanese
Antimonopoly Act (1986) 7 Swiss Review of International Competition Law 15, 358
; CCH Asia Pacific, Japan Business Law Guide (CCH Asia Pacific, 1988) 32,
401.
(416) AML, ss 7017 to 719 now provides that ss 99, 101, 103, 105, 106, 108 and
109 of the Code of Civil Procedure apply mutatis mutandis to service under the AML.
(417) The JFTC renders a Recommendation to Microsoft Corporation 13 July 2004:
<http://www.jftc.go.jp/e-page/pressreleases/2004/july/040713.pdf>, accessed on 1
March 2007.
(418) J Tamura, U.S. extraterritorial application of antitrust law to Japanese keiretsu
(1993) 25 New York University Journal of International Law and Politics 385.

(419) Criminal Code, s 1. See S Dando, The Criminal Law of Japan: The General Part
(Rothman: Colorado, 1997, trans BJ George) 49.
(420) Section 8(1)(ii) of the AML contains a similar prohibition for trade associations.
(421) See the cases cited in Iyori and Uesugi (n 415 above) 2789.
(422) See, eg, Asahi Kasei Kogyo Co JFTC Decision, 27 December 1972, 19 KTIS 124 et
seq; Far Eastern Freight Conference JFTC Decision, 18 August 1972, 17 KTIS 117. See
Iyori and Uesugi (n 415 above) 279, 283; Ohara (n 415 above) 1516.
(423) Compare Marukin Soy Sauce Co JFTC Decision, 20 March 1950, 1 KTIS 129, with
Nihon Kogaku Kogyo Co JFTC Decision, 3 September 1952, 4 KTIS 30, 4 KTIS 46. See
Iyori and Uesugi (n 415 above) 279.
(424) Decision of the JFTC, 13 October 1995, 42 Shinketsushu 163. See M Matsushita,
Application of the Japanese Antimonopoly Law to international transactions in M
Bronckers and R Quick (eds), New Directions in International Economic Law (Boston:
Kluwer Law International, 2000) 559, 563.
(425) Ohara (n 415 above) 1112.
(426) M Matsushita, The Antimonopoly Act of Japan and international transactions
(1970) 14 Japanese Annual of International Law 1.
(427) Y Ohara, International application of the Japanese Antimonopoly Act (1986) 7
Swiss Review of International Competition Law 13.
(428) Nippon Yusen KK JFTC Decision, 18 August 1972, 19 KTIS 57. See CCH Asia
Pacific, Japan Business Law Guide (CCH Asia Pacific, 1998) 32,10432,401; Matsushita
(above n 424) 5656.
(429) Decision of the JFTC, 3 September 1998, Decision No 10 of 1998. Discussed in
Matsushita (above n 424) 5645.
(430) See The JFTC renders a Recommendation to Microsoft Corporation 13 July
2004, <http://www.jftc.go.jp/e-page/pressreleases/2004/july/040713.pdf>, accessed
on 1 March 2007; The Fair Trade Commission of Japan closes its investigation into
Overture K.K. and Google, Inc, 21 October 2005, <http://www.jftc.go.jp/e-
page/pressreleases/2005/oct/051021.html>, accessed on 1 March 2007.
(431) (19 October 1995) 69 Antitrust and Trade Regulation Report 458. See also (30
November 1995) 69 Antitrust and Trade Regulation Report 635.
(432) See Amicus curiae brief of the Government of Japan (1996) 39 Japanese
Annual of International Law 236. The case was Nippon Paper Industries Co Ltd v
United States 944 F Supp 55 (D Mass 1996), rev'd 109 F 3d 1 (1st Cir 1997), cert
denied, 118 S Ct 685, 1998 US LEXIS 31 (1998).
(433) The Supreme Court appears to have held, at least in relation to patent law, that
Japanese law would not be applicable to the active inducement abroad of a tort in
Japan. Akira Fujimoto v KK Newlon Supreme Court, judgment, 26 September 2002.
See T Doi, The territorial principle of patent protection and conflict of laws: a review
of Japanese court decisions (2003) 26 Fordham International Law Journal 377.

(434) JFTC, Notification system concerning M&As by companies outside Japan,

<http://www.jftc.go.jp/e-page/legislation/ama/MAnotification.pdf>, accessed on 20
October 2000.
(435) Section 15(3) provides that: The provision of the previous subsection shall
apply mutatis mutandis to any foreign company that is desirous of becoming a party
to the merger. In such cases, total assets in this subsection shall read as domestic
sales.
(436) See, eg, JFTC, The proposed acquisition of the stock of Guidant Corporation by
Boston Scientific Corporation, 1 May 2006 ; JFTC, The proposed
acquisition of the stock of Guidant Corporation by Johnson & Johnson, 9 December
2005, <http://www.jftc.go.jp/e-page/index.html>, visited on 1 March 2007.
(437) A Negishi, Foreign corporations and the Antimonopoly Act (1995) 25 Law in
Japan 84, 92, n 11 .
(438) See Ksel Torihiki linkai Jimukyoku [JFTC], Danpingu Kisei to Kys Seisakau
Dokusenkinshiho lkigai Teki [Dumping Regulations and Competition Policy:
Extraterritorial Application of Antimonopoly Law] (1990) 5199 .
Discussed in J. Tamura, U.S. extraterritorial application of antitrust law to Japanese
keiretsu (1993) 25 New York University Journal of International Law and Politics 385,
3929 ; M Matsushita, Application of the Japanese Antimonopoly Law to
international transactions in M Bronckers and R Quick (eds), New Directions in
International Economic Law (Boston: Kluwer Law International, 2000), 559, 5634.

(439) In accordance with its view of territorial jurisdiction, Japan may apply the AML to
conduct that relates to exports that occurs in Japan, but not foreign markets as such.
See, Japanese agency reports high levels of antitrust enforcement in recent year (4
April 1996) 70 Antitrust and Trade Regulation Report 398; (6 April 1995) 68 Antitrust
and Trade Regulation Report 464. See also the Asahi Denka case discussed in Section
8.4.4.
(440) See Tamura (n 438 above) 3901; M Lao, The jurisdictional reach of the U.S.
antitrust laws: Yokosuka and Yokota, and footnote 159 cases (1994) 46 Rutger Law
Review 821 ; Subcommittee on Unfair Trade Policies and Measures,
Uruguay Round Committee of the Industrial Structure Council, 1993 Report on Unfair
Trade Policies by Major Trading PartnersTrade Policies and GATT Obligations (Tokyo:
JETRO, 1993) 1859 (1993 Trade Policies Report).
(441) 1993 Trade Policies Report, Ibid .
(442) Ibid . See also the Comments of the Governments of Japan on the
proposed U.S. Department of Justice and Federal Trade Commission Antitrust
Enforcement Guidelines for International Operations (1994 draft).
(443) Ibid .
(444) S Itoda, Japan Fair Trade Commission barks: yesterday, today and tomorrow:
competition policy of Japan, presented at Chatham House, London, 22 February 2000
, available at <http://www.jftc.go.jp/e-page/policyupdates/speeches/00-
0222.html> visited on 30 October 2000. See also JFTC and Ministry of Foreign Affairs
Press Release, Cooperation agreement between the Government of Japan and the
European Communities in the competition field, 19 July 2000.
(445) Y Furta, International parallel litigation: disposition of duplicative civil
proceedings in the United States and Japan (1995) 5 Pacific Rim Law and Policy
Journal 1.
(446) Ibid 345.
(447) Ibid 7981.
(448) Michiko Goto, et al v Malaysian Airlines Systems Berhad (1983) 26 Japanese
Journal of International Law 122.
(449) See, eg, X v Y (2003) 46 Japanese Annual of International Law 186; United
States of America v PAE International Co 891 H T 71 (1995), translated in part in
(1996) 39 Japanese Annual of International Law 272. See M Dogauchi, Concurrent
litigations in Japan and the United States (1994) 37 Japanese Annual of International
Law 72, 7981 ; Furta (n 445 above) 2934; EL Hayes, Forum non
conveniens in England, Australia and Japan: the allocation of jurisdiction in
transnational litigation (1992) 26 University of British Columbia Law Review 41, 57
60.
(450) Hayes (n 449 above) 58.
(451) Y Fujita, Japanese rules of jurisdiction (1970) 4 Law in Japan 55, 845
; cf Hayes (n 449 above) 623.
(452) Miyakoshi Kik KK v Gould, Inc 1348 Hanrei Jih 91, 703 Hanrei Taimuzu 240.
Discussed in Furta (n 445 above) 278.
(453) Law No 10 of 1898, as amended by Law No 27 of 1989, translated in Study
Group of the New Legislation of Private International Law, Draft articles on the Law
Applicable to Contractual and Non-Contractual Obligations (1996) 39 Japanese
Annual of International Law 185, (1997) 40 Japanese Annual of International Law 57.
See generally J Torii, Revision of private international law in Japan (1990) 33
Japanese Annual of International Law 54 ; C Kim, New Japanese private
international law: the 1990 Horei (1992) 40 American Journal of Comparative Law 1.

(454) Study Group of the New Legislation of Private International Law, Part 2, Ibid 578
. Some of the Study Group proposed a new rule for competition law,
which would provide: Liabilities arising from restriction of competition shall be
governed by the law of the place of the market on which the effect of the act occurs.
Ibid 66.
(455) Hrei, s 7(1).
(456) Study Group of the New Legislation of Private International Law, Part 1 (n 453
above) 2045.
(457) M Pryles and K Iwasaki, Dispute Resolution in AustraliaJapan Transactions
(Sydney: Law Book Co, 1983) 734.
(458) George v International Air Service Inc, Toyko District Court judgment 26 April
1965, translated in (1966) 10 Japanese Annual of International Law 189. The case was
not followed in Bolonakis v Singer Sewing Machine Co, Tokyo District Court judgment 9
August 1967, translated in (1968) 12 Japanese Annual of International Law 147, on the
grounds that Bolonakis was a manager and not an ordinary worker.
(459) CD Wallace, Legal Control of the Multinationals (2nd edn, The Hague: Martinus
Nijhoff, 2004) 73744, 7489 ; and references at n 400 above.
(460) Competition Act 1998; Enterprise Act 2002.
(461) Competition Act 2004, ss 33 and 47(3); Competition Commission of Singapore,
Guideline on Section 34 Prohibition (2005), para 2.2 and Guideline on Section 47
Prohibition (2005) para 3.1. See <http://www.ccs.gov.sg>.
(462) See E Jardine, Extraterritorial enforcement of Australian antitrust legislation:
Australian Meat Holdings Pty Limited & Ors v Trade Practices Commission (1990) 12
Sydney Law Review 652 ; R Wright, Aspects of the extraterritorial
application of ss 50 and 50A of the Trade Practices Act (1992) 20 Australian Business
Law Review 152 ; B McLaughlin, The present application of ss 50 and
50A of the Trade Practices Act to overseas mergers: defective in design? (1995) 3
Trade Practices Law Journal 18 ; D Meltz, The extraterritorial operation of
the Trade Practices Act: a time for reappraisal? (1996) 4 Trade Practices Law Journal
185 ; J Gleeson, Extraterritorial application of Australian statutes
proscribing misleading conduct (2005) 79 Australian Law Journal 296.
(463) See C Noonan, The extraterritorial application of New Zealand compeition law
(2007) 22 New Zealand Universities Law Review 369.

International Competition Law Defences

Chris Noonan
DOI:10.1093/acprof:oso/9780199207527.003.0009
Abstract and Keywords

This chapter examines the so-called international competition law defences: the
application of sovereign immunity, the act of state doctrine, foreign sovereign
compulsion, and petitioning immunity in international competition law cases.
Sovereign or state immunity relates to the adjudicative or enforcement jurisdiction of
municipal courts. It prevents a foreign state being subject to proceedings relating to
the exercise of its governmental power in the courts of another country. In the US, the
act of state doctrine treats as valid and effective foreign governmental acts, not
contrary to public policy, that affect private rights. In other countries, the doctrine of
non-justiciability and the rules of private international law may protect similar types of
foreign governmental actions from challenge. The foreign sovereign compulsion
defence prevents persons from being sued for actions done in another country that
were compelled by the government of that country. Finally, petitioning immunity
provides firms with immunity from competition law for actions taken to encourage a
government to adopt anticompetitive measures.

Keywords: sovereign immunity, state doctrine, foreign sovereign compulsion,

immunity petition
9.1 Introduction
Where the extraterritorial application of competition law interferes with the policies of
another country, friction is likely. Balancing tests have not provided a workable basis
for reconciling conflicting national interests. Competition law defendants and
governments must therefore rely on the international antitrust defences to avoid
liability and protect national policies. The international antitrust defences provide a
core of relatively certain, but relatively narrow, protection where there is a high level
of foreign government involvement in the challenged conduct. The defences are
derived from international law or reflect the nature of competition law. Broadly similar
defences are therefore available in many countries. The defences generally attach to
particular forms or types of government measures, rather than requiring an
assessment of the effect of the policy on national or international welfare or other
policies. However, distinguishing governmental from commercial conduct is not
always easy.
Sections 9.2 to 9.5 examine the application of sovereign immunity, the act of state
doctrine, foreign sovereign compulsion, and petitioning immunity in international
competition law cases. Sovereign or state immunity relates to the adjudicative or
enforcement jurisdiction of municipal courts. It prevents a foreign state being subject
to proceedings relating to the exercise of its governmental power in the courts of
another country. It is a doctrine of international law1 that is applied in accordance with
municipal law by national courts.2 The other international defences, in certain
circumstances, prevent courts adjudicating upon the propriety of a foreign state's
governmental actions in proceedings between individuals. In the US, the act of state
doctrine treats as valid and effective foreign governmental acts, not contrary to public
policy, that affect private rights. In other countries, the doctrine of non-justiciability
and the rules of private international law may protect similar types of foreign
governmental actions from challenge. The foreign sovereign compulsion defence
prevents persons from being sued for actions done in another country that were
compelled by the government of that (p.300) country. Finally, petitioning immunity
provides firms with immunity from competition law for actions taken to encourage a
government to adopt anticompetitive measures. Chapter 10 takes up the issue of
whether an additional, broader international antitrust defence should be recognized
and the form that such a defence should take.
9.2 Sovereign Immunity
9.2.1 Outline and Justification for Sovereign Immunity
Sovereign immunity debars the courts of the state where proceedings are brought
from inquiring further into a claim, and removes the claim to another process, such as
settlement through diplomatic channels or proceedings in the foreign state's own
courts or an international tribunal.3 International trade agreements often address
some types of government actions that distort competition, including anticompetitive
conduct by state-owned enterprises. The sovereign immunity doctrine may require
complaints about such government actions to be pursued in another more appropriate
forum, like the dispute settlement mechanism of the trade agreement. Treaty
provisions, like Article 23 of the WTO Dispute Settlement Understanding (DSU),
reinforce the sovereign immunity doctrine by requiring all disputes relating to the
trade agreement to be dealt with under that trade agreement's dispute settlement
procedures. See Section 11.5.1. In other cases, sovereign immunity may require
complaints about foreign governmental activities to be addressed through the
administrative or judicial processes of another country, such as challenges to the
actions of a state-owned enterprise under its home country's competition law.4
The doctrine is based on the independence and equality of states. It serves to allocate
regulatory authority among states and shadows the immunity from suit that
governments often have in their local courts. It may also reflect the practical limits of
the ability of a court to enforce an order against a foreign state. Although states have
a reciprocal interest in immunity rules that bar suits that would interfere with their
own functions,5 most states no longer claim absolute immunity for all their actions and
actions of their instrumentalities before foreign courts.
The so-called restrictive theory of sovereign immunity has reduced the importance of
sovereign immunity as a defence in international competition law. The (p.301)
restrictive theory excludes immunity, inter alia, where the foreign state engages in a
commercial transaction,6 which loosely speaking is the domain of competition law.
The restrictive theory aims to protect the rights of individuals and normal market
mechanisms. If foreign states want to enter the marketplace themselves (and enjoy
its benefits), they must accept the corresponding burdens, which include the risk of
litigation abroad. The protection of individual rights is a less compelling justification
for the application of the restrictive theory in the competition law cases than in
ordinary contractual or commercial disputes. Private competition law litigation is
intended to advance the public policy of a particular country, which may conflict with
the policies of other countries. Where state immunity is asserted as a defence to the
extraterritorial application of competition law, a conceptual framework based on the
need to protect individual rights may not lead to the choice of most appropriate forum
to decide a dispute.
The difficulty in distinguishing commercial activity from inherently sovereign or
governmental acts has lead to uncertainty about the scope of the exception. The
examination of a government's purpose to identify commercial activity7 may result
in a broad grant of immunity, because most government action ultimately has a public
purpose.8 A purpose test could potentially immunize a great deal of anticompetitive
conduct by state instrumentalities. Purpose tests make the scope of immunity hard to
predict until after a transaction is challenged, when there is a risk of a public purpose
being manufactured.
In a number of countries, the nature of an act is the sole determinant of whether or
not an activity is a commercial activity.9 One difficulty with this approach is that some
reference to purpose is necessary to describe any activity in a legally meaningful
way.10 Certain categories of foreign government activity are not a priori exclusively
commercial or public in nature and the courts will have little guidance on how to
classify an act.11 Thus, unarticulated policy concerns, local practice and formalistic
reasoning may influence the classification of foreign acts. Different courts faced with
similar conduct will reach different conclusions. The nature of the act test can lead to
the rejection of the immunity defence where the foreign state's conduct was intended
to affect the most sensitive and important (p.302) government purposes.12 The
nature test can provide both more and less immunity than the purpose test. For
instance, a state's purchase of military equipment is of a commercial nature, but is for
a non-commercial purpose, while the policing by a state of its fishery laws in its
territorial waters is of a non-commercial nature, but may have some commercial or
economic motives.
Where there are a series of actions that together are alleged to be unlawful
anticompetitive conduct, and only some of the acts are non-commercial in nature, the
application of the doctrine of sovereign immunity becomes even more uncertain. The
outcome of a case may depend on whether the court examines the overall nature a
series of acts, which would seem to require an examination of purpose, or whether the
court establishes antitrust liability on the basis of the individual commercial acts,
taking as given the various non-commercial acts of the state. The classification of
some activities in state-run services industries, like transportation,
telecommunication, and education, is likely to be infused with ideological
disagreement about the proper role of the state and most appropriate way to
implement policy goals, such as universal service obligations. These concerns are
borne out by a review of the decided antitrust cases.
State-owned or state-controlled entities can take many forms, including departments
under direct control of the government, semi-independent public enterprises and
ordinary companies in which a state holds a majority interest. Such entities may
perform a large range of public functions, which may conflict with the competition
laws of other countries. A variety of approaches to state entities have been
developed.13 The US law associates the entity with the state and applies the same
criteria to state entities as are applied to states themselves, in particular the
commercial activity exception.14
(p.303) 9.2.2 Sovereign Immunity in United States Antitrust Actions
In US law, the sovereign immunity defence goes to subject matter jurisdiction and is a
matter of comity.15 The Foreign Sovereign Immunities Act (FSIA) codified the restrictive
theory of sovereign immunity and conferred on the courts the exclusive responsibility
for determining when a foreign sovereign is entitled to immunity. 16 The FSIA presumes
that a foreign state is immune from suit in the US except as provided in the statute. 17
Where a foreign state is not entitled to immunity, the foreign state will be liable in
the same manner and to the same extent as a private individual under the
circumstances; but a foreign state except for an agency or instrumentality thereof
[will] not be liable for punitive damages.18 The commercial activity exception is the
most important exception for antitrust law. Foreign states are not immune from a suit
in which the action is based upon a commercial activity carried on in the United
States by the foreign state; or upon an act performed in the United States in
connection with a commercial activity of the foreign state elsewhere; or upon an act
outside the territory of the United States in connection with a commercial activity of
the foreign state elsewhere and that act causes a direct effect in the United States.19
The commercial activity exception has three elementsbased upon; commercial
activity; and connection to the US. An action is based upon the conduct that the
plaintiff needs to prove in order to satisfy the elements of a claim that would entitle it
to relief under its theory of the case.20
Commercial Activity
Section 1603(d) defines commercial activity as either a regular course of commercial
conduct or a particular commercial transaction or act. The inquiry focuses not on
whether the foreign government is acting with a profit motive or with the aim of
fulfilling uniquely sovereign objective[s], but whether the particular actions that the
foreign state performs (whatever the motive behind them) are the type of actions by
which a private party engages in trade and traffic or commerce.21 Essentially, if an
activity is customarily carried on for profit or is a contract that might be made by a
private person, it is assumed to be a commercial activity.22 If the activity is one that
can normally only be carried out by governments, such as (p.304) imposing tariffs or
issuing export licences, immunity is available even if there is a business or
commercial motivation behind the government action.
A few antitrust cases have considered whether an activity is commercial. In Texas
Trading & Milling Co v Federal Republic of Nigeria, the Second Circuit interpreted
commercial activity to include a government's purchasing of cement on the open
market, regardless of the purpose to which the cement was to be put.23 In Outboard
Marine Corp v Pezetel, suit was brought against a foreign trade organization of the
Polish government that was engaged in the manufacture and sale of golf carts, which
were imported into the US.24 The court held this was an inherently commercial activity.
The antitrust enforcement agencies have left open the possibility that immunity might
be available for some foreign practices that are carried out by government agencies in
other countries, even though that particular activity may normally be conducted by
private firms in the US.25 The courts have been reluctant to find conduct to be
governmental. In Millicom International Cellular, SA v Republic of Costa Rica, the
Republic of Costa Rica argued that regulation of a limited state resource (radio waves)
was not a commercial activity.26 The court, however, held Costa Rica did not exercise
uniquely sovereign powers when it negotiated a contract with the plaintiffs, facilitated
investment in the proposed cellular business, and when it allegedly monopolised the
cellular services market. A ministry of the Costa Rican government had granted the
plaintiffs a licence to use certain radio frequencies in 1987, but the Constitutional
Court declared the licence invalid in 1991.27 The plaintiffs made various attempts to
reach an agreement with the government that would have allowed the plaintiffs to
continue operating a cellular service. These included a possible legislative solution
and a joint venture with a Costa Rican state enterprise. A letter of intent was signed
by the plaintiffs, the government and a state enterprise for the parties to use their
best efforts to bring a about a contract containing certain clauses. As a result of strike
action at another state enterprise, legislation could not be presented in the National
Assembly and the government suggested the contract be entered into with the
second state enterprise rather than the first. However, agreement on the terms of the
contract could not be reached. Given that the plaintiffs were excluded from the
cellular market by the actions of the Constitutional Court, it is unclear from the report
how the antitrust action was based on the letter of intent signed by the government.
Investment was facilitated by sending a letter to the US Embassy stating that the
government did not object to the investment and some unspecified (p.305)
assistance provided to the plaintiffs in obtaining a loan for the investment. 28 If this
action was based on commercial activity, foreign governments will find it difficult to
stay within the boundaries of sovereign immunity when implementing a number of
policies.
By contrast, in the OPEC case, the court held that the commercial activity exception
did not apply to the concerted action of the OPEC member states in setting prices.29
The OPEC governments did not appear, so the District Court undertook its own study
of OPEC's price-fixing activities and concluded that they were accomplished through
taxation of private companies, production controls administered through
conservation laws, and direct price quotations on government-owned oil. The first
two activities were clearly governmental in nature. While the third appeared to be
commercial, the District Court found that it was merely a different medium by which
OPEC governments were performing sovereign acts.30 The court considered that the
commercial activity exception should be defined narrowly, in part, because the
legislative intent of the FSIA was to preclude judicial inquiry into areas touching very
closely on sensitive concerns of foreign countries. The court's argument can be
refined to the following three propositions.31 First, a government's power to control the
development of its natural resources is an intrinsic attribute of sovereignty, at least
when local law authorizes only the sovereign to grant mineral exploration rights.
Second, establishing the conditions for the production and sale of its resources is an
exercise of this sovereign power and, as such, is governmental in nature. Third, the
governmental character of this regulatory actthe setting of price and production
levelsis not altered when undertaken in concert with similar initiatives by other
foreign governments.32 Several commentators have criticized the OPEC decision for
focusing on the ultimate public purpose, rather than the nature of the activity. Mineral
extraction was explicitly mentioned in the legislative history of the FSIA as an example
of a commercial activity.33
It has been suggested that the OPEC case should have been decided on the ground
that the establishment of and cooperation in an international organization is a public
activity irrespective of the possible economic goals and purposes (p.306) of the
organization.34 However, in Prewitt Enterprises, Inc v Organization of the Petroleum
Exporting Countries, another District Court held that OPEC, its members and certain
non-member states did not enjoy any immunity for entering into agreements to
restrict output and thereby affect prices of a commodity vital to US trade and
commerce.35 These acts are plainly commercial in nature because they are acts that,
while illegal, can be performed by private persons as well as sovereign states.36 The
court's refusal to recognize an international agreement as a sovereign act is
inconsistent with the US government's claims for immunity in foreign courts,37 which is
contrary to the stated US practice only to assert sovereign immunity itself if the
activity in question would be immune under US law.38 The vital need in the US for oil
was legally irrelevant, but the case suggests that the US courts will be reluctant to
relinquish jurisdiction in cases where there are substantial effects on the US.
Nexus with United States
The third element required for the application of the commercial activity exception is a
nexus between the commercial activity and the US.39 This can be satisfied in three
ways: (1) a commercial activity is carried on in the US by a foreign state; (2) an act is
performed in the US in connection with a commercial activity of a foreign state
elsewhere; or (3) an act is performed outside the US in connection with a commercial
activity provided the act causes a direct effect in the US. The FSIA also provides that
a commercial activity carried on in the United States is a commercial activity that
has substantial contacts with the US.40 The direct effect test appears to be distinct
from (and possibly stricter than) the direct, substantial and reasonably foreseeable
effects test in the FTAIA.41 Nonetheless, the Supreme Court's interpretation of direct
effect in Weltover has been criticized as allowing US courts to assume jurisdiction
over cases with only the most distant relationship with the US.42 The nexus
requirement has (p.307) frequently provided the courts with a more secure and less
ideologically charged basis for declining jurisdiction than the governmental activity
element.
An antitrust example is Mastercard International Inc v Dean Whitter, Discover & Co.43
The Bank of China, which was admitted to be a foreign state under the FSIA, was
immune under the FSIA from claims that it participated in a boycott of a competitor
seeking membership in a bankcard system. The bank's conduct did not constitute
commercial activity within the US. Although the bank transacted business within New
York, its vice-chairman and executive vice-president served on the system's board of
directors, and it issued charge cards bearing the system's name in China, it did not
issue the system's bankcards in the US. The claims against the bank were dismissed
without prejudice, because of the failure to allege the cause of action was based on
commercial activities in the US.
Similarly, in Millicom International Cellular, SA v Republic of Costa Rica, the plaintiffs
brought an action claiming that the defendants forced its cellular service in Costa Rica
off air.44 The court rejected the argument that the defendants were not entitled to
immunity, because the defendants owned a network of cables, wires, and satellite
links connecting Costa Rica with the US. The plaintiffs' action was not based upon
any anticompetitive conduct or unlawful commercial acts carried on in the US to
qualify under clause one. The plaintiffs' claims were also not based upon the
subsequent interconnectivity arrangements the defendants made between Costa Rica
and the US. These arrangements were merely incidental to the plaintiffs' access to the
cellular network in Costa Rica, as well as the claims upon which the plaintiffs sought
relief; they did not materially cause the plaintiffs' injuries and were not causally
connected with the alleged misconduct, and therefore were not carried out in
connection with any commercial activity in Costa Rica within the meaning of clause
two.45 With regard to clause three, none of the defendants alleged that the wrongful
acts had a direct effect in the US, because the defendants' conduct did not have an
immediate consequence in the US.46 It was insufficient that the defendants' unlawful
conduct prevented phone calls between the US and Costa Rica using the plaintiffs'
cellular system from being made and caused them to be made over the cellular
system of one of the defendants. The immediate consequence of being denied
access to cellular lines in Costa Rica is the plaintiffs' inability to compete in that
market.47 The plaintiffs also could not rely on any repercussion felt by their
shareholders and creditors to establish direct effects, because any derivative harm
would be too indirect to qualify as an immediate consequence. The direct effect
(p.308) need not be substantial or foreseeable, but must be more than de minimis.48
The conduct having a direct effect in the US must be legally significant conduct in
order for the commercial activity exception to apply.49
Thus, while the range of conduct that is classified as non-commercial is small, the
nexus requirement is likely to prevent the commercial exemption being applicable in
export market access cases. On the other hand, the application of a competitive
effects test for jurisdiction would render sovereign immunity largely redundant in
other antitrust cases.
Foreign Sovereigns as Antitrust Defendants
Whether or not there is sovereign immunity, it is possible that foreign governments do
not fall within the group of entities that can be antitrust defendants. Neither the
legislative history of the Sherman and Clayton Acts nor the case-law provides
definitive guidance.50 The Supreme Court has declared in relation to US states that the
Sherman Act makes no mention of the state as such, and gives no hint that it was
intended to restrain state action or official actions directed by a state.51 The state
action doctrine has led to broader immunity for the acts of US states than acts of
foreign states under the antitrust laws. Although commercial enterprises in which
foreign governments had an equity interest have been held to be subject to US
antitrust laws,52 in the OPEC case the District Court held in the alternative that foreign
governments were not persons subject to the antitrust laws.53 Other cases also
contain dicta to the effect that foreign sovereigns lack capacity to be sued as antitrust
defendants, because they are not persons under the antitrust laws.54
However, the reasoning in these later cases was undermined by the Supreme Court
decision in Pfizer, Inc v Government of India. The court held that foreign governments
are persons under the Clayton and Sherman Acts, albeit in the context of
determining who could be a plaintiff and not a defendant.55 However, the Supreme
Court decision in Verlinden BV v Central Bank of Nigeria is sometimes interpreted as
saying that the FSIA provides the exclusive standard to determine foreign government
liability.56 In a number of antitrust cases it has (p.309) been argued that, because
certain governmental defendants that were indispensable parties to the litigation were
not, or could not be made, party to the suit, the suit should be dismissed against the
remaining parties. These arguments appear to have almost always failed.57
There are good reasons why a US court should find that foreign governments are not
liable under US antitrust laws.58 The act of state doctrine and sovereign immunity are
not broad enough to provide a device for courts to avoid causing international
conflicts. The FSIA may not exclusively determine whether the Sherman Act applies to
the actions of foreign states, if, as a matter of statutory interpretation, the Sherman
Act does not apply to official state actions, such as the passage of laws. The
competition laws in Australia, New Zealand, Japan, and the EU prohibit only the
conduct of certain corporations, persons, enterprises, or undertakings, which would
exclude foreign state actions independent of the doctrine of sovereign immunity. It is
sometimes feared that the exclusion of foreign governments from antitrust liability
would permit foreign governments to engage in anticompetitive conduct that harmed
US consumer welfare and export opportunities. It has also been argued that applying
antitrust to foreign state actions could provide a negotiating advantage to the US
government in dealing with foreign governments and foreign firms.59 However, an
interpretation of the antitrust laws preventing foreign governments being liable for
governmental acts would not exempt governments from international agreements
dealing with trade distorting measures, but would provide a clear exemption that
directly addressed foreign government concerns in a manner consistent with the
scope of antitrust laws. There is no risk of essentially private anticompetitive conduct
occurring under the cloak of foreign governmental action,60 because the firms involved
would still be subject to the antitrust laws.
9.2.3 Sovereign Immunity in Other Countries
Many, if not all, members of the EU have adopted a restrictive theory of sovereign
immunity. In Aluminium Imports from Eastern Europe, the Commission adopted a
restrictive theory of sovereign immunity in a case concerned with foreign state trading
organizations engaged in the import and export of a range of goods. The (p.310)
state enterprises were parties to restrictive agreements that were held to violate
Article 85.61
While the Japanese government has tended to claim broad immunity whenever it has
been sued in a foreign court, it has entered treaties consistent with and made
statements at international conferences supportive of a restrictive theory. 62 After the
decision of the Great Court of Judicature in 1928, the Japanese courts applied an
absolute theory of state immunity.63 If the issue came up for consideration, the
Supreme Court is likely to reject absolute immunity.64 A lower court recently concluded
that a foreign state or an agency of a foreign state, which was a party to a commercial
transaction, was not entitled to sovereign immunity the under international customary
law as an established international norm under section 98(2) of the Japanese
Constitution.65
In Australia, the Foreign States Immunity Act 1985 provides that a foreign state is
immune from the jurisdiction of the Australian courts except as provided in the Act. 66 A
foreign person or corporation that is an agency or instrumentality of the foreign state
is generally entitled to the same immunity as foreign states.67 The Foreign States
Immunity Act provides a number of exceptions to the immunity granted by the Act.
The most important for present purposes is in section 11, which provides that a
foreign state is not immune in proceedings concerning a commercial transaction,
unless all the parties to the agreement are governments, or have agreed to immunity,
or the proceeding concerns payment in respect of a grant, scholarship, a pension, or a
payment of like kind. A commercial transaction is generally defined as any
commercial, trading, business, professional, or industrial or like activity. The court
does not have to enquire into the purpose of the transaction; it is sufficient that the
transaction itself which has given rise to the proceeding is of a commercial nature.
The US test may be broader. Thus, an Australian court could reach the same decision
as Texas Trading & Milling Co v Federal Republic of Nigeria,68 but perhaps not Millicom
International Cellular, SA v Republic of Costa Rica.69 Unlike Millicom, Australian courts
may make an assessment based on the (p.311) transaction viewed as a whole,70
which makes it less likely that a course of conduct will be viewed as commercial.
There is also no requirement for a territorial nexus in the Australian commercial
activity exception.
When the trans-Tasman misuse of market power provisions were enacted, state
immunity was removed from New Zealand and New Zealand crown corporations
insofar as they engaged in trade for the purposes of section 46A of the Trade Practices
Act, and ancillary procedural provisions, in the same way and to the same extent as
the Trade Practices Act applies under section 2A of that Act to the Australian
Commonwealth and Commonwealth authorities.71
In New Zealand, the law on sovereign immunity is part of the common law, which has
adopted the restrictive theory of sovereign immunity.72 State immunity applies to the
state itself, the head of state in his or her public capacity, and departments of state or
state instrumentalities.73 In Playa Larga (owners of cargo lately ladden on board) v I
Congresco del Partido (owners), Lord Wilberforce stressed that the ultimate test is not
just that the purpose or motive of the act is to serve the purposes of the state, but
that the act is of its own character a governmental act, as opposed to an act that any
private citizen can perform.74 The court must consider the whole context in which the
claim against the state is made.75 The New Zealand courts have indicated a
willingness to develop the law in accordance with the clear legislative trend in
comparable jurisdictions.76 In Controller and Auditor-General v Sir Ronald Davison,
some members of the Court of Appeal adopted an expansive approach to the
commercial activity exception, while other members found that sovereign immunity
was not based on technical rules of law.77 Thus, the availability of sovereign immunity
is uncertain, especially where important interests of the forum state are affected.
9.2.4 Conclusions
In the US, the commercial activity exception does not exclude a broad enough set of
governmental acts from competition law to significantly reduce international (p.312)
conflict. Where the foreign conduct causes substantial harm in the US, a US court will
be reluctant to dismiss the action. This is consistent with the apparent reliance of the
nexus with the US element as the primary grounds for denying the applicability of the
commercial activity exception in several antitrust cases. Other major competition law
jurisdictions have also adopted the restrictive theory of sovereign immunity. In these
countries the commercial activity exception may not be as broad as it is in the US, but
it is often equally uncertain. Conduct that falls outside the commercial activity
exception is likely to often fall outside the coverage of the competition laws in
Australia, the EU, Japan and New Zealand because the laws do not apply to inherent
governmental conduct. The coverage of the US antitrust laws is not so clear.
A general agreement on sovereign immunity is likely to have little direct relevance to
international competition law. In any event, there is perhaps little prospect of quick
ratification of the UN Convention on Jurisdictional Immunities of States and Their
Property, especially by the US.78 Even if countries could agree, uniform application of
the convention is not guaranteed.
If the fundamental concern behind sovereign immunity is the allocation of jurisdiction
to regulate certain situations, the doctrine is probably too narrow, because it merely
protects governments from suit in foreign courts. The requirement for a significant
nexus between the conduct and the US and the fact that sovereign immunity goes to
adjudicatory jurisdiction is consistent with argument in Chapters 8 and 10 for an
international agreement on forum selection in international competition law. In other
words, states could benefit from a clearer (and common) statement of which matters
may be subject to a country's competition law; which matters fall within the preview
of international trade dispute settlement procedures; and which matters fall to be
regulated by the competition laws or other judicial or administrative processes of
other countries.
9.3 Acts of State
9.3.1 The United States Act of State Doctrine
Nature of the Act of State Defence
In 1897 the Supreme Court handed down the now classic American formulation of the
act of state doctrine in Underhill v Herandez: Every sovereign State is bound to
respect the independence of every other sovereign State, and the courts (p.313) of
one country will not sit in judgment on the acts of the government of another done
within its own territory.79 The doctrine has variously been viewed as a rule giving res
judicata effect to decisions of a foreign government, a choice-of-law rule, or a rule of
judicial abstention to avoid embarrassing the conduct of foreign affairs by the
executive branch.80 In Banco Nacional de Cuba v Sabbatino the Supreme Court stated
that the doctrine was compelled neither by the inherent nature of sovereign authority,
nor by some principle of international law, nor by the Constitution, but was a rule of
common law.81 The doctrine is equally binding on state and federal courts,82 and has
been applied to state antitrust claims.83 The court adopted a test based on the
inappropriateness of encroaching on the flexibility and authority of the executive in
foreign policy-making, which it said had constitutional underpinnings.84 The court
observed that it was not laying down or reaffirming an inflexible and all-
encompassing rule, but that the application of the act of state doctrine depends on a
balancing of the relevant considerations in determining whether the executive or
judiciary is better suited to address a particular problem.85 The court did not provide
detailed guidance on what factors were important.
More recently, in WS Kirkpatrick & Co v Environmental Tectonics Corp, the Supreme
Court held that the act of state doctrine is not some vague doctrine of abstention, but
applies only where a court had to declare invalid the official act of a foreign
sovereign performed within its own territory.86 The act of state doctrine does not
establish an exception for cases and controversies that may embarrass foreign
governments, but merely requires that, in the process of deciding, the acts of foreign
sovereigns taken within their own jurisdictions shall be deemed valid. 87 The act of
state doctrine only applies when a court must decide that is, when the outcome of
the case turns uponthe effect of official action by the foreign sovereign.88 Several
policies underlie act of state cases: international comity, respect for the sovereignty of
foreign nations in their own territory, and the avoidance of embarrassment to the
executive branch in its conduct of foreign relations.89 However, while the policies
underlying the doctrine should be (p.314) considered in deciding whether, despite
the doctrine's technical availability, it should not be invoked, they cannot be used to
expand the doctrine into new fields.90 The increasingly restrictive attitude of the US
legislative and executive branches toward the act of state doctrine has encouraged
the judiciary to reject the defence in private antitrust litigation.91
Since Alfred Dunhill of London, Inc v Cuba,92 courts have required a showing of a
fairly stringent degree of formality if acts are to be official attempts to implement
pubic policy and affirmative assertions of sovereign authority.93 The courts have also
required that an act of state was undertaken on behalf of the state by an official who
had the authority to act for and bind the state.94
The act of state doctrine has been argued in a number of international antitrust cases,
but with infrequent success. Many act of state claims have failed because the
prerequisites for the doctrine to apply are not met or the case falls within one of the
exceptions.95 Prior to Kirkpatrick, the examination of the underlying policy concerns,
notably separation of powers and effect on foreign relations, resulted in some courts
undertaking an inquiry not entirely dissimilar to the comity analysis in Timberlane.96
Post-Kirkpatrick, the act of state doctrine is likely to be of little use to antitrust
defendants, because the validity of foreign acts is raised only indirectly, if at all, in
international antitrust cases. A concern that essentially private restraints might be
cloaked by foreign government involvement is likely to influence the courts to further
cut back the application of the doctrine in antitrust cases based on an assessment of
the doctrine's underlying policies.
Territorial Limitation
The act of state doctrine only applies to acts of a sovereign within its territory, but
regardless of whether the acts have extraterritorial effects.97 The territorial (p.315)
limitation is consistent with jurisdictional balancing tests and the foreign sovereign
compulsion defence.
Breach of Treaties and Customary International Law
Decisions of a foreign state should be treated as valid and final in the US unless the
act violates a treaty with the US.98 A number of trade agreements prohibit certain
government measures that may encourage or compel actions that could be found to
be in breach of the competition laws of another country, such as voluntary export
restraints or the abuse of dominant positions by incumbent telecommunications firms.
In such cases, the act of state defence may be raised if a competition law action is in
fact commenced. However, the fact that a foreign government action is in breach of a
treaty may not justify the US courts holding invalid a foreign act of state in
adjudicating on whether a firm breached US antitrust law. For example, Article 23 of
the WTO Dispute Settlement Understanding (DSU), which seeks to make the DSU the
exclusive forum to address WTO breaches, could be undermined if the US courts
treated a foreign act of state as invalid in order to impose liability on a firm.
The Effect on the Conduct of Foreign Relations
The so-called Bernstein exception is that a court should not apply the act of state
doctrine to a case when the executive determines that such application is
unnecessary for maintaining US foreign affairs policy.99 The Supreme Court has not
been consistent in its treatment of Bernstein letters.100 Lower courts have taken a
variety of approaches, but do not tend to put primary reliance on a Bernstein letter. 101
One court considered that it is anomalous for an act of state defence to be raised in a
government antitrust enforcement action.102 In Timberlane, the Ninth Circuit observed
some aspects of international law touch much more sharply on national nerves than
do others; the less important the implications of an issue are for our foreign relations,
the weaker the justification for exclusivity (p.316) in the political branches.103 Very
rarely will frictions between countries caused by the extraterritorial application of
antitrust law give rise to significant foreign relations concerns to the US government.
The act of state doctrine cannot require courts to consider immediate foreign policy
concerns without risking inconsistent rulings dependent on case-specific foreign policy
concerns, which may be neither public knowledge nor durable. If the doctrine is a
legal rule, the courts need to generalize and adopt some simplifying assumptions
about what may embarrass the US executive's conduct of foreign relations, not take
instructions from the executive in individual cases. These are reflected in the other
factors that the courts consider whether to apply the doctrine.
The Commercial Exception and the Nature of the Governmental Act
In Alfred Dunhill of London, Inc v Republic of Cuba, four members of the majority
thought an act of state should not be extended to include the repudiation of a purely
commercial obligation owed by a foreign sovereign or one of its instrumentalities.
The other five rejected the commercial exception.104 While the Supreme Court in
Kirkpatrick left open the existence of the commercial activity exception,105 lower
courts have generally been supportive of its existence, or left the question open in
antitrust cases,106 as have the antitrust enforcement agencies and the State
Department.107 However, uncertainty about the purpose and scope of the exception
remains.108 The commercial exception has been justified by an analogy to the
commercial activity exception to the doctrine of sovereign immunity.109 However,
while sovereign immunity is addressed to adjudication jurisdiction and the subject of
international obligations,110 the act of state doctrine is a substantive rule. The
language in Dunhill (purely commercial ) is also somewhat narrower than the FSIA.
Thus, it is not clear that the scope of the two should be the same. A second
justification for the exception was the fact that (p.317) in commercial dealings, as
contrasted with matters such as expropriation, there is a broad international
consensus as to the applicable rules of law.111 Thus, subjecting foreign governments
to the rule of law in their commercial dealings presents a much smaller risk of
affronting their sovereignty than would an attempt to pass on the legality of their
governmental acts.112
In the OPEC case, the Ninth Circuit applied the act of state doctrine.113 The court held
that: While purely commercial activity may not rise to the level of an act of state,
certain seemingly commercial activity will trigger act of state considerations. 114 The
court observed that the price fixing had a significant sovereign component, because it
related to the extraction of national resources. OPEC is distinguishable from other act
of state cases in the antitrust field, because the defendants were the governments
themselves and not private parties; some of the alleged price fixing activities occurred
outside the territory of each state; and the alleged conspiracy was among different
states rather than an act by one state.115 Thus, OPEC may be an aberration with little
value as a precedent as an act of state case.116 The OPEC court sought to distinguish
between the FSIA and act of state commercial activity exceptions on the basis that the
former focuses on the nature of the activity, while the latter requires an examination
of the state's motivations.117 This reasoning would not appear to survive Kirkpatrick. In
Kirkpatrick, the court assumed the award of a construction contract by the Nigerian
government was a sovereign act. Thus, the purely commercial exception may be no
more than part of the inquiry into whether the act in question is an act of state. Along
these lines, Dellapenna suggests that the inquiry is whether there was a decision
under the authority of a foreign state expressing central political concerns of the state
while applying law to a specific set of facts to create or change legal rights or
duties.118
Nonetheless, the fact that some courts have held that some acts of foreign states
were not sovereign indicates that there may be enough purely commercial conduct
falling within the exception to come close to consuming the rule in the antitrust field.
The act of state doctrine therefore provides, at best, an unpredictable (p.318)
defence for conduct that falls within the FSIA's definition of commercial activity. In any
event, the US courts have not allowed the act of state doctrine to prevent a
preliminary inquiry into the extent and nature of the foreign government activity in
cases where private conduct has been challenged under US antitrust laws. 119
A further narrowing of the defence has resulted from a refusal by some courts to
consider certain governmental acts as acts of state. The courts have been willing to
apply the act of state doctrine to bar antitrust claims in connection with expropriations
of property and concessions of natural resources.120 However, some courts have held
that foreign judicial proceedings121 and the issuance of patents122 are not acts of state.
The approval of a merger or another transaction by a competition authority or
government might also be found not to be a sovereign act. In the patent and
litigation cases, the rejection of the act of state defence was supported by reference
to the other factors. Perhaps more importantly, the allegation of impropriety by a
party to a foreign judicial proceeding or regulatory process, as part of a claim of
anticompetitive conduct, does not necessarily require a US court to declare the
foreign judicial or regulatory process invalid. Thus, a US court considers itself entitled
to hold a party to foreign proceedings liable for the harm caused by the misuse of
foreign processes. Arguably, the challenge to the procedural propriety (as well as the
validity) of governmental and judicial processes should normally take place in the
country where those processes took place or before an international organization. The
US must also be prepared to accept that courts in other countries may challenge the
anticompetitive effects of the conduct of US firms before US courts, the Patent Office,
or trade remedy investigating authorities.
(p.319) The Relationship between the Challenged Anticompetitive Conduct
and the Act of State
The act of state doctrine will provide no defence unless the act of state is seen as
responsible for the restraint of competition.123 This issue has long been clouded by
other uncertainties in the doctrine. Although some cases may be read as suggesting
that compulsion is relevant,124 a private firm need not be compelled to engage in
the challenged conduct for a foreign government to be responsible for the restraint on
competition.
The act of state doctrine was first applied in the first international antitrust case in
1909American Banana Co v United Fruit Co.125 In American Banana, the act of state
doctrine applied, inter alia, to prevent the antitrust laws being applied to the
defendant firm's inducement of the government action of the military seizure and
confiscation of the plaintiff's property and related conduct. The case has since been
overruled.126 In Sisal Sales, the defendants argued that their monopoly position
resulted from legislation in Mexico and Yucatan, and, following American Banana, the
procurement of discriminatory legislation, even if pursuant to an unlawful conspiracy,
does not support a Sherman Act claim.127 The Supreme Court distinguished American
Banana on the grounds that in Sisal Sales The United States complain[ed] of a
violation of their laws within their own territory by parties subject to their jurisdiction,
not merely of something done by another government at the instigation of private
parties. True, the conspirators were aided by discriminatory legislation, but by their
own deliberate acts, here and elsewhere, they brought about forbidden results within
the United States.128 The mere fact that the defendants involved a foreign
government as part of their conspiracy could not shield them from the application of
the antitrust laws.129
(p.320) Sisal Sales rests to some extent on the perception that private firms are often
sufficiently powerful to use foreign governments as pawns in private schemes.130 The
Sisal Sales concern appears behind many antitrust decisions.131 Nonetheless,
governments in all countries consult and collaborate with private firms constantly.
Sisal Sales indicates that mere inducement of foreign government action does not
constitute an antitrust claim. The Noerr doctrine also appears to provide a defence for
efforts to procure favourable government measures. See Section 9.4. On the other
hand, the mere fact that a foreign government has some interest in or some
involvement with the private conduct does not provide that conduct with antitrust
immunity. It appears that voluntary private conduct can constitute a violation of the
antitrust laws even if such conduct is made possible or facilitated by a government
measure. As noted above, allegations of abuse of process may be made without a
finding that a judicial or regulatory decision is invalid.
Although the doctrine was not mentioned by name, Continental Ore Co v Union
Carbide is often considered to be an act of state case.132 Like Sisal Sales, the
conspiracy was effectuated both in the US and abroad. The plaintiffs claimed that the
defendants were liable for actions which they themselves jointly took, as part of their
unlawful conspiracy, to influence or to direct the elimination of Continental from the
Canadian market. The court concluded that the defendants were not insulated by the
fact the conspiracy involved some acts by the agent of a foreign government (the
Metals Controller), because the challenged anticompetitive conduct of the buying
agent was never approved or compelled by the Canadian government.
In Occidental Petroleum Corp v Buttes Gas & Oil Co, the District Court granted the
defendants motion to dismiss on act of state grounds, characterizing the alleged
conspiracy as made up exclusively of the inducement of sovereign acts, which was
covered by American Banana, rather than Sisal Sales and Continental Ore.133 The
challenged conduct involved the state of Sharjah issuing a fraudulent territorial waters
decree and Iran laying claim to an island at the behest of the defendants. The court
stated that adjudicating the plaintiff's claim would necessarily force the court to sit in
judgment upon the sovereign acts of another government and such inquiries by this
court into the authenticity and motivations of the acts of foreign sovereigns would be
the very sources of diplomatic friction and complication that the act of state doctrine
aims to avert.134
(p.321) In Hunt v Mobil Oil Corp, an attempt was made to draw a line between
foreign government action and private action based on the need to inquire into the
motivation of a foreign sovereign.135 Hunt argued that the major oil companies had
induced him, through promises of back-up oil supplies, to take a hard line in
bargaining with the Libyan government over its take of Hunt's Libyan concessions,
which ultimately resulted in the decision of the Libyan government to seize Hunt's
concession. The court concluded that it could not separate Libya's motivation from the
validity of its seizure, and that an inquiry limited to Libya's motivation could only be
fissiparous, hindering or embarrassing the conduct of foreign relations which is the
very reason underlying the policy of judicial abstention expressed in the doctrine in
issue.136 Nor did the judiciary have the competence to make judgments about why a
foreign state may have acted as it did.137 After Hunt, several courts followed Hunt's
rationale that the act of state doctrine bars antitrust claims that require inquiry into
foreign government motivation.138 Today, only the validity of the seizure, rather than
the motivations for the seizure, could not be questioned.139 Under a broad reading of
Hunt, the act of state doctrine would have required dismissal of private antitrust
claims whenever foreign government action was a necessary to make out the claim,
which ignored Sisal Sales.140
Three Circuits and the Departments of Justice and State either rejected Hunt or
severely restricted its scope.141 Some decisions reflect the concern that a broad
(p.322) application of the act of state doctrine would effectively immunize private
conduct from the reach of antitrust laws. In Dominicus, for example, the act of state
doctrine did not bar monopolization claims by one tourist operator against a
competing US-based operator of tourist facilities in the Dominican Republic. 142 Many of
the challenged acts were not closely related to the Dominican government, but others
were, such as the closing of the airport to the plaintiff; orders by government officials
that the plaintiff's marina be dismantled; rerouting by the government of a road that
would serve the plaintiff; and expropriation of the plaintiff's property to create a
national park (expropriation was alleged to have been rescinded when the
government realized it had been duped by the defendant). The court added that the
act of state doctrine does not bar inquiry into even unrepudiated acts of state where it
results from corruption of government officials. The court noted that the case involved
a substantial number of both private and governmental acts. The reluctance to
dismiss this case on act of state grounds without discovery appears to have been
because the judge was uncertain whether the acts in question were an exercise of the
state's police powers or a commercial endeavour.
In Industrial Inv Development Corp v Mitsui & Co, the Fifth Circuit rejected the position
in Hunt that, in establishing a causal relationship between the private violations
alleged and the injuries suffered, the plaintiffs must prove that the defendant's acts
were the sole cause of the injury.143 The court went on to deal with the defendants'
argument, based on Hunt, that the act of state doctrine precluded any recovery of
damages, because an investigation into the motivation of the Indonesian
government's refusal to issue the cutting licence would be necessary to establish
causation. The court accepted that the plaintiff's alleged damages resulted from
conduct other than the government action of refusing to issue the cutting licence. The
court, when adjudicating the antitrust claim, did not need to determine the proprietary
of Indonesia's failure to issue a cutting licence, adjudicate on the validity of the
government's behaviour, or require a determination of the plaintiff's rights to have
received a cutting licence.144 Furthermore, the government of Indonesia was not
named as a defendant. The court accepted the plaintiff's position that it could
adjudicate under the antitrust laws that the defendant's poisoning of the joint venture
with an Indonesian company caused the cancellation of the Forestry Agreement,
which in turn caused the government to deny the concession.145
The court considered that validity and motivation were not equally protected by the
act of State doctrine.146 The Hunt rule was rejected because of the Sisal (p.323) Sales
concern; precluding all inquiry into the motivation behind or circumstances
surrounding the sovereign act would uselessly thwart legitimate US objectives where
adjudication would not embarrass the executive.147 Proof of motivation and causation
went only to measuring the amount and not the fact of damage, and such an inquiry
does not trigger the special political considerations protected by the doctrine, because
in such an inquiry [n]o ethical standard is set by which the proprietary of the decision
is tested.148 The Fifth Circuit reasoned that inquiry beyond the fact of some damage
flowing from the unlawful conspiracy relates only to the amount and not to the fact of
damage.149 The Mitsui approach to motivation was adopted in Williams and Northrop.
The Mitsui modification of Hunt indicated the reluctance of the courts to allow act of
state to act as a complete bar to antitrust claims, especially in their early stages. The
Hunt rule would have barred an antitrust claim or at least precluded recovery of
damages based on lost sales as the result of a competitor bribing and corrupting
foreign officials.
In Clayco, the Ninth Circuit held that the act of state doctrine applied to bribery and
corrupt acts in private antitrust suits, because of the large potential for foreign affairs
embarrassments.150 However, in Kirkpatrick the Supreme Court held that bribery and
fraud contrary to foreign or US law leading up to a foreign act of state could be
adjudicated, even though it may show that the act (in that case a contract) was
illegal. The holding in Kirkpatrick has been applied to less overtly commercial acts by
the foreign state. Thus, in Lamb v Philip Morris, Inc, the act of state doctrine did not
preclude a domestic tobacco producer's antitrust challenge to a domestic cigarette
manufacturer's agreement with a Venezuelan children's foundation, headed by the
wife of the President of Venezuela.151 Under the agreement the manufacturer would
make substantial donations to the foundation in exchange for price controls on
Venezuelan tobacco, elimination of controls on retail cigarette prices in Venezeula, tax
deductions for the donations, and assurances that existing tax rates applicable to
tobacco companies would not be increased. The factual predicate for the application
of the doctrine was not present because the antitrust claims merely questioned the
motives of the contracting parties and the resulting anticompetitive effects of their
agreement, not the validity of any sovereign act on the part of Venezuela taken within
its own jurisdiction.
In Biovail Corp Int'l v Hoechst Aktiengesellschaft, Biovail (B) alleged that the
defendants had restrained trade in, monopolized, and attempted to monopolize
(p.324) the sale and distribution of a type of drug in the US.152 One of the five sets of
factual allegations relied upon was that the defendants interfered with the Canadian
regulatory process with the intent to derail or delay the approval of a particular drug
by Canada's Health Protection Board (HPB). The relationship between interference in
the Canadian regulatory process and harm to competition in the US market is not
clear. The defendants argued that the chain of causation between their acts and B's
alleged injury was broken because evaluating the claim would necessarily entail
questioning the correctness of the regulatory approval process of a foreign sovereign.
The court held that B was not challenging the activities of the HPB or probing into its
motives by alleging that the defendants were liable for the actions they took in trying
impermissibly to influence the HPB.153 Unless the allegation was that the defendants'
conduct raised the costs of B to get approval, the plaintiff's argument must be that
the defendant's conduct affected the duration or outcome of the foreign regulatory
process, which casts aspersions on the integrity of the foreign regulatory process. 154
Where there is no corruption or abuse of process, the US courts sometimes use the
act of state doctrine to protect the integrity of governmental and regulatory
processes. In Laker Airways, Inc v British Airways plc, Laker claimed that BA combined
and conspired with ACL to restrain and monopolize the passenger air service between
Miami and London, by preventing ACL from allocating desirable landing slots at
Gatwick to Laker.155 EC Council Regulation 95/93 [1993] OJ L14, required the UK to
appoint a natural or legal person to act as airport coordinator, and to allocate slots
after consultations with air carriers in a neutral, non-discriminatory and transparent
way. ACL was appointed and is composed of a representative from each UK airline that
wished to participate. Slots could be traded between carriers. The UK implemented
the EC Regulation through the Airport Slot Allocation Regulations 1993 (SI 1993/1067)
(ASAR). The District Court dismissed Laker's damages suit against BA, because ACL
was a necessary party to the action, but was not named as a defendant, and in
equity and good conscience the suit should not continue without the necessary
party under Federal Rule of Civil Procedure 19, and on act of state grounds. The Circuit
Court affirmed the ruling on rule 19 grounds, but did not address the act of state
doctrine. The decision seems correct, but the analysis under rule 19(b) was a little
(p.325) strained. There were administrative remedies in the UK and the US.156
Although the claim in the US courts was solely for damages, the court saw Laker's suit
to be in essence, a challenge to the United Kingdom's implementation of EC
Regulation 95/93 and ACL's slot allocation process under that Regulation and the
ASAR.157 The court also appeared concerned: In light of the difficult history of air
transport relations in the international community, to not disrupt the UK and US
administrative processes set up to deal with slot allocation in the UK.158 Thus, the
underlying substantive reason for the decision of both courts was that they did not
believe that they were the most appropriate forum.
In Alpha Lyracom Space Communications, Inc v Communications Satellite Corp, the
court found that the act of state doctrine would bar an action against a federal agency
(COMSAT) that was the sole access to an international satellite communications
system (INTELSAT) by a competing satellite owner claiming that the agency had
conspired with companies owned by foreign governments to monopolize the
market.159 In Bulk Oil (Zug) AG v Sun Company, Inc, the factual predicate was
established, even though the court was required to declare an act of foreign policy,
rather than a law, invalid.160 A contract to supply North Sea oil was pegged to UK
policy, which the British Secretary of State for Energy stated precluded direct sales of
oil to Israel. To hold the defendants liable under US law appeared to the court to
require an inquiry into the validity of British policy. Furthermore, the UK policy
expressed by a Secretary of State in response to questions by Parliament was held to
be a public act a recognized foreign sovereign power committed within its own
territory. In Access Telecom, Inc v MCI Telecommunications Corp, the plaintiff
exported US phone services to customers in Mexico, allowing Mexican customers to
place US-based phone calls directly from Mexico.161 The court found there was a direct,
substantial, and reasonably foreseeable effect on US export commerce.162 Although
not mentioned, a defence like act of state appeared to arise under the requirement for
antitrust injury. If the importation of services from the US into Mexico was illegal under
Mexican law, there could be no antitrust injury.163 In other words, foreign countries
may make law or create monopolies that effectively and completely exclude (p.326)
US import competition. That does not then mean that foreign companies can enter the
market anyway and make antitrust claims when things do not work out. The court
commented: For the purposes of antitrust law, the threshold choice of law
determination always validates a foreign government's right to determine whether
outsiders can compete. As we have held, however, this choice of law is not mandated
by the law of tortuous interference. Admittedly, there is a conflict within U.S. law, but
not one we need to resolve.164
Conclusion
The need to declare a foreign act of state invalid restricts the application of the act of
state doctrine as an international antitrust defence. The application of the act of state
doctrine in antitrust cases is under further attack from a number of directions,
including the uncertain requirement that US foreign relations be harmed, the
uncertain commercial activity exception, and the need for the act of state to
effectively be the cause of any constraint on competition being challenged in antitrust
proceedings. The act of state doctrine does not bar challenges to the conduct that
harms competition where the harm to competition was the result of improper
government processes, such as fraud and corruption. It is arguable that such
processes should be challenged in the country where they occur or under international
dispute resolution procedures. In this sense, Laker appears to appropriately respond
to the underlying problem, by declining jurisdiction in favour of the administrative or
judicial processes in another country.
9.3.2 Treatment of Foreign Acts of State Outside the United States
The Commonwealth
Opinions vary on the state of the act of state doctrine outside of the US.165 In the
Commonwealth countries, the act of state doctrine is a rule preventing the courts
from assuming jurisdiction to determine the legality of foreign governmental acts,
even if the government in question is not the defendant.166 It is concerned with the
applicability of foreign municipal legislation within its own territory and the
examinability of such legislation. The act of state doctrine is sometimes used as an
alternative ground for a decision that could have been reached through the
application of conflict of laws rules.167
(p.327) Like the US act of state doctrine, the Commonwealth act of state doctrine is
subject to several qualifications. First, a court may decline to give effect to legislative
and other acts of foreign states that are in breach of certain established principles of
international law.168 This may be part of the broader ground that a foreign legislative
act may be disregarded if it is contrary to the public policy of the forum state.
Secondly, it seems that act of state cannot be pleaded in respect of an act done in the
territory of the forum and may be restricted to acts done by or on behalf of a foreign
state on its own territory, regardless of whether the acts are against its own or foreign
nationals.169 Thirdly, whether or not an act amounts to an act of state depends on the
nature of the act and the intention with which it was done.170 Dicey and Morris suggest
that the courts will not apply the act of state doctrine where the foreign act of state
might be able to be held by a foreign court to be unconstitutional where the question
arises incidentally in the course of a dispute between private parties.171 Like the US,
the act of state will only rarely assist foreign competition law defendants.
Distinct from the act of state doctrine is the doctrine of non-justiciability. In Buttes Gas
and Oil Co v Hammer, the House of Lords held there exists in English law a more
general principle that the courts will not adjudicate on the transactions of foreign
sovereign states.172 The principle was said to be not one of discretion, but based
upon appreciation of the nature and limits of the judicial function.173 Accordingly, the
House of Lords refused to recognize as justiciable the acts of a foreign sovereign state
not only within its own territory, but also vis--vis other governments, since there
were no judicial or manageable standards by which a municipal court could judge
issues arising between one state and another. In JH Rayner Ltd v Dept of Trade, the
House of Lords denied recovery for creditors of the International Tin Council on the
grounds, inter alia, that the transactions that member states engaged in through the
Council were transactions of sovereign states with and within the international
organisation which they have created and are not to be subjected to the processes of
our courts in order to determine what liabilities arising out of them attached to the
members in favour of the ITC.174 In Settebello v Banco Totta & Acores, the court found
(p.328) that an inquiry into the motives of the Portuguese government in enacting a
decree that enabled shipbuilders to vary the terms of the contract was non-justiciable,
where Portuguese law governed the shipbuilding contract and the contract of
guarantee between the plaintiff and the defendant.175 It is accepted in Australia that
in general, courts will not adjudicate upon the validity of acts and transactions of a
foreign sovereign State within that sovereign's own territory,176 and Australian courts
are likely to follow Buttes in an appropriate case.177 The New Zealand courts are likely
to be influenced by developments in the UK and Australia.
In JH Rayner Ltd v Dept of Trade, the House of Lords left open the question whether
non-justiciability is confined to transactions of a sovereign character, as opposed to
merely commercial transactions.178 In Kuwait Airways Corp v Iraqi Airways and the
Republic of Iraq, Evans J held that the reas of judicial restraint (represented by plea
of act of State) has the same limits as the scope of sovereign immunity when the
doctrine of restrictive sovereign immunity applies.179 However, in the House of Lords,
Lord Goff did not appear to agree.180 In Kuwait Airways Corp v Iraqi Airways Co (Nos 4
and 5), the Court of Appeal held that the plea of non-justiciability had no application
to a question of private rights.181 The House of Lords did not address the issue,
because it found that a court may decline to give effect to legislative and other acts of
foreign states that are in breach of certain established principles of international law
as being against forum public policy.182
While Commonwealth courts have not refined the act of state doctrine to the same
extent as the US courts, the Commonwealth doctrine appears to share many of the
limitations of the US act of state doctrine. The defence seems to be narrow and thus
likely to be of little assistance to competition law defendants. The doctrine of non-
justiciability may provide greater protection to inter-governmental arrangements, like
OPEC, than the US act of state doctrine. However, the uncertainties surrounding the
defence may mean there are considerable risks in relying on the doctrine as a defence
for anticompetitive conduct.
(p.329) Civilian Countries
There is no trace of the act of state doctrine in Continental Europe and much authority
of the greatest weight for its rejection.183 The question of the recognition of foreign
expropriations is generally treated as one of private international law and not public
international law.184 The effect is often for civilian courts to refuse to declare invalid
acts of state within the territory of the foreign state.185 The results are therefore
similar to the act of state doctrine. In the Anglo-Iranian Oil Co v Idemitsu Kosan case,
the Tokyo District Court said that it could not refuse recognition to acts of state like
expropriations that were contrary to international law, unless the performance of the
act was within Japan or contrary to Japanese public policy.186 In Compagnie Maritine
Belge Transports SA v Commission, the ECJ held that, because the exclusivity
agreement between a shipping conference and the Zairean authorities did not itself
constitute an abuse, there was no need to decide whether the granting of exclusivity
was an act of state.187 This suggest that the EU recognizes something akin to an act of
state doctrine. Similarly, in Aluminium Imports from Eastern Europe, the Commission
stated that private agreements that were encouraged and supported by the UK
government did not reflect a sovereign decision. The private firms were not compelled
or induced to enter the agreements by the UK government, nor were they the agents
of the UK government, and therefore were not acts of state.188
9.4 Foreign Sovereign Compulsion
The foreign sovereign compulsion defence immunizes private entities from liability for
actions compelled by foreign governments. In the US, foreign compulsion has been
raised as a defence to substantive antitrust rules, as well as requests for foreign
discovery. The latter have generally been unsuccessful.
(p.330) 9.4.1 Foreign Sovereign Compulsion in the United States
The only US case to uphold a sovereign compulsion defence is Interamerican Ref Corp
v Texaco Maracaibo, Inc. 189 Interamerican, an operator of a bonded oil refinery in New
Jersey, brought a Sherman Act action against several oil companies because they
refused to supply Venezuelan oil to Interamerican. The defendants were granted
summary judgment on the basis that they had refused to deal only in obedience to
orders of Venezuelan government officials forbidding them from dealing with
Interamerican. The court found compulsion as legal sanctions on the oil companies
could have included a suspension of the right to export oil from Venezuela. Many other
US courts have accepted the validity of the defence.190 Numerous consent decrees
contain exclusion clauses for acts compelled by foreign sovereigns. 191 Where one
consent decree was silent on the issue of compulsion, the court interpreted the decree
as not requiring the defendant to violate foreign law.192 While there is little doubt as to
the existence of the defence of foreign sovereign compulsion, the scope of the
defence is less certain.
The definition of compulsion significantly affects the scope of the foreign sovereign
compulsion defence. The courts require proof of actual compulsion rather than the
mere authorization, approval, or encouragement of the conduct in issue. 193 The 1995
International Guidelines define compulsion as circumstances in which a refusal to
comply with the foreign government's command would give (p.331) rise to the
imposition of penal or other serve sanctions.194 However, the formality or informality
of the manner in which the foreign government communicated its will to private firms
does not appear to be determinative.195 Compulsion can range from positive
legislation or executive orders to informal verbal communications from a government
official. Whether the defendant's conduct was in fact compelled requires consideration
of all the circumstances, including the manner and the communicator of the asserted
order, the credibility of threats for failure to comply, and the gravity of the
sanctions.196 The 1995 International Guidelines provide that, generally, proof of the
foreign government's formal representation that refusal to comply with its command
would have a particular result will be sufficient provided that the statement is not
ambiguous on its face or internally inconsistent and contains sufficient detail to show
precisely how the compulsion would be accomplished under local law, that is, the
legal source of the power to compel.197 The approach of the enforcement agencies
overcomes some of the difficulty of proving compulsion in fact.198 In some
circumstances, proving the validity under foreign law of the foreign government's
threat or power to compel may be practically impossible because difficult factual and
legal issues need to be solved,199 or political realities prevent any realistic possibility of
such a determination of the validity of an act at the time, at least without significant
business risks to the defendant.200
The treatment of Japanese administrative guidance illustrates some of the difficulties
in identifying compulsion where the claim of compulsion is not based on ex ante,
transparent, and legally effective measures. In 1982 the DOJ stated that Japanese
administrative guidance does not normally fall within the defence.201 However, on
other occasions the DOJ has declined to express an opinion on the issue.202 In
Matshushita, the Third Circuit reversed the grant of summary judgment with respect
to most of the defendants, rejecting (p.332) the defendants' argument that the
Japanese MITI had compelled them to abide by two rules (the price check agreement
and the five company rule). The defendants relied on a formal statement submitted by
the MITI to the District Court that the MITI had compelled certain aspects of the
defendants' conduct. The Third Circuit assume[d], without deciding, that a
government-mandated export cartel agreement fixing minimum export prices would
be outside the ambit of Section 1 of the Sherman Act, but it cannot be said with any
degree of certainty that the check prices were in fact determined by the Japanese
Government and that there was no record evidence suggesting that the five-
company rule originated with the Japanese government.203 This suggests that foreign
government statements are not always taken at face value, and that a foreign
government will not be able to compel an arrangement that was originally adopted
voluntarily. After this decision, the Japanese government reiterated its position in two
diplomatic notes transmitted to the State Department. The Japanese government
reaffirmed that the defendants' export activities were specifically directed and
comprehensively supervised by the Japanese government in order to carry out its
foreign economic and trade policies.204 There is a potential overlap between the
antitrust laws and WTO agreements because a firm that is given guidance and the
Japanese government can both be held responsible for the same economic effects.
See Sections 11.4.1 and 11.5.1.
The 1995 International Guidelines state that the compulsion defence is not available
where the foreign government acts in a commercial rather than a governmental
capacity and the defence does not arise from conduct that would fall within the FSIA
commercial activity exception.205 Thus, where a foreign government attempts to
compel a firm through purely commercial acts, such as where a state-owned entity
seeks to impose restrictive terms on a licensing agreement or uses monopoly or
monopsony power over mineral reserves or procurement, the compulsion defence is
not available. Although the fairness rationale for the compulsion defence supports the
extension of the defence to commercial compulsion, the comity rationale will
generally be less compelling.206 However, a commercial compulsion exception as
uncertain and broad as the FSIA commercial activity exception could swallow the
whole defence.
Where the defendant procured or sought the compulsion by a foreign government of
the challenged conduct, and the defendant would have engaged in the (p.333)
conduct without the government directive, the defence may not apply.207 In such
cases, there has not been any compulsion in the true sense and the fairness rationale
for the defence is not available. However, even if a private person sought the
assistance of a foreign government, the government's decision to use compulsory
government measures is evidence that that government believed that important
public interests are at stake. Comity considerations support the availability of the
defence in such circumstances. Compulsion provides a bright line test; it avoids the
difficult factual inquiry into the motives and actions of private parties and
governments that would likely generate international friction. In some instances a
bright line test may be too broad and in other instances it may be too narrow.
However, there are a variety of good policy reasons for the courts of one country not
to become too deeply involved in the supervising of the manner in which foreign
governments make policy decisions. If no defence for conduct compelled by measures
sought by the defendants is available, the application of the Noerr doctrine, which is
discussed in Section 9.5, abroad would also be substantially (and perversely)
restricted to unsuccessful lobbyists.
The location of the compelled conduct may be important to the availability of the
compulsion defence. While some cases do not appear to impose any territorial
limits,208 most cases209 and consent decrees210 accept that there are territorial limits to
the defence. In the 1977 International Guide, Cases K and L favoured an absolute
territorial limitation to the compulsion defence.211 The (p.334) 1988 International
Guidelines and Restatement (Third) took a more flexible approach.212 The 1995
International Guidelines state that although there can be no strict territorial test for
this defense, the defense normally applies only when the foreign government compels
conduct which can be accomplished entirely within its own territory. If the compelled
conduct occurs in the United States, the Agencies will not recognize the defence. 213
Two examples are given of situations where no defence would available, namely:
where a foreign government requires US subsidiaries of several firms to fix the price
at which products would be sold in the US or requires firms to fix mandatory resale
prices for their US distributors to use in the US. The territorial limitation would not
appear to be a significant obstacle to a foreign government policy, but it will affect the
mode by which the government implements its policy. In the first example, the same
effect may be achieved by prohibiting the subsidiaries from exporting their products
below a specified price. There is a risk that a court may be able to characterize the
location of conduct so as to achieve a particular result.
In some cases, foreign sovereign compulsion may negate one of the elements of an
antitrust action. In a section 2 monopolization case, for example, an adherence to a
firm's regulatory obligation by itself may not constitute an illegitimate intent to
monopolize.214 In some circumstances, compliance with regulation could provide a
business justification for the defendant's acts.215
9.4.2 Foreign Sovereign Compulsion in Other Countries
The European Commission has stated that there is a defence to a competition law
action where action by an undertaking is compelled by a non-member state, but not
when merely authorized by the foreign government. Such an authorization would
not necessarily mean that Article 85 could not apply, since it would in no way alter the
fact that the undertakings concerned were free to refrain from entering into an
agreement or engaging in concerted practices.216 In Aluminium Imports from Eastern
Europe, the Commission restated its view that mere encouragement of private acts
will not give rise to a foreign sovereign (p.335) compulsion defence.217 The decision
also appears to suggest that the foreign sovereign compulsion defence only applies to
conduct compelled within the territory of the compelling state. In Wood Pulp, the ECJ
concluded that there was no rule of international law that gave the members of an
export association a defence that was merely authorized by another state. The court
expressly did not decide whether a foreign sovereign compulsion defence, whether
based on the international law principle of non-interference or EU competition law,
existed. Even if such a rule existed, foreign sovereign compulsion may not always be a
defence.218 The EU case-law has not explored the difficulty of drawing a line between
authorization and compulsion. However, the defence may only be available if there is
legal compulsion.219
In Japan, a report of a study group attached to the JFTC has recommended that where
the conduct of a foreign enterprise is affected by a foreign government having
compelled the enterprises to undertake such conduct, it is not reasonable to pursue
the enterprise's liability by applying the [Antimonopoly] Act to it. Even where the
government's actions are not deemed to be compelling, it is necessary to consider the
effect of the government's actions when determining whether the Act should
apply.220 This is consistent with the position the Japanese government has taken in
submissions to US courts and the US executive in relation to US antitrust
investigations of Japanese export cartels. The doctrinal basis for finding that foreign
compelled conduct is legal and not prohibited by the AML is unclear, but it could be
seen as negating an element of a cause of action under the AML or a requirement of
international law.221 As a practical matter, the limited territorial application of the AML
and the view of the Japanese government on the extraterritorial application of foreign
competition laws mean that the issue is unlikely to arise often.
(p.336) In Australia, the requirement for ministerial consent to be given for private
actions involving the extended application of the Trade Practices Act 1974 under
section 5(5) will normally prevent the application of the Act to extraterritorial conduct
that is required or specifically authorized by a foreign government.222 Therefore,
conduct that is legally compelled outside of Australia is unlikely to be challenged
under the Trade Practices Act. However, the fact that an act in contravention of the
statute was lawful according to the place where it was done is irrelevant.223
In New Zealand, protection for compelled conduct is seen as a corollary of the
recognition of the act of state doctrine. However, the New Zealand Court of Appeal
was not dissuaded from ordering the production of documents despite the foreign
sovereign compulsion under a blocking statute in a tax haven. It suggested that where
an individual risks sanctions for refusing to disclose and for actually disclosing
particular information, the court must weigh those risks in a sensitive and realistic
way, recognizing the principle of international comity or mutual respect of state
sovereignty.224 The distinction between information gathering and substantive conduct
has also been made in a number of US court actions. See Section 13.3.4.
It is possible that a firm complying with a foreign law would not be found to have an
anticompetitive purpose in either Australia or New Zealand.225 It may also be possible
to argue that entering into, or giving effect to, a contract, arrangement, or arriving at,
or giving effect to, an understanding, may imply an element of autonomous behaviour
which may be lacking if the relevant conduct is compelled.226 Even if a firm was found
to have engaged in some prohibited act, the courts may exercise their discretion in
relation to pecuniary penalties and (p.337) equitable relief, and could find that the
conduct did not cause the loss to the plaintiff in an action for damages.
9.4.3 The Appropriate Scope of the Foreign Sovereign Compulsion Defence
The foreign sovereign compulsion defence is usually justified on grounds of fairness
and comity.227 Neither justification alone is able to explain the contours of US law. The
US courts have recognized that it is unfair to hold a person to be in breach of the
antitrust laws where that person could not simultaneously comply with the antitrust
laws and a foreign statute or other sovereign commands.228 US corporations are as
likely to be defendants as foreign corporations in international antitrust cases in the
US courts. Thus, the defence is not merely an act of deference to foreign governments
or a privilege that only foreign firms enjoy, but reflects the interests and moral rights
of US firms. Fairness is not a rationale for other international antitrust defences.
Therefore, the compulsion defence may be distinct from and may have a different
scope to the act of state doctrine in the US.229
The fairness rationale suggests that the defence should not be subject to absolute
limitations, such as a territorial limitation.230 The territorial limitation effectively allows
the laws of the place of the foreign conduct to trump competition laws applied
extraterritorially, but allows competition law to be applied to all trans-border conduct,
whether or not that is fair. The territorial limitation has a certain pragmatic appeal in
antitrust matters. Foreign states are after all not entitled to set in train activities that
result in traditional criminal acts in the US.231 The territorial limitation involves both a
concession that within a certain sphere the law of the territorial state should be
supreme and recognizes that court orders must be enforced at a local level. It
increases predictability for firms by providing clear guidance about which laws firms
must obey where the conduct takes place wholly (p.338) within one country. The
territorial limitation would give the home state say over cases where concerns about
sovereign and autonomy are likely to be most intense, and failure to respect these
choices would most directly impair policy goals.
The defence appears to be available even where the firm compelled by a foreign
government agreed to the restraints as a condition of doing business in the foreign
country.232 Where the compulsion is not the application of a legal rule, but the denial
of a business opportunity, the concerns about fairness are of lesser importance.
Alternative courses of action may often be open to private firms in the face of
government action. There are also strategic interactions between firms and
governments. However, as with cases where the defendant sought to be compelled,
comity considerations and the desirability of a clear test justify the application of the
defence to defendants agreeing to restraints as a condition of doing business.
The fairness rationale implies that the defence should be available in both
government and private actions, but that different standards may be appropriate in
criminal actions, civil actions for damages, and civil actions for prospective relief.
However, the compulsion defence should not be made conditional on the size of the
penalty or sanction a foreign government may threaten to impose. Although it may
not be unfair to make a large corporation pay a small fine to a foreign government, to
take into account the size of the penalty may merely encourage foreign governments
to increase the sanctions applied.
The second justification, comity, implies that the foreign sovereign compulsion
defence is intended to respect the foreign sovereign's right to conduct its internal
affairs as it and its citizens think fit.233 Similar comity considerations underlay the
moderation of extraterritorial jurisdiction and all the international antitrust defences.
The foreign sovereign compulsion defence alleviates international conflict in areas
where foreign governments are likely to feel most strongly that their sovereignty has
been infringedbecause the foreign government had positively mandated a state of
affairs within its territory. The underlying comity concern is that one country should
not encourage firms to break the laws of another country.
It is in the interest of the US to have a robust foreign sovereign compulsion defence.
The compulsion defence has protected voluntary export restraints (VERs) negotiated
outside of section 203 of the US Trade Act of 1974.234 The comity concerns underlying
the defence are obviously strong where foreign (p.339) countries compel
anticompetitive conduct expressly to accommodate US requests. Furthermore, as the
amicus brief of the US government to the Supreme Court in Matsushita emphasizes,
not recognizing the compulsion defence could seriously interfere with the executive's
conduct of highly sensitive foreign relations matters.235 In domestic cases the US
courts have indicated that the executive cannot itself create exceptions to the
antitrust laws.236 Thus, comity cannot provide a licence to take into account ad hoc
policy concerns, but it can provide a rationale for a legal rule that is consistent with
the Supreme Court's approach to comity as a principle of statutory interpretation in F
Hoffmann-La Roche, Ltd v Empagran, SA.237
A narrow compulsion defence in the US may also affect the development of legal rules
in other countries. Many industries regulated at federal and state levels have received
the benefit of antitrust exemptions significantly broader than the compulsion
defence.238 The actions of US firms that are exempt under US law may be able to be
challenged under foreign competition laws.
Comity, however, cuts both ways. Various considerations caution against an overly
generous compulsion defence. There are sound reasons for the foreign sovereign
compulsion defence being different from the US domestic state action doctrine. From
the point of view of (foreign) business, the concern with the state action doctrine
should be whether or not it results in the discriminatory treatment of local and foreign
firms or otherwise impedes market access. To argue that more lenient treatment of US
state government action than foreign government action accords less respect to
foreign states is to seek like treatment for unlike situations. The failure to apply the
compulsion defence to conduct compelled in a foreign country requires declaring the
official act of a foreign sovereign within its own territory to be invalid. The state action
doctrine is based on principles of federalism and the idea that Congress should not be
presumed to have interfered with state authority to regulate commerce. 239 It may be
argued that a generous defence for state action may be justified in an international
context by the sovereign equality of states. However, within the federal system the US
Congress can always limit the states' powers to regulate commerce that affects
interstate commerce. Beggar-thy-neighbour policies can be addressed by federal
legislation, whereas the world economy will generally need to rely on largely
uncoordinated national law enforcement to address externalities. The history and
uncertainty of (p.340) the state action case-law suggests it will not provide a good
basis for a compulsion defence. The test of a consciously articulated state policy
displacing competition and active state supervision would be difficult to implement in
an international setting, because of the detailed inquiry into the conduct of foreign
sovereigns required.
Comity considerations would seem to apply not only to the choice of policy, but also
the manner in which a government formulates and implements policy. 240 In particular,
while the fairness rationale does not justify the extension of the defence to
encouraged conduct, it is not clear why comity requires government compulsion of
the challenged conduct. The requirement of actual compulsion in the US compulsion
defence has been criticized by several countries, because it places governments of
free enterprise economies at a disadvantage relative to governments that practice a
more interventionist policy.241 A restrictive application of the foreign compulsion
defence could induce foreign governments to adopt less permissive and more
mandatory and inflexible forms of intervention, including direct intervention in the
affairs of US multinationals of a kind to which the US government has generally
objected. Requiring compulsion can be a counterproductive way of advancing antitrust
values because foreign governments will have to provide a means of enforcing cartels,
which will hinder their natural tendency to break down.242 The compulsion
requirement, like its territorial scope, may reflect the desirability of clear rules and the
practical difficulties of courts in one country enjoining conduct that is compelled by
the law of the location of the conduct.243 If judgments are unenforceable, assertion of
jurisdiction will merely bring a court into disrepute.
In countries where the separation of powers is not as clear cut as in the US, it has
been claimed that the style of government and its constitution mean that compulsion
is not always necessary for governments to achieve their objectives,244 such as
administrative guidance in Japan. However, OECD and APEC member governments
have accepted the need for transparent regulatory policies, and the WTO imposes
numerous transparency obligations on members. A comity-based argument for
recognition of informal methods of regulation is substantially weakened when the
advocates have participated in an international agreement promising transparent
regulation. Where conduct is specifically authorized by statute, it may be presumed
that the conduct is considered to be of value to another government, and foreign
conduct that is specifically authorized by a (p.341) statute can be identified with
reasonable accuracy. The case for, and appropriate form of, such an expanded
compulsion defence is considered in Section 10.3.4.
In a non-antitrust case, a US court rejected the compulsion defence for British
Airways, which was at the time wholly owned by the British government, with respect
to a tariff schedule established by the British government.245 This may be part of a
broader scepticism of foreign government claims of compulsion made after secret
anticompetitive conduct is uncovered.246 A blanket rejection of the compulsion
defence for state instrumentalities in antitrust cases would put government-owned
business at a competitive disadvantage relative to private firms and could undermine
the non-commercial objectives of many state instrumentalities. As is the case for
private enterprises, unless the foreign compulsory measure was made public prior to
any antitrust challenge, it is unlikely to be accepted by the courts.
9.5 Petitioning Immunity and Foreign Governments
The abuse of judicial and administrative processes is generally considered to be one
of the cheapest and most effective forms of anticompetitive conduct. The difficulty for
competition law is to deter anticompetitive conduct without restricting the bona fide
assertion of rights and access to judicial, regulatory, and legislative processes.
9.5.1 The Noerr Doctrine
In the US, the Noerr doctrine immunizes the right to petition the government to enact
anticompetitive regulation from challenge under the antitrust laws. 247 The Supreme
Court has extended the Noerr doctrine to attempts to influence executive bodies, the
courts, and administrative agencies.248 In Pennington, the Supreme Court held that the
defendant's effort to influence a government agency to purchase its coal rather than
the coal of its competitors was immune from challenge, even though the government
was acting as a potential buyer rather than a maker of laws. However, not all
governmental purchasing decisions are immune. In Federal Trade Commission v
Superior Court Trial Lawyers, a group of trial lawyers representing indigent criminal
defendants and paid by the District (p.342) of Columbia who collectively withheld
their services until the District agreed to raise the rate of payment, were not
immune.249 In the latter case the appeal to the government buyer was not calculated
to invoke a policy decision of the government, and the government response in
agreeing to pay higher prices did not create the restraint, but put an end to the
restraint.250 The conduct was the sort of conduct that may be carried out in private
markets to extract some commercial advantage from another private firm, rather than
to elicit governmental action.
While the right to attempt to influence governmental action is quite broad, it is not
unlimited. In California Motor Transport, the Supreme Court held that when the
exercise of such rights is a mere sham to cover what is actually nothing more than an
attempt to interfere directly with the business relationships of a competitor, there is
no defence to antitrust liability.251 The sham exception generally involves the antitrust
defendant either intentionally filing baseless complaints or intentionally providing
false information to a court or administrative agency. The sham exception applies
when parties use governmental process itself, rather than the outcome of that
process, as an anticompetitive weapon.252 The purpose of the antitrust laws, however,
is not to police the political process: Any lobbyist or applicant, in addition to getting
himself heard, seeks by procedural and other means to get his opponent ignored.
Policing the legitimate boundaries of such defensive strategies, when they are
conducted in the context of a genuine attempt to influence government action, is not
the role of the Sherman Act.253 There are a significant number of non-antitrust laws
that police the boundaries of legitimate lobbying and litigation.
Any reasonable effort to litigate cannot be a sham, regardless of the plaintiff's
subjective intent. A sham must be objectively baseless, with no reasonable chance of
success on the merits, and reflect an attempt to interfere illegitimately with the
business of a competitor.254 Even if a petition was a sham, the plaintiff must still prove
the other elements of an antitrust claim.255 For example, in an attempted
monopolization claim, proof of sham petitioning will establish the conduct element,
but not the specific intent to create a monopoly in a defined market.
A potentially significant issue for international competition law is governmental
endorsement and enforcement of decisions made by private standard-setting (p.343)
bodies. In Allied Tube & Conduit Corp v Indian Head, the Supreme Court stated that
Noerr immunity might apply if petitions to private bodies were nothing more than a
kind of indirect attempt to obtain subsequent government action, but not to petitions
to private bodies if the body itself then makes rules that are enforced through
voluntary compliance or some other means. [W]here an economically interested
party exercises decision-making authority in formulating a product standard for a
private association that comprises market participants, that party enjoys no Noerr
immunity from any antitrust liability flowing from the effect the standard has of its
own force in the marketplace.256
The application of the Noerr doctrine to attempts to influence foreign government
bodies remains uncertain. Continental Ore is the only Supreme Court decision to
consider the issue and the court simply distinguished Noerr on its facts.257
Nonetheless, the judgment has been interpreted by at least one court as impliedly
supporting the application of Noerr abroad.258 A better interpretation is that the court
found it unnecessary to decide the issue.259 Lower courts have come to different
conclusions, but generally have left the issue open or distinguished Noerr on the
facts.260
However, in Occidental Petroleum Corp v Buttes Gas & Oil Co, the District Court
observed that the policy considerations underlying Noerr (the doctrine rested on the
First Amendment and the need for a representative democracy to keep in touch with
its constituents) have little or no applicability to foreign governments, especially when
the foreign state is not a representative democracy.261 Similarly, in Australia/Eastern
USA Shipping Conference v United States, the court agreed that the first amendment
was not intended to protect the right to petition foreign governments. Nor does the
corollary interest in having government receive information from citizens have
application to foreign governments.262 These comments made were in the context of
the court's reversal of its earlier decision to refuse to enforce a Civil Investigative
Demand for documents relating to the applicant's contacts with foreign governments,
rather than a determination of the availability of Noerr immunity.263 On the other hand,
in Coastal States Mktg, (p.344) Inc v Hunt, the Fifth Circuit applied Noerr abroad and
rejected the argument that its availability turns on the political persuasion of the
foreign government.264 The court also stated that petitioning immunity reflects not
only first amendment concerns but also a limitation on the scope of the Sherman
Act.265 The decision was in the context of litigation in foreign courts, but the
statement also appeared to apply to political petitioning. The 1995 International
Guidelines state that the enforcement agencies will apply the Noerr doctrine abroad in
the same manner as applied to the petitioning in the US.266 Thus, there will be no
immunity for the bribery of foreign officials267 or sham litigation in foreign courts.268
The attitude of the US courts is different where the foreign government was petitioned
to take action to interfere with or undermine the jurisdiction or processes of the US
courts. The Noerr doctrine does not bar discovery about foreign lobbying and other
efforts to influence foreign governments, at least where the lobbying may be a
sham.269 In the context of competing anti-suit injunctions, in Laker Airways, Ltd v Pan
Am World Airways, Inc, the District Court stated that the First Amendment does not
prohibit a US court from enjoining a petition to a foreign government where the
purpose is to frustrate the US court's jurisdiction. However, comity dictated that the
court should not enjoin petitions to the British legislature or executive (as opposed to
the British courts) aimed at frustrating the US court's jurisdiction. 270 The same court
earlier questioned whether an entity owned by a foreign government has the same
right to petition as a private party, or whether the foreign government's pecuniary
interest might vitiate the arm's length relationship normally assumed in petitioning. 271
(p.345) 9.5.2 Petitioning Immunity in Other Countries
The EC Commission believes that undertakings have a right of access to a court, but a
dominant undertaking might be guilty of an abuse where litigation cannot reasonably
be considered as an attempt to establish rights, but instead serves to harass the other
party and where it is part of a plan to eliminate competition.272 The CFI has also
upheld the Commission's rejection of a complaint that lobbying for the imposition of
antidumping duties constituted an abuse of a dominant position.273 These cases
support the acceptance of a right to joint petitioning or lobbying of both member
states and EU authorities similar to the Noer doctrine. In Compagnie Maritime Belge
Transports SA v Commission, the ECJ found that a shipping conference's insistence
that the Zairean authorities strictly comply with an agreement granting exclusivity to
the shipping conference was an abuse of dominance.274 The agreement expressly
provided for derogations from exclusivity with the agreement of both parties and was
expressly subject to Article 82. The court distinguished between a request to a public
authority to comply with a specific contractual obligation and mere incitement or
inducement of the authority to take action. In the latter case, there is a simple
attempt to influence the authority concerned in the exercise of its discretion. 275
Because the case did not involve a mere incitement of the Zairean authorities, the
court did not need to consider whether, and in what circumstances, mere incitement
of a government to take action may constitute abuse within the meaning of Article 86
of the Treaty.276 The case provides weak support for the existence of an EU Noerr
doctrine and its application to foreign governments. It is also consistent with the
distinction made in Federal Trade Commission v Superior Court Trial Lawyers.
In Australia and New Zealand, abuse of legal and administrative process has never
been held to be competition law violation, but a number of courts have accepted that
such conduct may breach section 46 of the Trade Practices Act 1974 or section 36 of
the Commerce Act 1988.277 The reasoning of the courts (p.346) has almost always
been based on the substantive elements of competition law rules. Therefore, domestic
and foreign litigation and lobbying are likely to be treated the same.
9.5.3 The Case for Extending Immunity to Petitioning Foreign States
In Noerr, the Supreme Court said: To hold that the government retains the power to
act in this representative capacity and yet to hold, at the same time, that the people
cannot freely inform the government of their wishes would impute to the Sherman Act
a purpose to regulate, not business activity, but political activity, a purpose which
would have no basis whatever in the legislative history of that Act.278 The court also
observed that this would frustrate the need of the government to collect information.
Several commentators are doubtful whether these policies support the extension of
Noerr to the petitioning of foreign governments.279 If the Noerr doctrine is based on
the First Amendment, it may be not unconstitutional for the Sherman Act to be used to
prevent US and/or non-US firms from lobbying foreign governments, and/or non-US
firms lobbying the US government. Indeed, in light of United States v Verdugo-
Urquidez, an alien acting abroad may not have rights under the First Amendment.280
Comity and respect for the integrity of the foreign nation's right to organize its
political, administrative, and legal system as it desires compels the application of
Noerr abroad.281 Although it may not be unconstitutional to deny foreign firms the
same rights of free speech as US firms, the Noerr doctrine implicitly recognizes the
fundamental right of political expression of individuals and firms. The concern for
political legitimacy in an inter-dependent world and respect for (p.347) foreign self-
determination justifies the extension of Noerr to petitioning foreign governments. The
doctrine should not be limited to representative democracies.282 There are many
means of influencing government behaviour, independent of elections, in all countries.
It is wrong to assume that only representative democracies are legitimate or that
representative democracy is sufficient for legitimacy. The courts in one country should
probably not make judgments about whether foreign governments are sufficiently
democratic to justify the application of the doctrine. Such judgments may have
serious adverse consequences for foreign relations.283 In any event, because the
domestic rule permits greater leeway in dealing with legislatures than with
administrative officials or courts, Noerr immunity may have a greater scope of
application in countries where more policy decisions are made by legislatures. 284
Where there is an allegation of an abusive use of process in one country, which is
claimed to have anticompetitive effects on another country, the courts in the country
where the processes are abused will often be the most appropriate forum to
determine whether such processes have been abused. In most countries there are a
number of remedies against such abuses of process, including under the local
competition law.
The act of state doctrine supports the foreign application of Noerr. Sisal Sales and
Continental Ore stand for the proposition that antitrust liability does not attach to
mere inducement of foreign government action. See Section 9.3.1. The WTO DSU
prohibits a member from challenging certain government measures other than
through the DSU. See Section 11.5.1. The act of state doctrine, which also prevents
certain government acts from being challenged in US courts, would be meaningless if
the lobbying for government acts that will qualify as acts of state was not also
protected. If this was not the case, the information necessary to decide whether to
take such acts of state and the processes by which those decisions are normally made
will not be available, which will prevent or hinder the taking of decisions that are
protected.285 Furthermore, protection should not depend on whether or not the
lobbying achieved its desired result.286
With the effective demise of balancing tests, the foreign application of Noerr is even
more important. It is in the interest of the US and other countries to apply Noerr to
foreign petitioning. First, the failure to apply Noerr would place US-based firms at a
competitive disadvantage relative to foreign competitors in many foreign markets,
because foreign firms are less likely to be subject to US personal jurisdiction, and
therefore to US antitrust law.287 Secondly, most jurisdictions (p.348) have recognized
the possibility that abuse of judicial or administrative processes may breach
competition law. Competition law is about the interaction of market participants
(competitors, suppliers, and buyers), which excludes the relationship between firms
and governments (as a market regulator). Therefore, the US is not granting any
special dispensation by applying Noerr to foreign lobbying. Thirdly, the more limited
the territorial application of non-US competition laws (relative to US antitrust laws) has
meant that so far the existence of foreign petitioning immunity has rarely been an
issue for US government processes. However, in international cases, it is possible for
the abusive litigation to be the initiation of an antitrust suit in another country. Thus, it
may be possible for the courts in one country to find the initiation of an antitrust suit
in another country in an international case to be a violation of the forum's competition
law. The US would strongly object to other countries applying their competition laws in
a manner that would interfere with the core political structure of a foreign state and
prevent that government from receiving information. A failure of the US to respect the
political and judicial processes of other countries could encourage some countries to
reciprocate. Consider the application of foreign competition laws to the joint
application and lobbying by US firms in relation to US trade remedy laws. Fourthly,
national treatment obligations are fundamental parts of most trade and many
investment agreements, which promote efficiency. International agreements may be
breached if a US court held that Noerr immunity was not available to foreign firms.
See Chapter 11.
It is arguable that comity considerations favouring the foreign application of Noerr are
strongest when the firms are nationals of the foreign state they are petitioning.
However, the discriminatory application of substantive antitrust rules will lead to
economic distortions related to the means firms choose to service foreign markets
(firms may favour foreign direct investment over exports), and lead to difficult
determinations on the nationality of firms for the purpose of lobbying. A nationality-
based approach to the foreign application of Noerr could perpetuate the close
relationships between national governments and local firms.
9.6 Conclusion
There have been demands for further rules to deter (foreign) government
sponsorship of anticompetitive behaviour and rules to increase the ability of foreign
governments to immunize the activities of local firms from antitrust scrutiny.
Something can be said for both sides. Government measures reducing competition
are not absolutely protected by the international antitrust defences. Instead, the
availability of an international antitrust defence usually means that any restriction on
competition has to be addressed in a forum other than the courts of a country that
seeks to apply its competition law extraterritorially, whether that is (p.349) the courts
in the country where the action in question took place, or the WTO. In a rough manner
the international antitrust defences complement the various other legal rules that
allow a national court or competition authority to decline to exercise jurisdiction in a
particular case in favour of another court or competition authority.
Outside of the US, other legal systems are able to provide similar immunity from
competition law for conduct involving foreign governments. In many cases, the
defences reflect the fundamental nature of competition lawthe regulation of the
voluntary commercial actions of business enterprisesrather than a significant
concession to international comity. The uncertain rationale and requirements for some
of the international antitrust defences in some countries and the non-competition law
origin of some of defences has not assisted the process of developing appropriate
defences for the international competition law system. It would be conducive to
certainty for business if the major competition law jurisdictions could agree to
formalize this area of commonality in an international agreement, including the
recognition of a foreign sovereign compulsion defence and non-discriminatory
treatment of the petitioning of local and foreign governments under national
competition laws. In the following chapter, it will be argued that there is a case for a
slightly expanded defence for foreign governmental action. On the other hand, there
are legitimate concerns about harmful international anticompetitive effects,
transparency, certainty, and risk of ex post validation of anticompetitive conduct. The
need for an expanded defence is inter-related to the scope of competition law
jurisdiction and rules governing forum selection. (p.350)
Notes:
(1) Jones v Ministry of the Interior of Saudi Arabia [2006] 2 WLR 1424 (HL), 1448; cf
Dole Food Co v Patrickson 538 US 468 (2003), 479 (some protection from the
inconvenience of suit as a gesture of comity ).
(2) H Fox, The Law of State Immunity (Oxford: Oxford University Press, 2002) 1.

(3) H Fox, The Law of State Immunity (Oxford: Oxford University Press, 2002) 1617
. See generally J Crawford, The International Law Commission's Articles
on State Responsibility: Introduction, Text and Commentaries (Cambridge: Cambridge
University Press, 2002) ; CH Schreuer, State Immunity: Some Recent
Developments (Cambridge: Grotius Publications, 1988).
(4) The application of competition law to state entities varies. See, eg, Commerce Act
1986, ss 5 to 6B (NZ); United States Postal Service v Flamingo Industries (USA) Ltd
540 US 736 (2004).
(5) See, eg, L Marasinghe, The modern law of sovereign immunity (1991) 54 Modern
Law Review 664, 6668 ; Fox (n 2 above) ch 2.
(6) UN Convention on Jurisdictional Immunities of States and Their Property, UNGA Res
59/38 (2005), Arts 2 and 10.
(7) Re Canadian Labour Code, United States of America v Public Service Alliance of
Canada [1992] 2 SCR 3; UN Convention on Jurisdictional Immunities of States and
Their Property, UNGA Res 59/38 (2005), Art 2.2.
(8) H Lauterpacht, The problems of jurisdictional immunities of foreign states (1950)
28 British Yearbook of International Law 220, 224 ; Victory Transp Inc v
Comisaria de Abastecimientosy Transportes 336 F 2d 354 (2nd Cir 1964)|359, cert
denied, 381 US 934 (1965).
(9) Schreuer (n 3 above) 1621.
(10) JE Donoghue, Taking the sovereign out of the Foreign Sovereign Immunities
Act: a functional approach to the commercial activity exception (1992) 17 Yale
Journal of International Law 489, 499517.
(11) DH Meal and JP Trachtman, Defences to actions against foreign states under
United States antitrust laws (1979) 20 Harvard International Law Journal 583, 5901.

(12) AT von Mehren, The Foreign Sovereign Immunities Act of 1976 (1978) 17
Columbia Journal of Transnational Law 33, 534.
(13) Schereur (n 3 above) 96 et seq.
(14) The US Foreign Sovereign Immunities Act (FSIA) provides that [a] foreign
state includes a political subdivision of a foreign state or an agency or
instrumentality of a foreign state. 28 USC 1603(a). The FSIA defines an agency or
instrumentality of a foreign state as any entity that is a separate legal person,
corporate or otherwise, and which is an organ of a foreign state or political
subdivision thereof, or a majority of whose shares or other ownership interest is
owned by a foreign state or political subdivision thereof, and which is neither a
citizen of a state of the United States nor created under the laws of any third
country. 28 USC 1603(b). There has been disagreement among the courts over
whether the FSIA permits pooling of interests and tiering of subsidiaries of foreign
governments. See Dole Food Co v Patrickson 538 US 468 (2003); Working Group of
the American Bar Association, Reforming the Foreign Sovereign Immunities Act
(2002) 40 Columbia Journal of Transnational Law 489, 50643 . For
antitrust cases involving claims of immunity for intergovernmental organizations see
Prewitt Enterprises, Inc v Organization of the Petroleum Exporting Countries 2001 WL
624789 (ND Ala 2001)|353 F 3d 916 (11th Cir 2003); Alpha Lyracom Space
Communications, Inc v Communications Satellite Corp 19902 Trade Cas 69, 188
(SDNY 1990), aff'd in part and rev'd in part, 946 F 2d 168 (2nd Cir 1991), cert denied,
502 US 1096 (1992), 19931 Trade Cas 69,857 (1993), 19942 Trade Cas 70,689
(1994), 968 F Supp 876 (1996), aff'd, 113 F 3d 372 (1997).
(15) Verlinden BV v Central Bank of Nigeria 461 US 480 (1983), 486.
(16) See JW Dellapenna, Suing Foreign Governments and Their Corporations (2nd edn,
Ardsley, NY: Transnational Publishers, 2003).
(17) Saudi Arabia v Nelson 507 US 349 (1993), 355.
(18) 28 USC 1606.
(19) 28 USC 1605(a)(2). Section 1605(a)(1) provides for express or implied waivers of
immunity. Immunity of state enterprises is expressly waived in many bilateral
commercial treaties, such as the US Treaties of Friendship, Commerce and Navigation.
(20) Saudi Arabia v Nelson 507 US 349 (1993), 3568, 364, 370.
(21) Republic of Argentina v Weltover 504 US 607 (1992), 614.
(22) HR Rep No 941487, 94th Cong, 2nd Sess 7 (1976).
(23) Texas Trading & Milling Co v Federal Republic of Nigeria 647 F 2d 300 (2nd Cir
1981)|310, cert denied, 454 US 1148 (1982).
(24) Outboard Marine Corp v Pezetel 461 F Supp 384 (D Del 1978), 3946.
(25) See US DOJ and FTC, Antitrust Guidelines for International Operations (DOJ and
FTC, 1995) 3.2 (1995 International Guidelines).
(26) 995 F Supp 14 (DDC 1998), 21.
(27) Ibid 16.
(28) Ibid.
(29) International Ass'n of Maschinists & Aerospace Workers v Organization of
Petroleum Exporting Countries 477 F Supp 553 (CD Cal 1979), 56470, aff'd on other
grounds, 649 F 2d 1354 (9th Cir 1981), cert denied, 454 US 1163 (1982). Sovereign
immunity was one of several grounds on which the District Court dismissed the case.
(30) 477 F Supp 553, 5679 and n 14.
(31) Note, The applicability of the antitrust laws to international cartels involving
foreign governments (1982) 91 Yale Law Journal 765, 779 , n 60.
(32) 477 F Supp 553, 569.
(33) Note (n 31 above) 779, n 60; Note, IAM v. OPEC: the demise of the restrictive
theory and of the extraterritorial application of the Sherman Act against foreign
sovereigns (1980) 41 University of Pittsburg Law Review 841 ; cf
Working Group of the American Bar Association, Reforming the Foreign Sovereign
Immunities Act (2002) 40 Columbia Journal of Transnational Law 489, 553.

(34) CH Schreuer, State Immunity: Some Recent Developments (Cambridge: Grotius

Publications, 1988) 201.
(35) 2001 WL 624789 (ND Ala 2001).
(36) The case was dismissed due to inadequate service. Prewitt Enterprises, Inc v
Organization of Petroleum Exporting Countries 353 F 3d 916 (11th Cir 2003). See also
MG Desta, The Organization of Petroleum Exporting Countries, the World Trade
Organization, and regional trade agreements (2003) 37 Journal of World Trade 523.

(37) See Victoria Aircraft Leasing Ltd v United States [2005] VSCA 76.
(38) JE Donoghue, Taking the sovereign out of the Foreign Sovereign Immunities
Act: a functional approach to the commercial activity exception (1992) 17 Yale
Journal of International Law 489, 308 n 13 . Citing testimony of Bruno
Ristau, US Department of Justice, Jurisdiction of U.S. Courts in Suits Against Foreign
States: Hearings on H.R. 11315 Before the Subcomm. on Administrative Law and
Governmental Relations of the Comm. on the Judiciary, 94th Cong, 2nd Sess 27
(1976).
(39) 28 USC 1605(a)(2).
(40) 28 USC 1603(e).
(41) See RS Schlossberg and CH Aronson, Mergers and Acquisitions: Understanding
the Antitrust Issues (Chicago: American Bar Association, 2000) 352.
(42) Working Group of the American Bar Association (n 33 above) 5578.
(43) 19932 Trade Cas 70,837 (SDNY 1993).
(44) 995 F Supp 14 (DDC 1998), 1920 .
(45) See also Filetech SA v France Telecom SA 157 F 3d 922 (2nd Cir 1998), 931.
(46) 995 F Supp 14, 20. Citing Republic of Argentina v Weltover 504 US 607 (1992),
618.
(47) 995 F Supp 14, 21.
(48) Filetech SA v France Telecom SA 157 F 3d 922 (2nd Cir 1998)|931, 304 F 3d 180
(2nd Cir 2002).
(49) 157 F 3d 922, 931.
(50) See H Hovenkamp, Can a foreign sovereign be an antitrust defendant (1981) 32
Syracuse Law Review 879, 8923.
(51) Parker v Brown 317 US 341 (1943), 351.
(52) See Outboard Marine Corp v Pezetel 461 F Supp 384 (D Del 1978), 3967; United
States v Pan American World Airways, Inc 19791 Trade Cas 62,458 (D DC 1978).
(53) International Ass'n of Machinists & Aerospace Workers v Organization of
Petroleum Exporting Countries 477 F Supp 553, 5702, aff'd on other grounds, 649 F
2d 1354 (9th Cir 1981), cert denied, 454 US 1163 (1982).
(54) Hunt v Mobil Oil Corp 550 F 2d 68 (2nd Cir), 78, n 14, cert denied, 434 US 984
(1977); Interamerican Ref Corp v Texas Maracaibo, Inc 307 F Supp 1291 (D Del 1970),
1298.
(55) Pfizer, Inc v Government of India 434 US 308 (1978)|reh'g denied, 435 US 910
(1978).
(56) Verlinden BV v Central Bank of Nigeria 461 US 480 (1983).
(57) See, eg, Occidental Petroleum Corp v Buttes Gas & Oil Co 331 F Supp 92 (CD Cal
1971), 1047.
(58) SW Waller, James R. Atwood and Kingman Brewsters's Antitrust and American
Business Abroad (3rd edn, New York: Clark Boardman Callaghan, 1997), vol 1, 8.2
(hereinafter Atwood, Brewster, Waller) ; B Hawk, United States, Common
Market and International Antitrust: A Comparative Guide (2nd edn, Englewood Cliffs:
Prentice Hall, 1991 supp), vol 1, 5616.
(59) Note, The applicability of the antitrust laws to international cartels involving
foreign governments (1982) 91 Yale Law Journal 765, 7689.
(60) The same concern has been mentioned in the context of the state action
doctrine. See Parker v Brown 317 US 341 (1943), 3512; California Retail Liquor
Dealers Ass'n v Midcal Aluminium, Inc 445 US 97 (1980), 106.
(61) [1985] OJ L92/1, para 9.2.
(62) See Y Iwasawa, Japan's interactions with international law: the case of state
immunity in N Ando (ed), Japan and International Law Past, Present and Future (The
Hague: Kluwer Law, 1999) 123.
(63) Matsuyama & Sano v The Republic of China, Great Court of Judicature, judgment,
28 December 1928. See Iwasawa, Ibid; W Tsutsu, Subjects of international law in the
Japanese courts (1988) 37 International and Comparative Law Quarterly 325, 3312.
(64) M Tomonori, Yamaguchi v United States, 56 Minshu 729, Supreme Court of Japan,
12 April 2002 (2003) 97 American Journal of International Law 406.
(65) Cresh Co, Ltd v Nauru Finance Corporation, Republic of Nauru, Tokyo District
Court, Judgment 30 November 2000, H J (1740) 54 [2000], translated in (2001)
Japanese Annual of International Law 204.
(66) Section 9.
(67) Sections 3(1), 22.
(68) Texas Trading & Milling Co v Federal Republic of Nigeria 647 F 2d 300 (2nd Cir
1981)|310, cert denied, 454 US 1148 (1982).
(69) 995 F Supp 14 (DDC 1998), 21.
(70) Victoria Aircraft Leasing Ltd v United States [2005] VSCA 76, para 24.
(71) See also Commerce Act 1986, ss 6A and 6B (NZ). See Section 13.4.4.
(72) Governor of Pitcairn and Associated Islands v Sutton [1995] 1 NZLR 426 (CA),
approving Playa Larga (owners of cargo lately ladden on board) v I Congresco del
Partido (owners) [1983] AC 244 (HL). See L Collins (ed), Dicey & Morris on the Conflict
of Laws (12th edn, London: Sweet & Maxwell, 1993, 1997 supp) 241 (Dicey and
Morris).
(73) At common law, it is unclear whether the entity needs to be owned and not
simply controlled or directed by the state to receive immunity. Compare Kuwait
Airways Corp v Iraqi Airways Co1 [1995] 3 All ER 694 (HL), 7058 per Lord Goff with
Walker v Bank of New York (1994) 111 DLR (4d) 186 (Ont CA). See Dicey and Morris
(above n 72) 2434.
(74) [1983] AC 244 (HL), 269.
(75) Ibid 267; cf Kuwait Airways Corp v Iraqi Airways Co [1995] 3 All ER 694, 7045
(Lord Goff), 719 (Lord Mustill), 722 (Lord Slynn).
(76) Governor of Pitcairn and Associated Islands v Sutton [1995] 1 NZLR 426, 433.
(77) [1996] 2 NZLR 278 (CA).
(78) See JE Donoghue, Taking the sovereign out of the Foreign Sovereign Immunities
Act: a functional approach to the commercial activity exception (1992) 17 Yale
Journal of International Law 31921, 489 ; HB Robertson, Comments on
Professor Joan E. Donoghue's article, The public face of private international law:
prospects for a convention on foreign state immunity (1994) 57:3 Law and
Contemporary Problems 323, 325 ; P Trooboff, Foreign state immunity:
emerging consensus on principles (1986) 200 Receuil des Cours 245.
(79) Underhill v Hernandez 168 US 259 (1897), 252.
(80) AM Burley, Law among liberal states: liberal internationalism and the act of state
doctrine (1992) 92 Columbia Law Review 1907 ; JW Dellapenna, Suing
Foreign Governments and Their Corporations (2nd edn, Ardsley, NY: Transnational
Publishers, 2003) 55985.
(81) 376 US 398 (1964), 421, 423.
(82) Ibid 425.
(83) See, eg, United Nuclear Corp v General Atomic Co 629 P 2d 231 (1980), cert
denied and appeal dismissed, 451 US 901 (1981).
(84) 376 US 398 (1964), 423.
(85) Ibid 428. The actual decision in Sabbatino was reversed in the 1964 Hickenlooper
Amendment to the Foreign Assistance Act 1961, 22 USCS 2370(e)(2).
(86) 493 US 400 (1990), 405.
(87) Ibid 40910.
(88) Ibid 406.
(89) Ibid 408.
(90) Ibid 409. See also 1995 International Guidelines, 3.33.
(91) Atwood, Brewster, Waller (n 58 above) 8.12.
(92) 425 US 682 (1976), 6905, 715, 71723.
(93) Sharon v Time, Inc 599 F Supp 538 (SDNY 1984), 544.
(94) See, eg, Galu v Swissair: Swiss Air Transport Co, Ltd 873 F 2d 650 (2nd Cir 1989),
on remand, 734 F Supp 129 (SDNY 1990).
(95) See, eg, Trugman-Nash, Inc v New Zealand Dairy Board 942 F Supp 905 (SDNY
1996), 91314.
(96) The Ninth Circuit's analysis in Clayco Petroleum Corp v Occidental Petroleum
Corp 712 F 2d 404 (9th Cir 1983), cert denied, 464 US 1040 (1984) and Timberlane,
however, suggests that the act of state doctrine and balancing test are not
substitutes. Cases employing a balancing approach to the act of state doctrine include
ONE Shipping Ltd v Flota Mercante Grancolombiana SA 830 F 2d 449 (2nd Cir 1987)
(neither majority nor dissenting opinions appeared to distinguish between the comity
concerns raised in relation to the act of state doctrine and the jurisdictional rule of
reason); Sage International Ltd v Cadillac Gage Co 534 F Supp 896 (ED Mich 1981),
905; Timberlane Lumber Co v Bank of America, NT & SA 549 F 2d 597 (9th Cir 1976),
61315; see also Associated Container Transp (Australia) Ltd v United States 705 F 2d
53 (2nd Cir 1983), 602; cf Hunt v Mobil Oil Corp 550 F 2d 68 (2nd Cir 1977)|778,
cert denied, 434 US 984 (1977); Mitsui & Co v Industrial Inv Dev Corp 594 F2d 53, 55|
cert denied, 445 US 903 (1980).
(97) WS Kirkpatrick and Co v Environmental Tectonics Corp 493 US 400 (1990), 405.
Several antitrust cases have noted the territorial limitation on the act of state
doctrine. Outboard Marine Corp v Pezetel, 461 F Supp 384 (D Del 1978), 398;
Linseman v World Hockey Ass'n 439 F Supp 1315 (D Conn 1977), 13245; United
Nuclear Corp v General Atomic Co 629 P 2d 231 (1980)|263, appeal dismissed, 451 US
901 (1981); Lamb v Phillip Morris 915 F 2d 1024 (6th Cir 1990)|cert denied, 498 US
1086 (1991). See also 1995 International Guidelines, 3.33.
(98) See, eg, Kalamazoo Spice Extraction Co v Provisional Military Govt of Socialist
Ethiopia 729 F 2d 422 (6th Cir 1984). The exception may also apply to violations of a
clear rule of customary international law. JW Dellapenna, Suing Foreign Governments
and Their Corporations (2nd edn, Ardsley, NY: Transnational Publishers, 2003) 61620.

(99) Bernstein v NV Nederland Sche-Amerikaansche Stoumuaart-Maatschappij 210 F

2d 375 (2nd Cir 1954).
(100) Banco Nacional de Cuba v Sabbatino 376 US 398 (1964), 420; First National City
Bank v Banco Nacional de Cuba 406 US 759 (1972), 768, 7703, 776; Alfred Dunhill of
London, Inc v Cuba 425 US 682 (1976), 725; WS Kirkpatrick & Co v Environmental
Tectonics Corp 493 US 400 (1990), 405.
(101) See Dellapenna (n 98 above) 6269; Restatement (Third) of Foreign Relations
Law, 443, Reporters note 8.
(102) Associated Container Transp (Austl) Ltd v United States 705 F 2d 53 (2nd Cir
1983), 61.
(103) Timberlane Lumber Co v Bank of America, NT & SA 549 F 2d 597 (9th Cir 1976),
606.
(104) 425 US 682 (1976), 695, 715, 72430.
(105) 493 US 400 (1990), 404.
(106) Hunt v Mobil Oil Co 550 F 2d 68 (2nd Cir), cert denied, 434 US 984 (1977);
Dominicus Americana Bohio v Gulf & Western Indus, Inc 473 F Supp 680 (SDNY 1979),
68990; Industrial Inv Development Corp v Mitsui & Co 594 F 2d 48 (5th Cir 1979) 52,
n 9, cert denied, 445 US 903 (1980); Clayco Petroleum Corp v Occidental Petroleum
Corp 712 F 2d 404 (9th Cir 1983), 408; Northrop Corp v McDonnell Douglas Corp 705 F
2d 1030 (9th Cir 1983), 1048, n 25; Sage Int'l, Ltd v Cadillac Gage Co 534 F Supp 896
(ED Mich 1981), 91011; Williams v Curtiss-Wright Corp 694 F 2d 300 (3rd Cir 1982),
302.
(107) 1995 International Guidelines, 3.33; Letter from Monroe Leigh, Legal Adviser of
the Department of State, to the Solicitor General, 26 November 1976, reprinted in
Alfred Dunhill of London, Inc v Republic of Cuba 425 US 682 (1976), 706.
(108) See Dellapenna (n 98 above) 6205 and references cited therein.
(109) For antitrust examples see Sage Int'l, Ltd v Cadillac Gage Co 534 F Supp 896
(ED Mich 1981), 9068; Outboard Marine Corp v Pezetel 461 F Supp 384 (D Del 1978),
398, n 28.
(110) Ricaud v American Metal Co 246 US 304 (1918), 309; Timberlane Lumber Co v
Bank of America 549 F 2d 597 (9th Cir 1976), 602; Northrop Corp v McDonnell
Douglas Corp 705 F 2d 1030 (9th Cir), 1046, cert denied, 464 US 849 (1983).
(111) Alfred Dunhill of London, Inc v Republic of Cuba 425 US 682 (1976), 695706.
(112) Ibid 7034.
(113) International Ass'n of Machinists & Aerospace Workers v Organization of
Petroleum Exporting Countries 649 F 2d 1354 (9th Cir 1981)|13589, cert denied, 454
US 1163 (1982).
(114) Ibid 13601.
(115) DA Brittenham, Foreign sovereign immunity and commercial activity: a conflicts
approach (1983) 83 Columbia Law Review 1440, 144750, 150910.
(116) B Hawk, United States, Common Market and International Antitrust: A
Comparative Guide (2nd edn, Englewood Cliffs: Prentice Hall, 1991 supp), 605
. See also Northrop Corp v McDonnell Douglas Corp 705 F 2d 1030 (9th
Cir 1983), 1048.
(117) For criticism of this point see Brittenham (n 115 above) 144750; Note, The
applicability of the antitrust laws to international cartels involving foreign
governments (1982) 91 Yale Law Journal 765, 781, n 87 .
(118) JW Dellapenna, Suing Foreign Governments and Their Corporations (2nd edn,
Ardsley, NY: Transnational Publishers, 2003) 599.
(119) See United Nuclear Corp v General Atomic Co 629 P 2d 231 (1980)|appeal
dismissed, 451 US 901 (1981); Australia/Eastern USA Shipping Conference v United
States 19821 Trade Cas 64,721 (D DC 1982), 74,06974,070 (The court rejected the
argument of the recipients of a Civil Investigative Demand that the act of state
doctrine prevented the DOJ from inquiring into the ocean carriage of goods for the
Australian Meat and Livestock Corporation and the New Zealand Wool Board, both
being agencies of their respective governments. Several reasons were given for not
allowing the defence: the doctrine's weak claim at the investigative stage, combined
with the DOJ's representation that it does not intend to investigate the motivation or
propriety of foreign government action; the possibility that the actions of the
defendants would be found to be more akin to private commercial acts than to public
sovereign acts; and the interest of the US government in pursuing investigation in
furtherance of the enforcement of the US antitrust laws); Associated Container Transp
(Australia) Ltd v United States 705 F 2d 53 (2nd Cir 1983), 601; Environmental
Tectonics Corp v WS Kirkpatrick, Inc 847 F 2d 1052 (3rd Cir 1988)|aff'd, 493 US 400
(1990).
(120) Clayco Petroleum Corp v Occidental Petroleum Corp 712 F 2d 404 (9th Cir
1983), 4067 (a sovereign decision authorizing the exploitation of important national
resources ); cf Industrial Inv Development Corp v Mitsui & Co 594 F 2d 48 (5th Cir
1979)|54, cert denied, 445 US 903 (1980) (denial of a timber cutting licence).
(121) Timberlane Lumber Co v Bank of America, NT & SA 549 F 2d 597 (9th Cir 1976),
6068; Remington Rand Corp v Business Systems, Inc 830 F 2d 1260 (3rd Cir 1987),
1265; Dominicus Americana Bohio v Gulf & Western Industries, Inc 473 F Supp 680
(SDNY 1979), 689.
(122) Mannington Mills, Inc v Congoleum Corp 595 F 2d 1287 (3rd Cir 1979), 1293; cf
Williams v Curtiss-Wright Corp 694 F 2d 300 (3rd Cir 1982), where the same court
clarified its holding in Mannington Mills, saying there is no automatic exception
whenever a foreign act could be classified as ministerial.
(123) The 1995 International Guidelines, 3.33 speak of when a restraint on
competition arises directly from the act of a foreign sovereign, such as the grant of a
licence, award of a contract or expropriation of property.
(124) See Continental Ore Co v Union Carbide 370 US 690 (1961), 707; Linseman v
World Hockey Ass'n 439 F Supp 1315 (D Conn 1977), 1324; Mannington Mills, Inc v
Congoleum Corp 595 F 2d 1287 (3rd Cir 1979), 1293; In re Uranium Antitrust
Litigation 617 F 2d 1248 (7th Cir 1980), 1254, n 21; Bulk Oil (Zug) AG v Sun Company,
Inc 583 F Supp 1134 (1983), 1138; Virgin Atlantic Airways v British Airways 872 F
Supp 52 (SDNY 1994), 5960; McElderry v Cathay Pacific Airways, Ltd 678 F Supp
1071 (SDNY 1988), 1079.
(125) American Banana Co v United Fruit Co 213 US 347 (1909), 358.
(126) WS Kirkpatrick and Co v Environmental Tectonics Corp 493 US 400 (1990).
(127) The US government appeared to argue that the conspiracy had three principal
elements: US financial support, a monopolistic buying agency in Mexico, and a
monopolistic selling agency in the US. AW Graziano, Foreign governmental
compulsion as a defence in U.S. antitrust law (1967) 7 Virginia Journal of
International Law 100, 135, n 186 .
(186) Tokyo District Court judgment, 27 May 1953, translated in (1957) 1 Japanese
Annual of International Law 56.
(128) United States v Sisal Sales Corp 274 US 268 (1927), 276. This interpretation in
confirmed by WS Kirkpatrick & Co v Environmental Tectonics Corp 493 US 400 (1991),
407.
(129) In Clayco Petroleum Corp v Occidental Petroleum Corp 712 F 2d 404 (9th Cir
1983), 406, Sisal Sales was described as the type of case in which sovereign activity
merely forms the background to the dispute.
(130) B Hawk, United States, Common Market and International Antitrust: A
Comparative Guide (2nd edn, Englewood Cliffs: Prentice Hall, 1991 supp), 592.

(131) See, eg, Williams v Curtiss-Wright Corp 694 F 2d 300 (3rd Cir 1982); Industrial
Inv Development Corp v Mitsui & Co 594 F 2d 48 (5th Cir 1979)|cert denied, 445 US
903 (1980); Timberlane Lumber Co v Bank of America, NT & SA 549 F 2d 597 (9th Cir
1976). See also Mannington Mills, Inc v Congoleum Corp 595 F 2d 1287 (3rd Cir 1979),
1293.
(132) 370 US 690 (1961), 7067.
(133) Occidental Petroleum Corp v Buttes Gas & Oil Co 331 F Supp 92 (CD Cal 1971),
10913, aff'd per curiam, 461 F 2d 1261 (9th Cir)|cert denied, 409 US 950 (1972). The
British case on the same dispute is Buttes Gas & Oil Co v Hammer [1975] 2 All ER 51
(CA), reversed|[1981] 3 All ER 616 (HL).
(134) Ibid 110.
(135) Hunt v Mobil Oil Corp 550 F 2d 68 (2nd Cir 1977)|cert denied, 434 US 984
(1977).
(136) Ibid 778.
(137) Ibid.
(138) Occidental of Umm al Qaywayn, Inc v A Certain Cargo of Petroleum 577 F 2d
1196 (5th Cir 1978)|cert denied, 442 US 928 (1979); ONE Shipping, Ltd v Flota
Mercante Grancolombiana, SA, 830 F 2d 449, 4523, 4578 (dissent) (2nd Cir 1987)|
cert denied, 488 US 923 (1988). See also Clayco Petroleum Corp v Occidental
Petroleum Corp 712 F 2d 404 (9th Cir 1983), 4078.
(139) WS Kirkpatrick & Co v Environmental Techtonics Corp 493 US 400 (1990).
(140) The court stated that the plaintiffs could not succeed without proving that the
defendants conspiracy caused the Libyan government to confiscate their property.
In order to prove damages, an antitrust plaintiff must show that but for the conspiracy
the foreign government would not have acted as it did, which requires an inquiry into
the motivation of the foreign state and that inevitably involves its validity. Ibid 77.
In General Aircraft Corp v Air America, Inc 482 F Supp 3 (D DC 1979), 6, the court said
that an antitrust plaintiff cannot recover if the claim is partially based upon the
sovereign act of a foreign government even where the act is induced by a non-
governmental defendant. Here, the plaintiff alleged that the Central Intelligence
Agency and foreign and domestic corporations had conspired to distribute false and
misleading performance reports about the plaintiff's aircraft, causing lost sales to
foreign governments. However, in Blanchard & Co, Inc v Barrick Gold Corp 20032
Trade Cas 74,172 (ED La 2003), the court distinguished Hunt. The plaintiffs
complained of antitrust injury involving a conspiracy between the defendants to
artificially manipulate the price of gold. Although the mechanics of the alleged
manipulation involved leasing gold from sovereigns, the sovereigns were not
implicated in the conspiracy, nor was the complained of antitrust injury attributable to
the foreign sovereigns acts. The court was prepared to further consider the interests
of the central banks at the remedial stage.
(141) Northrop Corp v McDonnell Douglas Corp 498 F Supp 1112 (CD Cal 1980), rev'd,
705 F 2d 1030 (9th Cir 1983), 10479, cert denied, 464 US 849 (1983); Williams v
Curtiss-Wright Corp 694 F 2d 300 (3rd Cir 1982); Industrial Inv Development Corp v
Mitsui & Co 594 F 2d 48 (5th Cir 1979)|cert denied, 445 US 903 (1980).
(142) Dominicus Americana Bohio v Gulf & Western Indus, Inc 473 F Supp 680 (SDNY
1979), 68990.
(143) Industrial Inv Development Corp v Mitsui & Co 594 F 2d 48 (5th Cir 1979), 55|
cert denied, 445 US 903 (1980).
(144) 594 F 2d 48, 54.
(145) Ibid 51, 53.
(146) Ibid 54.
(147) Ibid 55.
(148) Ibid.
(149) Ibid.
(150) Clayco Petroleum Corp v Occidental Petroleum Corp 712 F 2d 404 (9th Cir
1983)|408 cert denied, 464 US 1040 (1984). Clayco alleged that Occidental had used
secret payments to secure offshore rights from an Arab Sheikdom which otherwise
would have been awarded to Clayco. The court held that a sovereign decision
authorising exploitation of important national resources was a public act within the
act of state doctrine.
(151) 915 F 2d 1024 (6th Cir 1990), cert denied, 498 US 1086 (1991).
(152) 49 F Supp 2d 750 (DNJ 1999), 759. The court noted that the complaint was not a
model of clarity.
(153) Ibid 770.
(154) The court relied upon City of Long Beach v Standard Oil Co of Cal 872 F 2d 1401
(9th Cir 1989), 14089, which held that the establishment of price ceilings by the
federal government, after the conspiracy to fix purchase prices began, does not in
itself mean that the companies conduct could not have caused injury. The plaintiff did
not argue that the companies conspired to influence the price control programme or
the price control programme was the cause of its injury, but instead argued that
without the price fixing, historical prices would have been higher and therefore the
price ceiling might have been higher.
(155) 182 F 3d 843 (11th Cir 1999).
(156) Ibid 84950.
(157) Ibid 849.
(158) Ibid 84950.
(159) 19931 Trade Cas 70,184 (SDNY 1993), 69,863.
(160) 583 F Supp 1134 (SDNY 1983), 1138.
(161) 197 F 3d 694 (5th Cir 1999). Customers first called the plaintiff in Texas and
then entered the new phone number they wanted to call. The plaintiff dialled that new
number from the US and effectively spliced the customer's first call to the new call,
enabling the customer to communicate with the new destination. Each call had a
Mexican leg and a US leg. The Mexican leg was carried on toll free numbers the
plaintiff received from MCI, which in turn leased the lines from Telmex. The plaintiff
alleged that the defendants conspired to prevent it from obtaining an alternative
service from a competitor (AT'T) of the defendants, causing the collapse of the
plaintiff's business.
(162) Arguably the plaintiff's business involved both the export and the import of
phone services.
(163) 197 F 3d 694, 71213.
(164) 197 F 3d 694, 713.
(165) See generally M Singer, The act of state doctrine in the United Kingdom: an
analysis with comparison to United States practice (1981) 75 American Journal of
International Law 283 ; H Fox, The Law of State Immunity (Oxford: Oxford
University Press, 2002) ch 11.
(166) See Buttes Gas and Oil Co v Hammer [1981] 3 All ER 616 (HL), 6278.
(167) See, eg, Petrotimor Companhia de Petroleos SARL v Commonwealth of Australia
[2003] FCAFC 3, para 3345; Luther v Sagor [1921] 3 KB 532 (CA); see also Collins
(ed), Dicey and Morris on the Conflict of Laws (12th edn, London: Sweet & Maxwell,
1993, 1997 supp).
(168) Kuwait Airways Corp v Iraqi Airways Company (Nos 4 and 5) [2002] 2 WLR 1353
(HL).
(169) Kuwait Airways Corp v Iraqi Airways Company (Nos 4 and 5) [2002] 2 WLR 1353
(HL), para 135 per Lord Hope; Kuwait Airways Corp v Iraqi Airways Company (Nos 4
and 5) [2001] 3 WLR 1117 (CA), 1216, 1222; Peer International Corp v Termidor Music
Publishers Ltd [2004] 2 WLR 849 (CA), 856. See also PE Nygh, Conflict of Laws in
Australia (6th edn, Sydney: Butterworths, 1995) 128 ; Dicey and Morris (n
167 above) 111.
(170) Nissan v Attorney General [1970] AC 179 (HL), 238, 240 per Lord Pearce.
(171) Dicey and Morris (n 167 above) 111. Compare Buck v A-G (UK) [1965] Ch 745
with McCrea v Minister for Customs and Justice (2004) 212 ALR 297, 304, affirmed on
other grounds, [2005] FCAFC 180.
(172) [1981] 3 All ER 616 (HL), 628 per Lord Wilberforce. See also Kuwait Airways
Corp v Iraqi Airways Co [1995] 3 All ER 694 (HL), 71215.
(173) Ibid 628, 632.
(174) See JH Rayner Ltd v Dept of Trade [1990] 2 AC 418 (HL), 519 per Lord Oliver.
(175) [1985] 2 All ER 1025 (CA).
(176) Attorney General (UK) v Heinemann Publishers Australia Pty (1988) 165 CLR 30
(HCA), 40 per Mason CJ, Wilson, Deane, Dawson, Toohey, and Gaudron JJ.
(177) Petrotimor Companhia de Petroleos SARL v Commonwealth of Australia [2003]
FCAFC 3; Victoria Aircraft Leasing Ltd v United States [2005] VSCA 76.
(178) In JH Rayner Ltd v Dept of Trade [1990] 2 AC 418 (HL), 520 per Lord Oliver; cf
Maclaine Watson & Co Ltd v International Tin Council [1989] Ch 253 (CA), 285 per Kerr
LJ (Nourse LJ agreeing, Ralph Gison LJ dissenting).
(179) 16 April 1992, English HC, Evans J. Noted in H Fox, A commercial transaction
under the State Immunity Act 1978 (1994) 43 International and Comparative Law
Quarterly 193, 201.
(180) Kuwait Airways Corp v Iraqi Airways Co [1995] 3 All ER 694 (HL), 713.
(181) Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5) [2001] 3 WLR 1117 (CA),
12048.
(182) Kuwait Airways Corp v Iraqi Airways Co (Nos 4 and 5) [2002] 2 WLR 1353 (HL).
See also Republic of Ecuador v Occidental Exploration and Production Co [2006] 2
WLR 70 (CA).
(183) See FA Mann, Foreign Affairs in English Courts (Oxford: Clarendon Press, 1986)
164, 1756 ; M Akehurst, Jurisdiction in international law (19723) 46
British Yearbook of International Law 145, 24450.
(184) Akehurst (n 183 above) 247. See also G Wang China's attitude towards state
immunityan Eastern approach in N Ando (ed), Japan and International Law Past,
Present and Future (The Hague: Kluwer Law, 1999) 153 ; G Wang A
comparative study on the act of state doctrinewith special reference to the Hong
Kong Court of Final Appeal in G Wang and Z Wei (eds), Legal Developments in China:
Market Economy and Law (Hong Kong: Sweet & Maxwell, 1996) 249.
(185) WH Reeves, Act of stateforeign decisions cited in the Sabbatino Case: a
rebuttal and memorandum of law (1965) 33 Fordham Law Review 599.
(187) Joined Cases C-395 and 396/96P, judgment 16 March 2000, para 78.
(188) IV/26.870, Aluminium Imports from Eastern Europe [1985] OJ L92/1, para 10.2.
(189) Interamerican Ref Corp v Texaco Maracaibo, Inc 307 F Supp 1291 (D Del 1970),
1298. In Bulk Oil (Zug) AG v Sun Company, Inc 583 F Supp 1134 (SDNY 1983), 1138,
compulsion was the major factor that led the court to hold that the act of state
doctrine was applicable.
(190) United States v Watchmakers of Switzerland Information Center, Inc 1963 Trade
Cas 70,600 (SDNY 1962), 77,456457; 1965 Trade Cas 71,352 (SDNY 1965);
Mannington Mills, Inc v Congoleum Corp 595 F 2d 1287 (3rd Cir 1979), 1293;
Outboard Marine Corp v Pezetel 461 F Supp 384 (D Del 1978), 3989, n 29; Linseman
v World Hockey Assn 439 F Supp 1315 (D Conn 1977), 1324; In re Japanese Electronic
Products Antitrust Litigation 723 F 2d 238 (3rd Cir 1983), 315; Williams v Curtiss-
Wright Corp 694 F 2d 300 (3rd Cir 1982), 303; 1995 International Guidelines, 3.32.
Some cases have rejected the defence on the facts. See In re Uranium Litigation 480 F
Supp 1138 (ND Ill 1979); United Nuclear Corp v General Atomic Co 629 P 2d 231
(1980)|2613, appeal dismissed, 451 US 901 (1981).Other cases have suggested that
the defence is not always absolute. Sabre Shipping Corp v American President Lines,
Ltd 285 F Supp 949 (SDNY 1968)|954, cert denied, 407 F 2d 173 (2nd Cir 1969), cert
denied sub nom, 395 US 922 (1969); Timberlane Lumber Co v Bank of America, NT &
SA 549 F 2d 597 (9th Cir 1976), 607, n 10. In Hartford Fire Ins v California 509 US 764
(1993), sovereign compulsion appeared to be a prerequisite for a comity analysis. The
US DOJ has also asserted that the defence is not available against the government.
See Brief of United States as Amicus Curiae, Matsushita Elec Co v Zenith Radio Corp
No 832004 (June 1985) p 234.
(191) For an unusually broad exemption see United States v Standard Oil Co (New
Jersey) 1969 Trade Cas 72,742 (SDNY 1968), para V(c)(2).
(192) See United States v Imperial Chem Indus, Ltd 105 F Supp 215 (SDNY 1952), 228;
United States v C Itoh & Co 198283 Trade Cas 65,010 (WD Wash 1982), 70,608.
(193) Continental Ore Co v Union Carbide 370 US 690 (1961), 7067; Hartford Fire
Insurance v California 509 US 764 (1993); cf ONE Shipping, Ltd v Flota Mercante
Grancolombiana, SA 830 F 2d 449 (2nd Cir 1987)|453, cert denied, 488 US 923
(1988).
(194) The 1995 International Guidelines, 3.32.
(195) Interamerican Ref Corp v Texaco Maracaibo, Inc 307 F Supp 1291 (D Del 1970),
12956. However, most courts have looked for positive legislation or formal judicial or
administrative procedures. SW Waller, Redefining the foreign compulsion defense in
U.S. antitrust law: the Japanese auto restraints and beyond (1982) 14 Law and Policy
in International Business 747, 794.
(196) B Hawk, United States, Common Market and International Antitrust: A
Comparative Guide (2nd edn, Englewood Cliffs: Prentice Hall, 1991 supp), 628.

(197) 1995 International Guidelines, 3.32, n 94. See also Matsushita Electric
Industrial Co Ltd et al v Zenith Radio Corporation, Brief of the Governments of
Australia, Canada, France and the United Kingdom of Great Britain and Northern
Ireland as Amici Curiae in Support of Petitioners, 1985 WL 669665. Government
statements made after the challenged conduct has taken place should perhaps not
always be considered as conclusive.
(198) See, eg, Access Telecom, Inc v MCI Telecommunications Corp 197 F 3d 694 (5th
Cir 1999), 7126.
(199) Waller (n 195 above) 8079.
(200) Hawk (n 196 above) 629.
(201) Competitive Impact Statement for Proposed Consent Judgment in United States
v C Itoh & Co 47 Fed Reg 30,311 (1982), 30,312315.
(202) See Waller (n 195 above) 794801.
(203) In re Japanese Electronic Products Antitrust Litigation 723 F 2d 238 (3rd Cir
1983), 315. The court also noted that there was evidence that many of the defendants
had departed from the government policy and taken steps to conceal such departures
from the Japanese government, and the defendants export conduct may not have
been legally compelled.
(204) Matsushita Electric Industrial Co Ltd et al v Zenith Radio Corporation Brief of
Government of Japan as Amicus Curiae in Support of the Petitioners, 1985 WL 669664.
(205) 1995 International Guidelines, 3.32.
(206) Atwood, Brewster, Waller (n 58 above) 8.25.
(207) Interamerican Ref Corp v Texaco Maracaibo, Inc 307 F Supp 1291 (D Del 1970),
1297; United Nuclear Corp v General Atomic Co P 2d 231 (1980)|263, appeal
dismissed, 451 US 901 (1981). See also the domestic state action doctrine case of
Cantor v Detroit Edison Co 428 US 579 (1976), 5934.
(208) United States v Watchmakers of Switzerland Information Center, Inc 1963 Trade
Cas 70,600 (SDNY 1962); Interamerican Ref Corp v Texaco Maracaibo, Inc 307 F
Supp 1291 (D Del 1970). For critiques of Interamerican on this point see Atwood,
Brewster, Waller (n 58 above) 8.26; DI Baker, Antitrust remedies against
government-inspired boycotts, shortages, and squeezes: wandering on the road to
Mecca (1976) 61 Cornell Law Review 911, 91819 ; SW Waller,
Redefining the foreign compulsion defense in U.S. antitrust law: the Japanese auto
restraints and beyond (1982) 14 Law and Policy in International Business, 806.

(209) Sabre Shipping Corp v American President Lines, Ltd 285 F Supp 949 (1968),
954; United Nuclear Corp v General Atomic Co 629 P 2d 231 (N Mex Sup Ct 1980)|263,
appeal dismissed, 451 US 901 (1981); Linseman v World Hockey Ass'n 439 F Supp
1315 (D Conn 1977), 1325.
(210) See, eg, United States v United Fruit Co 19871 Trade Cas 62,001 (ED La
1978), para VII.
(211) The rejection of Interamerican Ref Corp in Case K of the 1977 International
Antitrust Guide and the DOJ's adherence to a strict territorial limitation on the
compulsion defence can perhaps best be understood in the context of preserving the
DOJ's litigation position in United States v Bechtel Corp Civil Action No c-7699 (GBH),
(ND Cal), complaint filed 16 January 1976; 19791 Trade Cas 62,429 (ND Cal 1979)
(consent decree); 19791 Trade Cas 62,430 (ND Cal 1979) (opinion approving
consent decree); 19801 Trade Cas 64,111 (9th Cir 1981) (consent decree affirmed).
B Hawk, United States, Common Market and International Antitrust: A Comparative
Guide (2nd edn, Englewood Cliffs: Prentice Hall, 1991 supp), 625 . The
case concerned the Arab League boycott of Israel and is complicated by the pursuit of
US foreign policy objectives via an antitrust action. The antitrust complaint against
Bechtel was carefully drafted to narrow the challenge to the boycott's effects within
the US, which allowed the government to assert a territorial limitation on the
compulsion defence. See generally Note, The Arab boycott: the antitrust challenge of
United States v Bechtel in light of the Export Administration Amendments of 1977
(1979) 92 Harvard Law Review 1440.
(212) Restatement (Third) of Foreign Relations Law, 419, 441, and 442.
(213) 1995 International Guidelines, 3.32.
(214) See Illinois ex rel Burris v Panhandle E Pipe Line Co 935 F 2d 1469 (7th Cir
1991), 1484, n 14, cert denied, 502 US 1094 (1992); City of Chanute v Williams
Natural Gas Co 955 F 2d 641 (10th Cir), 6479, 655|cert denied, 506 US 831 (1992);
MCI Communications Corp v American Tel & Tel Co 708 F 2d 1081 (7th Cir 1982)|1108,
cert denied, 464 US 891 (1983).
(215) See City of Anaheim v Southern California Edison 955 F2d 1373 (9th Cir 1992);
Illinois ex rel Burris v Panhandle E Pipe Line Co 935 F 2d 1469 (7th Cir 1991), 1484, n
14, cert denied, 502 US 1094 (1992); MCI Communications Corp v American Tel & Tel
Co 708 F 2d 1081 (7th Cir 1982), 110810|1138, cert denied, 464 US 891 (1983).
(216) Re the Franco-Japanese Ballbearings Agreement [1975] 1 CMLR D8 (EC
Commission), D14D15. See also Re the French and Taiwansese Mushroom Packers
[1975] 1 CMLR D83.
(217) [1985] OJ L92/1, para 10.2.
(218) Cases 89, 104, 114, 116, 117, 125129/85 A Ahlstrm Oy v EC Commission
[1988] ECR 5193, paras 19 and 20 (where two States have jurisdiction to lay down
and enforce rules and the effect of those rules is that a person finds himself subject to
contradictory orders as to the conduct he must adopt, each State is obliged to
exercise its jurisdiction with moderation. )
(219) JT Lang, Reconciling European Community antitrust and antidumping, transport
and trade safeguard policiespractical problems [1988] Fordham Corporate Law
Institute 7.817.84.
(220) A Negishi, Foreign corporations and the Antimonopoly Act (1995) 25 Law in
Japan 84, 9192 . Citing Ksel Torihiki linkai Jimukyoku [JFTC], Danpingu
Kisei to Kys Seisakau Dokusenkinshiho lkigai Teki [Dumping Regulations and
Competition Policy: Extraterritorial Application of Antimonopoly Law] (1990) 5199.

(221) However, the JFTC and the courts may find conduct that has been merely
encouraged by a Japanese ministry to be a violation of the AML. The Oil Cartel cases
suggest that in rare circumstances a cartel may be justified if it was directed by
administrative guidance. See JFTC, Guidelines concerning administrative guidance
under the Antimonopoly Act 30 June 1994, http://www.jftc.go.jp/e-
page/legislation/ama/administrative.pdf, visited on 1 March 2007; Symposium: The
Oil Cartel Cases: the end of an era (1982) 15 Law in Japan 1; K Sanekata,
Administrative guidance and the Antimonopoly Law (1977) 10 Law in Japan 65
; H Yamane, Deregulation and competition law enforcement in Japan:
guided competition? (2000) 23:3 Journal of World Competition 141, 152155.

(222) See E Jardine, Extraterritorial enforcement of Australian antitrust legislation

(1990) 12 Sydney Law Review 652 ; D Metz, The extraterritorial
operation of the Trade Practices Acta time for reappraisal? (1996) 4 Trade Practices
Law Journal 185
(223) Meyer Heine Pty Ltd v China Navigation Co Ltd (197566) 115 CLR 10, 37 per
Taylor J, 42 per Menzies J.
(224) Controller and Auditor General v Sir Ronald Davidson [1996] 2 NZLR 278 (CA),
342.
(225) Cf NT Power Generation Pty Ltd v Power and Water Authority [2004] HCA 48,
para 136, where the majority of the court observed: Even if PAWA received a s 16 [of
the PAWA Act] direction from the Minister and acted in accordance with it, in deciding
what PAWA did, it is necessary to look at the conduct and mental state of both the
Minister and the Chief Executive Officer. What PAWA did in response to a direction of
the Minister was conduct of PAWA, and the Minister's accompanying mental state was
PAWA's mental state. That would be so, even if a s 16 direction came without any
solicitation by or warning to the Chief Executive Officer of PAWA. It is also a fortiori
where, as here, the Chief Executive Officer of PAWA and the Acting Under Treasurer
solicited the approval of the recommendation which PAWA said constitutes the s 16
direction. The result may not have been the same if the case arose in New Zealand.
See Lumber Specialties Ltd v Hodgson [2000] 2 NZLR 347.
(226) See New Zealand Apple and Pear Marketing Board v Apple Fields [1991] 1 NZLR
257 (PC), 261 (Whether in every case the exercise of a statutory power by one
person with the required statutory approval of another would amount to an
arrangement it is unnecessary to decide. Here there was much more.)
(227) See generally Atwood, Brewster, Waller (n 58 above) 8.22; B Hawk, United
States, Common Market and International Antitrust: A Comparative Guide (2nd edn,
Englewood Cliffs: Prentice Hall, 1991 supp), 61420.
(228) Interamerican Ref Corp v Texaco Maracaibo, Inc 307 F Supp 1291 (D Del 1970),
12978; In re Grand Jury Proceedings 532 F 2d 404 (5th Cir 1976), 410, cert denied,
429 US 940 (1976); Timberlane Lumber Co v Bank of America 549 F 2d 597 (9th Cir
1976), 606; 1995 International Guidelines, 3.32.
(229) S Timberg, Sovereign immunity and act of state defenses: transnational
boycotts and economic coercion (1976) 55 Texas Law Review 1, 212 ;
SW Waller, Redefining the foreign compulsion defense in U.S. antitrust law: the
Japanese auto restraints and beyond (1982) 14 Law and Policy in International
Business 78992 ; cf Timberlane Lumber Co v Bank of America 549 F 2d
597 (9th Cir 1976) 606 (the compulsion defence is nothing more than a corollary to
the act of state doctrine); Linseman v World Hockey Assn 439 F Supp 1315 (D Conn
1977), 1324.
(230) Hawk (n 227 above) 61516.
(231) AD Neale and ML Stephens, International Business and National Jurisdiction
(Oxford: Clarendon Press, 1988) 171.
(232) Interamerican Ref Corp v Texaco Maracaibo, Inc 307 F Supp 1291 (D Del 1970),
1298. See also Atwood, Brewster, Waller (n 58 above) 8.22; Competitive Impact
Statement for Proposed Consent Judgment in United States v Bechtel Corp 42 Fed Reg
3,716 (19 January 1977), 3,723.
(233) United States v Watchmakers of Switzerland Information Center, Inc 1963 Trade
Cas 70,600 (SDNY 1962), 77,456; 1995 International Guidelines, 3.32.
(234) 1988 International Guidelines, Case 16. See generally Hawk (n 227 above) 632
5; Waller (n 229 above) 7547; JP Davidow, Cartels, competition law and the
regulation of international trade (1983) 15 New York University Journal of
International Law & Politics 351 ; 19811 Trade Cas 63,998 (letter).
(235) Matsushita Electric Industrial Co Ltd et al v Zenith Radio Corporation brief for
United States as Amicus Curiae in Support of the Petitioners, 1985 WL 669667, pp 18
20.
(236) United States v Socony-Vacuum Oil Co 310 US 150 (1940) 2267|rehearing
denied, 310 US 658 (1940).
(237) 124 S Ct 2359 (2004), 2366.
(238) For example, internet domain name registration services in the US may have
greater immunity under US than under foreign competition law and could be the
target of foreign competition law suits. Name.Space, Inc v Network Solutions, Inc, 202
F 3d 573 (2nd Cir 2000); Thomas v Network Solutions, Inc 176 F 3d 500 (DC Cir 1999).
(239) Southern Motor Carriers Rate Conference, Inc v United States 471 US 48 (1985),
56, n 19.
(240) Atwood, Brewster and Waller (n 58 above) 8.15.
(241) See, eg, JS Stanford, The application of the Sherman Act to conduct outside the
United States: a view from abroad (1978) 11 Cornell International Law Journal 195,
203.
(242) FH Easterbrook, Antitrust and the economics of federalism (1983) 26 Journal
of Law & Economics 23, 2931 ; JS Wiley, A capture theory of antitrust
federalism (1986) 99 Harvard Law Review 713, 724 , n 49.
(243) Competitive Impact Statement for Proposed Consent Judgment in United States
v Bechtel Corp 42 Fed Reg 3,716 (1977), 3,718.
(244) See, eg, Stanford (n 241 above) 212.
(245) CAB v British Airways Bd 433 F Supp 1379 (SDNY 1977), 13878. The court
considered that the effect, vaguely schizophrenic, is that of looking at oneself in the
mirror and sternly telling oneself what to do.
(246) JP Griffin, Jurisdiction and enforcement: foreign governmental reactions to U.S.
assertions of extraterritorial jurisdiction (1998) 6 George Mason University Law
Review 505, 51819.
(247) Eastern Railroad Presidents Conference v Noerr Motor Freight, Inc 365 US 127
(1961).
(248) United Mine Workers v Pennington 381 US 657 (1965); California Motor
Transport Co v Trucking Unlimited 404 US 508 (1972); City of Columbia v Omni
Outdoor Advertising, Inc 499 US 365 (1991); Professional Real Estate Investors, Inc v
Columbia Pictures Indus 508 US 49 (1993).
(249) 493 US 411 (1990)
(250) The lower courts have disagreed on whether there is a commercial exception to
Noerr immunity. H Hovenkamp, Federal Antitrust Policy: The Law of Competition and
its Practice (3rd edn, St Paul: West Publishers, 2005) 696700.
(251) 404 US 508 (1972).
(252) City of Columbia v Omni Outdoor Advertising, Inc 499 US 365 (1991), 380.
(253) Ibid 382.
(254) Professional Real Estate Investors, Inc v Columbia Pictures Indus 508 US 49
(1993), 601. The court expressly declined to say whether and, if so, to what extent
Noerr permits the imposition of antitrust liability for a litigant's fraud or other
misrepresentations. Ibid 61 n 6.
(255) Ibid 61.
(256) 486 US 492 (1988), 510.
(257) Continental Ore Co v Union Carbide & Carbon Corp 370 US 690 (1962), 7078.
(258) Coastal States Marketing, Inc v Hunt 694 F 2d 1358 (5th Cir 1983) at 1365. See
also United Mine Workers v Pennington 381 US 657 (1965), 671, n 4, where the court
distinguished Continental Ore as a case not involving a public official.
(259) Occidental Petroleum Corp v Buttes Gas & Oil Co 331 F Supp 92 (CD Cal 1971),
107, aff'd on other grounds, 461 F 2d 1261 (9th Cir), cert denied, 409 US 950 (1972).
(260) Associated Container Transp (Australia), Ltd v United States 705 F 2d 53 (2nd
Cir 1982), 60, n 10, 62; Industrial Inv Dev Corp v Mitsui & Co 671 F 2d 876 (5th Cir
1982), 882, n 6; Bulkferts, Inc v Salatin, Inc 574 F Supp 6 (SDNY 1983), 9; Dominicus
Americana Bohio v Gulf & Western Industries, Inc 473 F Supp 680 (SDNY 1979), 690;
Laker Airways, Ltd v Sabena, Belgian World Airlines 731 F 2d 909 (DC Cir 1984), 942.
(261) 331 F Supp 92 (CD Cal 1971), 1078, aff'd on other grounds, 461 F 2d 1261 (9th
Cir), cert denied, 409 US 950 (1972).
(262) Australia/Eastern USA Shipping Conference v United States 537 F Supp 807
(DDC 1982), 812.
(263) Ibid 81213.
(264) 694 F 2d 1358 (5th Cir 1983), 13667. See also Platt Saco Lowell Ltd v
Spindelfabrik Suessen-Schurr 19781 Trade Cas 61,898 (ND Ill 1977); United States v
Amax 1977 Trade Cas 61,467 (ND Ill 1977), 71,799; Zenith Radio Corp v Matsushita
Elec Indus Co 513 F Supp 1100 (ED Pa 1981), 11557, 1159, supp op, 513 F Supp
1334, aff'd in part and rev'd in part sub nom on other grounds, In re Japanese Elec.
Prod, Antitrust Litigation 723 F 2d 238 (3rd Cir 1983), 315, rev'd, Matsushita Electric
Industrial Co, Ltd v Zenith Radio Corporation 471 US 1002 (1986); Alpha Lyracom
Space Communications, Inc v Communications Satellite Corp 19931 Trade Cas
70,184 (SDNY 1993), 69,863; Glaverbel Societe Anonyme v Northlake Marketing &
Supply, Inc 45 F 3d 1550 (Fed Cir 1995), 1559. See DM Ely, The Noerr-Pennington
doctrine and the petitioning of foreign governments (1984) 84 Columbia Law Review
1343, 13467, n 27 ; DR Sampen, Petitioning foreign governments: the
act of state and Noerr-Pennington doctrines (1985) 15 Georgia Journal of
International and Comparative Law 205, 215 , n 68 for a sampling of
commentators opinions.
(265) 694 F 2d 1358 (5th Cir 1983), 1364.
(266) 1995 International Guidelines, 3.34.
(267) Dominicus Americana Bohio v Gulf & Western Industries, Inc 473 F Supp 680
(SDNY 1979), 690, n 3. See also Atwood, Brewster, Waller (n 58 above) 8.17.
(268) Dominicus Americana Bohio v Gulf & Western Industries, Inc 473 F Supp 680
(SDNY 1979), 690, n 3; Sulmeyer v Seven-Up Co 411 F Supp 635 (SDNY 1976), 6434;
Coastal States Marketing, Inc v Hunt 694 F 2d 1358 (5th Cir 1983), 1372.
(269) Australia/Eastern USA Shipping Conference v United States 19821 Trade Cas
64,721 (DDC 1981), 74,071; 537 F Supp 807 (DDC 1982); Associated Containers
Transportation (Australia) Ltd v United States 705 F 2d 53 (2nd Cir 1983), 5860.
(270) 604 F Supp 280 (DDC 1984), 287, affirmed, 731 F 2d 909 (DC Cir 1982), 942.
(271) See 596 F Supp 202 (DDC 1984), 205, n 9.
(272) Case T-111/96 ITT Promedia NV v Commission [1998] ECR II-2937, paras 2930,
5462. The CFI neither accepted nor rejected the test proposed by the Commission.
(273) Case T-6/97 Industrie des Poudres Sphriques v Commission [2001] 4 CMLR
1020.
(274) Joined Cases 395 and 396/96 P Compagnie Maritime Belge Transports SA v
Commission [2000] CMLR 1076.
(275) Ibid para 82.
(276) Ibid paras 83, 86.
(277) Australia Cadbury Schweppes Pty Ltd v Kenman Developments Pty Ltd (1991)
ATPR 41-116, 52,757; cf Venning v Suburban Taxi Service Pty Ltd (1996) ATPR 41-468,
41,753; Warman International v Envirotech Australia Pty Ltd (1986) 40-714, 47,827.
With respect to intellectual property rights enforcement see Australasian Performing
Rights Association Ltd v Ceridale Pty Ltd (1991) ATPR 41-074; Broderbund Software
Inc v Computermate Products (Australia) Pty Ltd (1992) ATPR 41-155; Trade Practices
Commission Background Paper, Application of the Trade Practices Act to Intellectual
Property (July 1991) para 5.4. See also SJ Welsman, Commercial power and
competitor litigation (1996) 24 Australian Business Law Review 85. New
Zealand Electricity Corp Ltd v Geotherm Energy Ltd [1992] 2 NZLR 641 (CA);
Telecom v Clear Communications [1992] 3 NZLR 247; cf Dunlop Flexible Hoses Ltd v
Hose Supplies (NZ) Ltd, High Court, Tauranga, CP 74/91, 14 February 1992, Fisher J.
See also GM Macmillan, Judicial review, competitors, and the court's discretion to
withhold a remedy [1995] New Zealand Law Review 192 ; P Scott,
Abuse of judicial and administrative processesan antitrust violation? (1993) 21
Australian Business Law Review 389 . See also Director of Investigation
and Research v Laidlaw (1992) 40 CPR (3d) 289, 344.
(278) 365 US 127 (1961), 137. The Supreme Court has not provided clear guidance on
the basis of the doctrine. See California Motor Transport Ltd v Trucking Unlimited 404
US 508 (1972), 510; FTC v Superior Court Trial Lawyers Ass'n 493 US 411 (1990), 429
31; City of Colombia v Omni Outdoor Advertising, Inc 499 US 365 (1991), 380;
Professional Real Estate Investors, Inc v Columbia Pictures Indus, Inc 508 US 49
(1993), 56.
(279) See, eg, DR Fischel1, Antitrust liability for attempts to influence government
action: the basis and limits of the Noerr-Pennington doctrine (1977) 45 University of
Chicago Law Review 80, 1201 ; CR McManis, Questionable corporate
payments abroad: an antitrust approach (1976) 86 Yale Law Journal 215, 240
; DM Ely, The Noerr-Pennington doctrine and the petitioning of foreign
governments (1984) 84 Columbia Law Review 1343 134855.
(280) 494 US 259 (1990). See MP Waxman, Threats of foreign group boycotts of
American industry made in response to U.S. government trade policy: illegal
anticompetitive activity or protected lobbying under the Noerr-Pennington doctrine?
(1996) 29 George Washington Journal of International Law and Economics 659, 6834.

(281) P Areeda and DF Turner, Antitrust Law: An Analysis of Antitrust Principles and
their Application (Boston: Little Brown, 1978) vol 1, para 239.
(282) See Coastal States Mktg, Inc v Hunt 694 F 2d 1358 (5th Cir 1983), 13667.
(283) Atwood, Brewster, Waller (n 58 above) 8.17.
(284) Ibid .
(285) Ely (n 279 above) 13667.
(286) Ibid 13678.
(287) B Hawk, United States, Common Market and International Antitrust: A
Comparative Guide (2nd edn, Englewood Cliffs: Prentice Hall, 1991 supp), 61314.

The Proper Scope of Transnational Competition Law

Chris Noonan
DOI:10.1093/acprof:oso/9780199207527.003.0010
Abstract and Keywords

This chapter addresses the issue of whether an additional, broader international

antitrust defence should be recognized and the form that such a defence should take.
Section 10.2 argues that a qualified effects doctrine is a justifiable and superior rule to
territorial jurisdiction for determining the scope of application of competition law.
Section 10.3 examines various ways to reduce the extent of concurrent jurisdiction.
Section 10.4 examines ways to improve the management of concurrent jurisdiction.
Section 10.5 summarizes the conclusions of Part II of the book.

Keywords: international antitrust defence, qualified effects doctrine, territorial

jurisdiction, concurrent jurisdiction, international law
10.1 Competition Law in Conflict of Laws Theory
The extraterritorial application of competition law has evolved with the changing
preferences for conflict of laws theories.1 Conflicts theory assists one to understand
many of the legal and policy choices associated with different approaches to
extraterritoriality application of competition law, even though today's theories are
little more than variations on themes that have been explored for centuries.2 Section
10.2 argues that a qualified effects doctrine is a justifiable and superior rule to
territorial jurisdiction for determining the scope of application of competition law.
Section 10.3 examines various ways to reduce the extent of concurrent jurisdiction.
Section 10.4 examines ways to improve the management of concurrent jurisdiction.
Section 10.5 summarizes the conclusions of Part II.
10.2 The Case for Proportionality in Extraterritoriality
10.2.1 Competition Law Jurisdiction and Multi-State Considerations
Choice of law processes are sometimes characterized as unilateral or multilateral. 3
Unilateral approaches focus on whether the forum's law applies to the activities in
question, without worrying about whether another forum might also apply its law.
Multilateral theories try to resolve conflicts of jurisdiction so that each activity is
assigned exclusively to the legislative jurisdiction of one state. A unilateral approach
to antitrust extraterritoriality would have no mechanism to avoid instances of
concurrent jurisdiction once a country is satisfied that its own claim (p.352) to
jurisdiction is valid. A unilateral rule need not be formulated without regard to the
interests of other countries or the multi-state system.
Some scholars have argued that a state's interest in enforcing its regulatory rules, like
antitrust, are important enough that the foreign interests should be ignored.4 Even if a
country has a strong interest in stopping foreign anticompetitive conduct, it does not
follow that that country's interests are best advanced by a maximal application of its
antitrust laws. The US antitrust agencies, for example, appear to accept that
international cooperation is often required for the effective application of antitrust law
in international cases and routinely take into account comity when deciding whether
to apply antitrust law extraterritorially. Executive support for an effects doctrine
should therefore not be equated with support for a unilateral approach, let alone an
approach that ignores foreign interests. A purely unilateral approach to jurisdiction
could lead to excessive extraterritoriality, needlessly antagonize foreign countries,
and hinder cooperation.5 Excessive extraterritoriality may frustrate the policies of all
states and harm the interests of both local and foreign nationals.
The arguments for considering the interest of all countries go beyond political
expediency. Conflict over competition law jurisdiction involves the exercise of
jurisdiction by one state being contested by another state. The persons, things or
conduct involved in a competition law case inevitably have some relationship to all
the states that are contesting jurisdiction. Without any relationship a state would not
bother to assert or contest jurisdiction. A priori there are no limits on what that
relationship could be, so states could claim a relationship with virtually everything.
Therefore, the formation of substantive policies must involve, even implicitly, some
notion of a necessary connection between the regulating state and the regulated
subject. If states are by definition mutually exclusive territorial entities,6 policies
cannot exist wholly independently of the other states and their policies. In other
words, a state's substantive policies cannot be logically prior to, or independent of,
their place in a multi-state setting, including the type of policy circumstances
discussed in the previous paragraph and modern political ideas about the nature of
statehood. This is another aspect of the case for (p.353) analysing substantive and
jurisdictional rules together when trying to reduce the international competition law
problems advanced in this book.
10.2.2 Rejecting Territorial Jurisdiction as the Exclusive Basis for Competition Law
Jurisdiction
In the view of Dicey and Beale, each state was sovereign over its own territorial space
and only its rules were effective within that space.7 States were not entitled to apply
their laws extraterritorially to alter the legal rights another state had created. The
application of a strict territorial conflicts approach to competition law has been
rejected and would in any event be highly problematic.8
Territorial approaches to jurisdiction look at the location of events and seek to allocate
jurisdiction to only one state, often the place where the last act necessary to
complete the cause of action in issue occurred. The allocation can be arbitrary when
several states had good connections to the relevant events or there was a
complicated series of events occurring in several countries.9 Many exceptions to the
general rule were recognized in practice for which the theory provided no explanation.
This resulted in the need to characterize or classify events, which gives rise to
uncertainty, because there was no guidance from the theory on how to do this, and
opens the possibility of results-oriented manipulation. The different substantive laws
of different states would give different results as to what the last act was, which would
prevent a consistent allocation of jurisdiction between the states. The last act may
be difficult to identify where the conduct involved a series of transactions, such as
below cost sales, in combination with other conduct and circumstances, such as tying
arrangements and market power. An international cartel might escape liability if the
agreement was made in one state and was to be implemented in another state. In
such cases, judges and competition law enforcers may strain to find sufficient local
conduct to justify the application of local competition law, such as telephone calls or
the future implementation of the agreement. These predictions are borne out by the
US antitrust case-law and the experience of other states.
where the law of the state where the conduct occurred is contrary to the public policy
of the forum, it may not be applied. It is, however, hard to then (p.354) argue that
public policy is not relevant to all choice of law decisions.10 Territorial approaches also
distinguish between procedural and substantive law, with the former being governed
by the forum law. The line between procedural and substantive law is not always
clear, which again creates uncertainty and the potential for manipulation.
A less strict, but still traditional, view of territorial jurisdiction accepts the possibility of
one state regulating activity that takes place partly in one state and partly in another,
which means there is jurisdiction over cross-border commercial activities, such as
international transport and cross-border transactions. Virtually all cases relying on the
effects doctrine could have been rationalized under a liberal territorial approach. Thus,
the case for the effects doctrine must rely primarily on increased consistency and
predictability, not the ability to catch more harmful conduct. A suitably qualified
effects doctrine may reduce litigation costs by avoiding an uncertain detailed inquiry
into the activities of the defendants to determine whether sufficient conduct has taken
place within the forum. Jurisdiction should not depend on airline itineraries and
specific forms of economic activity. As argued in Chapter 5, an effects test would be
more closely aligned to the substantive competition law issues.
The US Supreme Court has justified the territorial presumption on the basis that it
serves to protect against unintended clashes between our laws and those of other
nations which could result in international discord.11 However, the potentially broad
scope of application of competition laws under the territorial approach suggests that
such an approach could be a worse conflict avoidance mechanism than a suitably
qualified effects doctrine. Opponents of the effects doctrine have claimed that
assertions of jurisdiction under the effects doctrine are asserted not to bring within
the rule of law persons and activities that otherwise would be subject to no law, but to
displace the jurisdiction of the state where the acts complained of took place.12 The
argument wrongly assumes that all conduct in the world is neatly divided between
mutually exclusive jurisdictions.13 Even if the function of rules on jurisdiction was to
eliminate concurrent jurisdiction, it is not clear that a territorial approach would in
practice achieve that objective. A strict territorial presumption may also be an over-
inclusive means of avoiding conflicts of laws because it precludes the extraterritorial
application of US law in numerous cases where no conflict between US and foreign law
would exist.14 Concurrent jurisdiction does not inevitably give rise to conflicts. (p.355)
However, excessive concurrent jurisdiction may needlessly raise the costs of business
activities. Thus, under a territorial approach, an effects test, or a combination of both,
it may be necessary to develop doctrines whereby one state defers to another, such
as foreign sovereign compulsion, or moderates its exercise of jurisdiction in light of
claims of concurrent jurisdiction.
The effects doctrine is not within the conventional understanding of objective
territoriality in international law. International law has, however, evolved since and in
response to Alcoa, taking into account the profound economic and political changes of
the twentieth century. The persistence of the US usage of the effects doctrine despite
foreign protests has encouraged other countries to adopt the effects doctrine. Chapter
8 shows that State practice has now largely condoned the effects doctrine.
10.2.3 Matching Jurisdiction to Policy Interests
The Problems with Governmental Interest Analysis
Currie's governmental interest analysis theory of conflict of laws requires the courts to
examine the policies expressed in the rules of substantive law, which are in apparent
conflict, and assess the interest of the representative states in having the policies
embodied in their rules applied in a situation.15 Interest analysis can justify a non-
territorial approach to competition law jurisdiction. It does not, however, justify the
application of competition law to conduct irrespective of the size and nature of any
effect the conduct has on the forum state. Under interest analysis, the judge was
supposed to consult the substantive laws of all the relevant states in order to
determine which states had a good claim to apply their law to the dispute. If the
substantive policies reflected in a state's law would be advanced by the application of
that law, that state has an interest in having its law applied.16 Three situations were
distinguished. A true conflict exists where more than one state has such a good claim.
An unprovided for case exists if no state has an interest in applying its law. A false
conflict exists when only one state is found to have an interest in applying its law.
Supporters of interest analysis claimed both that false conflicts would exist in many
cases, and that it was not necessary to consult conflicts of laws policies, because
ordinary domestic law reasoning would be sufficient.17 Interest analysis won wide
acceptance in the US, (p.356) especially in its treatment of false conflicts.18 Currie's
approach to true conflicts, however, has been criticized, because it does not consider
the interests of other states and makes no attempt to investigate whether there is a
superior solution to the problems arising from true conflicts.
As a matter of logic it is not obvious why only substantive policies should be consulted
in order to determine whether the substantive law should be applied in a multi-state
setting. A state's policy choices are arguably relevant only once one finds that that
state's law properly applies.19 The use of substantive policies as the sole guide to
choice of law assumes the evil to be avoided is the failure of a state to act in its own
self-interest. There are, or should be, other limits on what states are entitled to do,
such as to avoid harming outsiders.20 If a variable that has no domestic substantive
relevance is relevant in a conflicts context that would, however, be inconsistent with
Currie's claim that only ordinary substantive legal reasoning is being applied in
conflicts cases, and would necessitate a determination of when that variable becomes
important in conflicts cases.21
As with every area of law, competing policies have to be reconciled in conflicts of laws
rules, such as between predictable rules and the prevention of regulatory avoidance.
It is not clear why a legislature would have necessarily intended a choice of law rule
that was the most compatible with the substantive policy, but have chosen a
procedural rule that truncates its substantive policy.22 Substantive policy will also not
be a good solo guide to deciding conflicts of laws cases where two or more choice of
law alternatives are of roughly equal compatibility with the substantive policy that the
state has chosen.23 Or, closely related substantive policies, such as the promotion of
competition and national economic welfare, dictate significantly different conflicts
rules. As noted above, the unilateral pursuit of self-interest through the extraterritorial
application of competition law will not always be the best way to maximize self-
interest in the long run; reciprocity and cooperation may be advantageous.24
Thus, in order to work interest analysis must make a number of normative
assumptions.25 Legislative preferences are relevant to determining what interests exist
where there is sufficient evidence to infer such preferences through the ordinary
process of statutory interpretation.26 In the US, the evolution of the interpretation of
the antitrust laws should therefore have influenced the assessment of governmental
interests and scope of the antitrust laws. Where, as is (p.357) common, legislatures
do not address what should be the scope of application of a statute in multi-state
cases, government interests are derived from the substantive policy of the law.27 The
precise policies a statute is intended to advance will often be uncertain. Both the
determination of the legislative preferences and the substantive policy involve the
courts making reasonable assumptions and relying on the presumptions of statutory
interpretation. It is not clear why the courts would not conclude that the geographic
scope of application of competition laws would reflect a state's own preferences as
well as such accommodations it has made to the preferences of other states.
Currie thought that a statute should in most cases be interpreted to apply to only
those situations where a local person would benefit.28 The assumption that there are
interests in protecting local residents might be merely a priori assumptions about how
far interest analysts think legislation ought to reach. Equating the national interest
with a benefit to local persons will discriminate against foreigners. Interest analysis
would lead to competition laws being applied to protect local consumers against
foreign manufacturers, but not foreign consumers against local manufacturers,
regardless of whether the conduct occurred within the forum. A state's laws are more
likely to be applied against outsiders than insiders who can effectively oppose the
legislation.29 Interest analysis may encourage beggar-thy-neighbour policies by
imposing the costs of those laws on people who have no vote. If interest analysis is
based on domiciliary-defined interests and a forum preference, the choice of law can
be predicted once it is known which of the competing states' laws the resident prefers,
without any investigation of the underlying policies or the rules, or even its
substantive content.30
Reliance on domiciliary-defined interests is also likely to result in unpredictability,
because a person often will not know the domicile of a person they harm or deal with
and therefore will find it difficult to avoid acting unlawfully. Corporations are
particularly difficult to handle with interest analysis. They create the same type of
problems as do territorially scattered transactions for vested rights theories.31 Courts
have difficulty in deciding whether a state has an interest in protecting a corporation
when the corporation is a multinational enterprise, because there are several different
ways a corporation can be connected to a state, including the place of incorporation,
place of business, employment, (p.358) shareholders, foreign direct investment,
exports, and imports. It will often be arbitrary to assign an interest to one state or
another.
Governmental interest analysis can be manipulated as easily as the vested rights
theories, because statutes rarely provide unambiguous guidance on their intended
scope of application, and few statutes have a single purpose.32 Interest analysis gives
arbitrary results when territorial factors or the expectations of the parties should
matter, such as a change of domicile after the event giving rise to liability. Interest
analysis tends to promote the pursuit of social goals at the expense of the interests of
the individual litigants. The flexibility of interest analysis allows undesirable results to
be avoided.33 The result is to increase the sense that conflicts cases are decided on an
ad hoc basis.
Government interest analysis usefully suggests that states should not apply their law
where the state has no interest in doing so. However, it seems to be unable to
unambiguously identify state interests merely from an analysis of the substantive law
in question.
Hypothetical Bargaining can Help Identify Common Interests
Baxter's theory of comparative impairment built on Currie's work, but attempted to
resolve true conflicts in such a way that the result would not turn on the choice of
forum.34 Baxter explicitly analogized his theory to the process of states bargaining
over which law applied in a controversy. True conflicts between the interests of states
were to be resolved by applying the law of the state the interests of which would be
most impaired by its non-application. There was to be no determination of which
policy was the more worthy. Comparative impairment analysis depends on individual
states' assessment of the costs and benefits of changing the present system of
conflicts rules in competition law. The theory of comparative impairment has been
applied by the Supreme Court of California,35 but is generally regarded as too difficult
and amorphous for judges to apply. Baxter also adopted Currie's problematic
definition of governmental interests.
However, hypothetical bargaining provides a framework consistent with the nature of
international relations, which helps to assess potential changes in the international
competition law system. The possibility of states bargaining over which law shall apply
creates a situation analogous to that analysed by the economic analysis of property
rights and entitlements.36
(p.359)
The analogy depends on the idea that property rights amount to the right to control
the use or disposition of an asset, the structure of a transaction or the activities of a
person. Similarly, prescriptive jurisdiction amounts to the right of the state to control
some aspect of the use or disposition of assets, the structure of transactions, or the
activities of persons.

The economic analysis of the law of nuisance is broadly applicable to the allocation of
competition law jurisdiction. The policies of one country may be seen to interfere with
the policies of another country in a similar way to when the activities of one land user
may interfere with those of another. Gains are most likely to be realized through
bargaining when conflict of laws rules are overinclusive relative to a state's policy
objectives; are underinclusive relative to a state's policy objectives; or different
priorities are attached to the exercise of jurisdiction by states. States can divide
jurisdiction in many ways, including by industry, nationality, and the location of
conduct or effects, to facilitate trade. The reallocation of jurisdiction by agreement
could advance the interests of participating states.
The effect of any particular allocation of jurisdiction on national or global welfare will
depend on, inter alia, substantive competition law rules and policies. The efficient
allocation of jurisdiction among states is not necessarily directly correlated with
efficiency in private markets.37 Calculating the welfare effects of a re-allocation of
jurisdiction involves considering both gains from trade and the transaction costs
involved in agreeing to new rules and the application of those rules. A realistic view of
state interests must, however, reflect the fact that one of the functions of state
governments is to make value choices and empirical decisions in the face of
controversy and factual uncertainty.38
Government interests need not be defined unilaterally. Government interests in
competition law cases could be determined by international agreement or derived
from a common commitment to a single goal, such as global consumer welfare, or a
set of agreed principles for international competition law. Chapter 3 argued that global
consumer welfare is a desirable focal point of international competition law
cooperation. Chapter 5 argued that the extraterritorial application of competition law
to conduct that harms local consumer welfare may be the best approach to enhance
global consumer welfare. Chapter 8 revealed that most national approaches to
competition law jurisdiction are broadly consistent with the goal of promoting global
consumer welfare. The recognition of this common objective in relation to the
allocation jurisdiction could act as a focal point for negotiations to clarify competition
law jurisdiction and provide a basis for greater (p.360) cooperation in the
investigation of anticompetitive conduct and the enforcement of competition law.
Concerns about Under- and Over-Inclusiveness Support the Use of the
Effects Doctrine
Under-inclusive jurisdictional rules will permit harmful external effects. If global
consumer welfare is accepted as the guiding principle for international competition
law, the harmful external effects from under-inclusive competition law rules will
include price rises for local consumers. Under-inclusiveness may arise when rules are
avoided through forum shopping; the scope of application of rules is restricted,
possibly to accommodate the interests or demands of other states; or conduct is
specifically tailored to avoid a rule's scope. In the last situation, even if a state would
prefer to regulate the conduct in issue, it may still not do so, because of the difficulty
of designing or applying rules to directly or accurately target the undesirable effects.
Under-inclusiveness may be rational. The costs of eliminating all under-inclusiveness
may exceed the expected gains of doing so. The policy objectives of a state may need
to be pursued through other means, including harmonization of laws and trade
negotiations.
The effects test is better able to avoid problems of over- and under-inclusiveness of
competition law than other rules. Territoriality may permit too much evasion by
multinationals and other firms.39 Indeed, the most common argument for
extraterritorial antitrust jurisdiction is that such jurisdiction is necessary for states to
control their economies and protect themselves against harmful effects originating
outside the country as a result of the internationalisation of commercial activity.40
Competition law aims to regulate conduct that causes certain effects, namely a
lessening of competition. Jurisdictional rules that are not directly linked to those
effects will encourage companies to use technical legal devices to escape liability,
such as incorporating separate legal entities in several jurisdictions.41 This will distort
business decisions. The assertion of jurisdiction based on the economic entity
doctrine, by piercing the corporate veil and related legal devices, will not provide
jurisdiction over all harmful conduct and may allow jurisdiction over conduct the state
has no interest in regulating.
All things being equal, domestic political processes encourage governments to protect
their constituents from foreign anticompetitive conduct. The protection (p.361) of
constituents is intimately connected to the rationale for and legitimacy of democratic
government. The fact that the targets of competition law enforcement are foreign, and
that there may be a net wealth transfer from foreign to domestic individuals and firms
to local consumers and firms, only encourages governments to adopt an effects
doctrine, because benefits can be transferred to constituents from non-constituents.
To the extent that an increased scope of application of competition law increases
national wealth, it will not be over-inclusive. However, increasing the scope of
application of competition law beyond what is necessary to address anticompetitive
effects is unlikely to increase the welfare of that country, because of the difficulty of
discriminating between local and foreign firms or between local and foreign conduct
under competition law rules, and the potential impact of an overly broad rule on long-
term welfare (for example through decreased investment).
Conflicts rules are over-inclusive when a state applies its law to a situation without
any of its policy objectives being advanced. In this situation, the state whose law is
applied may be forced to bear the costs associated with adjudicating a dispute
without any benefit. Other states may also suffer costs, because their policy
objectives may be frustrated when the law of another country is applied
extraterritorially. In big international competition law disputes, which involve large
transnational wealth transfers or industrial or defence policies, a state's policy
objectives can be broad and various. States will rarely conclude that their competition
laws are over-inclusive, especially if the government has control over when the law is
enforced extraterritorially. States are likely to be more concerned about over-
inclusiveness where there are private rights of action and public enforcement
authorities cannot use their prosecutorial discretion to control the application of
competition law.
However, over-inclusiveness may impose constraints on local firms doing business in
foreign markets to which firms from other countries are not subject. Competition law
jurisdiction may be over-inclusive if it prevents local activity which seeks to transfer
wealth from overseas consumers to local producers. In the past, some US and foreign
firms have sought the extraterritorial application of US antitrust law in circumstances
where there is little or no benefit to the US.42 Over-inclusiveness may also create extra
compliance costs for private parties, especially those carrying on business in the
state. A review of the actual defendants, as opposed to persons named as co-
conspirators, in US international antitrust cases, reveals that a very large percentage
of them were US nationals. (p.362) A court's lesser ability to regulate the activities of
foreign, as opposed to local, firms will also increase its concern for over-inclusiveness.
It is difficult to formulate and apply rules that accurately target cases where the
national interest is advanced by applying antitrust laws extraterritorially where the
conduct in question does not harm local consumer welfare or competition. If one
country adopts a broad extraterritorial jurisdiction, it may need to be prepared for
other countries to do the same.
The assertion of extraterritorial jurisdiction could raise the costs of doing business
internationally, because of the uncertainty about the scope of application of
competition law and international competition law defences, as well as the
unpredictable reactions of foreign states.43 This will reduce international trade and
inward and outward investment,44 and increase the need for legal advice from more
than one country. While the determination of jurisdiction based on the effects on
competition will not always be simple to apply, it may be more predictable than any
alternative. Thus, if domestic competition law rules are applied extraterritorially, and
systematic discrimination against foreign firms is not possible, it is arguably in the
unilateral interest of each state to ensure that its competition law jurisdiction extends
to conduct that produces anticompetitive effects on its residents and no further.
Error and Administrative Costs
States might be able to agree among themselves not to rely on connecting factors
between the dispute and the relevant laws when such factors are unacceptable for
methodological reasons, such as predictability, decisional consistency, and
administrative cost. States may, however, value the pursuit of predictability,
individual justice, and substantive policy objectives differently. 45 Some governmental
agencies might even prefer a high degree of legal uncertainty, where this would
increase their power relative to the persons they are charged with regulating.
The law and economics literature suggests that the economic objective of any
procedural system, including choice of law rules, should be the reduction of costs of
judicial error and judicial system transaction costs.46 Posner suggests that the state
law with the comparative regulatory advantage in the circumstances of (p.363) the
dispute should apply.47 If the parties to a dispute were in a position to contract on the
issue and were concerned to maximize their joint interest, they would choose the law
of the place with the comparative regulatory advantage. The state law with the best
fit appears to be determined independently of the policy preferences of states.48 If
the rule concerns location-specific factors, such as speed limits, it is assumed that the
situs has such an advantage.49 But, if the rule concerns a person-specific factor, such
as contractual capacity, the law of that person's domicile has the advantage.50 In
many international competition law cases, a lex loci delicti rule would not lead to clear
and predictable outcomes. In competition law cases where market definition and an
analysis of the impact on competition are required, jurisdiction should be given to the
competition authority and court where the affected markets are located.
Posner sees comparative regulatory advantage as a function of the purpose of the
legal rule in question.51 This suffers many of the same problems as government
interest analysis. Comparative regulatory advantage is meaningless when the
competition law to be applied extraterritorially has a radically different purpose from
the foreign law or policy in question. If all countries had the same competition laws, it
would be efficient to allocate investigation and enforcement responsibilities to the
country which could do so at least cost.52 In the context of a choice between
competition laws, comparative regulatory advantage rule appears to be akin to a
forum non conveniens rule.
The international antitrust defences give the foreign state exclusive authority over
conduct within its territory. The defences should apply to cases where the territorial
state has the best information about whether an exemption should be granted, but
the defence itself needs to be able to be applied by foreign courts without good
information about conditions in the foreign country. Therefore, the international
antitrust defences should be bright-line rules if possible, which do not require a
detailed assessment of the conditions in another country.
The comparative regulatory advantage may need to be determined in relation to a
bundle of legal rules, such as competition law and telecommunications regulations or
substantive (p.364) and procedural rules. A forum has a comparative regulatory
advantage in applying its own procedural rules, which may enhance judicial economy.
If there are strong reasons for applying the same substantive and procedural rules,
and if the substantive law of another country is applicable under the conflict of laws
rules, the forum is likely to be a forum non conveniens and the case should be
dismissed.53
The deterrent effect of a legal rule may be undermined if the applicable conflicts rules
could not be applied with certainty, because of the resulting uncertainty about when a
legal rule applies.54 However, uncertainty could produce either under- or over-
deterrence of anticompetitive conduct and might deter pro-competitive conduct.
Uncertainty in the scope of application of a rule can facilitate the evasion of the rule
and increase the costs of enforcement of the rule. Uncertain rules may also increase
the power of the regulators over the regulatory subject, because it also increases the
legal costs of the parties to a transaction and exposes them to greater risk that the
transaction will later be found to be unlawful. Thus, uncertainty may assist defendants
in restrictive trade practice actions, but regulators in pre-merger approval processes.
Cases generally fail to settle because the parties make different assessments of the
likely outcome of the case, which normally arises as a result of information
asymmetries. The current jurisdictional limits for many competition laws are
uncertain, which means that the parties are less likely to settle until after judicial
resolution of the jurisdictional issues. This is a credible interpretation of the large
number of applications for dismissal and summary judgment in US international
antitrust cases that are not further litigated. Improved predictability of the scope of
application of competition laws, all things being equal, would improve economic
efficiency.
Despite very few courts being able to apply foreign competition laws and competition
laws jurisdictional limits, forum shopping can still occur, such as in export market
access cases, damages claims against cartels with worldwide effects, and other cases
involving anticompetitive conduct that affects more than one country. Of course, in
the first example jurisdiction is controversial and in the second US law appears to limit
the ability of foreign plaintiffs to sue in the US courts. Competition law forum shopping
is regulated by jurisdictional (or choice of law) rules, doctrines of moderation, and the
requirement for local antitrust injury. A doctrine like forum non conveniens rules may
perform a similar role, especially where jurisdictional rules favour the lex fori.
The English forum non conveniens rule may be less efficient than the Australian rule.
The Australian rule, it has been argued, reduces the likelihood of courts making inter-
jurisdictional comparisons based on evidence adduced in interlocutory applications,
and therefore reduces judicial error, and increases the predictability of the judicial
determination of the case, which promotes the settlement of disputes.55 Thus, all
things being equal, a stay should only be granted in (p.365) cases where the
marginal cost to the defendant to defend the action (relative to the forum to which the
defendant wishes to have the action transferred) is substantially greater than the
marginal benefit to the plaintiff from prosecuting the action.
10.2.4 Relevant Effects in the Effects Doctrine
The effects doctrine potentially leads to universal jurisdiction. The courts and
commentators have therefore long recognized that there is a need for some limits on
the types of effects that are relevant. These limits can be seen as an expression of the
public international law requirement of proportionality in the exercise of jurisdiction. 56
Intention and Foreseeability
In Aloca, the utility of the intent element as a moderating device was undercut by the
court shifting the burden of proof on the question of effects once intent had been
shown.57 Later courts have required only a general intent to affect commerce, which
has imposed little constraint.58 The requirement for a specific intent to affect US
commerce is inappropriate. It would merely encourage sophisticated defendants not
to leave a paper trail and obstruct foreign discovery and evidence gathering in the
hope of immunizing themselves from antitrust liability. Nonetheless, evidence of some
intent to affect commerce likely to be treated as evidence that the conduct did in fact,
or would, affect commerce or affect commerce in a specified way.59 It is not
unreasonable to assume that firms will be aware of the likely effects of their actions
on competition in other countries, and the possibility that their actions will violate the
competition law of those countries. Commercial certainty and fairness to defendants is
promoted by competition law jurisdiction only extending to effects that are reasonable
foreseeable. The determination of whether effects are not remote or indirect would
probably also require the effects be foreseeable.
Nature of the Effects
A number of courts have required an effect on competition in US trade or commerce
before US antitrust laws are applied to extraterritorial conduct. The requirement
means that the effects doctrine may be specific to competition law or there is more
than one effects doctrine. It also means that competition law jurisdiction should
generally be neither under- nor over-inclusive. A simple (p.366) effect on
commerce test would not satisfy the international law requirement of proportionality.
At times, the US and EU approaches to extraterritorial jurisdiction may have been
influenced by their respective broader inner effects doctrines. However, inner
effects doctrines are applied in a context where there is a constitution or treaty
allocating responsibility to central organs, whereas the outer effects doctrine is
designed to allocate jurisdiction in the absence of such arrangements. Like the act of
state and state action doctrines, the constitutional context makes a difference.
It has been suggested that a distinction between competitive effects and other effects
is justified on the basis that the former are a constituent element of an offence. 60
Thus, where foreign conduct affects competition in the Country A, Country A might be
able to exercise jurisdiction under the principle of objective territoriality where an
anticompetitive effect is a required element for there to be breach of a competition
law rule. However, objective territoriality would not provide a basis for jurisdiction in
cases involving the extraterritorial application of per se rules.61 Therefore, either
substantive competition law in international cases differs from that applied in
domestic cases, or the international law governing jurisdiction in competition law
cases is sui generis. Swan argues that in international cases the conclusive
presumptions associated with per se offences may not hold, because Congress is
presumed not to have intended the extension of the Sherman Act contrary to
international law.62 The same argument is not available in countries where per se rules
are statutory, rather than judicial creations. While the substantive competition policy
considerations behind certain rules or unique social preferences may suggest different
jurisdictional competition thresholds, the need for predictable and certain conflict
rules would favour a single clear rule applicable to all competition law cases and in all
countries.
Foreign concern about the extraterritorial application of US antitrust laws would be
substantially reduced if the jurisdictional standards were clear and the pursuit of ad
hoc foreign and trade policy goals through competition law was prohibited. The US
(and many other countries) would also not want to see other states applying their
competition laws extraterritorially to protect competitors rather than competition.
Many mergers, joint ventures, and intellectual property licences entered into by
multinational enterprises in the US and EU would then be at risk. The risks increase as
the number of countries with competition laws increase. Arguments that the effects
doctrine is illegitimate, because it is an attempt to export into other countries and to
make operate there what are after (p.367) all peculiarly American political notions63
are increasingly dated. The long-held desire of the US to promote the use of
competition policies internationally, and more recently that other countries adopt
economically rational competition laws, requires the US to adopt a competitive effects
doctrine.64 Otherwise, US international antitrust enforcement will be seen as an
idiosyncratic emanation of American political culture or as a naked extension of
American power deployed on behalf of American companies in their competitive
battles abroad.65 Some formulations of the effects doctrine were proposed when US
antitrust law did not have consumer welfare and economic efficiency as its primary
objective. Older cases should therefore be treated with a degree of caution. An
international consensus that the fundamental objective of competition law is the
promotion of consumer welfare could provide a basis for agreement that harm to
competition is a pre-condition to exercising extraterritorial jurisdiction. Thus, it is in
the interests of the US and the EU to restrict jurisdiction to conduct causing direct and
substantial anticompetitive effects.
Ordover suggests that antitrust jurisdiction should be limited to cases where foreign
conduct may foreseeably and significantly elevate prices in the US. 66 In import
commerce, a substantial, reasonably foreseeable, and direct effect should be
interpreted to require conduct that would affect the level of competition in the US
import markets so as to harm US consumer welfare. The analytical framework in the
US Merger Guidelines, which has widespread international support, could be used to
develop more detailed rules. It would also allow states to develop, possibly
unilaterally, relatively clear safe harbours for the jurisdiction. Safe harbours defined in
terms of value of commerce affected could also be useful. It may also be desirable to
have rules requiring that the conduct in question affect more than a certain value or
volume of trade or of the market, like the de minimis rules in Article 5.8 of the
Agreement on Implementation of Article VI of the General Agreement on Tariffs and
Trade 1994.
The plaintiff should bear the burden of proving actual or likely effects on the country
wishing to apply its law extraterritorially.67 This should not increase the burden on the
plaintiff too much, because a similar, but more extensive, inquiry will need to be made
for most substantive rules or the assessment of the quantum of damages. In most
countries, at the earlier stages of proceedings, a plaintiff (p.368) would only be
required to allege sufficient facts which, if true, would support jurisdiction.
The competitive effects test will reduce, but not eliminate, concurrent jurisdiction. It
will also not oust territorial jurisdiction even where the conduct causes no
anticompetitive effects in the territory. States are unlikely to renounce jurisdiction
when the bulk of the conduct in question takes place in their territory. Other legal
rules, such as forum non conveniens and antitrust injury, would reduce the possibility
of concurrent claims.
Although the US used extraterritorial antitrust largely to protect its own interests, the
extraterritorial enforcement has benefited consumers in many countries, in particular
through the break-up of worldwide cartels.68 However, in a not insignificant number of
cases, the extraterritorial application of antitrust law probably harmed global welfare,
because of the prohibition of efficient or harmless conduct, large compliance costs for
private businesses, the frustration of foreign government policies, and the costs of
attempting to block enforcement. If extraterritoriality becomes widespread, the
toughest competition law will be the one that governs the legality of a transaction.
This increases the probability that all inefficient anticompetitive activities are blocked
and that many efficiency enhancing activities are also blocked. The modernization of
substantive antitrust rules, combined with a competitive effects test for jurisdiction,
mean efficient conduct abroad is less likely to be prohibited. Therefore, all countries
have an incentive to agree to a competitive effects test to reduce the probability of
beneficial transactions being blocked.
Without the extraterritorial application of competition law, a country has an incentive
to have a weaker competition law than with extraterritoriality, because a strict
domestic policy without extraterritoriality tends to prevent local firms from engaging
in profit increasing anticompetitive activities which may transfer rents from abroad,
but does not prevent foreign firms from reducing domestic consumer surplus. With
extraterritoriality, a country can block the anticompetitive activities of the foreign
firms reducing the domestic consumer surplus, increasing the likelihood that a country
will adopt a stricter policy. When countries cannot apply their laws extraterritorially,
the incentive for national policies to deviate from the global optimal policy increases,
because the beneficial effects of regulating anticompetitive activities are increasingly
felt by foreign consumers and decreasingly felt by domestic ones, and at the same
time the costs of preventing local firms from engaging in such activities continue to be
felt entirely at home. The combination of these forces and an emerging consensus on
a competitive effects doctrine may encourage national competition laws to focus on a
consumer welfare standard.
(p.369) Jurisdiction over Export Markets
If there is a role for the application of US antitrust laws to US export trade and
commerce, it should be restricted to conduct that harms the welfare of another
country and global consumer welfare by reducing competition. Much of the existing
US case-law could be interpreted as being consistent with such a rule. The recognition
of this limitation might reduce the anxiety of other countries, who fear that such cases
are used to pursue US trade interests. If one country is regarded as closed to imports
as a result of private anticompetitive behaviour and a failure of national competition
law authorities to enforce the local law, the global consumer welfare standard has
political and rhetorical advantages to force that country to change. Such a standard is
also likely to be consistent with US interests. For both domestic and international
political reasons the US government may not accept that the exercise of jurisdiction in
export commerce cases is illegitimate in the short-term. In some of the cases where
the US has exercised jurisdiction in export commerce cases, it may have had
jurisdiction under international law due to the US nationality of some of the parties, or
because some of the allegedly anticompetitive conduct took place in the US.
Therefore, export commerce cases will not totally disappear. The political realities
suggest that undesirable exercises of jurisdiction in export commerce cases may not
be able to be prohibited by international agreement, but that such exercises of
jurisdiction can be rendered unlikely. The application of the forum non conveniens
doctrine in international antitrust cases, and the recognition by US officials that the
application of local competition laws will be more desirable than the extraterritorial
application of US law to export commerce, provide a basis for the US courts to decline
to exercise export jurisdiction in the paradigm market access case.
Relative Effects
Akehurst proposed that jurisdiction should only be claimed by the state where the
primary effect of an action is felt.69 The determination of whether effects are primary
or secondary would depend on whether the effects felt in one country are more direct
than the effects felt in other countries, and whether the effects felt in one state are
more substantial than effects felt in other countries. Where the effects are of a similar
magnitude, more than one country may exercise jurisdiction. It is not clear whether an
attempt to measure relative effects will either be acceptable or easily operationalized.
Two countries may be equally directly and substantially affected by conduct, but in
different ways. Even if states could agree on the economic effects of the conduct in
question, it is unclear whether the relative substantiality of the effects should be
measured in absolute dollar terms, market share, relative to a country's gross
domestic product, or some other measure. Most relative effects tests for jurisdiction
will favour the exercise of (p.370) jurisdiction by the largest states most of the time.
A relative effects test might also leave private plaintiffs in small countries without a
remedy. Nonetheless, some states may be prepared to agree to a lead jurisdictions
investigation arrangement and for the international consolidation of competition law
litigation in appropriate cases. See Section 13.6.
10.2.5 Fairness and Legitimacy
The extraterritorial application of antitrust laws has often been criticized as an
unjustified intervention in the affairs of the people of another country. Conversely,
extraterritoriality is often defended on the ground that a state has a moral right (or
even a duty) to defend its citizens against exploitation by foreign nations. However,
most modern theories of conflicts of laws rules focus on state interests rather than
individual rights. One reason for this is the difficulty that universal doctrines, such as
liberalism, have in rationalizing the existence and moral significance of political
boundaries, including territorial states.70 Our understanding how the modern
international polity is being, or should be, transformed by the need to reconcile the
globalization of economic activities with the exclusive territorially jurisdiction of states
is incomplete.71
It is strongly arguable that there are, or should be, rights-based limits on the scope of
application of state laws and conflicts rules should be constrained by notions of
political legitimacy.72 These limits follow from the assumption that a state's power to
legitimately coerce is largely based on the consent of the people resident with in a
territorially defined area. Evidence of a concern for legitimacy can be seen in some
court decisions. The foreign sovereign compulsion defence is, in part, based on
concern about fairness to individuals and the legitimacy of ordering an individual to
perform an act that is illegal under the laws of another country. In Plastus Kreativ AB v
Minnesota Mining and Manufacturing Co, for example, Aldous J reasoned:73
A finding of infringement is a finding that a [patent] monopoly granted by the state is
to be enforced. The result is invariably that the public have to pay higher prices than if
the (p.371) monopoly did not exist. If that be the proper result, then that result
should, I believe, come about from a decision of a court situated in the state where
the public have to pay the higher prices . I believe that, if the local courts are
responsible for enforcing and deciding questions of validity and infringement, the
conclusions reached are likely to command the respect of the public.

The concern for legitimacy raises doubts about the accuracy of a pure realpolitik view
of international competition law. As discussed in Section 2.1.2, domestic values are
likely to be projected onto international cases by courts, because existing procedural
and substantive rules are applicable to local and foreign firms. Thus, a judicial concern
for rights is likely to influence courts and competition authorities. Procedural fairness
is also one of the core principles that many WTO members agree should apply to
competition law.
Brilmayer suggests that fair conflict rules would be predicable; do not impose burdens
on individuals where they would not be eligible to receive the rule's benefits; would
require individuals to act in some way to be subject to a state's law; and would not
discriminate against individuals solely on the basis of their residence or domicile.74
With respect to the extraterritorial application of antitrust law, the rights-based
approach legitimizes a state's application of its own antitrust law to its own
domiciliaries, and non-domiciliaries when they have sufficient connection with the
state that it is fair to subject that person to the state's laws. The requirement that a
person's conduct causes direct, substantial, and reasonably foreseeable effects on a
market in the US (combined with the rules on personal jurisdiction) arguably imply
that that person has acted in such a way as to subject him or herself to the state's
law. A different philosophical basis for political legitimacy might legitimize broader
extraterritoriality.75 Rights-based conflicts theories do not seem to be able to produce
unambiguous guidance on appropriate conflicts rules for particular cases, at least not
without reference to other values and assumptions. For example, with respect to
import commerce, a rule that required extraterritorial acts to have a direct,
substantial, and reasonably foreseeable effect on consumers in another jurisdiction
would appear to be fair, but so would a rule requiring the effect to be direct,
substantial, and intended.
10.3 Reducing Concurrent Jurisdiction
Apart from a few extreme cases, international law does not provide a means of
choosing between competing jurisdictions when concurrent jurisdiction exists.76 A
number of strategies to reduce conflicts from extraterritoriality have been (p.372)
suggested, including encouraging courts to take as many controversial cases as
possible so as to escalate crises and force the political branches to respond; 77 limiting
the nature and intensity of effects that must be present before a country can assert
jurisdiction;78 appointing a national commission in the US to study the problem;79 using
blocking and clawback statutes to restrict the application of foreign competition laws;
relying on the traditional doctrine of forum non conveniens;80 eliminating private
international antitrust suits; selecting lead jurisdictions in international antitrust
cases; including balancing tests in national legislation or supporting similar
developments in international law; allocating jurisdiction according to a pre-exiting
hierarchy among the various bases for prescriptive jurisdiction; developing firm
defences or exceptions to the extraterritorial application of competition law; and
entering into bilateral and multilateral agreements on competition law. These
suggestions fall into two groups. Section 10.3 examines ways to reduce the extent of
concurrent jurisdiction, while Section 10.4 examines ways to improve the
management of concurrent jurisdiction.
10.3.1 Comity is not a Legal Rule that could Reduce Concurrent Jurisdiction
Comity covers a constellation of doctrines and justifications that courts may employ
to manage conflicts among laws and policies.81 Although the term comity is perhaps
most associated with the US, it is also found in other common law systems, civil law
systems, and in Islamic law.82 Many different meanings have been given to comity,
including regarding comity as the basis of international law; a rule of international law;
a synonym for private international law; a rule of choice of law; courtesy, politeness,
convenience, or goodwill between sovereigns; a moral necessity; equivalent to
expediency or reciprocity; and considerations (p.373) of high international politics
concerned with maintaining amicable and workable relationships between nations.83
Examples of comity include interest balancing, the act of state doctrine, the
recognition and enforcement of foreign judgments, and even the doctrine of forum
non conveniens and the rules of loi de police or ordre public. Comity is a collection of
ideas related to international cooperation and mutual respect, rather than a single
legal doctrine able to be applied to resolve international competition law problems.
Comity is relevant to the resolution of international competition law problems to the
extent that it is embodied in legal rules.
10.3.2 The General Absence of a Hierarchy of Jurisdictional Bases
In the past, the British government has suggested there is a hierarchy among the
various bases for prescriptive jurisdiction. In particular, the country where the conduct
in question takes place may have a higher claim to jurisdiction than a country where
the effects of the conduct are felt. There is little support for such a general rule in
international law. State practice indicates that there is no rule requiring competition
law not to be applied extraterritorially to conduct encouraged or regulated by the
state where the conduct took place. Taken to its logical limit, such a rule would
eviscerate the effects doctrine. However, the territorial limitation of the foreign
sovereign compulsion defence is consistent with the law of the country where the
conduct took place having priority. This may reflect the fact that the territorial state
has physical control over what conduct can ultimately be compelled in its territory.
10.3.3 Balancing Tests and Choice of Laws Methods
The adoption of balancing tests to evaluate true conflict situations was an implicit
rejection of a conflict of laws system based on judges applying mechanical rules in
favour of a more detailed, fact-specific investigation. Its perceived benefit turned out
to be its principal weakness. Twenty years ago there was probably a rough consensus
among academic commentators in the US in favour of section 403 of the Restatement
(Third) of Foreign Relations Law, if only for want of a better alternative.84 More
recently, support for balancing tests has fallen away. (p.374) The change reflects the
convergence of competition policies and serious problems in the application of the
balancing test.
A full application of a balancing test will impose extra burdens on the parties to the
litigation, in terms of legal fees and management time, and may allow plaintiffs to
harass defendants and some determined defendants to avoid judgment. In
Mannington Mills, Inc v Congoleum Corp,85 the parties settled after the case was
remanded from the Court of Appeals, apparently encouraged in part by the difficulty
involved in gathering and submitting facts sufficient to permit effective balancing of
the interests of each of the other countries against those of the United States.86
Because multi-factor balancing tests cannot be applied in a predictable manner, they
present powerful incentives for increased litigation on the jurisdictional issue itself. 87
Predictability is unlikely to improve with increased judicial experience and precedents,
because the factors considered, especially the more overtly political, will be different
in each case.88 The balancing test is applied to pairs of countries. Therefore,
jurisdiction of a court over an identical set of business arrangements and government
actions will vary between bilateral relationships.89
Many courts90 and commentators91 have criticized the idea of balancing a list of
factors. Courts face the difficult task of assigning relative weights to standardless
factors of unequal importance and arriving at a reasoned judgment as to whether US
jurisdiction should be exercised. In other words, Timberlane provides no guidance on
how to resolve the conflict identified. Civilian and Commonwealth courts feel even less
comfortable than US courts with the uncertainty arising from jurisdictional balancing
tests. It is also problematic that substantial effects are not a prerequisite to applying
the balancing, because the determination of whether or not the effects are not
substantial will usually determine the outcome of a balancing test.
The application of a balancing test requires a court to have access to a great deal of
reliable information on US foreign policy and the policies of foreign governments.
Balancing tests may be even more difficult to apply in private litigation where the
court does not have access to US or foreign government sources. A court could rely on
the defendant to present all national interest factors favouring (p.375) dismissal, but
the defendants are likely to present factors in a manner supportive of their position in
the case at hand. The US government may have serious concerns over an antitrust
dispute, but may not be able to express them, either for domestic political reasons or
because of foreign policy concerns. A court could request amicus briefs from the
foreign governments involved, but in private actions courts must decide who may
speak for the foreign nations concerned, which may be difficult if foreign governments
refuse to appear because they do not recognize the jurisdiction of the court. A court
may also draw negative inferences from the failure of a foreign government to appear
as amicus curiae, but this is unlikely to provide a reliable standard. Foreign
governments may regard it as an infringement of their sovereignty to appear before a
US court and/or be hostile to evidence and information gathering in their own
territories. The treatment of the foreign governments in the Uranium case may
encourage foreign governments to believe that appearance as amicus curiae is futile
and they will receive nothing but humiliation.92 The foreign government's presentation
in court may be so coloured by the zeal of advocacy on the one hand, or the
politeness of diplomatic custom on the other, as to be an unreliable indicator of true
interest.93 There will also be significant problems with a plaintiff's discovery request
directed at uncovering rebuttal evidence.
Some US commentators argue that a significant sacrifice of United States interests
results from attempts to serve comity, because the bargaining position of the US is
weakened, which lessens the chance of the political branches getting an international
accommodation on US terms.94 The lack of reciprocity in the application of balancing
tests may discourage the US courts from applying balancing tests. However, concerns
about bargaining and reciprocity are overstated given the dearth of cases where the
application of a balancing test led to any impairment of US antitrust policy. Excessive
extraterritorial antitrust jurisdiction is also likely to harm US businesses in many cases.
See Section 10.2.3.
Balancing tests are generally seen as having a pro forum bias.95 Attempts to apply
amorphous balancing tests are unlikely to produce results different from (p.376) a
straightforward presumption in favour of jurisdiction, because of the importance of
antitrust law in the US.96 Many outside the US do not believe that the US courts
applying a balancing test will be totally unbiased or unaffected by their US
perspective and experience. Perception may be as important as the reality. Weintraub
observes that: Producing apparently parochial results while mouthing comity
platitudes may do more damage to international relations than asserting our [US]
reasonable interests pending negotiations at diplomatic levels for accommodation. 97
Mannington Mills specifically lists the effect upon foreign relations as a relevant
factor in the balancing process.98 This factor may also be considered under other
balancing tests. In Laker, Judge Wilkey stated that many of the considerations in
section 403 of the Restatement (Third) were purely political factors which the court is
neither qualified to evaluate comparatively nor capable of properly balancing. 99
Enforcement authorities choose not to commence proceedings for many reasons and
it would be impossible to eliminate foreign policy considerations from that bundle of
considerations. Indeed, most countries wish the US would pay more attention to
foreign policy concerns in its comity analysis.100 While foreign policy, when significant,
has generally counselled against the application of antitrust law abroad, ad hoc
consideration of foreign policy may have the opposite effect, as in case of the Arab
boycott and anticompetitive practices in Japan. Reliance on a case-specific foreign
policy would create problems of fairness and consistency, and reward states that
bellowed the loudest.101 Foreign relations should only be considered by the forum
state's political branches. Diplomats otherwise risk being swamped with commercial
litigation problems to negotiate. The effect would be that the political branches could
choose not to commence proceedings in sensitive situations and the courts will
prevent the political branches seeking to expand antitrust jurisdiction for ad hoc
political purposes. It is similarly arguable that consideration of the needs and
traditions of the international political, legal or economic system should be
excluded,102 because of the impossible demands they would place on any tribunal
deciding a case.103
(p.377) Governments are generally prepared to discuss their policies with
representatives of other friendly governments. However, few governments will readily
accept the proposition that the importance of national interests, the means by which
national policy is implemented, and the characterization of their activities are
appropriate subjects for determination by a foreign state's judicial bodies. Some
governments have argued that once a national court identifies comity concerns
arising from foreign policies, a resolution should be sought through consultation and
negotiation. Although appearing before a US court to challenge its jurisdiction does
not connote acceptance of the validity of that court's jurisdiction, if balancing can only
be done after much fact finding and deliberation, appearance would seem to imply
some acceptance of the legitimacy of the US court's claim to adjudicate.
A balancing rule would operate in a fundamentally different manner if the local and
foreign laws were reasonably similar. The closer the laws, the more surely the local
courts can discount the normative weight of any foreign objection to jurisdiction in
determining the reasonableness of its assertion of jurisdiction.104 If both states
considered certain conduct to be illegal, the state in which the conduct occurs has few
principled reasons for objecting to the other state asserting jurisdiction. Principled
reasons could include objections to the legal processes in the other state, increased
transaction costs and unfairness for the parties, or discrimination against foreign
consumers or producers. The balancing process would then resemble a forum non
conveniens analysis. Substantive concerns, such as discrimination, could be
addressed through more specific rules on international competition law.
In summary, the balancing test has fallen into disfavour in the US and elsewhere. It is
methodologically flawed and has failed to solve actual disputes. The increasing
convergence of competition law suggests that a balancing test could achieve little
more than a competitive effects test applied together with the international
competition law defences and the doctrine of forum non conveniens.
10.3.4 International Competition Law Defences
Introduction
The development of the international antitrust defences in the US was in part a
response to foreign complaints about the extent of US antitrust jurisdiction.105 The
interest in the international antitrust defences has fallen as the application of the
effects doctrine came to require direct, substantial and foreseeable competitive
(p.378) effects and the merits of competition policy gained wide international
acceptance. The general acceptance of the effects doctrine and concurrent jurisdiction
means that a good reason will be needed to induce a country not to exercise
jurisdiction over foreign conduct that affects competition in its territory. The
international antitrust defences need to be shown to be in the long-term self-interest
of states applying such defences and not simply a means to avoid international
conflicts. The defences are effectively recognition of the legitimacy of certain types of
exemptions from foreign competition laws.
Where exemptions from competition law may enhance national economic welfare and
global economic welfare, it would be desirable for those exemptions to be recognized
by other countries. Even a country that may be adversely affected by exempt conduct
may recognize the exemption on a reciprocal basis. If leading antitrust jurisdictions
apply their laws extraterritorially, but recognize only narrow international competition
law defences, they risk their own government policies being undermined by foreign
competition law actions.106 Like extraterritoriality and the doctrine of restrictive
sovereign immunity, there is likely to be a tendency for small states to follow the large
states in their recognition of international antitrust defences.
One of the most common complaints about the extraterritorial application of US
antitrust law is that it will almost invariably be applied in the absence of a clear,
explicit, and directly contrary foreign law. Firms can get caught between conflicting
government policies. The extraterritorial application of competition law can raise the
risks for firms investing and conducting business in countries with policies that
encourage anticompetitive conduct and therefore raise the cost (perhaps
prohibitively) of those policies, because of the unwillingness or inability of private
firms to participate. The uncertainty will also increase the costs to firms, which may
harm the interests of the country applying its laws extraterritorially. In any event,
foreign governments are just as likely to entrench a policy, rather than adopt a more
pro-competitive policy in response to foreign competition law litigation.
The primary objective of countries faced with the application of another country's
competition law to activities occurring within their territory will often be to maintain
freedom of action in determining national resource and industrial policy.107 In many of
the cases where the extraterritorial application of antitrust law has interfered with
another country's industrial policy, the complaining country would have been able to
achieve the same policy objective by other means, (p.379) albeit possibly a less
politically advantageous means. Limiting the means through which policies may be
implemented in order to benefit from international antitrust defences could help
overcome the perception that some governments will leap to the defence of their
firms caught in violation of US laws and retroactively declare or clarify policies.
However, many countries would object to rigid rules governing the manner in which
policies must be implemented, because this would affect the costs, and political and
practical feasibility, of many policies.
National preferences for competition law defences are likely to reflect historical
practices, past conflicts, and ideological convictions, rather than a considered view of
the issues. It is argued below that a case can be made for a new international
antitrust defence for certain activities authorized, but not compelled, by a foreign
state.
An Economic Argument for Exclusive Jurisdiction
The international antitrust defences create a class of cases to which only foreign law
and policy apply. They confer exclusive rights to regulate, like a property right. The
economic analysis of such entitlements provides some guidance on whether there is a
case for expanding the international competition law defences.108 Most domestic
entitlements are partially protected by property rules and partially protected by
liability rules.109 The economic analysis of ordinary property or liability rules largely
turns on the different remedies available if the rules are breached. Property right
assignments are guaranteed against infringement by the ability of the right possessor
to get an injunction to enjoin the violation of the right. On the other hand, liability
rules only entitle the right possessor to receive damages for harms suffered to its
right.
The extraterritorial application of competition law and foreign anticompetitive activity
can both be seen as externalities from the point of view of other countries. The
analysis should therefore not assume that the actions of either state are
legitimate.110 The use of the effects doctrine is like a property right (perhaps
analogous to a right to pollute) in the sense that it can usually be applied regardless
of the wishes of other countries, and will undermine another country's policy of, say,
promoting voluntary export cartels. It is then incumbent on the second country to
pay the first country to stop exercising its jurisdiction, accept the consequences of
the interference by another country, or change its policy (for example by making
voluntary cartels mandatory or abandoning the use of export cartels). On the other
hand, the effects doctrine does not create an exclusive jurisdiction for the state
exercising it, because other states can also (p.380) regulate the same conduct.
Doctrines like res judicata and the recognition of foreign judgments could have the
effect of making an exercise of jurisdiction (as opposed to the mere existence of
jurisdiction) more like an exclusive property right. The use of a doctrine like forum non
conveniens to allocate jurisdiction is more like an exclusive property right, whereby
the trial of the case by one state will preclude another state from considering the
same case. A right not to have the competition laws of another country applied to
conduct that occurs entirely within local territory would also be like an exclusive
property right. This property right could be limited to conduct that does not have
effects (or effects of a certain nature and magnitude) on other countries. The ability to
avoid the extraterritorial application of competition law by taking advantage of the
international antitrust defences of sovereign immunity and foreign sovereign
compulsion also confer property rights on states that host the conduct that has
transnational anticompetitive effects.111
The Coase Theorem suggests that when transaction costs are zero, an efficient use of
resources results from private bargaining as well as the internalization of externalities,
regardless of the initial legal assignment of property rights.112 In the present context,
states should be able to divide cases between courts so that each state got to decide
the cases which were of the highest priority for itself. By specifying the circumstances
where a property rule (and the allocation of entitlements in general) is unimportant to
efficient resource use, the Coase Theorem implicitly specifies when property rights are
important. Thus, when transaction costs are high enough to prevent bargaining, and
thereby prevent the internalization externalities by agreement, the efficiency of the
use of resources will depend upon how property rights are initially assigned. When
transaction costs are high, two types of policy intervention to improve efficiency are
generally suggested: the law can encourage bargaining and thereby improve
efficiency by lowering transaction costs; and/or the law can attempt to allocate
entitlements to the person who values them most, that is, the law attempts to allocate
entitlements in the way that they would be allocated by the market if transaction
costs had been lower.
In relation to the second option, if the information costs involved in the government
finding out which party values a right the most exceed the transaction costs, it is
appropriate to leave the parties to their own devices. The subjective valuation of a
state of a particular type of jurisdiction is enormously difficult to assess. (p.381) The
lack of a supra-national authority also means that the law cannot assign the
jurisdiction to any state. However, the transaction costs of states negotiating
jurisdictional rules may be able to be reduced in a number of ways. If the negotiations
focused on the determination of the appropriate forum for the litigation of competition
law disputes, rather than the allocation of jurisdiction, this might involve a lesser
change and therefore a reduced chance of opportunism, which could facilitate
negotiations. See Section 10.4.4. The dissemination of information and the analysis of
the allocation of jurisdiction may also reduce transaction costs.
When the parties cannot practically bargain with each other to eliminate
externalities,113 liability rules are generally viewed as superior to property rules,
provided the courts can accurately determine the level of harm.114 The strongest case
for using liability rules can be made when the optimal solution to a problem of
conflicting uses requires some but not a total restriction of the potential injurer's use.
Such a situation arises when several states have strong interests in the subject matter
of a dispute over international competition law jurisdiction. On the other hand, a
strong case can be made for the use of property rules for the protection of possessory
rights in things.115 The analysis of possessory rights suggests that states should in
some circumstances accept international antitrust defences that create exclusive
jurisdiction for one state. First, if the parties do not bargain with each other, a
property rule to prevent takings is superior to the use of a liability rule if the
distribution of idiosyncratic values of owners lies above that of takers, and if courts err
sufficiently in estimating common values. Although courts may be able to assess the
extent to which an anticompetitive practice raises prices in the affected country, it
may not be competent to assess the costs to a country of an exception from
competition law, given the potentially large number of reasons for creating such
exceptions. A claim that a state's policies, which encourage anticompetitive conduct,
are more important to a state than the economic effects on other countries, is
stronger when its effect on international commerce is smaller than the effects on
domestic commerce. Secondly, if there is a multiplicity of potential takers, such as
where the same anticompetitive conduct is investigated and punished by more than
one administrative authority, a property right may be appropriate. Thirdly, when
taking back is likely, because the owner values the property more than the taker, the
legal rules make the possession of the thing unstable. The use of anti-suit and anti-
anti-suit injunctions and blocking and clawback statutes and evidential presumptions
provide the relevant analogies. Finally, a liability rule would generate greater
incentives for owners to take precautions to prevent their property being taken. States
may be able to avoid some of the consequences of the extraterritorial application of
foreign antitrust law by compelling the conduct in question.
(p.382) When transaction costs are high, the costs of externalities should be placed
on the party that can act in the market with the lowest transaction costs to correct an
error in entitlements by inducing the party who can avoid social costs most cheaply to
do so.116 The application of this principle to competition law suggests that jurisdiction
should be allocated to a state applying the effects doctrine to import commerce if the
state hosting the anticompetitive conduct could achieve the same policy goals in an
alternative way (whether through compelling the conduct in question or other policy
measures that do not require anticompetitive conduct).117 The alternative ways of
achieving the policy goals may frequently be more efficient than the original policy,
albeit sometimes less desirable for domestic political reasons. This may not eliminate
the externality from the point of view of the country applying its competition law, but
it takes the issue outside the field of international competition law.
There is a risk that exclusive state jurisdictions could create obstacles to an efficient
re-allocation of jurisdiction.118 The optimal allocation of jurisdiction may not involve
exclusive jurisdiction. States could share a jurisdictional space in a number of ways,
including the use of positive comity agreements and the transfer of jurisdiction to a
supranational organization. However, if too many countries have a right to regulate a
particular jurisdictional space, no state may be able to effectively use jurisdiction. 119
Thus, jurisdiction may, in some cases, be better allocated to the state most affected,
rather than spreading jurisdiction among all the affected states, and this state could
then regulate as a kind of trustee or agent for the other states.120
Identifying Workable General Principles for Exclusive Jurisdiction
Government polices that promote competition are generally superior to those that
restrict competition. The international recognition of some competition law
exemptions requires accepting that sometimes competition is not the best policy. For
example, without a rule that allocates exclusive jurisdiction over cases involving the
application of labour exemptions to the country where the labour is actually
employed, the extraterritorial application of a competition law could undermine the
political compromises and social policies underlying industrial relations in other
countries. The task of identifying workable general principles to determine the scope
of exclusive jurisdiction is difficult. As was said about (p.383) Article XX of the GATT,
which must balance between trade liberalization and local regulatory autonomy,
experience has shown that the law must have a certain irreducible messiness in
dealing with such tensions.121
An international antitrust defence might be justified for exemptions which enhance
the welfare of the country adopting the exemption and/or global welfare. A cost
benefit test could (theoretically) be applied by a national court or competition law
authority when considering whether to apply competition law extraterritorially, or
could be applied by an international tribunal (such as a WTO panel) in determining
whether a competition law exemption is legitimate under an agreement to enact and
enforce a competition law.122 Alternatively, a proportionality test could be applied,
which would examine whether the costs from a lessening of competition are excessive
in relation to the benefits of the exception.123 Another proposal is for an international
antitrust defence to apply to conduct that was part of a policy designed to achieve
specific social objectives and the adverse effects on competition caused by that
conduct were concentrated in the exempting country.124
The use of welfare and proportionality tests would be unworkable as an international
antitrust defence, whether applied by a national court or an international tribunal.125 It
would not be easy to identify the legitimate socioeconomic policies and the benefits
from such policies. Furthermore, no court decisions on jurisdiction or the international
antitrust defences could be made until a court made a thorough investigation into the
motivations for and effects of a foreign government's policies, which would accentuate
international conflict and increase the costs of court battles over jurisdiction. It would
also be difficult to calculate with any precision where the adverse effects of a policy
were concentrated and what proportion of the burden foreign consumers should
shoulder.
The assessment of the welfare effects of competition law exceptions may be beyond
the capacity of WTO panels or national courts. A standard that theoretically maximizes
world welfare may not do so in practice if the administration and error costs of
applying the rule are high. The WTO panels have little ability to assess the success or
social value of regulatory measures and lack any recognized political mandate to do
so. A rule of reason or an efficiency defence (p.384) gives rise to many of the same
issues as assessment of welfare effects of exceptions would as part of an international
antitrust defence. The efficiency gains or other social benefits may not be evenly
distributed between, or even desired in, all the affected countries. Antitrust
experience shows that even within a simple efficiency framework, the accurate
quantification of benefits and detriments has proved difficult in practice. Without a
comprehensive framework with widespread acceptance, the assessment of conflicting
regulatory concerns for international antitrust defences becomes a loose balancing
test. Even if exceptions were assessed with a conventional costbenefit analysis,
governments would need to have a fair degree of leeway in defining and weighing the
risks of the unknown. Thus, where there is uncertainty about the social benefits of an
exception and whether or not the policy is implemented in an economically optimal
manner, a WTO panel or a national court decision on whether an exception is justified
would often be very controversial. Costbenefit analysis is likely to draw most criticism
when there is a small but inadequate amount of regulatory benefit, because it will
appear that the WTO panel is second-guessing the national government.
An examination of the purpose of a government in creating an exemption also
appears to be unable to provide a way forward. The idea of identifying the purpose of
a legislature is problematic for many reasons.126 Without absolutely clear evidence,
governments are also likely to strongly object as their integrity is being questioned.
The purpose for which a statute was enacted may, however, be completely different
from the purpose for not repealing the same statute years later. In such a situation a
WTO panel may be unwilling to impute an improper motive to the legislature's failure
to repel a statute.
The allocation of the burden of proof often has a substantial (often determinative)
impact on the outcome of WTO dispute settlement cases. If the burden of proof fell on
the respondent member, it would be political and technically easier for WTO panels to
decide that measures are not justified. If an international antitrust defence entailed a
costbenefit assessment of exemptions, defendants could have great difficulty proving
to the court that significant benefits arise from a particular exemption.
These problems have lead to the development of several alternative tests to
determine the legitimacy of exceptions from an obligation to liberalize trade. In the
US, the striking down of state policies under the Dormant Commerce Clause of the US
Constitution has been justified by reference to free trade as a substantive value and
the protection of outsiders as a process value.127 Close evaluation of the merits of
state policies under the Dormant Commerce Clause is seen as undermining
democratic processes and state sovereignty. In the EU, there has been increasing
academic, and perhaps even judicial, recognition that (p.385) the proportionality-
based approach to Article 30 (formerly Article 36) of the EC Treaty has to a great
extent made the ECJ responsible for defining appropriate regulatory policy, which the
court is structurally ill-suited to and which raises profound issues of legitimacy. 128 The
assessment of the costs and benefits associated with any given measure will reflect
the values of the decision-makers and the institutional context. This has led some
commentators, and perhaps some dispute resolution bodies, to adopt a more
procedural approach to determining the legality of national trade restrictive measures.
A procedural approach aims to correct the over-representation of national interests
at the expense of out-of-state interests.129 WTO panels and the Appellate Body have
also referred to process concerns to inform, but not supersede, substantive obligations
raising similar issues to those discussed here.130
Concern about under-representation suggests that, as a condition for the recognition
by the courts in one country of competition law exemptions created in another
country, exemptions should impose costs and benefits almost exclusively on locals or
the costs and benefits should fall almost equally on national and non-nationals. A non-
discrimination requirement has several advantages over a welfare standard. It
imposes fewer limitations on the type of policies that states can pursue and does not
require an assessment of the costs and benefits of a policy. The GATT and WTO panels
have encountered less criticism when determining the relative competitive impact of a
government measure on local and foreign products when applying Article III of the
GATT than they have encountered in the application of Article XX. The application of
non-discrimination rules may not be so straightforward where the issue is whether a
measure that on its face appears to be neutral but which is in fact discriminatory. In
such cases, tribunals may examine whether a measure is rationally related to the end
being pursued, or that the measure is the least trade restrictive measure to achieve
an end, in order to detect discrimination.
Although not always free from controversy, the GATT panel decisions have received a
fair degree of acceptance when holding that the same regulatory benefit can be
achieved by an alternative measure that is less trade-restrictive or not trade-
restrictive at all.131 The finding that a measure is not the least trade restrictive has
been made easier where the country has not adopted a consistent (p.386) regulatory
approach to the policy objective claimed to justify the trade restrictive measure.
With respect to competition law, this suggests that an international tribunal could
apply a rule that required governments to make exemptions the least restrictive of
competition as reasonably possible, which would require the consistent application of
competition law unless there is a defensible economic reason for not doing so. The
OECD Competition Law and Policy (CLP) Committee has observed a similar trend in
approaches towards much national regulation. Members of the CLP Committee have
stated that exemptions to national antitrust laws may be necessary, but should be
limited to regulated conduct clearly specified in the statute or its regulations, to be
allowed only when and to the extent necessary to achieve the regulatory purpose,
and not available to state-owned enterprises merely because they are state-owned
enterprises.132 The APEC leaders have endorsed similar statement on regulatory good
practice.133 There is, however, still a gap between the trend and the reality. New
Zealand's suggestion for a core principle of comprehensiveness to the WTO working
group on the interaction between trade and competition policy, which would require
exceptions to be implemented in a way that minimizes economic distortions, would
effectively be a least competition restrictive test for exemptions.134
Recent decisions of the WTO Appellate Body have introduced greater flexibility into
the determination of whether a measure is the least trade restrictive reasonably
available and necessary. The necessity test now requires a balancing of: (1) the
degree of contribution to the domestic regulatory goal; (2) the importance of the
domestic regulatory goal; and (3) the degree of conflict with free trade.135 An
alternative measure may be found not to be reasonably available, however, where
the responding Member is not capable of taking it, or where the measure imposes an
undue burden on that Member, such as prohibitive costs or substantial technical
difficulties.136
The use of a least trade restrictive rule does not provide, however, a suitable rule for
an international antitrust defence. It is not aligned with existing international antitrust
defences. It is also too broad, because it would fail to take into account the interest of
the countries other than the country applying the exception. (p.387) Disputes over
most exemptions from competition law may be more severe in national courts than in
an international tribunal, because of the dominant role of private parties and their
lawyers who have no interest in considering wider national interests in court
proceedings, let alone the foreign interests. By contrast, WTO panels are seen as
neutral and the interests of all members may be considered. Members also have an
interest in protecting the legitimacy and authority of the dispute resolution process.
Challenges to exemptions in other countries will be constrained by the fear that a
panel decision will set a precedent applicable to all members. This consideration
supports the use of bright-line rules to circumscribe international competition law
defences.
Any conduct that could fall within one of the international antitrust defences would
also need to fall within the category of exemptions from the obligation to adopt a
consistent general competition law advocated in Chapters 4 and 6. Although related,
there are two rules, which serve two different purposes. The international antitrust
defences restrict when a country can apply its competition law extraterritorially. A rule
restricting exceptions restricts when a country cannot apply its competition law to
local conduct.
In relation to restrictions on competition law exceptions, states are unlikely to be able
to agree on (or want to agree to) an exhaustive list of legitimate domestic exemptions
from competition law. However, states that are party to a plurilateral agreement on
competition law may be prepared to agree on core competition law principles that
would regulate the use of domestic exemptions. It could probably be agreed that all
exceptions and exemptions should be published and have a statutory basis. As
discussed above, exceptions could be required to be the least competition restrictive
of reasonably available alternatives to accomplish legitimate policy objectives, which
is similar the WTO least trade restrictive alternatives test. However, the WTO
agreements use least trade restrictive tests in relation to particular domestic policies,
rather than apply the test to all policies that could affect trade. It could also be
difficult to identify the purpose of many policies and assess the market imperfection
justifying the exemption. An obligation on governments to disclose the terms and
rationale for all exemptions would facilitate the determination of whether such policies
were least restrictive of competition. However, there is no international consensus on
precisely when exceptions from competition law are desirable137 and states are
unlikely to want to allow a WTO DSU panel or the Appellate Body to make such a
determination.
A more acceptable rule may be that, if the exemption is facially non-discriminatory
(see below), and if there is a rational relationship between the policy measures and
the policy objective being pursued, the exemption should be legitimate. Where the
exemption is not facially non-discriminatory, an exemption should be allowed only if it
is the least competition restrictive means of achieving (p.388) a legitimate policy
objective. In either case exceptions should not be permitted where, in the words of
Article XX of the GATT, they are a means of arbitrary or unjustified discrimination
between countries where the same conditions prevail, or a disguised restriction on the
operation of trade. The proposed rule would give a greater margin of appreciation to
national governments. The non-discrimination element of the proposed rule would,
however, protect the interests of foreign firms. It could also draw on existing WTO
case-law on Article XX.
If exemptions were non-discriminatory, this could entail a requirement that the
exemption must apply to consumers and producers without regard to the location of
the affected consumers or producers. For example, if such a principle was adopted, US
antitrust law could not exempt only US insurance firms from the US antitrust laws.
Such an exemption would be effectively discriminating against foreign firms. The
application of a non-discrimination principle to competition law is considered further in
Section 11.5. The use of such a principle would generally protect the interests of
foreign firms, while giving states considerable freedom to create exemptions from
competition law.
A least competition restrictive approach would effectively embrace a principle of
consistency similar to that of Article 5.5 of the WTO Agreement on the Application of
Sanitary and Phytosanitary Measures.138 Not all exemptions would be subject to the
least trade restrictive test. To ensure the application of a consistent general
competition law, it would therefore be desirable for a plurilateral agreement on
competition to include a requirement for members to avoid arbitrary or unjustifiable
distinctions in the application of competition law rules to different sectors or
industries, if such distinctions result in discrimination between firms of different
nationalities or a disguised restriction on international trade. A more limited rule
would merely require or implore states not to create exemptions from its competition
law, with the purpose or the effect of significantly affecting the competitive
relationship between local and foreign firms.139
Although it may be desirable to require that members should only permit
competition law exceptions consistent with the principles set out above, the right to
challenge such an exemption could be further restricted. A requirement that the
exemption have adverse effects on the interests of other members, in (p.389) the
same sense that articles 5 and 6 of the WTO Agreement on Subsidies and
Countervailing Measures requires adverse effects before a subsidy is actionable,
would reduce challenges to exemptions to a few significant cases. This would be
consistent with the need to show anticompetitive effects on a local market before
competition law can be applied extraterritorially.
In relation to international antitrust defences, even the least trade restrictive test
would allow too many exceptions to be acceptable. States would not want to
recognize all types of policies that are exempt from the general competition law rules
of other countries. The US and the EU judicial and enforcement practice is to apply
their competition law to foreign cartels that affect competition in the US or the EU
even though export cartels in the US or the EU are effectively exempt from US and EU
competition law. Therefore, a simple rule of mutual recognition of exemptions would
not be acceptable or desirable. Such a principle could also be disadvantageous to
small countries that adopted an efficiency defence. Export cartel exemptions are
discriminatory against foreign consumers.
Foreign and defence policy considerations can never be entirely suppressed, but the
international antitrust defences should be rule-based to the greatest extent possible.
The extraterritorial application of competition law sometimes occurs where the
enforcing government has intervened in the relevant markets, which affects
competition between local and foreign firms. In both the Uranium Cartel and
Daishowa cases the foreign cartels were apparently formed in response to US
government policies. Although there was an element of unfairness is punishing the
foreign firms under US antitrust law, WTO rules and the application of competition law
seem to be the more appropriate mechanism for levelling the playing field. Thus,
neither foreign policy nor trade retaliation should be permitted as exemptions.
States could attempt to agree on a list of exemptions that will be recognized when
another country applies its law extraterritorially (international exemptions). As a first
step, states could agree on general principles governing the availability of
international antitrust defences and agree to cooperate in identifying sectors or
practices that will be exempt. If an international exemption is consistent with those
principles and the rules on national exemptions, and has been notified to the WTO or
ICN, it should (not shall ) be added to the list of international exemptions that will be
recognized when a country applies its law extraterritorially. The notification approach
avoids the need to reach agreement on the text of recognized exemptions. Even if
states cannot agree on a list or a set of principles, international agreements on trade,
services, and investment liberalization or competition law may be relevant. The
deregulation and international liberalization of a sector simultaneously reduces
competition law exceptions, but increases the scope for the penetration of foreign
competition laws into that sector of the economy. The sector-by-sector approach to
services liberalization under the GATS allows competition law exceptions to be created
(and regulated) as liberalization proceeds.
(p.390) Geographic Scope of Competition Law Exceptions
Most countries would probably object to another country attempting to compel firms
to engage in anticompetitive conduct in their territories. A logical consequence is that
there should be some territorial limit for most of the international antitrust defences.
Some of the rationales for the territorial limitations were discussed in Chapter 9. In the
present context it is worth noting that the geographic scope of application of
competition law exemptions also provides an indirect, if imprecise, proxy for a
proportionality test. That is, if the conduct occurs wholly within a country, the effects
of that conduct are most likely to be felt predominantly within that country. The cases
interpreting Article XX of the GATT might be read as supporting a requirement that
competition law exceptions should have a substantial public policy purpose that is
linked with the local population.140 Even if the regulatory issues raised comparable
problems, the rather nebulous and less strictly territorial test applied by the WTO
Appellate Body would not provide a workable rule for an international competition law
defence to be applied by a national court, where the remedies may not be purely
prospective.
Inter-Governmental Agreements
Many inter-governmental agreements restrict international competition. Some
international regimes regulating specific sectors of international commerce expressly
permit firms to engage in anticompetitive conduct, including shipping, air transport,
satellites, and telecommunications. International commodity agreements (ICAs) are
intergovernmental agreements on the production and marketing of particular
commodities.141 Encouraged by the apparent success of some ICAs, especially OPEC,
in increasing prices and the bargaining power of producing countries relative to
consuming (developed) countries, many developing countries viewed ICAs as a means
of creating a new international economic order, and sought the endorsement of the
right to use ICAs in United Nations.142 (p.391) Although the legal form and
mechanisms of ICAs vary,143 some may risk breaching one or more competition law;
because most ICAs have no formal power to directly influence the market, their
activities extend beyond a single country, do not exist on an international plane
and/or the international antitrust defences do not treat such organizations as states.
Certain ICAs are exempted from GATT rules under Article XX(h). An international
competition law agreement should specify which ICAs and other international
agreements and organizations (like INTELSAT) should benefit from international
antitrust defences.
Conclusion on International Antitrust Defences
In summary, the recognition of an anticompetitive effects test along the lines
advocated above will go some distance to reducing the need for international antitrust
defences. The recognition of the need for competition law cases to be litigated in the
most appropriate forum may also reduce concern. The sovereign immunity and act of
state defences are not specific to competition law and cannot be expanded to
increase the scope of the international antitrust defences. States that apply their laws
extraterritorially will have a strong incentive to agree on broader international
antitrust defences if their own policies are being frustrated by the extraterritorial
application of the laws of other countries. A world welfare test is unworkable. The
formalistic foreign sovereign compulsion defence does not accurately target the
conduct that should be exempt, but concerns for fairness to individual firms,
predictability, and administration costs justify this rule. International antitrust
defences should also be available in a few select cases without the need for legal
compulsion. International agreements should expressly recognize the legitimacy of
exceptions from competition laws and require the parties to the agreement to
recognize the legitimacy of certain exemptions in other countries through
international competition law defences. Such recognition could be on a sector-by-
sector basis. The international exemption should be consistent with certain general
principles. Exemptions should be: (1) transparent and embodied in legislation; (2) the
least competition law restrictive means of accomplishing a legitimate policy objective;
(3) non-discriminatory; (4) for conduct that occurs within the exempting country; and
(5) notified to the WTO. The successful design and implementation of any industrial
and regulatory policy will generally require intense consultation between government
and industry. With respect to consultation and policy-making, some form of the Noerr-
Pennington doctrine is likely to be applied internationally under all competition laws.
States should agree to apply such defences on a non-discriminatory basis to local and
foreign lobbying.144
(p.392) 10.4 Improving the Management of Concurrent Jurisdiction
10.4.1 Difficulty of Agreeing on Comprehensive Allocation of Competition Law
Jurisdiction
Some countries might desire a multilateral agreement on competition law that
restricts the competition law jurisdiction of countries, but this has long been seen as
improbable. In 1969, the Secretary-General to the Hague Conference on Private
International Law proposed that the Conference should not begin work on competition
law, even though it was recognized that the issue was one of utmost importance.145
The fact that the US International Competition Policy Advisory Committee Report
considered aspects of the extraterritorial application of competition law from a US,
rather than an international, perspective146 may be indicative of an unwillingness to
enter negotiation leading to any substantial modification of the existing rules of
jurisdiction.
There are several reasons why large states are reluctant to give up antitrust
jurisdiction. Jurisdiction is about national power and control in world affairs.147 Giving
up jurisdiction may have significance for the evolution of international law in other
legal fields; limit the ability of states to respond to any economic or political events,
especially where the underlying legal and policy issues are complex and states have
difficulty in identifying what is the national interest; influential interests in many
countries that would be adversely affected by the loss of jurisdiction; and result in a
loss of sovereignty. If the US and the EU are unwilling to modify their competition law
jurisdiction, other countries will not be persuaded to limit their jurisdiction. States are
unlikely to be able to assess accurately the marginal value of expanding or reducing
prescriptive jurisdiction, which is likely to lead states to be very cautious in agreeing
to surrender any right to regulate. States negotiating the scope of their regulatory
jurisdictions may find it difficult to agree on the division of the social surplus that
would be generated by an efficient exchange. Therefore, states may prefer an
agreement that clarifies existing practice and/or provides for an approach that
allows case-by-case allocation.
Negotiations on a multilateral or plurilateral agreement on competition law may not
be successfully concluded if an agreement on jurisdiction was to be part (p.393) of
the agreement. It may be desirable to separately negotiate core competition
principles and rules on jurisdiction. While a plurilateral agreement may permit a
degree of free-riding by non-parties, the major trading countries may still receive
sufficient benefits to make the agreement desirable. The use of a case-by-case
allocation approach would also mean that most of the benefits would accrue to the
parties to the plurilateral agreement.148
The dearth of binding agreements on prescriptive competition law jurisdiction is
consistent with both high transaction costs preventing states allocating jurisdiction in
an efficient manner and the present allocation jurisdiction being reasonable
efficient. The US's commitment to on antitrust jurisdiction expansive jurisdictional
claims may have recently softened in response to the increasing international
convergence of competition policies and a belief that some US antitrust policy
objectives can be better achieved through cooperation. Other governments have
moved further to accept the legitimacy and inevitability of the extraterritorial
application of antitrust law and the desirability of competition policy. Thus, if the
current allocation of jurisdiction is reasonably efficient, but not optimal, and countries
have relatively similar policies, but will not enter into binding agreements, legal rules
that allow a case-by-case shedding of jurisdiction may be the best way forward. This
suggests that international agreements on standing, forum selection, positive
comity, and other legal rules that impact on the scope of application of national
competition laws without directly limiting jurisdiction would be politically easier to
negotiate than an agreement on international jurisdiction in competition law.
The US and the EU competition enforcement agencies consider it to be in their
countries' interests to enter into agreements with some smaller countries on antitrust
enforcement cooperation, in part because foreign authorities have an advantage in
gathering information and enforcing competition laws in their home countries. In
parallel with an enforcement cooperation agreement applicable to criminal, civil, and
administrative investigations and litigation, states may be able to agree that
competition law jurisdiction exists where substantially all of the relevant conduct
occurs within the forum or the conduct has anticompetitive effects on the forum, but
in other situations the forum will rarely be the most appropriate forum. Thus, where
the forum is not the appropriate forum, competition law agencies would defer to and
cooperate with other competition law agencies in accordance cooperation
agreements. It could be agreed that the US enforcement authorities would not be the
appropriate enforcement agency in a paradigm market access case, or where it was
alleged that the administrative or judicial processes in another country were
defective. Civil courts would also stay proceedings in favour of other courts in other
countries in such circumstances. Forum selection could also be a by-product of the
WTO rules and dispute resolution, which might prevent the US from taking unilateral
action in market access cases.
(p.394) 10.4.2 States Need Principles to Guide Unilateral Adoption of Cooperative
Conflicts Rules
States should recognize that cooperation in the field of conflicts of competition laws is
mutually advantageous. While it may not be in the short-term interests of a country to
enforce foreign judgments, the enforcement of foreign judgments is beneficial if doing
so is necessary to get judgments of the forum's courts enforced abroad. This situation
corresponds to the Prisoners' Dilemma game. In such a game, repeated interaction
can facilitate inter-state cooperation. The increasing levels of international commerce
and international competition law enforcement actions lengthen the shadow of the
future. The convergence of substantive and jurisdictional laws, combined with
improved information on enforcement actions around the world, increasingly clarifies
whether a country is defecting from an understanding. Public commitments to
reciprocity can enhance the prospects for cooperation and are easily made in the
context of conflicts rules through reported court decisions and appellate precedents.
However, specific reciprocity is an imperfect mechanism to promote cooperation
where three or more states are involved in a case. Courts could also end up adopting
different approaches to cooperation that are not coordinated with each other. Thus,
while repeated interaction could maintain a cooperative solution, it is unlikely to
create such a solution.
If the legislatures do not agree on jurisdictional rules, the courts will continue to
decide on the allocation of jurisdiction. Courts are most likely to be able to assist the
development of international cooperation where competition law cases can be treated
in a similar manner to commercial tort cases. However, courts are unlikely to develop
optimal conflict of laws rules and it is probably undesirable that they should be
charged with the responsibility of doing so.149 The political compromises needed to
establish limits on jurisdiction should be made by democratic institutions. In any
event, competition law jurisdictional issues isolated from enforcement cooperation
and core principles may not form a critical mass of issues in which a compromise can
be found.
If states were unable to agree on a set of competition law conflicts rules, there may be
some merit in a set of such rules being produced by an expert committee.
International competition law has nothing equivalent to the American Law Institute or
its Restatements of the law.150 If, as discussed in Chapter 2, an international panel of
experts or an organization like the ICN drafted a set of principles for international
competition law, including conflicts rules applicable to competition law, this may
facilitate cooperation through the unilateral adoption of the rules. The Restatements
cover broad legal areas, which (p.395) allow all states to find some benefit in
adopting the Restatement as a whole. The coverage is also comprehensive and
detailed, which leaves little room for courts to reach different solutions on the same
issues. The Restatements provide focal point solutions to coordination problems. The
intellectual coherence and simple unifying principles could also add to the appeal of a
set of conflicts rules. These principles would then need to be implemented by
individual legislatures.
10.4.3 Operationalizing Forum Selection as an Alternative Jurisdiction Restriction
If more than one country has jurisdiction (and no international antitrust defence is
applicable), the most restrictive law will determine the legality of the conduct in
question and multi-jurisdictional regulation will push up transaction costs. A legal rule
allowing courts to decline to hear a case if there is another more convenient forum
could be beneficial to all countries. In this chapter, it has been suggested that any
forum selection rule should focus on litigation costs and the better enforcement of
competition laws that are roughly comparable. The use of forum non conveniens-type
principles may encourage countries to enact competition laws and to facilitate private
actions in national courts. An international agreement to apply such a rule would
reduce the overlap of competition law and reduce the incentive to enact laws so that
the targeted conduct may benefit from an international antitrust defence. These rules
should be informed by values that have been accepted as underlying conflict of laws,
such as certainty and predictability, and values central to international antitrust, such
as economic efficiency. The rules should minimize the room for dispute over whether a
particular condition is satisfied. Although such rules would only be applicable in civil
litigation, a parallel allocation of enforcement responsibilities could take place under
inter-agency cooperation agreements. Such an agreement could provide for positive
comity and a lead jurisdiction responsible for investigating and prosecuting a case.
See Chapter 13.
A grant of forum non conveniens results in the dismissal or stay of the action brought
in one court, allowing the plaintiff to take the case to another forum.151 The
defendant's objection in such a motion is typically not a challenge to the subject
matter jurisdiction of the court per se, but rather an assertion of the impropriety of
that particular court exercising its jurisdiction over the case because litigation in such
an inconvenient forum amounts to an illegitimate exercise of state power.152
(p.396) The factors of primary relevance to granting dismissal for forum non
conveniens, like the availability of evidence and witnesses, are within the traditional
competence of courts and do not involve the same highly political decisions that
interest balancing demands. This approach would not address the substantive policy
conflicts nor provide a solution where witnesses and facts are truly scattered.
Moreover, there are doctrinal limits and uncertainties to the implementation of such
an approach in most competition law jurisdictions studied. While Japanese law looks
the least accommodating to such an approach, the AML has the smallest scope of
application. The strict forum non conveniens doctrine in Australia is also matched by
political controls on private extraterritorial competition law actions. Many writers,
especially from civil law systems, do not like judicial discretion based on forum non
conveniens to moderate jurisdiction.153 However, civilian legislators and scholars may
prefer the uncertainty of the doctrine to the certainty of the application of US law.154
Although the common law doctrine is not subject to a requirement of reciprocity, the
need for legislation in some countries may reinforce the policy decisions of the courts
in common law jurisdictions to apply the doctrine to competition law cases. But for
judicial policy in civil law countries, the positive comity provisions in several
competition law cooperation agreements indicate that many governments could find
the suggested approach acceptable.
An agreement on forum selection in international competition law cases may go
beyond countries declining to exercise jurisdiction in favour of other countries and
also allow for the consolidation of litigation occurring in more than one jurisdiction.
Similar powers to consider closely related matters are contained in the Brussels
Convention and the draft Hague Convention on Jurisdiction and Judgments.
The US courts have not developed workable and predictable balancing tests. To
improve predictability the courts need to reduce the number of factors they consider
and develop a calculus for combining these factors. As discussed in Section 10.2.3,
the law and economics literature makes some suggestions on how the appropriate
selection of a forum may enhance efficiency, but it cannot provide definitive guidance
in individual cases. The traditional goals of conflicts of laws rules, such as fairness,
certainty, and predictability, also do not point to a definitive rule. Although the most
appropriate forum cannot be identified with total certainty in every type of situation, a
strong case can be (p.397) made for a particular subset of cases. For the others the
aim is to produce a set of rules, which allows the likely judicial outcome to be able to
be determined ex ante.
Plaintiffs and defendants will often favour different forums in international competition
law cases on the grounds this will reduce their litigation costs. In any transnational
case, the evidence required will usually take the form of testimony and documents
detailing actions and events. Evidence concerning the market effect of that conduct
will more likely consist of statistical and other data interpreted through expert
testimony. Generally, this latter evidence can be presented almost without regard to
the location of the court. If so, it is arguable that the case should normally be tried in
the courts located in the state where the conduct occurred, because of the better
availability of witnesses, documents, and other evidence.155
Although a defendant may be placed in a difficult position because of the number of
countries where its anticompetitive conduct caused injury, it seems desirable not to
overly restrict the plaintiff's choice of forum. If the plaintiff were only able to sue in
one court, it would be difficult to propose any forum other than that of the defendant's
domicile. It would be too easy for the defendant to locate its headquarters in a
jurisdiction with favourable law, which would allow the defendant to easily avoid the
consequences of its anticompetitive actions. Nonetheless, civilian countries may
desire a rule whereby the defendant cannot avoid being sued in the court of their
domicile. In civil law countries, competition law defendants may be sued in the court
of their domicile or before the court where the damage occurred. The latter
jurisdiction is more limited in scope. Only when a court has general competence are
damages available for injury suffered in markets outside the forum and injunctions
available even for actions outside the forum.156 Although a larger range of issues can
be addressed and remedies ordered, the defendant's home forum may be far removed
from the facts of the case and may need to apply the law of other jurisdictions and the
defendant may have a hometown advantage. The possibility of consolidating litigation
may act to countervail the tendency of states that apply the doctrine of forum non
conveniens to favour local plaintiffs and defendants.
There may be significant reduction in litigation costs and the risk of judicial error if a
court is not required to interpret the actions of foreign witnesses in a foreign setting.
In United States v Nippon Paper Industries Co, Ltd, which concerned (p.398) an
alleged price-fixing conspiracy among Japanese firms, the District Court observed:157
The enterprise of making findings was complicated by the cultural/language divide
in this case. There were warring translations of documents and testimony, and warring
views of the inferences that could reasonably be drawn from certain acts and
statements. [The defendant] attempted to show that acts that may appear nefarious
to American eyes, had no such patina in Japan.

As the court explained, fact finders must draw reasonable inferences from the
evidence based on their shared perceptions and their common understanding of the
habits, practices, and inclinations of human beings. Where American perceptions of
the significance of particular acts may not be applicable in Japan, there is a risk of a
miscarriage of justice if an inappropriate forum must decide a competition law case.
It is less easy to generalize about cases involving international markets and direct
transnational effects. There is considerable value in being able to consolidate litigation
spread across several countries, but only where substantially the same issue is to be
determined in each jurisdiction. Most international competition law cases will involve
conduct that will produce different effects, or effects of a different magnitude, in
different jurisdictions. For example, an international cartel may agree to charge a set
price throughout the world, but the level of competitive harm and injury to customers
will vary between jurisdictions. Thus, there may be relatively few cases where
litigation should be consolidated. It may, however, be desirable if the courts in one
country could recognize certain factual findings in relation to the same defendant by a
court in another country, such as a finding that a firm engaged (or did not engage) in
exclusionary conduct that affected an international market. Where the countries apply
similar competition law rules, the costs of litigation against large multinationals in
small jurisdictions could be significantly reduced. When a state declines jurisdiction on
the defendant's motion it would be useful for the proceedings to be transferred to
another court, rather than just dismissed. This would aid the efficient settlement of
meritorious claims.
10.4.4 Extraterritorial Criminal Competition Law Actions
Many governments have objected to the use of criminal prosecutions in antitrust
cases. In the past, it has been argued that the benefits of deterrence from criminal
prosecutions may be outweighed by the damages to foreign relations, even if the
same conduct would be prosecuted criminally if the case did not have (p.399) an
international element.158 It has also been suggested that the US enforcement
authorities should concentrate on civil, prospective remedies, as opposed to criminal
actions, where contrary foreign political and economic interests are present.159
However, the increasing international convergence of competition law and acceptance
of the effects doctrine may have reduced the concern with extraterritorial criminal
actions. Furthermore, the objection to criminal actions cannot be as strong when other
nations agree that such conduct should be punished criminally, or impose substantial
fines and surcharges on competition law violators. The recent US DOJ guidelines on
when criminal antitrust enforcement actions appropriately indicate that essentially
only hard core cartels will be pursued criminally. The OECD recommendation on hard
core cartels reflects the changing international views on cartels and their criminal
prosecution among developed countries. It may also be hard to distinguish criminal
enforcement from other forms of public competition law enforcement where
significant penalties or surcharges can be ordered. A number of mutual legal
assistance treaties now allow cooperation between authorities in criminal competition
law investigations. If international cooperation on competition law enforcement and a
mutual legal assistance agreement for criminal prosecutions are possible and foreign
states feel the US DOJ will not commence criminal prosecutions in cases outside the
guidelines, criminal extraterritoriality appears to give rise to no special concerns, at
least where individual executives are not being prosecuted. However, different
mechanisms for international cooperation may be required, as will be the case for
private competition law litigation.
10.4.5 Private Competition Law Suits
The US courts have been an attractive venue for both foreign and domestic plaintiffs
due to a number of factors, including strict antitrust laws (in the past), treble
damages, broad discovery rules, jury trials, contingency fees, class actions, and
private suits. Many commentators view private actions as the greatest source of
international tension in international antitrust disputes.160 It has accordingly been
suggested that private suits should be prevented or restrained in international
antitrust cases, which would give governments more control over when (p.400)
proceedings are brought and so limit international conflict.161 The problem is not,
however, the private action per se, but rather the lack of clarity of legal rules and
disagreement over how such cases should be decided. The abolition or public
supervision of private causes of action in US antitrust law is politically unrealistic;
several other countries also give private rights of action in antitrust cases, and private
causes of action have much of value in promoting antitrust policy objectives.
If an international understanding on antitrust jurisdiction could be reached,
governments acting in good faith should be prepared to support the principles agreed
in private court cases (where possible) and be prepared in appropriate cases to
support foreign governments.162 On a few occasions, the US executive has informed
judges of its views on particular cases, but it refused to offer its views in the Uranium
case until after the Seventh Circuit's decision, despite repeated requests by foreign
governments,163 and it refused to comment in the OPEC case despite a request by the
judge trying the case.164 The 1982 Australian and 1984 Canadian antitrust cooperation
agreements require the US government, upon request, to inform a district court
hearing a private antitrust case of the results of the intergovernmental consultations
relating to the subject matter of the suit. The Antitrust Division could also play a
useful role in presenting information about the antitrust laws of other countries, and
relevant international agreements and principles of international competition law.
The award of treble damages was resented by foreign governments and lead to the
enactment of clawback statutes. Foreign courts have refused to enforce US antitrust
judgments awarding treble damages because of their punitive nature. The need to
award treble damages has also been questioned in domestic cases in the US, but is
unlikely to be removed. Recently, a few other countries have enacted provisions
allowing for the award of punitive or multiple damages. Several proposals to limit
damages to single damages in all international cases (p.401) have been made,165 but
politically they are unlikely to succeed and would raise the problem of defining an
international case.
If the exercise of antitrust jurisdiction based on economic effects by the US (or any
other country) is legitimate, there are no principled reasons to treat international and
domestic cases differently for the purpose of the award of treble damages. The
possibility of treble damages under US antitrust law may increase forum shopping and
disputes over what law is applicable to a given transaction, but these problems
would also arise with many other differences between national procedural and
substantive laws. States that wish to cooperate on the enforcement of competition
law will have to accept that forum selection may affect the prospects of the parties.
Greater international acceptance of competition law and convergence of economic
objectives and methodology may increase the international acceptance of treble
damages remedy. States may be prepared to acknowledge that the US is the
appropriate forum in certain cases, even though it would not enforce an award for
treble damages in that case. If forum selection rules are transparent, predictable, and
non-discriminatory, the possibility of an award of treble damages may not be seen as
so much a problem, or one that should affect the choice of forum.
10.4.6 Bilateral Multilateralism
A multilateral agreement is preferable to a series of bilateral agreements on
competition law jurisdiction. While bilateral agreements can be tailored to the
coordination problems of specific countries and allow agreements to be reached on
more issues between like-minded countries, multiple agreements may create
inconsistencies and hinder international cooperation when more than two countries
are affected in a particular case. The recommendations of organizations such as the
ICN, can assist states to adopt bilateral agreements that are consistent and reinforce
each other. The fact that the EU and the US are the most important competition law
jurisdictions with which most other competition law jurisdictions are likely to enter into
cooperation agreements will also assist in the harmonization of bilateral agreements.
This will reduce the likelihood of a proliferation of different forms of international
cooperation agreement. If the US and the EU can settle on a particular approach to
cooperation with each other, then that approach may be also applied to most other
bilateral competition cooperation agreements. This reduces the risk of inconsistencies
between the different agreements, but does little to help states organize a joint multi-
state investigation and coordinate remedies. It is, therefore, suggested that bilateral
agreements are to be encouraged to take common forms, with a view to the inclusion
of a provision in bilateral agreements addressed to multi-state cooperation.
(p.402) 10.5 Conclusion
The territorial principle is no longer a workable basis for jurisdiction in competition law
cases involving cross-border activities. In such cases, the effects doctrine better
reflects the needs of the individual states and multi-state system. The principle of
proportionality requires that the effects sufficient to the exercise of jurisdiction should
be direct, substantial, and forseeable effects of competition in the regulating state,
but it does not eliminate concurrent jurisdiction or require the application of balancing
tests. A case can also be made for an agreement to recognize a new international
antitrust defence in a limited range of circumstances that does not involve foreign
sovereign compulsion. If it is not possible to agree to on jurisdiction in competition law
cases, it would be desirable for states to agree to rules permitting the allocation of
cases to the most appropriate forum.
The normative conclusions from Part II can be summarized as a series of rules that
could be agreed to govern jurisdiction in international competition law cases. These
rules are set out as Principle 8 in Chapter 14. They draw on the Brussels Convention
on Jurisdiction and Judgments in Civil and Commercial Matters and the draft Hague
Convention on Jurisdiction and Judgments. However, such a set of rules should be
agreed together with an agreement on core competition law principles and
agreements for enforcement cooperation and judicial assistance in competition law
matters.
Notes:
(1) WS Dodge, Extraterritoriality and conflict-of-laws theory: an argument for judicial
unilateralism (1998) 39 Harvard International Law Journal 101.
(2) L Brilmayer, Conflicts of Law: Foundations and Future Directions (Boston: Little
Brown, 1991) 12 ; HE Yntema, The historic bases of private international
law (1953) 2 American Journal of Comparative Law 297.
(3) See Dodge (n 1 above) 104, 10610.
(4) RJ Weintraub, The extraterritorial application of antitrust and securities laws: an
inquiry into the utility of a choice-of-law approach (1992) 70 Texas Law Review
1799, 18015, 181617, 1829 . See also J-G Castel, Extraterritorial
effects of antitrust laws (1983) 179 Recueil des Cours 13, 110 ; FK
Juenger, Constitutional control of extraterritoriality?: a comment on Professor
Brilmayer's appraisal (Summer 1987) 50 Law and Contemporary Problems 39, 42
; HG Maier, Extraterritorial jurisdiction at a crossroads: an intersection
between public and private international law (1982) 76 American Journal of
International Law 280 .
(5) The enactment of blocking statutes also weakens the argument that unrestrained
assertion of extraterritorial jurisdiction in antitrust cases will force both parties to the
negotiating table to forge a viable bilateral agreement.
(6) On the philosophical basis of territoriality see T Baldwin, The territorial state in H
Gross and R Harrison (eds), Jurisprudence: Cambridge Essays (Oxford: Clarendon
Press, 1992) 207 ; Brilmayer (n 2 above) 21621.
(7) L Brilmayer, The role of substantive and choice of law policies in the formation
and application of choice of law rules (1995) 252 Recueil des Cours 19, 467
; R Michaels, EU law as private international law: reconceptualizing the
country-of-origin principle as vested rights theory, Duke Law School, Research Paper
No 122, August 2006, http://ssrn.com.libproxy1.nus.edu.sg/abstract=927479>. The
case against the assertion of extraterritorial jurisdiction on the basis of nationality has
already been discussed and will not be further considered in this chapter. See Section
7.3.2.
(8) See Brilmayer (n 2 above) 1830.
(9) An equivalent problem arises in relation to the effects doctrine, because the
economic effects on one state will necessarily have reciprocal effects on the economy
of the state where the conduct causing those effects occurred. See N Katzenbach,
Conflicts on an unruly horse: reciprocal claims and tolerances in interstate and
international law (1956) 65 Yale Law Journal 1087, 1150 .
(10) See Brilmayer (n 7 above) 478, 56.
(11) Equal Employment Opportunities Comm'n v Arabian American Oil Co 497 US 224
(1991), 248.
(12) See, eg, JS Stanford, The application of the Sherman Act to conduct outside the
United States: a view from abroad (1978) 11 Cornell International Law Journal 195,
202.
(13) The possibility of concurrent jurisdiction is widely recognized. See Laker Airways
v Sabena, Belgian World Airlines 731 F 2d 909 (DC Cir 1984), 931; Restatement
(Third) of Foreign Relations Laws 403, comment d.
(14) GB Born1, A reappraisal of the extraterritorial reach of U.S. law (1992) 24 Law
and Policy in International Business 1, 77.
(15) L Brilmayer, Conflicts of Law: Foundations and Future Directions (Boston: Little
Brown, 1991) ch 2.
(16) HH Kay, A defense of Currie's governmental interests analysis (1989) 215
Hague Recueil 50 defines a policy as the domestic purposes underlying
the substantive rules in question ascertained by statutory interpretation, while
interest refers to a conclusion of law based on factors connecting the dispute to the
state that has the policy.
(17) L Brilmayer, The role of substantive and choice of law policies in the formation
and application of choice of law rules (1995) 252 Recueil des Cours 19, 83.

(18) Brilmayer (n 15 above) 70.

(19) Ibid 701.
(20) Ibid 71.
(21) See Brilmayer (n 17 above) 647.
(22) Ibid 945.
(23) Ibid 8990.
(24) Brilmayer (n 15 above) 756.
(25) Ibid 724.
(26) Brilmayer (n 17 above) 63. Citing Brainerd Currie, Selected Essays in the Conflict
of Laws (Durham: Duke University Press, 1963) 1834.
(27) See L Brilmayer, Conflicts of Law: Foundations and Future Directions (Boston:
Little Brown, 1991) 4754, 98105.
(28) Ibid 78.
(29) Empirical studies in the US confirm that interest analysis tends to lead to choice-
of-law determinations favouring the local resident more than a territorial approach.
See WH Allen and EA O'Hara, Second generation law and economics of conflicts of
laws: Baxter's comparative impairment and beyond (1999) 51 Stanford Law Review
1011, 1025.
(30) L Brilmayer (n 27 above) 5560.
(31) JL Goldsmith, Interest analysis applied to corporations: the unprincipled use of a
choice of law method (1989) 98 Yale Law Journal 597 .
(32) See L Brilmayer, The role of substantive and choice of law policies in the
formation and application of choice of law rules (1995) 252 Recueil des Cours 19, 76
9.
(33) Brilmayer (n 27 above) 8385.
(34) W Baxter, Choice of law and the federal system (1963) 16 Stanford Law Review
1.
(35) Bernhard v Harrah's Club 546 P 2d 719 (1976); Offshore Rental Co Inc v
Continental Oil Co 583 P 2d 721 (1978).
(36) JP Trachtman, Externalities and extraterritoriality: the law and economics of
prescriptive jurisdiction in JS Bhandari and AO Sykes (eds), Economic Dimensions in
International Law: Comparative and Empirical Perspectives (New York: Cambridge
University Press, 1997) 642, 644 . See also Section 2.4.2.
(37) Interestingly, Baxter (n 34 above) 5 saw individual interests as cancelling each
other out, while R Posner, Economic Analysis of the Law (5th edn, Boston: Little
Brown, 1998) 6456 thought that when [b]oth states have an interest in the outcome
of the suit [t]hese benefits are offsetting and can be ignored.
(38) L Brilmayer, Conflicts of Law: Foundations and Future Directions (Boston: Little
Brown, 1991) 150 .
(39) See, eg, DE Rosenthal and WM Knighton, National Laws and International
Commerce: The Problem of Extraterritoriality Chatham House Papers 17 (London;
Boston; Henley: Routledge & Kegan Paul for the Royal Institute of International Affairs,
1982) 37.
(40) Laker Airways Ltd v Sabena, Belgian World Airlines 731 F 2d 909 (DC Cir 1984),
923; Opinion of Advocate General Darmon; Cases 89, 104, 114, 116, 117, 125129/85
A Ahlstrm Oy v EC Commission (Woodpulp) [1988] ECR 5193, paras 66, 67; GB
Born1, A reappraisal of the extraterritorial reach of U.S. law (1992) 24 Law and
Policy in International Business 614.
(41) For example, the British participants in the Eastern Europe aluminium cartel
switched from using a British broker to its Swiss subsidiary specifically to avoid the
UK's law on restrictive trade practices. Aluminium Imports from Eastern Europe [1987]
3 CMLR 813, paras 1.6.2, 6.1.6.
(42) In several cases, foreign plaintiffs, and exceptionally foreign governments, have
attempted to invoke US antitrust law to protect their interests as purchasers of US
goods and services. See the cases cited in SW Waller, James R Atwood and Kingman
Brewsters's Antitrust and American Business Abroad (3rd edn, New York: Clark
Boardman Callaghan, 1997) , vol 1, 4.5, n 3 (hereinafter Atwood,
Brewster, Waller) and the discussion in Section 8.2.7. Foreign firms have also invoked
US antitrust laws in an attempt to frustrate the policies of their own governments.
See, eg, Linseman v World Hockey Ass'n 439 F Supp 1315 (D Conn 1977); Crane
Fruehauf Ltd v Fruehauf Corp 19772 Trade Cas 61,708 (SDNY 1977).
(43) See Rosenthal and Knighton (n 39 above) 81.
(44) Ibid 812.
(45) See M Reimann, Conflict of Laws in Western Europe: A Guide Through the Jungle
(Irvington: Transnational Publishers, 1995) .
(46) R Posner, Economic Analysis of the Law (5th edn, Boston: Little Brown, 1998) 599
 ; R Cooter and T Ulen1, Law and Economics (2nd edn, Reading, Mass:
Addison-Wesley, 1997) ch 10 . Administrative cost is the sum of the costs
to everyone involved in passing through the stages of a legal dispute. An error reflects
the difference between the result reached by a particular court and that which would
have been reached by an ideal court with perfect information on the law and facts.
The social costs of error are not the same as the extent of the error, but must take
into account all the distortions in incentives the error causes.
(47) Posner (n 46 above) 646, 709, 710.
(48) See JP Trachtman, Conflict of laws and accuracy in the allocation of government
responsibility (1994) 26 Vanderbilt Journal of Transnational Law 975, 1024
; E O'Hara and L Ribstein, From politics to efficiency in choice of law
(2000) 67 University of Chicago Law Review 1151, 11901 ; Posner (n 46
above) 64546.
(49) Judge Posner thus favours the lex loci delicti rule. Kaczmarek v Allied Chem Corp
836 F 2d 1055 (7th Cir 1987), 1058.
(50) Posner (n 46 above) 646.
(51) M Solimine, An economic and empirical analysis of choice of law (1989) 24
Georgia Law Review 49, 66.
(52) See M Whincop and M Keyes, Economic analysis of conflict of laws in tort cases:
discrete and relational torts (1998) 22 Melbourne University Law Review 370, 3904.

(53) O'Hara and Ribstein (n 48 above) 11924.

(54) Posner (n 46 above) 5905.
(55) See Whincop and Keyes (n 52 above) 3845.
(56) See Section 7.2.2.
(57) United States v Aluminium Co of America 148 F 2d 416 (2nd Cir 1945), 443.
(58) See Sections 8.2.4 and 8.2.6.
(59) An intention to affect trade in a particular country may, however, be necessary to
justify jurisdiction where the challenged conduct is a refusal to supply. See M
Akehurst, Jurisdiction in international law (19723) 46 British Yearbook of
International Law 145, 1556, 2001.
(60) AC Swan, The Hartford Insurance Company case: antitrust in the global economy
welfare effects and sovereignty in JS Bhandrari and AO Skyes (eds), Economic
Dimensions in International Law: Comparative and Empirical Perspectives (Cambridge:
Cambridge University Press, 1997) 530, 553.
(61) Ibid 5836.
(62) Ibid 5845. Swan has also argued that this approach appears to be what Judge
Hand intended in Alcoa . Ibid 5856.
(63) R Jennings, Extraterritorial jurisdiction and the Unites States anti-trust laws
(1957) 33 British Yearbook of International Law 146, 175.
(64) Swan (n 60 above) 5889.
(65) Ibid 589.
(66) JA Ordover, Conflicts of jurisdiction: antitrust and industrial policy (1987) 50:31
Law and Contemporary Problems 165.
(67) See E Nijenhuis, Antitrust suits involving foreign commerce: suggestions for
procedural reform (1987) 135 University of Pennsylvania Law Review 1003, 10306
 ; PM Roth1, Reasonable extraterritoriality: correcting the balance of
interests (1992) 41 International and Comparative Law Quarterly 245, 277.

(68) See DE Rosenthal and WM Knighton, National Laws and International Commerce:
The Problem of Extraterritoriality Chatham House Paper 17 (London; Boston; Henley:
Routledge & Kegan Paul for the Royal Institute of International Affairs, 1982) 378.

(69) Akehurst (n 59 above) 154.

(70) RE Goodwin, What is so special about our fellow countrymen? (1988) 98 Ethics
663 ; T Baldwin, The territorial state H Gross and R Harrison (eds),
Jurisprudence: Cambridge Essays (Oxford: Clarendon Press, 1992) 207.
(71) See, eg, D Held, Democracy, the national-state and the global system in D Held
(ed), Political Theory Today (Cambridge: Polity Press, 1991) 197 ; JG
Ruggie, Territoriality and beyond: problematizing modernity in international relations
(1993) 47 International Organization 139.
(72) See L Brilmayer, Conflicts of Law: Foundations and Future Directions (Boston:
Little Brown, 1991) ch 5 ; Lea Brilmayer, Rights, fairness and choice of
law (1989) 98 Yale Law Journal 1277 . See also SL Snell, Controlling
restrictive business practices in global markets: reflections on the concepts of
sovereignty, fairness, and comity (1997) 33 Stanford Journal of International Law 215
. Similar arguments have been made in the context of personal or
adjudicatory jurisdiction in international civil and commercial cases.
(73) [1995] RPC 438, 447. See also Coin Controls Ltd v Suzo International (UK) Ltd
[1997] 3 All ER 45, 53 per Laddie J.
(74) L Brilmayer, The role of substantive and choice of law policies in the formation
and application of choice of law rules (1995) 252 Recueil des Cours 19, 74.

(75) See, eg, Snell (n 72 above).

(76) M Akehurst, Jurisdiction in international law (19723) 46 British Yearbook of
International Law 145, 168.
(77) TW Dunfee1 and AS Friedman, The extra-territorial application of United States
antitrust laws: a proposal for an interim solution (1984) 45 Ohio State Law Journal
883.
(78) D Gerber, The extraterritorial application of German antitrust laws (1983) 77
American Journal of International Law 756.
(79) BE Hawk, International antitrust policy and the 1982 Acts: the continuing need
for reassessment (1982) 51 Fordham Law Review 201.
(80) JB Sandage1, Forum non conveniens and the extraterritorial application of
United States antitrust law (1985) 94 Yale Law Journal 1693.
(81) The classic statement of the doctrine of comity in US law is in Hilton v Guyot1
159 US 113 (1895), 164. Comity in the legal sense, is neither a matter of absolute
obligation on the one hand nor of mere courtesy and good will upon the other. But it is
the recognition which one nation allows within its territory to the legislative, executive
or judicial acts of another nation, having due regard both to international duty and
convenience, and to the rights of its own citizens or of other persons who are under
the protection of its laws. The classical doctrine of comity has transformed over the
last 100 years. See Hartford Fire Insurance Co v California 509 US 7641 (1993), 7979
and nn 245; In re Maxwell Communication Corp plc 93 F 3d 1036 (2nd Cir 1996,
1047); F Hoffman-La Roche Ltd v Empagran SA 542 US (2004); see also JR Paul,
Comity in international law (1991) 32 Harvard International Law Journal 1.

(82) Paul (n 81 above) 4, 307.

(83) See Akehurst (n 76 above) 2146; Paul (n 81 above) especially 34 and
references cited therein.
(84) GB Born, A reappraisal of the extraterritorial reach of U.S. law (1992) Law and
Policy in International Business 834 ; EM Fox, Extraterritoriality,
antitrust, and the new Restatement: is reasonableness the answer? (1987) 19 New
York University Journal of International Law and Politics 565, 601 ; AF
Lowenfeld, Public law in the international arena: conflict of laws, international law,
and some suggestions for their interaction (1979) 163 Recueil des Cours 311
; cf KM Meessen1, Antitrust jurisdiction under customary international
law (1984) 78 American Journal of International Law 783, 800, 8034 ;
SL Snell, Controlling restrictive business practices in global markets: reflections on
the concepts of sovereignty, fairness, and comity (1997) 33 Stanford Journal of
International Law 215, 2924 ; DE Rosenthal and WM Knighton, National
Laws and International Commerce: The Problem of Extraterritoriality Chathan House
Papers 17 (London; Boston; Henley: Routledge & Kegan Paul for the Royal Institute of
International Affairs, 1982) ; HG Maier, Interest balancing and
extraterritorial jurisdiction (1983) 31 American Journal of Comparative Law 579.

(85) 595 F 2d 1287 (3rd Cir 1979).

(86) Maier (n 84 above) 589, n 41.
(87) Zoelsch v Arthur Andersen & Co 824 F 2d 27 (DC Cir 1987), 32 n 2.
(88) TW Dunfee and AS Friedman, The extra-territorial application of United States
antitrust laws: a proposal for an interim solution (1984) 45 Ohio State Law Journal
883, 906.
(89) Mannington Mills, Inc v Congoleum Corp 595 F 2d 12871 (3rd Cir 1979), 1298.
(90) See, eg, In re Uranium Antitrust Litig 480 F Supp 1138 (ND Ill 1979), 1148;
Zoelsch v Arthur Andersen & Co 824 F 2d 27 (DC Cir 1987), 2930; Reinsurance Co of
America v ADAS 902 F 2d 1275 (7th Cir 1990), 1283 per Judge Easterbrook
concurring.
(91) Fox (n 84 above) 5923. See also references cited in Born (n 84 above) 97, n 465.
(92) Since the reprimand of the district court judge in In re Uranium Cartel Litigation
617 F 2d 1248 (7th Cir 1980), 1256 by the Departments of Justice and State, foreign
government opinions have been received by US courts with respect. Foreign
governments can submit their views via amicus briefs or directly to US trial courts by
letter without formally intervening in the proceedings. Zenith Radio Corp v Matsushita
Elec Indus Co 513 F Supp 1100 (ED Pa 1981), 1192, n 121. The US antitrust
cooperation agreements with both Australia and Canada contain a provision
concerning private antitrust suits whereby the US will, at the request of the other
government, inform the court of how the other state's national interests are affected.
The ECJ has allowed intervention in proceedings before it by non-member states with
a sufficient interest. See, eg, Cases 91, 200/82 Chris International Foods v
Commission [1983] ECR 417.
(121) DA Farber and RE Hudec, Free trade and the regulatory state: a GATT's-eye
view of the dormant Commerce Clause (1994) 47 Vanderbilt Law Review 1401, 1438.

(93) Atwood, Brewster, Waller (n 42 above) 6.16.

(94) RJ Weintraub The extraterritorial application of antitrust and securities laws: an
inquiry into the utility of a choice-of-law approach (1992) 70 Texas Law Review
1799, 1817 ; see also PB Stephan, International law in the Supreme
Court [1990] Supreme Court Review 133, 157.
(95) See, eg, Laker Airways Ltd v Sabena, Belgian World Airlines1 731 F 2d 909 (DC
Cir 1984), 951; cf GB Born, A reappraisal of the extraterritorial reach of U.S. law
(1992) 24 Law and Policy in International Business 956.
(96) DE Rosenthal and WM Knighton1, Controlling restrictive business practices in
global markets: reflections on the concepts of sovereignty, fairness, and comity
(1997) 33 Stanford Journal of International Law 27 ; Weintraub (n 94
above) 1817.
(97) Weintraub (n 94 above) 1817. See also HG Maier, Interest balancing and
extraterritorial jurisdiction (1983) 31 American Journal of Comparative Law 579, 594.

(98) 595 F 2d 1287 (3rd Cir 1979), 1297.

(99) Laker Airways Ltd v Sabena, Belgian World Airlines 731 F 2d 909 (DC Cir 1984),
949.
(100) See, eg, Rosenthal and Knighton (n 96 above) 87; JP Griffin, Possible resolutions
of international disputes over enforcement of U.S. antitrust laws (1982) 18 Stanford
Journal of International Law 279, 2913.
(101) Atwood, Brewster, Waller (n 42 above) 6.16.
(102) See Restatement (Third) 403(2)(e) and (f). These factors are not found in
earlier case-law and appear to derive from AF Lowenfeld, Public law in the
international arena: conflict of laws, international law, and some suggestions for their
interaction (1979) 163 Recueil des Cours 311, 315.
(103) PM Roth, Reasonable extraterritoriality: correcting the balance of interests
(1992) 41 International and Comparative Law Quarterly 245, 278.
(104) AC Swan1, The Hartford Insurance Company case: antitrust in the global
economywelfare effects and sovereignty in JS Bhandari and AO Skyes (eds),
Economic Dimensions in International Law: Comparative and Empirical Perspectives
(Cambridge: Cambridge University Press, 1997) 530, 554.
(105) AD Neale and ML Stephens, International Business and National Jurisdiction
(Oxford: Clarendon Press, 1988) 172.
(106) For example, if the US applies its antitrust law to conduct on the English re-
insurance market, the US should expect that its own conduct in US financial markets
would be subject to foreign competition law. Consider the doctrine of implied
immunity, whereby the US courts have found conduct on the US securities market to
be immune form antitrust scrutiny. Re Stock Exchange Options Trading Antitrust
Litigation 317 F 3d 134 (2nd Cir 2003); Friedman v Solomon/Smith Barney, Inc 313 F
3d 796 (2nd Cir 2002).
(107) JS Stanford, The application of the Sherman Act to conduct outside the United
States: a view from abroad (1978) 11 Cornell International Law Journal 195, 204.
(108) See also Section 2.4.2 and Section 10.3.2.
(109) G Calabresi and AD Melamed, Property rules, liability rules, and inalienability:
one view of the cathedral (1972) 85 Harvard Law Review 1089, 1093, 111115.

(110) See JP Trachtman, Externalities and extraterritoriality: the law and economics of
prescriptive jurisdiction in JS Bhandari and AO Sykes (eds), Economic Dimensions in
International Law: Comparative and Empirical Perspectives (New York: Cambridge
University Press, 1997) 6467.
(111) A negligence rule can be viewed as a hybrid of a property rule granting a partial
entitlement to cause harm and a (strict) liability rule: provided that an injurer
exercises due care, she effectively acquires a property rule entitlement to cause harm;
only if she fails to take due care does she become liable for harm. L Kaplow and S
Shavell, Property rules versus liability rules: an economic analysis (1996) 109
Harvard Law Review 713, 753 . The same is also true of jurisdictional
rules. A qualified effects doctrine, such as the requirement that effects be direct,
substantial, and reasonably foreseeable, contains elements of property-like and
liability-like rules: one country can permit anticompetitive conduct that has effects on
another country, provided these do not reach a certain level.
(112) See generally R Cooter and T Ulen, Law and Economics (2nd edn, Reading,
Mass: Addison-Wesley, 1997).
(113) Kaplow and Shavell (n 111 above) 720, 7327, 77987.
(114) Ibid 719 (citing several commentators).
(115) Ibid 7223, 75773, 78790.
(116) Calabresi and Melamed (n 109 above) 108998.
(117) Cf Trachtman (n 110 above) 673.
(118) See JL Dunloff and JP Trachtman, Economic analysis of international law (1999)
24 Yale Journal of International Law 1, 21 , referring to I Ayres and E
Talley, Solomonic bargaining: dividing a legal entitlement to facilitate Coasean trade
(1995) 104 Yale Law Journal 1027 ; L Kaplow and S Shavell, Do liability
rules facilitate bargaining? A reply to Ayres and Talley (1995) 105 Yale Law Journal
221.
(119) See also MA Heller, The tragedy of the anticommons: property in the transition
from Marx to markets (1998) 111 Harvard Law Review 621.
(120) Trachtman (n 110 above) 673.
(122) JA Ordover, Conflicts of jurisdiction: antitrust and industrial policy (1987) 50:3
Law and Contemporary Problems 165, 170, 173, 174.
(123) EM Fox and JA Ordover, Internationalising competition law to limit parochial
state and private action: moving towards the vision of world welfare (1996) 24
International Business Lawyer 458, 45960.
(124) AC Swan, The Hartford Insurance Company case: antitrust in the global
economywelfare effects and sovereignty in JS Bhandari and AO Skyes (eds),
Economic Dimensions in International Law: Comparative and Empirical Perspectives
(Cambridge: Cambridge University Press, 1997) 5301, 55968.
(125) DP Wood, Conflicts of jurisdiction in antitrust law: a comment on Ordover and
Atwood (1987) 50:3 Law and Contemporary Problems 179, 1856.
(126) See JapanTaxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R,
WT/DS11/AB/R, adopted 1 November 1996, pp 279.
(127) See Farber and Hudec (n 121 above) 14047.
(128) MP Maduro, We, the Court: the European Court and the European Economic
Constitution (Oxford: Hart Publishing, 19971) ; J Scott, On kith and kine
(and crustaceans): trade and environment in the EU and WTO and JHH Weiler,
Epilogue: towards a common law of international trade in JHH Weiler (ed), The EU,
the WTO, and the NAFTA: Towards a Common Law of International Trade? (Oxford:
Oxford University Press, 2000) 125, 201.
(129) Maduro, Ibid ; Scott, Ibid 1646.
(130) Scott (n 128 above) 1667. See, eg, United StatesImport Prohibition of Certain
Shrimp and Shrimp Products, WT/DS58/AB/R, adopted 6 November 1998.
(131) Farber and Hudec (n 121 above) 1432. See, eg, United StatesSection 337 of
the Tariff Act of 1930 (1990) BISD 36S/345, paras 5.285.35; ThailandRestrictions on
Importation of and Internal Taxes on Cigarettes (1991) BISD 37S/200, para 81.
(132) OECD, Interim Report on Convergence of Competition Policy (Paris: OECD, GD
(94/64), 1994) 910 . See also OECD1, OECD Regulatory Checklist, OECD
Document OECD/GD(95)95; OECD, Trade Committee, Working Party on Regulatory
Reform and Trade, Assessing the Effectiveness of the Efficient Regulation Principles,
OECD Document TD/TC/WP(97)23.
(133) See Section 13.2.3.
(134) Communication from New Zealand, WT/WGTCP/W/210, 24 September 2002.
(135) See, eg, European CommunitiesMeasures Affecting Asbestos and Asbestos-
Containing Products, WT/DS135/AB/R, 12 March 2001, paras 170, 172; United States
Measures Affecting Cross-Border Supply of Gambling and Betting Services,
WT/DS285/AB/R, adopted 20 April 2005, paras 3068; Dominican RepublicMeasures
Affecting the Importation and Internal Sale of Cigarettes, WT/DS302/AB/R, adopted 19
May 2005, para 70.
(136) United StatesMeasures Affecting Cross-Border Supply of Gambling and Betting
Services, WT/DS285/AB/R, adopted 20 April 2005, para 308.
(137) T Prosser, The Limits of Competition Law: Markets and Public Services (Oxford:
Oxford University Press, 2005).
(138) Article 5.5 of the Agreement on the Application of Sanitary and Phytosanitary
Measures provides that: With the objective of achieving consistency in the
application of the concept of appropriate level of sanitary or phytosanitary protection
each Member shall avoid arbitrary and unjustifiable distinctions in the levels it
considers to be appropriate in different situations, if such distinctions result in
discrimination or a disguised restriction on international trade. See European
CommunitiesMeasures concerning Meat and Meat Products (Hormones),
WT/DS26/AB/R, WT/DS48/AB/R, adopted 13 February 1998; AustraliaMeasures
Affecting Importation of Salmon, WT/DS18/AB/R, adopted 6 November 1998.
(139) A similar approach is taken in article 1114(2) of NAFTA, which provides that:
The Parties recognize that it is inappropriate to encourage investment by relaxing
domestic health, safety, and/or environmental measures. Accordingly, a Party should
not waive or otherwise derogate from or offer to waive or derogate from, such
measures as an encouragement for the establishment, acquisition, expansion, or
retention in its territory of an investor.
(140) United StatesImport Prohibition of Certain Shrimp and Shrimp Products,
WT/DS58/AB/R, adopted 12 October 1998, paras 133, 135, 155, 156, 158, 159, 163,
165, 166, 168, 174; cf United StatesRestrictions on Imports of Tuna, DS21/R, BISD,
39S/155 (1991), (1991) 30 ILM 1594 (unadopted); United StatesRestrictions on
Imports of Tuna, DS33/1, 10 June 1994, (1994) 33 ILM 839 (unadopted).
(141) See generally E Quill, The failure of international commodity agreements:
forms, functions, and implications (1994) 22 Denver Journal of International Law and
Policy 503 . Interest in ICAs has been declining since the 1980s. It
appears that only two ICAs still conduct market operations in substantial commodity
markets: OPEC and the International Rubber Organization. Ibid 34.
(142) See, eg, United Nations' Charter of Economic Rights and Duties of States, GA
Res 3281, UN GAOR, 29th Sess, Supp No 31, p 52, UN Doc A/RES/3281 (1974),
reprinted in (1975) 14 ILM 251; United Nations' General Assembly Resolution on
Permanent Sovereignty Over Natural Resources, GA Res 3171, UN GAOR, 28th Sess,
Supp No 30, p 52, UN Doc A/RES/3171 (1973), reprinted in (1974) 13 ILM 238; Solemn
Declaration of the Sovereigns and Heads of State of the Organization of Petroleum
Exporting Countries, reprinted in (1975) 14 ILM 556. See also UN Set of Multilaterally
Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices,
UN Doc TD/RBP/CONF/10 (1980), Art C(7).
(143) Quill (n 141 above) 507.
(144) See Section 9.5.
(145) Memorandum Dutoit in [1969] Actes et Documents de la Onzime Session, vol
III, p 19, n 64. Cited in C Kessedjian, Competition in C McLachlan and P Nygh (eds),
Transnational Tort Litigation: Jurisdictional Principles (Oxford: Clarendon Press, 1996)
171.
(146) International Competition Policy Advisory Committee to the Attorney General
and Assistant Attorney-General for Antitrust, Final Report (2000).
(147) M Sornarajah, Power and justice in international law (1997) 1 Singapore
Journal of International and Comparative Law 281, 627 ; JJ Friedberg,
The convergence of law in an era of political integration: the Wood Pulp case and the
Alcoa effects doctrine (1991) 52 University of Pittsburgh Law Review 289.

(148) See Section 2.4.4.

(149) See L Brilmayer, Conflicts of Law: Foundations and Future Directions (Boston:
Little Brown, 1991) 17989.
(150) See Ibid 1859.
(151) In many cases, a decision that the local forum is forum non conveniens will
determine the outcome of the case, because plaintiffs rarely commence proceedings
in the foreign court.
(152) JB Sandage, Forum non conveniens and the extraterritorial application of
United States antitrust law (1985) 94 Yale Law Journal 1693, 17078.
(153) See various contributions in C McLachlan and P Nygh (eds), Transnational Tort
Litigation: Jurisdictional Principles (Oxford: Clarendon Press, 1996) .
Incompatibility between the doctrine of forum non conveniens and the Brussels
Convention is well known. See, eg, Case C-281/02 Owusu v Jackson [2005] ECR I-
1383.
(154) The 1999 draft Hague Convention on Jurisdiction and Judgments contained a
forum non conveniens rule similar to that in Voth v Manildra, Flour Mills Pty Ltd (1990)
171 CLR 538, but it would not have applied to competition law actions. See WE
O'Brien, The Hague Convention on Jurisdiction and Judgments: the way forward
(2003) 66 Modern Law Review 491, 5012.
(155) AC Swan, The Hartford Insurance Company case: antitrust in the global
economywelfare effects and sovereignty in JS Bhandari and AO Skyes (eds),
Economic Dimensions in International Law: Comparative and Empirical Perspectives
(Cambridge: Cambridge University Press, 1997) 530, 554, n 50 .
(156) C Kessedjian, Competition in C McLachlan and P Nygh (eds), Transnational Tort
Litigation: Jurisdictional Principles (Oxford: Clarendon Press, 1996) 171, 181, 183.

(157) 62 F Supp 2d 173 (D Mass 1999), 1823 (footnotes omitted). Similar problems
were faced by the WTO panel in JapanMeasures Affecting Consumer Photographic
Film and Paper, WT/DS44/R, adopted 22 April 1998, which included at 27-page
appendix on translation problems.
(158) JP Griffin, Possible resolutions of international disputes over enforcement of U.S.
antitrust laws (1982) 18 Stanford Journal of International Law 279, 303.
(159) See, eg, DE Rosenthal and WM Knighton, National Laws and International
Commerce: The Problem of Extraterritoriality Chatham House Papers 17 (London;
Boston; Henley: Routledge & Kegan Paul for the Royal Institute of International Affairs,
1982) 37, 87 . There are specific instances in which comity considerations
have led the US government to initiate civil cases against clearly criminal conduct, to
indict companies instead of individuals, or to refrain from suing foreign participants in
an alleged conspiracy. See Griffin (n 158 above) 291.
(160) Timberlane Lumber Co v Bank of America, NT & SA 549 F 2d 597 (9th Cir 1976),
613. See also JP Griffin, EC and U.S. extraterritoriality: activism and cooperation
(1994) 17 Fordham International Law Journal 353, 386; Rosenthal and Knighton (n 159
above) 4, 223, 88.
(161) See, eg, Rosenthal and Knighton (n 159 above) 88.
(162) A number of commentators have advocated that the US government should
increase its participation in international antitrust litigation by amicus curiae briefs
and by filling Suggestions of Interest. See K Brewster, Antitrust and American
Business Abroad (New York: McGraw-Hill, 1958) 4445 ; Griffin (n 158
above) 299300; Rosenthal and Knighton (n 159 above) 87; SW Waller, Antitrust and
American business abroad today (1995) 44 DePaul Law Review 1251, 12778.

(163) In re Uranium Litig 617 F 2d 1248 (7th Cir 1980). See CA Cira, The challenge of
foreign laws to block American antitrust actions (1982) 18 Stanford Journal of
International Law 247, 2701 . See also Conservation Council of W
Australia, Inc v Aluminium Co of America 518 F Supp 270 (WD Pa 1981), 275 n 8.
(164) International Ass'n of Machinists & Aerospace Workers v Organization of
Petroleum Exporting Countries 494 F Supp 7 (CD Cal 1979). Participation by the
government as amicus curiae rarely occurs in any kind of private antitrust litigation,
except when the Supreme Court requests the views of the Solicitor General, and
almost never at the district court level where it can do the most good. Atwood,
Brewster, Waller (n 42 above) 1.10.
(165) See, eg, Circa (n 163 above) 273; Gri. n (n 158 above) 302; E Nijenhuis,
Antitrust suits involving foreign commerce: suggestions for procedural reform (1987)
135 University of Pennsylvania Law Review 1003, 1020, n 97 .

The Competition Rules of the World Trade Organization

Chris Noonan
DOI:10.1093/acprof:oso/9780199207527.003.0011
Abstract and Keywords
This chapter examines the WTO rules that require the enforcement of national
competition laws or regulate the enforcement of such laws. It argues that the WTO's
provisions either do not contain binding obligations, or apply only in specific situations
and do not define what conduct is anticompetitive. Thus, a WTO panel may have
difficulty finding that a member's conduct is inconsistent with the WTO unless it is
clearly not reasoned or inconsistent with other decisions in similar cases. A number of
WTO provisions prohibit anticompetitive conduct where there has been some
government involvement in the creation of market power or the conduct itself. These
provisions appear to reduce the ability of WTO members to authorize exceptions and
create exemptions to general national competition law rules. There is also a risk that
these different provisions will be interpreted as prohibiting different types of
anticompetitive conduct, which creates uncertainty.

Keywords: WTO, national competition law, ITO, GATT, GATS, law enforcement,
anticompetitive conduct
11.1 Introduction
Chapter 11 examines the WTO rules that require the enforcement of national
competition laws or regulate the enforcement of such laws. The WTO rules are broadly
compatible with the recommendations made in Part I, but do not give effect to all of
the recommendations. An examination of the rules suggests that there are limits to
what can be expected from any WTO agreement on competition law.
Several types of WTO rule are relevant to competition law. First, some WTO rules
require members to address private anticompetitive conduct. These include weak,
general obligations and harder, sector- specific obligations. Secondly, some WTO rules
recognize the right of members to take action against anticompetitive conduct, even if
the action would lessen the benefits that other members might have expected from
the WTO commitments made by the member enforcing its competition law. The first
two categories encourage WTO members to adopt a competition law without
prescribing detailed rules. Thirdly, some WTO rules address government sponsorship
of certain types of anticompetitive conduct, such as export cartels and exclusive
dealing arrangements. These WTO rules fill some of the regulatory gaps left by
exemptions from national competition and the international competition law defences.
Finally, several WTO rules affect how members may regulate anticompetitive conduct,
including by prohibiting recourse to unilateral action to settle trade disputes, the
Antidumping Agreement, and the rules on non-discrimination.
11.2 Obligations to Address Anticompetitive Conduct
11.2.1 The Havana Charter
At the end of World War II, the US (together with Britain) suggested to friendly
countries that an International Trade Organization (ITO) should be set up (p.406) to
promote the liberalization of trade among its members.1 A US proposal to regulate
restrictive business practices was ultimately incorporated into Articles 46 to 56 of the
ITO Charter.2 Most governments represented at Havana had never sought to regulate
domestic restrictive business practices to the extent proposed in the Charter, and
many argued that there were advantages in the wise use of such practices.
Article 46.1 of the Charter would have obliged members to take appropriate
individual measures and co-operate with the Organization to prevent, on the part of
private or public commercial enterprises, business practices affecting international
trade which restrain competition, limit access to markets or foster monopolistic
control, whenever such practices have harmful effects on the expansion or production
or trade and interfere with the achievement of any of the other objectives set forth in
Article 1. Article 46.2 provided that complaints would be subject to investigation
whenever (a) such a complaint is presented to the Organization, and (b) the practice
is engaged, or made effective by one or more private or public commercial enterprises
or by any combination and (c) such commercial enterprises, individually or
collectively, possess effective control of trade among a number of countries in one or
more products. The Charter did not apply to mergers or acquisitions.3 A member
would have been under no obligation to apply the same rules, if any, to international
restrictive business practices that it would apply to domestic restraints.4 The
requirements in Article 46.1 that the practices have harmful effects and interfere with
an objective of the Havana Charter seem to have been an attempt to reconcile the
divergent views on the merits of competition law. The obligations applied to both
practices in international trade and practices affecting international trade, but only if
the practices that were engaged by commercial enterprises, individually or
collectively, possess effective control of trade among a number of countries.5 The
latter requirement may have effectively limited the Charter to business practices that
had international anticompetitive effects and where the firm or group of firms involved
possessed market power.
Article 50.1 would have required member states to prevent the harmful restrictive
business practices specified in Articles 46.2 and 3. However, because a member
would have been permitted to take action by legislation (p.407) or otherwise, that
member might have been able to content itself with the use of mere admonitions. 6
Article 47 provided for a consultation procedure on practices that a member
considered fell within Article 46. Article 48 provided for an investigation procedure,
whereby a member could request an investigation, by the ITO of a practice that fell
within Article 46. Where the ITO decided to conduct an investigation, it could request
members to furnish information and conduct hearings on the complaint, at which Any
Member, any person, enterprise or organization on whose behalf the complaint has
been made, as well as the commercial enterprises alleged to have engaged in the
practice complained of, shall be afforded reasonable opportunity to be heard. Article
50 required members to put in place adequate arrangements for conducting
investigations preparing any reports that might be requested by the ITO, and
furnishing information requested by the ITO during its investigation. The ITO was
required to prepare a reasoned report on the complaint that would be made public.
If the ITO concluded that a practice was harmful, it shall request each Member
concerned to take every possible remedial action, and may also recommend to the
Members concerned remedial measures to be carried out in accordance with their
respective laws and procedures.7 Members were obliged to take full account of ITO
requests for cooperation in investigations, but a member need only take in the
particular case the action it considers appropriate having regard to its obligations
under this Chapter and report on its compliance with any recommendations of the
ITO.8 Thus, the ITO would have largely relied on the good will of the members to carry
out the ITO's recommendations. A contravention of any of the provisions in Chapter V
could also have triggered the dispute settlement procedures of the ITO.
Article 51 also encouraged, but did not compel, cooperation among member states to
make remedial action more effective. Article 49 authorized the ITO to study and make
recommendations on restrictive business practices and conventions, laws, and
procedures relevant to their obligations under the Chapter.
Although the ITO never came into existence, the Charter influenced and encouraged
later attempts to construct international competition rules. It may have also
encouraged some governments to begin formulating domestic laws to implement their
obligations under the Charter.9 Some aspects of the Charter resonate in some of the
contemporary proposals for a WTO agreement on competition law.
11.2.2 GATT Consultations on Restrictive Business Practices
After it became apparent that the ITO Charter would not be adopted, and on the
urging of the US, the United Nations Economic and Social Council (ECOSOC) (p.408)
considered various proposals to achieve the objectives of Article 46 of the ITO Charter
in the early 1950s.10 After the failure of these proposals, several governments
suggested that the work of ECOSOC on restrictive business practices be pursued in
the GATT. In 1959, the GATT Secretariat published a report on restrictive business
practices and proposals for intergovernmental control of the harmful effects of such
practices in international trade.11 In 1960, the report prepared by a group of experts
on the control of restrictive business practices was adopted by the contracting
parties.12 The contracting parties, however, discarded the report's suggestions and
adopted a simple procedure for consultations on problematic restrictive business
practices.13 No consultations under the above procedure were ever reported to the
GATT Secretariat. While a request for consultations was made in the Kodak/Fuji case,
no consultations were ultimately held.
The uncertainty over the procedures, participants, objectives, and timing of any
consultation limited the utility of a request under the 1960 GATT Decision as a means
to solve a trade dispute. Ad hoc consultations between governments are unlikely to
resolve the international competition law problems where there are no clear rules,
because the outcome is likely to reflect the relative influence of the countries involved
and the peculiar facts of the case. In the Kodak/Fuji dispute, the request for
consultations about restrictive business practices triggered great concern on the
Japanese side, because it fell outside the Dispute Settlement Understanding (DSU)
procedures and posed the most direct threat to Fujifilm's business flexibility.14 Thus,
where important national interests are at stake, ad hoc consultation is unlikely to
assist. Where anticompetitive practices are not important, consultations between
governments are unlikely to be held.
After 1960, the trade effects of restrictive business practices have regularly, if not
frequently, arisen for discussion in the GATT and the WTO. Several disputes have
directly or indirectly involved allegations of anticompetitive conduct.15 During
preparations for the Uruguay Round, a number of developing countries initially
proposed that restrictive business practices be made a subject of (p.409) negotiation.
This proposal was not pursued and was met with evasive responses from developed
countries.16 The Trade Policy Review Mechanism, instituted in the GATT after the mid-
term review of the Uruguay Round negotiations in 1988, has addressed competition
policy issues in the country reviews. Since the early 1990s, many proposals have been
made for a WTO agreement on competition law. The Ministerial Conference in
Singapore in December 1996 decided to establish a working group to study issues
raised by members relating to the interaction between trade and competition policy,
including anti-competitive practices, in order to identify any areas that may merit
further consideration in the WTO framework.17 As soon as the new working group was
constituted in 1997, the discussion became bogged down in NorthSouth wrangling. 18
As discussed in Section 2.4, the Doha Ministerial Declaration contained several
paragraphs on competition law, but developing countries forced the removal of the
topic of competition law from the current round of negotiations at Cancun.
11.2.3 GATS Consultations on Restrictive Business Practices
Article IX of the GATS provides that: Members recognize that certain business
practices of service suppliers may restrain competition and thereby restrict trade in
services.19 It does not apply to anticompetitive practices by monopolies and exclusive
service supplies that are covered by Article XVIII or by service buyers and consumers.
The provision is not expressly restricted to market access concerns. However, the
requirement that business practices restrain competition and thereby restrict trade in
services may have the effect of excluding actions with purely domestic effects from
the scope of Article IX. A restraint on competition does not necessarily imply a
restraint on trade and vice versa.
Article IX:1 creates no hard obligations. A member's only remedy is to require another
member to enter into consultations with a view to eliminating such practices. The
requested member must give full and sympathetic consideration and supply publicly
available non-confidential information.20 This provision is similar to the consultation
provisions in many international competition law enforcement cooperation
agreements. Article IX:2 refers to only the information (p.410) available to the
supplying member and may not require that member to gather any further
information, let alone use its compulsory powers to gather information. It confers no
rights on private antitrust litigants. The consultation obligation adds little to the
general GATS consultation procedure contained in Article XXII and, like the GATT
restrictive business practices consultation provision, is unlikely to provide any
significant assistance to service providers with complaints about anticompetitive
conduct.
11.2.4 Telecommunications
The WTO rules on telecommunications liberalization are contained in several legal
texts.21 The central provision of the GATS Annex on Telecommunications (AT) binds all
members to ensure that any service supplier of any other Member is accorded
access and use of public telecommunications transport networks and services on
reasonable and non-discriminatory terms and conditions.22 A footnote clarifies that
non-discriminatory refers to most-favoured-nation and national treatment as defined
in the GATS. This provision requires members to ensure that neither the
anticompetitive conduct nor other actions of telecommunications companies, nor the
actions of regulators create illegitimate market access barriers to foreign service
providers. It is intended to protect the value of scheduled services commitments.23
Some members felt that the competition law-related commitments in the GATS and
the AT were too general to guarantee new entrants an adequate opportunity to
compete in light of the fact that, at the time, the telecommunications sector in most
countries had been a de jure or de facto monopoly. Almost all the members that
undertook additional commitments on basic telecommunications under the Fourth
Protocol to the GATS agreed to enter into additional commitments concerning the
regulatory principles contained in a brief Reference Paper (RP), which was
incorporated in whole or in significant part into their schedule of commitments.24 The
RP aimed to provide the requisite safeguards in domestic law (p.411) for the market
access commitments to be effective and to anchor these safeguards in the WTO
system and hence make their inadequate implementation challengeable through the
WTO DSU. In addition to ensuring market access, some members saw the WTO rules
on telecommunications as necessary to prevent certain anticompetitive actions by
dominant firms in domestic markets affecting competition in international markets.
Major Suppliers
The RP applies only to basic telecommunication services. The RP is divided into six
headings: the first two (competitive safeguards and interconnection), which apply to
the regulation of major suppliers, are most directly relevant to competition law. The
RP defines a major supplier as a supplier which has the ability to materially affect
the terms of participation (having regard to price and supply) in the relevant market
for basic telecommunications services as a result of: (a) control over essential
facilities; or (b) use of its position in the market.25 In MexicoMeasures Affecting
Telecommunications Services, a WTO panel accepted that demand substitution was
central to the process of market definitionin this case for termination services.26
The requirement that a major supplier can materially affect the terms of
participation appears to establish a relatively indeterminate market power test,
which was potentially compatible with many different regulatory philosophies. This
approach may mean that the RP may not be readily enforceable in WTO dispute
settlement proceedings if the burden of proving markets and market power is taken
seriously. Alternatively, WTO panels may risk the reputation of the DSU if they
conclude that a firm is a major supplier without the level of analysis conducted by
national competition law authorities.27
The power to affect the terms of participation must come from either control over an
essential facility or a position in the market, not through the ability to exercise
regulatory power. In MexicoTelecommunications, however, the panel found that
 Telmex had the ability to materially affect the terms of participation in the market as a
result of the use of its special position in the market, which allows it to set a uniform
price applying to all its competitors on terminating calls (p.412) from the United
States.28 The power to affect the terms of participation was the result of a regulation
allowing Telmex to negotiate a price for all participants, because Telmex was the
carrier with the largest portion of the market for outgoing calls. The panel failed to
appreciate the difference between obligations to prevent certain types of
anticompetitive conduct and obligations not to adopt measures that restrict
competition and trade, that is, between governmental and business restraints on
competition. If the complainant firms had been required to exhaust their remedies in
Mexico, the panel might have had better information on which to base its decision.
Anticompetitive Conduct
Paragraph 1.1 of the RP provides that: Appropriate measures shall be maintained for
the purpose of preventing suppliers who, alone or together, are a major supplier from
engaging in or continuing anti-competitive practices. The RP does not define
anticompetitive practices, but paragraph 1.2 lists three examples of anticompetitive
practices that members must prevent: (a) engaging in anti-competitive cross-
subsidization; (b) using information obtained from competitors with anti-competitive
results; and (c) not making available to other services suppliers on a timely basis
technical information about essential facilities and commercially relevant information
which is necessary for them to provide services. This obligation can be met either
through the application of general competition law or through telecommunications
regulations. Although this obligation opens the possibility for substantial judicial
legislation, some panels may resist such a politically sensitive task. The burden of
proof may lead to this result in any event. Experience with domestic regulation
suggests that complaints will only rarely be able to establish that a foreign
telecommunications firm engaged in anticompetitive practices without access to
foreign accounting records, which requires appropriate domestic regulations to require
major suppliers to implement an appropriate accounting system, with regular
reporting and disclosure requirements. The US and EC telecommunications regulations
contain more detailed rules than the RP. The New Zealand Telecommunications Act
2001 was enacted because the reliance on general competition law rules produced
unsatisfactory results and left much uncertainty.
The provisions on interconnection form the core of the RP. These provisions can be
seen as the application of the essential facilities doctrine to telecommunications.
Paragraph 2.1 defines interconnection as linking with suppliers providing public
telecommunications transport networks or services in order to allow the users of one
supplier to communicate with users of another supplier and to access services
provided by another supplier, where specific commitments are undertaken.
Paragraph 2.2 provides that: (p.413) Interconnection with a major supplier will be
ensured at any technically feasible point in the network. Such interconnection is
provided:
(a) under non-discriminatory terms, conditions (including technical standards and
specifications) and rates and of a quality no less favourable than that provided for its
own like services or for like services of non-affiliated service suppliers or for its
subsidiaries or other affiliates;
(b) in a timely fashion, on terms, conditions (including technical standards and
specifications) and cost-oriented rates that are transparent, reasonable, having regard
to economic feasibility, and sufficiently unbundled so that the supplier need not pay
for network components or facilities that it does not require for the service to be
provided; and
(c) upon request.

Paragraphs 2.3 and 2.4 impose transparency requirements. Bronckers and Larouche
conclude that the above requirements broadly follow recent US and EC legislative
efforts.29 However, the obligations on a major supplier to permit interconnection are
not qualified by an efficiency defence and do not recognize the need for incentives for
investment. For example, the obligation to provide interconnection on a non-
discriminatory basis would seem to be inconsistent with the development of
proprietary protocols, which permits a group of telecommunications service providers
to develop a competitive advantage through the provision of a seamless service.30
Furthermore, like the concept of a major supplier, the key substantive rules may
give WTO panels too much power to change world telecommunications regulations. 31
Paragraph 3 provides that: Any Member has the right to define the kind of universal
service obligation it wishes to maintain. Such obligations will not be regarded as anti-
competitive per se, provided they are administered in a transparent, non-
discriminatory and competitively neutral manner and are not more burdensome than
necessary for the kind of universal service defined by the Member. This provision
seems to recognize that exceptions from competition law may be necessary and that
it is up to individual members to determine their policy objectives. The effect of the
requirement that the exception not be more restrictive of competition than is
necessary will depend on how it is (p.414) applied. A focus on abstract economic
considerations to determine necessary may overlook the particular circumstances in
individual countries (such as the revenue and administrative constraints on
governments in some developing countries) and make it impossible for a country to
implement a universal service obligation or prevent the achievement of more general
social objectives (such as social solidarity).32
Paragraph 2.5 requires that a service supplier requesting interconnection with a major
supplier will be able to have recourse to an independent domestic body to resolve
disputes regarding appropriate terms, conditions, and rates for interconnection (but
not other forms of anticompetitive conduct) within a reasonable period of time.
Reliance on recourse to general competition law and competition authorities is not
precluded by these terms. A decision of a court (or regulatory body) determining the
terms of interconnection may be subject to review by a WTO dispute resolution panel.
A failure to prevent anticompetitive conduct may be also subject to review. Unilateral
responses to a failure to prevent anticompetitive conduct by the home country of the
would-be telecommunications entrant are prohibited.33 A court, or a competition or
regulatory authority, of a WTO member, might, therefore, be persuaded not to assert
extraterritorial jurisdiction in such cases.
Implications for Competition Law
The focus of the RP is on market access, rather than efficient competition. It also takes
a regulatory approach to interconnection. The regulatory approach to
interconnection may have some practical enforcement advantages, but risks
becoming outdated as technology changes. The RP suggests that some international
competition rules are possible. However, because an agreement on precise
competition rules is not presently feasible, a lot of power to make policy was
surrendered to the dispute settlement system. This may reflect the presence of what
one group of commentators describes as a social network of [telecommunications]
regulators who are beginning to develop their ideas in common.34 Antitrust
authorities appear to be different. National authorities have greater legitimacy than
international tribunals to develop a competition policy. As will be discussed in Chapter
12, the limited evidence gathering ability of a panel may also undermine its ability to
make good decisions.
The difference between the enforcement provisions in the RP and TRIPS are stark. The
RP provides little detail and does not require private rights of action (p.415) against
anticompetitive conduct. This reflects the diversity of national competition law
investigation and enforcement institutions, and the national industry-specific
regulation and regulators in the telecommunications industry. A further issue for the
internationalization of competition law will be the variation in the jurisdiction of
specialized national regulatory agencies or regulatory regimes for
telecommunications. Indeed, the introduction of the distinction between basic and
value-added services was a result of the delineation of the jurisdiction of the Federal
Communications Commission (FCC) in the US.35
11.2.5 Private Bodies with Delegated or Self-Regulatory Powers
The WTO imposes several obligations on members to ensure that various non-
governmental standard setting or self-regulatory bodies and bodies that exercise
delegated regulatory powers do not discriminate against foreign suppliers, or goods or
services, or unnecessarily restrict trade.36 In many cases, any trade restriction is
essentially the act of private individuals or firms. For example, while industry
standards are normally adopted by firms and industries for the purposes of ensuring
compatibility, quality, and so forth, standards may also be used by the incumbent
firms to restrict new entry (often by foreign firms). The same action may be found to
be a breach of WTO rules and national competition law.37
If a WTO member may rely on competition law to prevent discrimination against
foreign goods, services, or firms by non-governmental bodies, the competition law
could not itself be discriminatory. This raises a further issue. If, say, a non-
governmental body set a standard that restricted the entry of foreign firms, but which
reduced the costs of the local firms and improved overall efficiency, that standard
may pass muster under the national competition law but be inconsistent with WTO
requirements.
11.3 Exceptions to General Rules to Address Anticompetitive Conduct: TRIPS
The WTO Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS)
requires members to provide minimum levels of protection for intellectual property
rights, including copyright and related rights, trademarks, (p.416) geographical
indications, industrial designs, patents, integrated circuit layouts, and trade secrets.
Intellectual property law issues have been a major source of NorthSouth tension.
TRIPS, however, gives members a degree of freedom to determine their own levels of
intellectual property protection and regulate technology transfers through, inter alia,
the recognition of the role of competition law in regulating the use of intellectual
property rights.
Article 8.2 of TRIPS provides that: Appropriate measures, provided they are
consistent with the provisions of this Agreement, may be needed to prevent the abuse
of intellectual property rights by right holders or the resort to practices which
unreasonably restrain or adversely affect the international transfer of technology. 38
The concept of abuse of intellectual property rights has been frequently debated.
While a few developed countries, notably the US, limit the concept of abuse to
anticompetitive practices bordering on antitrust violations, many countries have
considered the doctrine of abuse applicable if a patentee fails to work the patent
locally in due course or refuses to grant licenses on reasonable terms and thereby
hampers industrial development, or does not supply the national market with
sufficient quantities of the patented product, or demands excessive prices for such
products.39 It is unclear how broad the ideas of abuse or unreasonably restrain or
adversely affect are under TRIPS.
The proviso that any measures be consistent with the provisions of TRIPS creates
further uncertainty about the scope of Article 8.2. Some writers argue that the
qualification confines the potential bases for any actions to prevent abuse of
intellectual property rights to those specifically provided for under other provisions of
TRIPS, such as Articles 30, 31 and 40.40 In other words, the policy or principle stated in
Article 8.2 is given effect to elsewhere in TRIPS. However, consistent with may not
mean that the potential bases for action need to be specifically recognized elsewhere
in the TRIPS. It has, for example, been suggested that the consistency requirement
seeks to contain national competition laws within the limits of their proper purpose,
and to keep this purpose within limits: the safeguarding of competition, however
defined.41
The granting of compulsory licenses in response to abuse under Article 8 appears to
be subject to the requirements of Article 31. Article 31(b) requires a would-be
licensee, normally, to seek a negotiated license from the right holder on reasonable
commercial terms and conditions' . TRIPS does not address one (p.417) of the main
abuse concerns underlying the old local working requirements, namely,
monopolistic pricing,42 because of the requirement that the right holder shall be paid
adequate remuneration in the circumstances of each case, taking into account the
economic value of the compulsory licence,43 which may permit monopolistic pricing.
Some of the requirements, including those relating to the amount of remuneration
payable, for granting a compulsory licence in Article 31 do not apply if some
administrative or judicial body has determined a practice of the patentee to be
anticompetitive.44 There is no consensus among developed countries on what is an
anticompetitive practice in relation to patent rights. The variation in national
competition law rules applicable to the practices of patentees, combined with the
authorization to remedy abuse and restraints on technology transfers in Article 8.2,
may give members a degree of flexibility until the provisions are interpreted. This
flexibility is reinforced by Articles 7 and 8, which recognize that intellectual property
right laws need to provide a balance between a range of values and interests, and
Article 66.1, which recognizes the need for flexibility for the least developed
countries.
Article 40.1 recognizes that some licensing practices or conditions pertaining to
intellectual property rights which restrain competition may have adverse effects on
trade and may impede the transfer and dissemination of technology. Article 40.2
allows members to specify in law licensing practices or conditions that may constitute
an abuse of intellectual property rights having an adverse effect on competition in
the relevant market. Article 40.2 appears to be intended to only permit the regulation
of practices that would constitute competition law violations, rather than regulations
designed to give effect to development or industrial policies. The negotiators could
only agree on exclusive grantback conditions, conditions preventing challenges to
validity and coercive package licensing as examples of practices that might have an
adverse effect on competition. While the scope of Article 40 is uncertain, the language
may be broad enough to permit a member to find that a refusal to licence may be an
abuse of a dominant position, as was found to be the case in Radio Telefis Eireann v
Commission (Magill).45
It could be (politically) challenging and undesirable for a WTO panel to find any of the
approaches to the application of competition to intellectual property adopted by the
courts in the major industrialized countries to be TRIPS-inconsistent. TRIPS also
contains national treatment and most-favoured-nation obligations,46 which apply to
the application of national competition law to the (p.418) licensing or abuse of
intellectual property rights.47 These obligations may impose not insignificant
limitations on how members apply competition law to intellectual property rights. See
Section 11.5.5.
Like the GATS, TRIPS contains only limited provisions requiring members to assist
each other to enforce their competition laws. Consultations may be initiated at the
request of either the member enforcing its laws or regulation or the member of which
the intellectual property right holder is a domiciliary.48 While Article 40:3 permits
requests for enforcement assistance from other members, it binds the requested
member to do no more than provide publicly available information. However, an
attempt by one member to deliberately obstruct the enforcement of competition law
by another member in accordance with Article 40 may provide a basis for a non-
violation complaint and be inconsistent with the good faith implementation of TRIPS.
11.4 Obligations not to Encourage or Compel Anticompetitive Conduct
11.4.1 Controlling Government Encouragement of Anticompetitive Conduct
Quantitative Restrictions and Export and Import Cartels and Boycotts
Article XI:1 of the GATT prohibits export and import restrictions and prohibitions, other
than duties, taxes, or charges. A restriction on exportation or importation requires the
identification of a condition that has a limiting effect on importation or exportation,
which is specifically related to or is instituted or maintained with regard to or in
connection with the importation or exportation.49 Unless a measure is made effective
through a state trading enterprise,50 a measure that applied to both imported and
domestic products will probably fall outside Article XI:1 but within Article III:4.51
Business conduct, such as restrictive distribution practices, that restrict market access
for imported products would not be inconsistent with the GATT. (p.419) However,
laws requiring or providing an incentive for the formation of import and export cartels
and boycotts might be found to be prohibitions or restrictions on the importation or
exportation of a product. The scope of Article XI:1 is probably similar to that of Article
11:1(b) of the Agreement on Safeguards, which prohibits members, individually or
collectively, from seeking, taking, or maintaining any voluntary export restraints,
orderly marketing arrangements or any other similar measures on the export or the
import side.52 The second note to this provision provides a list of examples of similar
measures, including export moderation, export price or import price monitoring
systems, export or import surveillance, compulsory import cartels and discretionary
export or import licensing schemes, which are also prohibited if they provide
protection. Thus, in a case where the foreign sovereign compulsion defence was
available to a private firm involved in an export cartel, the government compelling the
conduct is likely to be in breach of its WTO obligations under the Safeguards
Agreement and Article XI.
While Article XI does not apply to purely private conduct, government conduct short of
legal compulsion may violate the WTO. The JapanTrade in Semi-conductors case
concerned an agreement between the US and Japan, which required Japan to, inter
alia, monitor exports of semiconductors with a view to restricting the sale for export of
semiconductors below certain prices in return for the US suspending three
antidumping investigations of Japanese semiconductor imports and a section 301
investigation into barriers to the import of semiconductors into Japan.53 The
agreement effectively created a cartel. The panel found that the procedure for
monitoring exports to discourage exports at dumping prices, and the delays of up to
three months in obtaining automatic export permission, were export restrictions in
terms of Article XI:1. The monitoring procedure was a restrictive measure even though
it was not legally mandated and only implemented through administrative guidance.
The panel posited two criteria that need to be satisfied before a non-mandatory
measure will contravene Article XI: First, there were reasonable grounds to believe
that sufficient incentives or disincentives existed for non-mandatory measures to take
effect. Second, the operation of the measures to restrict exports of semi-conductors at
prices below company-specific costs was essentially dependent on Government action
or intervention.54
In JapanPhotographic Film, the panel applied a similar approach to the term
measure in Article XXIII:1(b),55 but considered that the incentives/disincentives test
should not be seen as setting forth the exclusive test or outer limit of what (p.420)
may be considered to constitute a measure under Article XXIII:1(b).56 The panel
considered in cases where there is a high degree of cooperation and collaboration
between government and business, e.g., where there is substantial reliance on
administrative guidance and other more informal forms of governmentbusiness
cooperation, that even non-binding, hortatory wording in a government statement of
policy could have a similar effect on private actors to a legally binding measure or
what Japan refers to as regulatory administrative guidance.57 Thus, the fact that an
action is taken by private parties does not rule out the possibility that it may be
deemed to be governmental if there is sufficient government involvement with it. 58
Article 11.3 of the Safeguards Agreement requires members not to encourage or
support the adoption or maintenance by public and private enterprises of non-
governmental measures equivalent to those referred to in paragraph 1. This
provision may be broader than the JapanTrade in Semi-Conductors test. Although it
would not make members responsible for simply turning a blind eye to private
anticompetitive practices, it could apply to official statements of support for a course
of conduct or the granting of an exemption from general anti-cartels rules. The
dictionary definition of encourage may be broad enough to cover the removal of the
legal obstacles to performing, or specifically authorizing, an act or type of act. Private
export cartels are subject to the extraterritorial application of foreign competition law.
Government-supported export cartels are subject to challenge in the WTO. The WTO
rules may be stricter because they do not require a showing that the export cartel
affected competition or trade.
Separating Public and Private Market Access Barriers
Some commentators have argued that hybrid government/private market access
barriers and anticompetitive conduct are immune from national and international legal
remedies. For example, government ministries might use trade associations to
communicate important information to industry members, or trade associations might
be given a formal or informal role in the application process for obtaining licences, or
made responsible for developing industry standards that would be later adopted by
the government.59 In these circumstances, participation in the trade association may
be essential for any firm seeking to compete successfully in the market. Some trade
associations exclude foreign firms altogether, or have standards for entry that are
practically impossible for a new market entrant (foreign or domestic) to satisfy such as
a high level of manufacturing capacity in the domestic market. Such discriminatory
policies are the (p.421) appropriate subject of international trade agreements. For
example, communication only to local firms of information necessary to compete, or
giving local firms a de facto veto over the approval of a licence allowing a foreign firm
to enter the market, would be likely to breach WTO national treatment obligations.
The WTO expressly addresses a number of instances where governments delegate
regulatory authority to non-governmental bodies. See Section 11.2.5.
The nature of the involvement of a government in superficially private conduct varies.
Governments may compel, encourage, or provide financial incentives to private firms
to carry out anticompetitive conduct. The precise government involvement in
anticompetitive conduct may be difficult for an outsider to prove. Where there is a
strict separation of public and private activities in national legal doctrine, the judiciary
may have only a limited ability to restrain informal protectionist actions by the local
bureaucracy. While informal government actions take place in all countries, such
conduct has been especially prevalent and traditionally largely immune from legal
challenge in Japan, in particular through the use of administrative guidance.60 In WTO
DSU proceedings, a government may also have incentives to disguise or deny its
involvement in anticompetitive conduct.
However, while firms and their government may have an incentive to deny the
government's role in anticompetitive conduct in administrative and WTO proceedings,
such a denial increases the exposure of the firms to liability under national and foreign
competition laws. If a government only played an informal role in anticompetitive
conduct, its actions are unlikely to confer immunity on the firms involved. In Japan, for
example, the Oil Cartel cases show that, despite the close relationship between
business and the government, administrative guidance will not provide a defence for a
breach of the AML.61 Therefore, the combination of WTO and competition law
proceedings should allow most, if not all, hybrid barriers to be addressed.
The concept of hybrid conduct obscures the legal and factual causes of
anticompetitive effects, which clouds the allocation responsibility under national and
international rules, and may reduce incentives for government and private bodies to
comply with those rules. It also encourages the making of unsubstantiated allegations
of anticompetitive conduct. The WTO case-law contains a broad definition of a
government measure, which includes private (p.422) conduct with government
involvement short of compulsion. Competition laws do not generally apply to foreign
governmental conduct, but do generally apply to foreign private conduct unless
compelled by a foreign government. While there is some overlap, it is not clear that
this involves over-regulation.
11.4.2 State Trading Enterprises
The GATT negotiators were aware that state trading enterprises and monopolies could
be used to evade trade rules.62 The creation of a statutory monopoly will eliminate
competition and affect trade within its scope and may affect competition and trade in
related markets. A state trading enterprise may not have solely commercial
objectives. Some models suggest that public enterprises may have stronger
incentives than their private counterparts to engage in anticompetitive conduct,
including setting prices below marginal costs, raising the operating costs of rivals and
erecting entry barriers.63 Some members believe that the conduct and notification
requirements in Article XVII of the GATT do not address all of these concerns and have
not been effective in preventing trade distortions.64 Therefore, a number of WTO
accession agreements65 and regional trade agreements have sought to impose
greater obligations in relation to the existence and conduct of state trading
enterprises.66
Article XVII:1 essentially prohibits members from carrying on conduct through state
trading enterprises, or other enterprises granted special or exclusive privileges, that
would be condemned as discriminatory if such conduct wasundertaken directly by the
member itself. Article XVII:1(a) recognizes that members may establish or maintain
state enterprises or grant exclusive or special privileges to private enterprises, but
requires that, if they do so, such enterprises must, when they are involved in certain
types of transactions (purchases or sales involving either imports or exports ), act
consistently with certain principles contained in the GATT 1994 (general principles of
non-discriminatory treatment for governmental measures affecting imports or exports
by private traders ).67 Article XVII:1(b) clarifies the scope of the obligation not to
discriminate in paragraph (a).68 A state trading enterprise would be acting consistently
with the general principles of non-discriminatory treatment for government
measures if such enterprises make any such purchases or sales solely (p.423) in
accordance with commercial considerations and afford the enterprises of the
other contracting parties adequate opportunity, in accordance with customary
business practice, to compete for participation in such purchases or sales.
State trading enterprises are not required to refrain from using any privileges and
advantages that they enjoy because their use might disadvantage private
enterprises.69 They are only prohibited from making purchases or sales on the basis of
non-commercial considerations. Whether or not an enterprise acts in accordance with
commercial considerations will be determined on a case-by-case basis and will involve
a careful analysis of the relevant market(s).70 Subparagraph (b) does not permit a
broad inquiry into whether, in the abstract, state trading enterprises are acting
commercially or impose comprehensive competition law type obligations on State
trading enterprises.71 The second part of subparagraph (b) only requires that state
trading enterprises give other enterprises an opportunity to become a counterparty to
the state trading enterprises in a sale or purchase, not an opportunity to replace the
state trading enterprises as a participant in the transaction.72
It is noteworthy that no adopted GATT or WTO panel report has examined whether a
state trading enterprise had acted in accordance with commercial considerations
under Article XVII:1. This may be partly attributable to the detailed economic analysis
required. The absence of GATT or WTO case-law in this area raises doubts about the
institutional competence and utility of the WTO to assess whether business conduct
has had an anticompetitive effect.
11.4.3 Import Monopolies
Article II:4 of the GATT provides that: If any contracting party establishes, maintains
or authorizes, formally or in effect, a monopoly of the importation of any product
such monopoly shall not operate so as to afford protection on the average in excess
of the amount of protection provided for in that Schedule. The primary concern of the
drafters was that after states had completed negotiations and bound their tariffs, they
could use import monopolies to nullify those tariff concessions.73 If a monopoly is
established, the requirement that it does not operate so as to afford protection may
prohibit the monopoly from engaging in a variety of restrictive business practices that
affect the competitive relationship between domestic and imported products. 74
(p.424) Article II:4 covers monopolies, whether publicly or privately owned, where the
monopoly rights are created by formal governmental measures. The words
establishes, maintains or authorizes, formally or in effect might be also cover the
situation where, by virtue of an exemption from general competition law rules, a firm
or firms are able to maintain a monopoly on the importation of certain goods. For
example, the specific authorization allowing a firm to establish an exclusive
distribution network could in effect give the firm an import monopoly in violation of
Article II:4. Similarly, the authorization of a group of firms to establish a joint facility
essential for the importation of a particular product may also fall within Article II:4.
Where the facilities' owners compete with the imports, they may have an incentive to
restrict imports below the level they would have been without the authorization.
11.4.4 Service Industry Monopolies
The international liberalization of services trade has often followed regulatory reform
and deregulation in a service sector.75 On the other hand, the liberalization of trade in
services may not increase trade and welfare in the presence of anticompetitive
conduct. Concerns that incumbents are hindering access to a market by entrants and
harming local consumers are most appropriately dealt through the enforcement of
local competition laws. Deregulation and competition law may not always be
compatible with certain types of service industry regulation with non-economic goals,
such as a universal telephone or postal services and social solidarity.
Article VIII of the GATS addresses monopolies and exclusive service suppliers. A
monopoly supplier of a service means any person, public or private, which in the
relevant market of the territory of a member is authorized or established formally or in
effect by that member as the sole supplier of that service.76 The provisions of Article
VIII also apply to cases of exclusive service suppliers, where a member, formally or in
effect, (a) authorizes or establishes a small number of service suppliers, and (b)
substantially prevents competition among those suppliers in its territory.77 Like Article
II:4 of the GATT, the words formally or in effect may give Article VIII a wide
application. See Section 11.4.3.
(p.425) Like Article XVII of the GATT, Article VIII:1 of the GATS requires a member to
ensure that any monopoly supplier of a service in its territory does not, in the supply
of the monopoly service in the relevant market, act in a manner inconsistent with that
member's obligation to give most-favoured-nation treatment to all foreign service
suppliers and specific commitments to liberalize. Like Article II:4 of the GATT, Article
VIII:2 of the GATS provides that: Where a Member's monopoly supplier competes,
either directly or through an affiliated company, in the supply of a service outside the
scope of its monopoly rights and which is subject to that Member's specific
commitments [on, inter alia, market access and national treatment], the Member shall
ensure that such a supplier does not abuse its monopoly position to act in its territory
in a manner inconsistent with such commitments.78 Like the import monopoly
disciplines under the GATT, the service monopoly provisions may also support an
argument for the consistent application of national competition law.
11.4.5 Market Access for Services
It may often be difficult to show that most anticompetitive behaviour of a monopoly is
discriminatory against foreign products or services or service suppliers. However, it
could be easier to show that the actions of the monopoly are inconsistent with market
access commitments made under Article XVI of the GATS. The most GATS obligations
are applicable to only those sectors where a member has negotiated specific
commitments. Commitments are subdivided into four modes of supply. The
schedules of specific commitments record the limitations each WTO member imposes
on market access and national treatment and any additional commitments
undertaken in relation to each mode.79 For example, a member may choose to
liberalize trade in relation to particular modes of supply, but limit the number of
service suppliers permitted to operate in a sector.80
A competition policy that sought to control the number of firms in a service sector
where no limitations on market access were included in that member's schedule could
violate the GATS.81 An exception from a competition law could (p.426) also be seen
as limiting the number of firms in an industry. For example, an efficiency defence for
mergers could be interpreted as limiting the number of service suppliers. If merging
firms will achieve economies of scale of such a level that others firm would no longer
be viable in the market, the enforcement decision may be seen as a measure that
limits the number of service suppliers through the requirements of an economic needs
test. Article XVI could be interpreted as committing countries to notify the WTO about
their competition policies.82 If the anticompetitive conduct that restricts market
access, where no limitations are scheduled, was compelled, exempt, or authorized by
a member, that member may breach its obligations under article XVI. If the conduct is
undertaken by a service industry monopoly, the member may be in breach of its
obligations under article VIII of the GATS.
To determine whether conduct has in fact limited the number of service suppliers
through predatory or exclusionary conduct may require a dispute panel to adopt a
particular view of competition law, such as asking when cross-subsidization is
anticompetitive. The GATS would also seem to make no concession for conduct that is
exclusionary but which is efficiency enhancing or has a legitimate business rationale
or is necessary to comply with a government policy, such as universal service
obligations.
11.4.6 Agreement on Subsidies
Subsidies and competition law exemptions often share similar purposes. The definition
of a subsidy in the Agreement on Subsidies and Countervailing Measures (SCMA)
generally precludes regulations from being treated as a subsidy.83 Exemptions from
competition law will, therefore, not be subsidies even if they confer similar benefits to
a subsidy. However, industry regulation (which may be implemented through industry
determined price and output controls for sales on the domestic market) may create
incentives for firms in the industry (p.427) to cross-subsidize sales in another market,
which may in certain circumstances be treated as prohibited subsidies.84 This would
also satisfy the SCMA requirement that the subsidy is specific.85 Thus in a few cases
industry competition law exemptions could potentially be challenged if there is a
sufficient nexus between government conduct and any resulting cross-subsidized
exports.
11.4.7 Non-Violation Complaints
Non-violation complaints can be brought under the GATT and the GATS.86 The purpose
of non-violation complaints is to provide protection against circumvention of
reciprocally agreed concessions by members subsequently introducing measures that
impair the commercial opportunities and competitive conditions that could reasonable
be expected under the previously agreed concessions.87 The non-violation remedy is
approached with caution and remains an exceptional remedy.88 As early as 1958, the
potential to use non-violation complaints against private restrictive business practices
was considered by a GATT group of experts. Some hoped that this would allow the
WTO to address market access barriers stemming from a failure to enforce
competition law. An examination of the three elements of a non-violation complaint
suggests that it may not provide a useful remedy for anticompetitive conduct.
Application of a Measure
In JapanPhotographic Film, the US claimed that through the use of liberalization
countermeasures the Japanese government for more than 30 years has inhibited the
distribution and sale of imported consumer photographic film and paper in Japan. 89
There were three categories of countermeasures: (1) distribution measures, which
allegedly encourage and facilitate the creation of a (p.428) market structure for
photographic film and paper in which imports are excluded from traditional
distribution channels; (2) restrictions on large retail stores, which allegedly restrict the
growth of an alternative distribution channel for imported film; and (3) promotion
measures, which allegedly disadvantage imports by restricting the use and sales
promotion techniques.90 The US alleged that the above measures, individually and
collectively, nullified or impaired benefits accruing to the US within the meaning of
GATT Article XXIII:1(b). Japan denied all of the US claims. The panel accepted that a
Member's industrial policy, pursuing the goal of increasing efficiency in a sector, could
in some circumstances upset the competitive relationship in the market place
between domestic and imported products in a way that could give rise to a cause of
action under Article XXIII:1(b).91
While a broad range of actions may be found to be government measures for the
purposes of Article XXIII:1(b),92 business practices which are completely free of
government involvement fall outside Article XXIII:1(b). Older panel reports on non-
violation complaints appeared to have assumed that some positive government action
was required.93 Thus, passive tolerance of anticompetitive conduct could not give rise
to a non-violation complaint.94 As the WTO Secretariat has recognized, from an
economic point of view, any stance on competition law or enforcement, including the
decision not to have a competition law at all, or not to enforce the existing law, is a
policy choice.95 Nonetheless, an exemption from a general competition law rule,
which prohibited anticompetitive merger or business practices, for specific conduct
that was granted by a competition authority would be a government measure. A
measure might also consist of the giving of special treatment under a general
competition law to a particular firm, industry, or sector.96 Such an interpretation would
be consistent with the consistency principle advocated in Chapter 6.
Competition law authorizations and exemptions (even once repealed) may
permanently affect the market structure and conduct and have a lasting effect on the
competitive relationship between domestic and imported products. While it is possible
that measures that are officially revoked may continue to be applied (p.429) through
administrative guidance, Article XXII:1(b) does not apply to measures that ceased to
be applied.97 Thus, while competition law exemption or authorizations that permitted
ongoing conduct might be able to be addressed, permanent changes in market
structures brought about by discrete government actions, such as approval of a
consummated merger of local firms, could not be remedied under Article XXIII:1(b).
Nullification or Impairment of Benefits
The second element is that some benefit accruing directly or indirectly under the
GATT has been nullified or impaired, in the sense that there has been an adverse
change in competitive conditions between domestic and imported products. 98 The
government measure need not make more than a de minimis contribution to
nullification or impairment.99 However, the complaining party is required to make a
detailed showing of any claimed disproportionate impact on imports resulting from the
measure.100
If it can be shown that anticompetitive conduct that reduced market access for foreign
products was specifically authorized or benefited from an exception from a general
competition law, a government measure may be found to have caused the
exclusionary competitive effect. A panel might reach a similar conclusion if a
government changed the incentives of a firm so that it had a greater incentive to
specifically engage in a particular anticompetitive action. Although there is no intent
requirement in Article XXIII:1(b), where there is evidence that a measure was intended
to restrict imports, this may make the panel more inclined to find a causal
relationship.101 Competition laws and decisions that specifically mention import
substitution, export promotion, or the exploitation of foreigners may be more
vulnerable to challenge.
It has been argued that only anticompetitive practices that deny access opportunities
in domestic markets could be the object of non-violation complaints, because GATT
negotiations are concerned only with import barriers.102 The negotiating history of
both Article XXIII and the corresponding provision of the Havana Charter show that the
benefits were not restricted to tariff concessions and market access.103 Increased
international competition and the (p.430) better use of the world's resources are
benefits that should flow from the WTO. For example, anticompetitive conduct, such
as mergers, that raise the price of exports may be seen as impairing the benefits
expected from GATT Article XI. If nullification and impairment was restricted to market
access concerns, the nullification and impairment standard could prohibit some
efficient but exclusionary business practices.
Reasonably Anticipated
The third element was the inability to have reasonably anticipated the measure that
undermined the result of the trade negotiations. Where measures were introduced
subsequent to the conclusions of the tariff negotiations at issue, there is a
presumption that the complainant should not be held to have anticipated these
measures, but where the measures were introduced prior to the conclusion of the
tariff negotiations at issue, the presumption is in favour of the respondent. 104 The
complainant is charged with knowledge of measures as of their date of publication.
This suggests that the ability of members to use non-violation complaints to address
anticompetitive conduct would generally be quite limited. On the other hand,
knowledge of a measure's existence is not equivalent to understanding the impact of
the measure on a specific product market.105 A broadly drafted statute may only
acquire meaning when it is enforced and enforcement policies may change.
Unsuitability of Non-Violation Complaints to Address International
Competition Law Problems
As the GATT/WTO has become increasingly rule-oriented, doubts about the continued
utility and legitimacy of the non-violation remedy have grown. The use of the DSU to
fill in normative voids in the WTO is inconsistent with Article 3.2 of the DSU, which
stipulates that DSU cannot be used to add to or diminish the rights and obligations of
WTO members. Some commentators have argued that the grounds for non-violation
complaints should be restricted to those circumstances where the membership of the
WTO, through consensus decisions or consistent practice, provides prior normative
guidance to panels and the Appellate Body.106 It could be argued that the many
existing WTO rules reflect a concern for undistorted competition and, together with
the various national (p.431) laws and international agreements on competition law,
give rise to reasonable expectations that trade concessions will not be undermined by
anticompetitive conduct. However, the various national and international rules do not
provide a panel with sufficient guidance to determine whether conduct is
anticompetitive. The only other normative standard that has any legitimacy in this
context is the law of the respondent member, in which case the introduction of an
exception after the negotiations of concessions that reduced the value of the
concessions could form the basis of a non-violation complaint. A requirement that all
WTO members have competition laws that satisfy certain minimum standards might
be necessary if non-violation complaints are to be of any use in addressing market
access barriers created by private anticompetitive conduct, which would remove the
need for reliance on non-violation complaints.
It has been suggested that the use of non-violation complaints as a means to address
competition law concerns would be facilitated if WTO members agreed that the failure
to enforce competition law may amount to a non-violation complaint.107 For example,
a refusal to investigate a case by the competition law authorities of the importing
country could be presumed to satisfy the governmental measure requirement and
to be unexpected. However, there are good reasons why the non-violation option
should not be pursued. If the focus of WTO agreements is on market access and
competitiveness, many types of anticompetitive conduct that reduce global welfare
would not necessarily be addressed through non-violation complaints. Where
anticompetitive conduct could be addressed, the market access and competitiveness
concerns underlying many WTO rules could mean that a competition law that protects
consumer welfare or efficiency could allow conduct that could form the basis of a non-
violation complaint.
If there was a WTO agreement providing minimum standards on competition rules, the
competition law disputes that WTO panels would be most likely to consider would be
those cases where there is some scope for disagreement over the outcome of a case,
because of the complexity of the facts or uncertainty over what is the optimal
economic policy. This sort of dispute could be classified as either a violation or non-
violation complaint. However, to treat these disputes as non-violation complaints
would impose too many obstacles in the way of upholding the WTO competition
rules,108 because the complainant would need to prove a causal relationship between
the challenged measure and the alleged injury.
(p.432) The DSU calls for the withdrawal of a measure that is deemed to violate
Article XXIII:1(a). However, if a measure falls foul of Article XXIII:1(b), the respondent
WTO member is not required to withdraw the measure.109 Thus, a non-violation
complaint would not provide a satisfactory means to remove anticompetitive conduct
that hinders market access or otherwise causes nullification or impairment.110
11.4.8 Situation Complaints
Article XXIII:1(c) of the GATT permits complaints by members about any situation,
which could in theory apply to the frustration of trade expectations as a result of
industrial structure or private business practices.111 However, no panel has ever
reported on a situation complaint. The obstacles to the use of Article XXIII:1(c) to
provide a remedy against anticompetitive conduct than they are to the use of a non-
violation complaint.112
11.5 Rules Limiting National Competition Laws
11.5.1 Taming Aggressive Unilateralism in Competition Law
Introduction
Chapter 6 argued that while private anticompetitive conduct may restrict market
access and reduce welfare in both the importing and exporting country, only limited
harmonization of competition laws was desirable or likely. Section 8.2.7 argued that
the extraterritorial application of competition law is generally unable to address
foreign market access problems. Unsurprisingly, a number of competition law-related
market access complaints have therefore been pursued through other processes,
including aggressive unilateralism.
Aggressive unilateralism has been defined as any bilateral trade negotiation in which
unilateral demands for liberalization are backed by threats of retaliation. 113 Section
301 of the US Trade Act of 1974 is the most notorious example. Sections 30110 of
the Trade Act, as amended, require the United States Trade (p.433) Representative
(USTR) to investigate practices that burden or restrict US commerce; determine
whether they are actionable; negotiate to reach settlement with the offending
government following a positive determination; and retaliate, usually by restricting
access to the US market, if negotiations fail.114 Industry complaints may effectively
compel the US government to take action on a complaint with little regard to wider
political considerations. Foreign concerns arise primarily from the range of foreign
practices that may be the subject of a complaint and the legal and political difficulties
the executive has in avoiding trade retaliation.
Attacking Anticompetitive Conduct under Section 301
Foreign anticompetitive practices are subject to mandatory action under section
301, if the USTR determines that. (A) the rights of the US under a trade agreement are
being denied; or (B) an act, policy or practice of a foreign country(i) violates, or is
inconsistent with, the provisions of, or otherwise denies benefits to the US under, a
trade agreement, or (ii) is unjustifiable and burdens or restricts US commerce. 115 If a
foreign government's failure to control anticompetitive practices breach a trade
agreement, mandatory action may be required. Foreign anticompetitive practices are
more likely to be subject to discretionary action under section 301 if the USTR
determines that an act, policy, or practice is unreasonable or discriminatory and
burdens or restricts US commerce.116 Section 301(d)(3)(B)(i)(IV) provides that: Acts,
polices, and practices that are unreasonable include, but are not limited to, any act,
policy, or practice, or any combination of acts, policies, or practices, which(i) denies
fair and equitable (IV) market opportunities, including the toleration by a foreign
government of systematic anticompetitive activities by enterprises or among
enterprises in the foreign country that have the effect of restricting, on a basis that is
inconsistent (p.434) with commercial considerations, access of United States goods
or services to a foreign market 117
The toleration of anticompetitive activities provision was motivated by a concern for
the lack of reciprocity in market access as a result of the permitted use of restrictive
business practices in foreign countries,118 in particular Japan.119 The absence of a clear
definition of systematic anticompetitive practices creates uncertainty about which
practices the USTR will find objectionable and fuels the perception that the actions of
the USTR are driven by domestic interests. However, a more precise definition of
private anticompetitive conduct would not necessarily limit the USTR, because
practices falling outside any definition could still be found to be unreasonable. The
legislative history shows that the application of section 301 was to be flexible; section
301 was designed to elicit action from the USTR, not to restrict it.
Only a few petitions under section 301 have alleged that restrictive business practices
constituted barriers to foreign markets. After section 301 investigations into auto parts
(networks of suppliers and users locked into long-term relationships to the exclusion of
outsiders), soda ash (Japanese producers had organized a group boycott of imported
products) and construction and construction-related services, the US officials were
generally content to press Japan in various bilateral trade forums.120 The Japanese
construction and construction-related services case (301-69), initiated in 1988, was
the first in which a positive section 301 determination based on the anticompetitive
clause was made.121 Through the implementation of procurement practices in the
construction sector, the government facilitated collusive bidding practices, including
the inadequate use of administrative measures to restrict collusive activities and the
designated bidding system. In 1991, after the USTR threatened retaliation, an
agreement was reached. Allegations of anticompetitive conduct were made in several
other cases, but no positive determination to that effect was made, until the Kodak
Fuji case.122
(p.435) In 1995, Kodak initiated a section 301 case against Fuji Film in Japan, which
involved a broad-based attack against restrictive business practices and keiretsu links
that allegedly acted as a continuing barrier to the expansion of Kodak's market
presence in Japan.123 Kodak alleged that: (1) Fuji controlled all leading film wholesalers
in Japan; (2) Fuji controlled a network of photo processing laboratories that served as
a captive market for consumer photographic paper; (3) Fuji maintained its control
through anticompetitive practices such as rebates and price fixing; (4) Fuji's system
was reinforced by a web of financial ties with Mitsui Group banks; and (5) this system
was tolerated and reinforced by the Japanese government, including the JFTC. Kodak
argued that these practices violated the AML and would be illegal under the standards
of US antitrust law. Kodak had 36 per cent of the world film market; Fuji had 33 per
cent; Kodak had 9 per cent of the Japanese market; Fuji had a similar share of the US
market. While reserving the right to retaliate under section 301, the US stated it would
institute formal dispute resolution proceedings in the WTO.124 The US also stated that
it would request consultations under the 1960 GATT procedure, request Kodak to
make a complaint to the JFTC, seek to have the US DOJ become involved in the JFTC's
review of evidence, and engage in further study.125 The JFTC investigated the case
and concluded that no AML (p.436) violations by Fuji could be established,126 but
Kodak rejected this review as not being serious.127
Despite the doctrine of exhaustion of remedies in customary international law, 128 US
antitrust enforcement policy,129 and the legislative history of the relevant portion of
section 301 that required the USTR to consider the appropriate legal action available
to, or taken by, the aggrieved United States party to defend its rights in the subject
country,130 the USTR initiated an investigation without requiring Kodak to seek
remedies under the AML. Although Kodak argued that recourse to the JFTC would be
futile,131 the failure of the USTR to defer its investigation until Kodak had exhausted its
options in Japan may have been politically short sighted. As Barringer argues, if Japan
had in any way indicated acceptance of the USTR's jurisdiction over this issue it would
have set a precedent whereby the USTR would replace the JFTC in matters involving
U.S. companies with complaints under the Antimonopoly Law.132 This would also have
reduced the ability of the US to encourage Japan to improve AML enforcement,
because a revitalized JFTC and improved enforcement would no longer have been
seen in Japan as useful to address US trade concerns. The failure to require the
exhaustion of local remedies also affects the ability of a WTO panel (and the USTR) to
deal adequately with a case involving allegations of anticompetitive conduct. 133 A prior
investigation of Kodak's allegations by the JFTC could have generated a detailed
factual record, which would have aided the assessment of any allegations of
anticompetitive conduct.
The USTR failed to articulate a basis for its conclusion that the Japanese practices
were exclusionary, and therefore actionable under section 301, that would withstand
scrutiny under the US antitrust laws. Fujifilm was not shown to have had market power
in Japan, nor was the efficiency of the allegedly anticompetitive practices discussed. 134
The perception that there were different (p.437) standards for Japanese and US firms
was compounded by the refusal of the USTR to consider the position or behaviour of
Kodak in the US market during its investigation. Kodak had just succeeded in obtaining
the termination of two antitrust consent decrees dating from 1921 and 1954. The
consent decrees were terminated largely on the grounds that notwithstanding its 75
per cent share of the US market, it did not possess enough market power to justify
restraints on its conduct.135 Many of the restrictive business practices alleged by
Kodak to exist in the Japanese market are practices that Kodak has used and
continues to use in the US market.136 It was unclear what standard the USTR had
applied to reach its conclusion. The US criticism of the strict approach to vertical
restraints in the EU further undermined the credibility of the US position.
Fujifilm was confident throughout the case that objective consideration of the facts
and application of the standards of either U.S. antitrust laws or the Japanese
Antimonopoly Law would vindicate its position.137 Fujifilm therefore suggested to the
USTR various approaches that would have permitted neutral fact-finding and
evaluation of those facts under appropriate legal norms.138 The Kodak/Fuji
investigation by the USTR revealed some of the problems that can arise where there
are no established procedures for the submission of evidence, no legal standard for
evaluating the sufficiency of evidence, no requirement of service of parties to the
investigation, and no meaningful opportunity for a public hearing.139 The failure of the
USTR to thoroughly test Kodak's allegations was probably one of the reasons that
several measures that the US relied on in its first written submission, but did not
cite in its request for a panel, could not be considered by the panel. 140
The limited number of complaints made against anticompetitive conduct under
section 301 is probably attributable to several factors, including the fact that such
conduct may not be a major source of market access barriers, legal uncertainty,
evidential difficulties, WTO rules, costs, and the availability of alternative remedies.
Despite the dearth of evidence, two conclusions may be advanced.
Section 301 investigations into allegedly anticompetitive conduct have not applied US
substantive antitrust rules or standards of proof, or sought to rationalize the US action
from a global perspective. Neither section 301(d)(3)(B)(i)(IV) nor the legislative history
provide any criteria by which to identify systematic (p.438) anticompetitive
practices.141 In particular, neither the statute nor the legislative history refer to the
US antitrust laws as a measure of whether activities are anticompetitive, but the
legislative history suggests that the foreign country's own laws may be relevant.142
This is consistent with the argument advanced in Chapter 6, namely that there is no
international consensus on the appropriate competition law rules on conduct that
might inhibit market access, and no case can be made for a rule requiring the same
standard to be applied in all countries. Therefore, foreign law provides the only
legitimate standard to judge foreign practices.
In a number of cases, while US officials were convinced of the existence of
anticompetitive practices, they were uncertain whether they could clearly establish
toleration by the Japanese government of those practices.143 The Statement of
Administrative Action accompanying the amendment of section 301 in 1994 provided
that, in making an assessment of whether there has been a toleration of
anticompetitive conduct, the USTR will consider whether the pertinent foreign
government, and especially its competition authorities, have been made aware of the
alleged practices and, if so, how they were informed, the relevant evidence that has
been provided to, or is known to be available to, the foreign authorities, and the
nature of response those authorities have made.144 The required level of government
involvement may not be much different to that required for a measure under the
WTO, because the Statement of Administrative Action appears to anticipate a decision
by local authorities not to take action where action might have been taken in a wholly
domestic case. If foreign practices are examined under foreign law, and a pattern of
conduct by the foreign government is examined, the inquiry essentially becomes
whether foreign law is being applied consistently.
Aggressive Unilateralism under the WTO Dispute Settlement Understanding
The expanded coverage of the GATT/WTO and a stronger dispute settlement
mechanism was the price paid to tame US unilateralism. Article 23.1 of the (p.439)
DSU provides that: When Members seek the redress of a violation of obligations or
other nullification or impairment of benefits under the covered agreements or an
impediment to the attainment of any objective of the covered agreements, they shall
have recourse to, and abide by, the rules and procedures of this Understanding. In
United StatesSections 301310 of the Trade Act of 1974, the panel concluded that
sections 301310 were not as such inconsistent with the DSU.145 The panel also
outlined the requirements for an actual determination of WTO inconsistency made by
the USTR to violate Article 23.2(a): (1) the act must be taken in a situation where a
member seek[s] the redress of a violation of obligations or other nullification or
impairment of benefits under the covered agreements or an impediment to the
attainment of any objective of the covered agreements; (2) the act constitutes a
determination; (3) the determination is one to the effect that a violation had
occurred, that benefits have been nullified or impaired or that the attainment of any
objective of the covered agreements has been impeded; and (4) the determination
is either not made through recourse to dispute settlement in accordance with the
rules and procedures of [DSU] or not made consistent with the findings contained in
the panel or Appellate Body report adopted by the DSB or an arbitration award
rendered under [the DSU].146
Article 23.2 requires that the nullification or impairment of the benefits is caused by a
government measure. As discussed above, this criterion might be satisfied by the
encouragement or exemption of, or the failure to investigate certain types of
anticompetitive conduct. Article 23 probably applies to determinations under section
301 that foreign toleration of anticompetitive conduct burdens or restricts US
commerce. It is also arguable that a finding by a US court that anticompetitive
conduct in a foreign country that restricted US exports to that country (as opposed to
affecting competition in the US) and so violated the Sherman Act would be a
determination that benefits under a covered agreement had been nullified or
impaired. Thus, in certain circumstances the extraterritorial application of competition
law could be in breach of Article 23.
A finding that certain antitrust judgments may breach Article 23 would be consistent
with the Section 301 panel's concern that a law reserving the right for unilateral
measures may constitute an ongoing threat and have a chilling effect on trade.147
The panel was not only concerned about economically powerful (p.440) members
exerting undue influence over other members, but also the ability of private firms to
trigger government action, which includes the possibility of illegal unilateral action,
may itself affect the competitive relationship between firms and deny certain
commercial advantages to foreign firms. Therefore, while the US would be able to
apply its competition laws to export commerce cases where there was no government
toleration of the anticompetitive conduct, US antitrust enforcement practice and the
doctrine of forum non conveniens suggests that the US competition agencies and
courts should defer to foreign agencies and courts. The extraterritorial application of
US antitrust law to foreign anticompetitive conduct that affected a US market and
harmed US consumer welfare, rather than merely restricting access of US exports to a
foreign market, should fall outside of Article 23. This would be consistent with what
was argued in Section 8.2.7 to be the proper scope of the extraterritorial application of
competition in export commerce cases. The Sherman Act as such could be in
violation of Article 23, unless the scope of application of the antitrust laws in export
commerce cases is clarified.
A private suit under national antitrust laws may also not be outside the scope of
Article 23.1, because a Member seeks the redress when a court decides a
competition law case.148 Even if purely private market access barriers fall outside
Article 23, a country objecting to such practices will have practical difficulty in
devising a form of retaliation that does not itself violate the WTO.149
Comparing Extraterritorial Antitrust and Aggressive Unilateralism
There are many differences between the extraterritorial application of competition law
to export markets and an investigation under section 301 of the US Trade Act. What
they have in common is their inability to provide a remedy to private market access
barriers that is satisfactory either for the US or other countries. If the US courts can
secure jurisdiction and the necessary evidence, the extraterritorial application of
antitrust laws gives foreign governments very little, if any, influence over the outcome
of the action. Antitrust law satisfies the US desire for aggression in its trade policy. It is
perceived as a powerful weapon that avoids the delays, linkages and niceties of trade
diplomacy.150 A petition under section 301 faces fewer legal and evidential difficulties,
at least under US law, but the outcome is more a matter of politics than law.
Aggressive unilateralism is only an option for big countries. On the other hand, small
countries are only likely to have the ability to apply their competition laws to foreign
market access barriers in exceptional cases. Despite the fears (p.441) that section
301 would be used to justify protectionist policies,151 the USTR has generally been
conscientious in using section 301 to reduce obstacles to trade.152 Section 301
investigations rarely resulted in trade diverting agreements, trade retaliation, or no
agreement and almost never resulted in counter-retaliation.153 The reasonably good
success rate of section 301 investigations,154 suggests that the USTR will generally not
use section 301 when the threat of retaliation is insufficient to coerce a foreign
government. However, significant concessions were extracted from few countries that
did not wish to engage in substantial liberalization. With the establishment of the
WTO, the international perception of justified disobedience has changed, which has
undermined the political feasibility of aggressive unilateralism.
The US antitrust laws are widely perceived as fair and are administered to high
standards by the courts to achieve worthy ends. On the other hand, the USTR does
not have the time, investigatory staff, or antitrust experience to conduct an
investigation of the same quality as the US courts and antitrust agencies. Action under
section 301 is a political process that is open to capture by industry groups. This is
related to the biggest complaint about section 301, namely the unilateral
determination by the US that another country's policies restrict trade.
Ironically, a successful outcome in a section 301 negotiation is most likely if the
barrier is transparent and the international rules clear.155 The ability of section 301 to
address market access concerns is likely to be proportional to the international
acceptance that the type of practice in question is harmful and should be prohibited
and the strength of the proof of the conduct and effects in question. There are still no
internationally accepted standards for competition law and enforcement. Foreign
pressure to address anticompetitive practices that restrict market access may
improve understanding of the effects of the anticompetitive practices and assist
consumer and other groups to exert pressure on their politicians, but only if improving
competition law enforcement can be shown to promote consumer interests and
national welfare.156 If one country does not believe that business (p.442) conduct is
anticompetitive, it will be hard to convince another country to ban that practice.
Foreign anticompetitive conduct would not, therefore, appear to be a productive
target for section 301.
The Way Forward
Suggestions for unilateral policy responses to foreign private market access barriers
have ranged from managed trade to new per se competition rules applicable to
foreign markets. Many of the suggestions would be inconsistent with the WTO and
economically harmful. Managed trade, through voluntary import expansions (VIEs) or
the like, is contrary to the philosophy behind competition law and the WTO and is
likely to lead to greater government intervention and/or collusion among firms in the
importing country.157 The reliance on cartels to manage trade may give rise to legal
action under national competition laws and international trade laws.158
Many proposals have been made in the US to provide greater remedies against
private market access barriers, many of which are incompatible with the WTO. One
proposal was to create an additional trade remedy whereby civil penalties would be
imposed on foreign or domestic persons that engage in restrictive business practices
when such practices foreclose United States exports or otherwise burden or restrict
United States foreign commerce.159 Another proposed that the USTR be given
authority to investigate those categories of anticompetitive practices taking place in
foreign countries considered illegal per se under US law, issue cease and desist
orders, and enforce those orders with monetary penalties.160 For those practices which
are not per se illegal, a strict liability standard was proposed, which would have
meant that if the expected improvement in sales from a tariff concession was not
realized, the government involved would be held strictly liable and, absent correction
of the situation, the US would withdraw concessions.
Waller argues that the provisions of section 301 applicable to antitrust should be
eliminated or restructured to direct antitrust complaints to the antitrust (p.443)
enforcement agencies.161 A successful section 301 complaint should result in the
opening of a formal antitrust investigation by the appropriate antitrust enforcement
agency. Not only would the complaint go to the agency with the expertise, the
investigatory tools, and the time to carry out such an investigation, but also the
agency with the relationships and agreements with the foreign enforcement agencies
to ensure that a complaint is meaningfully dealt with. To avoid greater politicization of
the actions of the enforcement agencies, and to maintain international cooperation,
the enforcement agencies need to follow clear enforcement guidelines, based on an
internationally accepted theory of international competition law harm resulting from
private market access barriers.
Few cases challenging exclusionary conduct or keiretsu-related behaviour in Japan are
likely to be brought in the US courts. There are legal advantages in bringing such
challenges under the AML rather than the Sherman Act and the JFTC is likely to be
better informed about the market than the US enforcement agencies.162 The
Kodak/Fuji dispute demonstrated that a requirement to exhaust all reasonable local
remedies before resorting to section 301 would improve fairness to the defendants
and potentially significantly improve the quality of the information which the USTR
and any WTO panel would have available. As a matter of comity and practicality, the
US should not prosecute conduct in Japan until and unless it has determined that the
JFTC cannot or will not enforce the AML. This is consistent with the forum non
conveniens qualification to the exercise of extraterritorial jurisdiction proposed in Part
II, but requires the impartial and transparent enforcement by the JFTC and a better
prospect for private AML litigation.
Positive comity might be viewed in Japan as a relatively acceptable form of
gaiatsu.163 Ten years ago, observers had different opinions on the utility of an
enforcement cooperation agreement with Japan.164 However, in the military base bid-
rigging cases, cooperation between the US government and the JFTC probably
resulted in much greater settlements than the US would have got if it had unilaterally
sued under US or Japanese competition laws. The JFTC has now assisted US
investigations of a number of international cartels and Japan has signed several
enforcement cooperation agreements.165 The JFTC has increased its enforcement
activities and the use of economic analysis.166 On the other hand, the decision of the
JFTC to only conduct a general economic survey of the flat glass and photographic
materials industries, rather than launch a full (p.444) investigation, in response to
intense trade pressures gave critics ammunition.167 As will be discussed in Chapter 13,
positive comity mechanisms can be improved in many ways. International
cooperation, however, is ultimately dependent on a Japanese commitment to
competition law enforcement.
11.5.2 The Effect of the Antidumping Agreement on Competition Law
The line between antitrust and antidumping has not always been clear. Some early
antidumping laws, such as the Australian Industries Preservation Act 1906, were
closer to competition laws than are the modern antidumping laws. On the other hand,
some competition laws, such the French Price Ordonnance of 1944, were modelled on
antidumping laws.168 For every proposal to reduce the protectionist effects of
antidumping laws, there is another to strengthen antidumping laws. Many proposals
have attempted to combine antidumping and antitrust laws; proposing to allow
private treble damages actions or criminal prosecutions against firms that dump.
Many of these proposals are inconsistent with the WTO.169
Title VIII of the Revenue Act of 1916 (the 1916 Antidumping Act) was influenced by
antitrust doctrine.170 It allows civil actions for treble damages and criminal
proceedings to be brought against importers who sell foreign produced goods in the
US at prices that are substantially less than the prices at which the same products are
sold in the relevant foreign market, with the intent to destroy or injure an industry. It
has been suggested that the Act was intended to apply domestic antitrust principles
to international trade at a time when it was believed in the US that the Sherman Act
did not apply extraterritorially.
The functional similarity between the 1916 Act and the provisions that regulate price
discrimination in the antitrust laws was recognized by the courts, in particular the
requirement for the intent to destroy competition.171 The difficulty (p.445) of
establishing the intent under the 1916 Act was one major reason behind the adoption
of the 1921 Antidumping Act, which provided an additional remedy against
dumping.172 This difficulty combined with the complexity of its language and the
alternative remedies available have rendered the statute practically unused.173
In 1997, however, a district court unexpectedly held that the plaintiffs did not have to
satisfy antitrust predatory intention standards, but rather the 1916 Act has a
protectionist component and a plaintiff satisfies the intention requirement if, in
making the sales of the imported articles, the importer possesses one of the following
five intentions: (1) the intent to destroy a US industry; (2) the intent to injure a US
industry; (3) the intent to prevent the establishment of a US industry; (4) the intent to
restrain trade and commerce in the subject market; or (5) the intent to monopolize
trade and commerce in the subject market.174 The decision stimulated additional
interest in the 1916 Act and a WTO challenge by the EU and Japan.
The finding of two panels that the 1916 Act was inconsistent with Articles VI:1 and
VI:2 of the GATT 1994 and Articles 1, 4.1, 5.1, 5.2, 5.4, 5.5, 18.1, 18.4 of the
Antidumping Agreement was upheld by the Appellate Body.175 The power of private
persons to bring civil actions and the criminal enforcement role of the US DOJ meant
that the 1916 Act was mandatory, rather than discretionary, legislation and therefore
the 1916 Act could be challenged independent of any specific application of the Act.176
The panels and Appellate Body were only asked to consider whether the 1916 Act as
such was inconsistent with Article VI of the GATT. This required a determination of
whether the 1916 Act could be or (p.446) has been interpreted by the US courts in a
way that would permit action against dumping inconsistent with the requirements of
Article VI of the GATT and the Antidumping Agreement.177
Article 1 of the Antidumping Agreement requires that an anti-dumping measure
must be consistent with Article VI of the GATT and the Antidumping Agreement. The
text of Article VI was found to be inconclusive as to whether Article VI regulates all
possible measures that members may take to counteract dumping or whether it
regulates only the imposition of antidumping duties.178 The Appellate Body found that
an anti-dumping measure is any measure against dumping, and is not restricted to
definitive antidumping duties, price undertakings, and provisional measures.179
Furthermore, Article 18.1 of the Antidumping Agreement provides that: No specific
action against dumping of exports from another Member can be taken except in
accordance with the provisions of the GATT 1994, as interpreted by [the Antidumping]
Agreement. The Appellate Body concluded:180
the ordinary meaning of the phrase specific action against dumping of exports
within the meaning of Article 18.1 is action that is taken in response to situations
presenting the constituent elements of dumping. Specific action against dumping
of exports must, at a minimum, encompass action that may be taken only when the
constituent elements of dumping are present.[ ] Since intent is not a constituent
element of dumping, the intent with which action against dumping is taken is not
relevant to the determination of whether such action is specific action against
dumping of exports within the meaning of Article 18.1 of the Anti-Dumping
Agreement.

In relation to whether the 1916 Act provides for specific action against dumping, the
Appellate Body concluded:181
the 1916 Act provides for civil and criminal proceedings and penalties when persons
import products from another country into the territory of the United States, and sell
or offer such products for sale at a price less than the price for which the like products
are sold or offered in the country of export or, in certain cases, a third country
market . The constituent elements of dumping are built into the essential
elements of civil and criminal liability under the 1916 Act. The wording of the 1916 Act
also makes clear that these actions can be taken only with respect to conduct which
presents the constituent elements of dumping. It follows that the civil and criminal
proceedings and penalties provided for in the 1916 Act are specific action against
dumping.

The sanctions of fines and imprisonment and treble damages under the 1916 Act
violated Article VI:2 of the GATT and Article 18.1 of the Antidumping Agreement,
because antidumping duties are the exclusive remedy for dumping.
(p.447) A key problem with the decision is the scope of the concept of specific
action against dumping. First, it is not clear from the text of the 1916 Act that all
cases that fall within that Act would inevitably involve dumping as defined in the
WTO agreements. The Appellate Body may therefore have been using dumping in a
less technical sense. At one point it said that: Unlike transnational price
discrimination, dumping requires importation, and a lower price in the import market
than in the export market or relevant third country market. Dumping is always
transnational price discrimination, but transnational price discrimination is not always
dumping.182 Secondly, the Appellate Body left open the question of whether the
concept of specific action against dumping may be broader than action that may be
taken only when the constituent elements of dumping are present.183 If this is the
case, general competition laws that apply to international predatory conduct are
potentially vulnerable to challenge. Even if competition laws as such are not open to
challenge, the specific application of such competition laws to cases involving
dumping might be open to challenge. The Appellate Body report can be read as
limiting the scope of application of Article VI to measures that only target
dumping.184 If specific action against dumping is mandated by a law and if and only
if the constituent elements of dumping are required to be shown by a law, general
competition laws will not be vulnerable. However, such an interpretation would allow
the Appellate Body's holding to be easily evaded and is inconsistent with general WTO
law, which has held mandatory laws to be inconsistent with the WTO even if any
application of the law would be inconsistent with the WTO.185
The resolution of this dilemma, which avoids the need to define the limits of
antidumping and competition laws, lies in the principle of non-discrimination. The
specific action against dumping requirement incorporates a transnational
discrimination test; it contains a rule that treats transnational price discrimination
differently from domestic price discrimination. Antidumping laws are by nature
substantively and procedurally discriminatory. If a competition law applied rules
against price discrimination and predatory pricing to all instances of price
discrimination and predatory pricing, regardless of the source of the products, the
competition law rule should not be treated as specific action against dumping. It
might even be desirable to adopt an interpretation or amendment of the Antidumping
Agreement to that effect.
(p.448) The GATS does not permit members to adopt anything equivalent to
antidumping or countervailing duties or safeguard measures.186 The GATS provisions
on restrictive business practices offer little assistance as they are directed at market
access, rather than injury to the service supplier's home market. Therefore, provided
that a competition law satisfied the national treatment and market access obligations
of the GATS, it could be applied to foreign or international anticompetitive conduct
that affected the local market, such as transnational predatory pricing.
11.5.3 The Effect of the National Treatment of Goods Obligation on Competition Law
If a WTO member has enacted a competition law, the law and its application must be
consistent with the general WTO rules against discrimination. Competition laws might
discriminate between market participants in a number of ways. Plaintiffs and
defendants may be treated differently on the basis of their nationality (or the
nationality of their owners or controllers), the location of their business operations
and/or customers, or their level of imports or exports. These differences may affect
the interests of competition law plaintiffs and defendants in a number of ways,
including in the application of rules relating to personal jurisdiction, prescriptive
jurisdiction, standing to bring a claim, whether there has been injury to competition,
the assessment of efficiency defences and public interest tests, and the availability of
exceptions. Sections 11.5.3 to 11.5.7 investigate the extent to which these forms of
discrimination would be consistent with the WTO rules prohibiting discrimination in
relation to products, services, service providers, and intellectual property rights.
Any WTO agreement on competition law would probably also prohibit discriminatory
competition law rules.187 An OECD report claims that this is generally taken to mean
that competition laws and their enforcement would (p.449) not discriminate between
foreign and domestic firms' products, services, or investments, or among foreign
firms' products, services, or investments.188 The claim obscures the many different
possible approaches to the application of the principle of non-discrimination to
competition law and the impact of existing WTO non-discrimination rules.
Article III:4 of the GATT requires: The products of the territory of any contracting
party imported into the territory of any other contracting party shall be accorded
treatment no less favourable than that accorded to like products of national origin in
respect of all laws, regulations and requirements affecting their internal sale, offering
for sale, purchase, transportation, distribution or use. The three key elements of
Article III:4 are discussed below.
Measures Affecting Transactions
The word affecting means Article III:4 has a broad scope of application.189 A law,
regulation or requirement need not directly govern the conditions of sale or purchase
to fall within Article III:4; it needs only influence a manufacturer's choice between like
imported and domestic products.190 Requirements has also been interpreted broadly.
It includes not only the requirements that an enterprise is legally bound to carry out,
but also obligations that an enterprise voluntarily accepts in order to obtain an
advantage from the government.191 Therefore, competition law rules, and many
decisions of competition authorities or courts, fall within the ambit of Article III:4. Like
other WTO provisions, the failure to enact a competition law and private
anticompetitive conduct that has no connection to the government would prima facie
not be covered by Article III. For example, a privately owned trucking firm that
decided, perhaps as a result of pressure from its domestic shippers, to charge higher
rates on all imported goods than upon local goods would not violate Article III:4.192 The
situation could be different if a government required or encouraged local firms to
boycott foreign firms.
In a number of competition law cases, governments have compelled competitors in an
industry to engage in vertical restrictive practices, often resale price maintenance. 193
In KoreaBeef, a regulation requiring small retail shops to choose between selling
Korean or imported beef was found to violate Article III:4, (p.450) because the
reduction of access to normal retail channels is, in legal contemplation, the effect of
that measure.194 The Appellate Body emphasized that it was not holding that a dual
or parallel distribution system that is not imposed directly or indirectly by law or
governmental regulation, but is rather solely the result of private entrepreneurs acting
on their own calculations of comparative costs and benefits of differentiated
distribution systems, is unlawful under Article III:4 of the GATT 1994.195 The Appellate
Body's language suggests that any government intervention that required or provided
a specific incentive for firms to engage in conduct that adversely affected the
competitive position of foreign products vis--vis local products may violate Article
III:4. The treatment of private and hybrid public/private conduct under Article III is
consistent with the treatment of similar conduct under other WTO rules. See Section
11.4.1.
In some situations, the private conduct that disadvantages imports may be (legally)
possible only because there is an applicable sectoral or functional exemption from a
general competition law. If the exemption is specifically granted, a government
measure rather than the private conduct may be seen as affecting the competitive
position of imports for the purposes of Article III:4. If the government does not enforce
its competition law against certain types of conduct that restrict imports (such as an
import buying cartel), but would enforce the law against similar conduct affecting
domestic suppliers, this might be treated as a requirement.196
Imported and Domestic Products are Like Products
The non-discrimination principle applies only to like domestic and imported
products. While a determination of likeness under Article III:4 is, fundamentally, a
determination about the nature and extent of a competitive relationship between and
among products,197 the Appellate Body has indicated that the analysis is more
contextual and qualitative than the process of market definition in competition law,
involving more than economic analysis of cross-price elasticity between two groups of
products.198 For example, a competition authority might find that like local and
imported products were not in the same market (p.451) because of the trade barriers
that the WTO seeks to regulate. However, domestic and imported products that fall
within the same competition law market are likely to be treated as like products for
the purposes of Article III:4.
A series of controversial GATT panels introduced the productprocess doctrine,
which holds that Article III covers only measures affecting products as such.199 The
effect of the doctrine is that the imposition of regulatory disadvantages on imported
products because of the characteristics of the production process (such as the impact
of the process on the environment) or characteristics of the producer that do not
affect the characteristics of the product (such as the producer's nationality, efficiency
or annual volume of production or sales) may breach Article III. The discriminatory
application of an efficiency, or public interest defence to foreign producers, because
the production facilities of the foreign producer are abroad, may adversely affect the
competitive relationship between local and foreign producers and, in certain
circumstances, local and imported products. For example, a competition law rule that
permits competition- and cost-reducing mergers between firms with local production
facilities, but not if the firms have their production facilities abroad, might breach
Article III:4.
Less Favourable Treatment
The obligation to treat domestic and imported products no less favourably does not
necessarily require identical treatment of the two categories of product. Members may
apply different formal legal requirements, provided doing so does not accord imported
products less favourable treatment. Conversely, regulations that are facially neutral
might still in fact result in less favourable treatment for imported products. Article III:4
does not require proof of effects on trade or expected trade volumes, but is concerned
with relative competitive opportunities for domestic and imported products.200 The
mere existence of mandatory (p.452) legislation,201 which exposes imported products
to the risk that national treatment will not be provided, may contravene Article III.202
Some exceptions from general competition law rules may lead to less favourable
treatment for imported products. Government imposed minimum price schemes may
breach Article III, at least where the minimum price is set at a level at which a directly
competing, higher priced domestic product was supplied. 203 Consider a government
that allowed (under an exemption from the generally applicable competition law rules)
local firms to threaten to boycott other distributors if those distributors sold foreign
goods below a certain price, or on any other conditions. The exemption may be seen
as giving rise to less favourable treatment for imported products in violation of Article
III:4. If a competition authority made a positive decision not to investigate or
prosecute anticompetitive conduct that disadvantages imports, that decision may also
be a breach of Article III:4.
However, there are limits to the extent to which the prohibition again discriminatory
measures could be used to attack the regulation or non-regulation of business
conduct. In Keck, the ECJ ruled that measures governing selling arrangements are not
to be regarded as measures having equivalent effect to quantitative restrictions within
the meaning of Article 30 (now Article 28) of the EC Treaty, provided they are non-
discriminatory in law and fact.204 Accordingly, the ECJ has held that a French regulation
prohibiting sales to consumers at loss making prices was not inconsistent with Article
30,205 and a prohibition on advertising non-medical products imposed by a
professional chamber of pharmacists was compatible with the free movement of
goods.206 The ECJ took the view that such measures are not by nature such as to
prevent access of imported products to the market or impede access any more than
such measures impede the access of domestic products.207 This is broadly consistent
with the JapanPhotographic Film case.208 An absence of competition laws that allows
restrictive distribution arrangements creating market access barriers would therefore
probably not be discriminatory between home and foreign producers, because
entrants of all (p.453) nationalities would be discriminated against. A competition law
that allowed efficient but exclusionary business practices would not be seen as
discriminating against potential entrants. Thus, a generally applicable competition law
is unlikely to be found to be discriminatory in relation to conduct occurring within the
local market.
A measure that provides less favourable treatment to foreign products in one case,
but accords more favourable treatment in another case, will still violate Article III:4. 209
A competition law could breach Article III:4 if in a single case imported products would
be treated less favourably than domestic products. Some competition laws take into
account the possibility of export enhancement or import substitution when
determining the legality of a merger or business practice. While the extraction of
contractual promises in exchange for the approval of a merger may fall within Article
III:4, giving merger approval on the basis of an expectation of increased export or
reduced imports may not be sufficient.210 Competition law rules, efficiency defences,
and exceptions that take into account the location of the conduct or effects of the
conduct might be vulnerable to challenge, even if imported products only are
occasionally disadvantaged. The link between discrimination between producers
based on the location of their production facilities (or the nature of their distribution
arrangements) and an effect on the competitive relationship between local and
foreign goods would, however, need to be substantiated. This strict rule may also not
apply to de facto discriminatory measures.
Although the use of the aim and effects test211 in determining whether products are
like products has been rejected,212 similar considerations have reappeared in the
determination of less favourable treatment. In a case involving de facto
discrimination, the Appellate Body indicated that a Member may draw distinctions
between products which have been found to be like, without, for this reason alone,
according to the group of like imported products less favourable treatment than
that accorded to the group of like domestic products.213 The examination of
whether a measure involves less favourable treatment of (p.454) imported
products within the meaning of Article III:4 of the GATT 1994 must be grounded in
close scrutiny of the fundamental thrust and effect of the measure itself. This
examination cannot rest on simple assertion, but must be founded on a careful
analysis of the contested measure and of its implications in the marketplace. At the
same time, however, the examination need not be based on the actual effects of the
contested measure in the marketplace.214 Thus, Members may be able to make
regulatory distinctions within a group of like products if an objective analysis of the
measure indicates that the measure is not being applied so as to afford protection, but
for a legitimate non-protectionist policy objective. An efficiency defence for
anticompetitive mergers would be consistent with Article III:4, if it did not involve de
jure discrimination based on the location of the production facilities and therefore
producers of foreign goods as a group are treated as a group the same as local
producers as a group. In other words, the application of competition law efficiency
defences and exemptions equally to domestic and foreign firms irrespective of the
location of the firm's production facilities should be consistent with Article III:4.
A number of procedural competition law rules could also be found to be
discriminatory. The ways in which a competition law might be discriminatory is
revealed by the GATT and WTO challenges against section 337 of the US Tariff Act of
1930.215 Section 337 addresses [u]fair methods of competition and unfair acts in the
importation of articles into the United States the threat or effect of which is to
restrain or monopolise trade and commerce in the United States.216 Most complaints
under this statute relate to intellectual property. However, competition law claims
have been central to several section 337 cases, but none of these cases resulted in
any action being taken against the alleged unfair practices.217 A section 337
investigation is initiated by filing a complaint with the US International Trade
Commission. If an investigation is instituted, an administrative law judge conducts a
hearing and issues an initial decision based on the record. The initial decision may
then be reviewed by the full Commission, which has the authority to issue an
exclusion order or a cease and desist order.
(p.455) There are several advantages to using section 337 over attempting to
enforce US antitrust law against a foreign defendant in normal court proceedings that
may result in a violation of the GATT.218 First, a decision must be made within 12 to 18
months, which puts the respondent at a disadvantage, because the complainant has a
greater time to prepare its case. Secondly, the evidentiary requirements of an
administrative hearing are less stringent that the federal court rules of evidence
applicable in federal court hearings, which means that fewer section 337 cases will be
overturned because there was insufficient evidence in the record to support it. Thirdly,
although in the Monocomponent Toner investigation the International Trade
Commission relied extensively on antitrust jurisprudence, it is not clear that the
substantive antitrust laws will be the standard used under section 337 investigations.
Indeed, in Steel Pipe and Tube the International Trade Commission rejected both the
application of antidumping and antitrust standards in a case involving sales below
costs by foreign steel producers. Fourthly, section 337 targets specific products and
producers and the particular type of conduct that causes the unfair trading. The
only way to prevent an exclusion order would be to eliminate the unfair practice or
enter a settlement agreement. Fifthly, section 337 allows foreign anticompetitive
practices to be addressed even if a court would not have jurisdiction over the firm that
engaged in that conduct. Exclusion orders may also be made against persons who
were not party to the proceedings. Section 337 might not apply to foreign
exclusionary practices that restrict the export of goods from the US.219 Sixthly,
respondents are unable to bring counterclaims in the proceedings before the ITC.
Finally, the possibility of having to defend the same action before both the
International Trade Commission and a district court, whether in parallel or serial, was
discriminatory.
11.5.4 Prohibited Discrimination between Services through Competition Law
The non-discrimination obligation in Article XVII of the GATS does not apply to all
measures affecting trade in services. It applies only to measures affecting a member's
service commitments in its schedule of commitments subject to the qualifications and
conditions set out in the schedule. Under the GATS, treatment is less favourable if it
modifies the conditions of competition in favour of (p.456) services or service
suppliers of the Member compared to like services or service suppliers of any other
Member.220 Both de jure and de facto discrimination are prohibited.221 The concept of
like services or service suppliers is more complex and uncertain than the GATT like
product concept.222
Trade in services generally takes the form of cross-border provision or commercial
presence. Some services can be supplied from abroad (electronically) or through a
commercial presence in the territory (face-to-face). In the case of commercial
presence, the foreign service provider would be subject to territorial jurisdiction.223
However, in the case of cross-border provision, a foreign provider may be outside the
territorial jurisdiction of the member where the service is being supplied.
The application of many competition law rules, and the scope of many exceptions
from competition laws, depends on the nationality of the ownership of firms or the
location of the production facilities or head office of a firm. Some of these rules and
exceptions might therefore provide less favourable treatment to foreign services or
service suppliers. The analysis is similar to that for goods. However, the risk of a
violation of the non-discrimination provisions in the GATS is greater than the GATT,
because of the difficulty of drawing the line between product and production in
services, the relationship between the four modes of supply, and the combined
reference to service and service suppliers.
Commentators and several countries have constructed arguments to show that the
aim and effects test might apply to the GATS national treatment provisions based on
footnote 10 to Article XVII:1.224 Like Article III:4 of the GATT, the concept of less
favourable treatment may refer to like services as a group, which may mean that
competition rules and exceptions that are non-protectionist may be consistent with
Article XVII:1.
11.5.5 Prohibited Discrimination in Relation to Intellectual Property through
Competition Law
The national treatment obligation in TRIPS requires members to accord to the
nationals of other members treatment no less favourable than it accords to its own
nationals with regard to the protection of intellectual property, subject to the (p.457)
limited exceptions provided in the intellectual property conventions referred to in
TRIPS.225 Protection is defined to include matters affecting the availability,
acquisition, scope, maintenance, and enforcement of intellectual property rights, as
well as those matters affecting the use of intellectual property rights specifically
addressed in TRIPS.226 Therefore, no less favourable treatment could be provided by
legislation prohibiting or regulating intellectual property licensing practices that have
an adverse effect on competition in the relevant market,227 and probably all
competition law measures that affect the scope or enforceability of intellectual
property rights. The national treatment provision in TRIPS is not directed at protecting
market access as such, but equivalent legal rights for local and foreign works, which
may effectively require plaintiffs and defendants to be treated alike, irrespective of
their nationality.228 The scope of the requirement is uncertain, but it goes further than
merely requiring that plaintiffs and defendants be treated alike if the firms are
otherwise in exactly the same position. Therefore, the application of competition law
to prevent abusive use or licensing of intellectual property rights might breach Article
3 if the location of the production or any efficiency gains were taken into account.
11.5.6 Non-Discrimination as a Core International Competition Law Rule
The WTO agreements contain several distinct non-discrimination obligations. The
obligations are broadly framed by the subject of the rules (namely goods, services, or
intellectual property rights) and the characteristics of those subjects that are not a
legitimate basis for distinguishing between subjects (namely the origin of the product,
service, or intellectual property plaintiff or defendant). Although the precise scope of
each of these rules is unclear, collectively, the rules do not add up to the optimal rule
against discrimination for competition law. However, the WTO rules may also put
some pressure on members to move towards the approach to non-discrimination
advocated in Part I of this book.
The meaning of non-discrimination on the basis of nationality in relation to
competition law is not immediately obvious. All competition laws effectively treat
otherwise similar firms differently depending on where they are located because of
the limited territorial application of competition law. For example, a price fixing cartel
in New Zealand is not subject to the US Sherman Act unless it has (p.458) a
substantial effect on US commerce. Where the scope of application of a competition
law is not defined in terms of the location of physical conduct, elements of
competition rules (like competition, markets, consumers, consumer welfare,
efficiency, public interest and efficiency) may be applied in such a way as to
effectively treat firms differently depending on their nationality. However, as argued
above, it may be possible (if difficult) to establish that a competition law is
inconsistent with Article III:4 of the GATT or Article XVII of the GATS, if domestic firms
as a group are treated more favourably than foreign firms as a group under that law,
because the former benefit from efficiency defences and competition law exceptions
that the latter do not.
Unlike national treatment obligations in the GATT and GATS, the TRIPS national
treatment obligation is connected with the positive obligation on members to enact
and enforce intellectual property laws. Intellectual property rights are not defined
simply by the interests of owners or creators of intellectual property rights, but reflect
a balance between the interests of consumers and creators and between rival
creators. Competition laws are similarly concerned with the position of producers and
consumers and plaintiffs and defendants. Non-discrimination rules in trade and
investment agreements tend to focus on producers' interests. A WTO competition law
rule against discrimination should also consider consumers' interests.
The prohibition on discrimination between consumers would require the result of
competition law cases to be the same regardless of whether or not all or some of the
affected consumers were domestic. The adoption of such a rule would effectively
require national competition laws to apply a global welfare standard, which would be
inconsistent with the laws of many countries. As argued in Chapter 5, a rule requiring
a country to ensure that an export cartel did not reduce competition abroad would be
difficult to implement. It may be better to oblige members to adopt rules consistent
with the principle of non-discrimination against consumers that are affected by
anticompetitive conduct to which that competition law applies, but otherwise leave
the protection of foreign consumers up to their home country through the
extraterritorial application of their competition laws. The non-discrimination rule
needs to be applied in the context of an agreed set of competition law conflicts rules
or principles. The system as a whole could then promote global consumer welfare.
When evaluating efficiency gains claimed to result from a merger, some competition
authorities ignore wealth transfers from consumers to producers and whether or not
workers will be made redundant. If international rules prohibited discrimination
against foreign firms, a merger may have to be approved despite reducing local
welfare.229 The existing non-discrimination rules discussed (p.459) above provide
additional pressures (to those discussed in Chapter 5) for countries to adopt
competition law rules that promote consumer welfare rather than economic efficiency.
This suggests that a clarification of the non-discrimination rule applicable to
competition law would be desirable.
It would be undesirable to limit an obligation to have non-discriminatory competition
laws to market access cases. Such a limitation would not clarify all of the existing non-
discrimination requirements under the WTO agreements, nor would it address all of
the international competition law problems analysed in Part I. A carefully articulated
non-discrimination obligation would provide a basis for reconciling national interests in
the international competition law system.
It is likely to be very hard to demonstrate in WTO DSU proceedings that a facially
neutral competition law (and enforcement guidelines) has been applied in a
discriminatory manner. See Chapter 12. Therefore, any non-discriminatory obligation
designed to apply to competition law would effectively be a rule requiring non-
discrimination in laws, regulations, and administrative practices. The EC and Korea,
which favour a WTO agreement on competition law, favour only the prohibition of de
jure written into the law, rather than de facto discrimination.230 The main reason is
that the concept of de facto discrimination raises complex questions about
enforcement policies, priorities, and prosecutorial discretion of competition
authorities, including how competition law is being applied in individual cases.
A rule against discrimination under national competition law should be as broad as the
scope of competition law. The application of different competition law rules to goods,
services, investment, or technology could lead to significant distortions in the mode of
international business activity, and the application of multiple sets of international
obligations to the application of competition to the one transaction. Differences in the
application of non-discrimination rules could have the same effect. Non-discrimination
between modes of supply or industries is a requirement for a consistent application of
competition law. This would generally entail treating like conduct having like effects
alike, regardless of the industries and markets affected. If a competition law was
applied consistently with a WTO competition law non-discrimination obligation, that
law should be presumed to comply with the other non-discrimination obligations
contained in the WTO.
The EC further proposes that the non-discrimination requirement would only apply to
competition law, not other laws or regulations.231 However, some restrictions on the
use of exceptions and exemptions are necessary, otherwise the rule (p.460) against
non-discrimination could be consumed by exceptions and deprived of utility. First, the
transparency of exceptions can be improved. Secondly, consistency in the application
of competition law is fundamentally an obligation not to discriminate between
industries and firms in the application of competition law. Section 10.3.4 examined the
most appropriate means to ensure consistency in the application of competition law.
11.5.7 Mutual Recognition and Most Favoured Nation Obligations
Article I of the GATT provides that most-favoured-nation treatment must be accorded
unconditionally to all WTO members. Article II of the GATS and Article 4 of TRIPS
contain similar obligations. Cooperation agreements between countries may violate
non-discrimination rules. For example, if the competition authority of Country A
provides assistance or information to the authority of Country B but not the authority
of Country C, the consumers and/or producers in Country C may be disadvantaged.
Thus, bilateral cooperation would be better protected from legal challenge if it had a
multilateral basis.232 A multilateral agreement on competition law would legitimize
bilateral and regional cooperation.
Competition law enforcement cooperation agreements are in certain ways analogous
to mutual recognition agreements. Mutual recognition is a form of conditional most-
favoured-nation treatment, or a reciprocity requirement. The participating countries
accept the adequacy of each other's regulatory regime as a precondition to avoiding
trade being regulated by the exporting and importing countries. Several WTO
agreements permit mutual recognition agreements in derogation from the most-
favoured-nation principle, but encourage members to multilateralize the opportunity
for mutual recognition.233 A similar approach to bilateral competition law cooperation
may be practicable.
11.6 Conclusion
The WTO contains several provisions that encourage members to adopt and enforce a
competition law. However, either the relevant provisions do not contain binding
obligations, or they apply only in specific situations and do not define what conduct is
anticompetitive. A WTO panel may therefore have difficulty (p.461) finding that a
member's conduct is inconsistent with the WTO unless it is clearly not reasoned or
inconsistent with other decisions in similar cases.
A number of WTO provisions prohibit anticompetitive conduct where there has been
some government involvement in the creation of market power or the conduct itself.
These provisions appear to reduce the ability of WTO members to authorize
exceptions and create exemptions to general national competition law rules. There is
also a risk that these different provisions will be interpreted as prohibiting different
types of anticompetitive conduct, which creates uncertainty.
Aggressive unilateralism is now prohibited. The extraterritorial application of
competition law in export commerce cases could be found to violate Article 23 of the
DSU. Section 301 of the US Trade Act should be interpreted as only requiring that a
foreign country enforce its own law in a consistent manner.
The Antidumping Agreement may prohibit the extraterritorial application of
discriminatory competition law to predatory pricing claims. The various national
treatment provisions in the WTO agreements also prohibit a range of discriminatory
and inconsistent competition law actions. Overall, the analysis of WTO competition
law-related rules is consistent with the adoption of a broad non-discrimination rule
applicable to competition law, which limits discrimination between producers,
consumers, and industries. The scope of any rule limiting discrimination in relation to
competition law should complement any agreement on competition law conflicts of
laws and enforcement cooperation and judicial assistance. Together, the trade and
conflicts rules can promote global consumer welfare. If a member's competition
complied with such a rule, then the competition law could be presumed to comply
with the other non-discrimination obligations in the WTO. (p.462)
Notes:
(1) The ITO Charter, also known as the Havana Charter, refers to the Final Act of the
United Nations Conference on Trade and Employment, which took place in Havana in
March 1948 .
(2) See CD Edwards, Control of Cartels and Monopolies: An International Comparison
(Dobbs Ferry: Oceana Publications, 1967) 22831 ; GATT (J L'Huiller with
CA Junod), Restrictive Business Practices (Geneva: GATT, 1959) 6875 ; JA
Rahl (ed), Common Market and American Antitrust: Overlap and Conflict (New York:
McGraw-Hill, 1970) ch 8 ; S Dell, The United Nations and International
Business (Durham: Duke University Press, 1990) ; KC Kennedy,
Competition Law and the World Trade Organization: The Limits of Multilateralism
(London: Sweet & Maxwell, 2001) 1228 ; JH Jackson, World Trade and
the Law of GATT (Indianapolis: Bobbs-Merrill, 1969) 522 .
(3) ITO Charter, Art 46.3.
(4) ITO Charter, Art 52.
(5) ITO Charter, Art 46.2(b) and (c).
(6) Rahl (n 2 above) 422.
(7) ITO Charter, Art 48.7.
(8) ITO Charter, Art 50.450.5.
(9) Edwards (n 2 above) 231.
(10) See DB Furnish, A transnational approach to restrictive business practices
(1970) 4 International Lawyer 317, 3267 ; GATT (n 2 above) 7680.
(11) GATT (above n 2).
(12) GATT, BISD 7S/29 (1959); GATT, BISD 9S/170 (1961).
(13) GATT, BISD 9S/28 (1961). The 1960 Decision was incorporated into the GATT
1994 by the General Interpretative Note to Annex 1A of the Agreement Establishing
the World Trade Organization.
(14) JP Durling, Anatomy of Trade Dispute: A Documentary History of the Kodak
Fujifilm Dispute (London: Cameron May, 2000) 393409 .
(15) See, eg, Consultations on British Steel Corporation Sheet Steel Loyalty Rebate,
GATT Doc L/3271 (noted in JH Jackson, World Trade and the Law of GATT (Indianapolis:
Bobbs-Merrill, 1969) 520) ; Good Offices Report by the Personal
Representative of the Director-General on the Dispute between the EC and Japan
concerning Certain Pricing and Trading Practices for Copper in Japan (1989) BISD
36S/199202; Arrangement Concerning Trade in Semi-conductor Products, GATT Doc
L/6076; JapanTrade in Semi-conductors (1988) BISD 35S/116; United StatesThe
Imposition of Import Duties on Automobiles from Japan under Sections 301 and 304 of
the Trade Act 1974, Request for Consultations by Japan, WT/DS6/1, 22 May 1995. See
also Durling (n 14 above) 3947.
(16) S Dell, The United Nations and International Business (Durham: Duke University
Press, 1990) 21 . The countries were Argentina, Brazil, Cuba, Egypt, India,
Nicaragua, Peru, Tanzania, and Yugoslavia. See, eg, Submission by India,
MTN.GNG/NG12/W/18, 11 September 1989.
(17) Singapore Ministerial Declaration, adopted 13 December 1996,
WT/MIN(96)/DEC, para 20. See also Concluding Remarks by the Chairman of the Trade
Negotiations Committee of the Uruguay Round meeting at the Ministerial Level
(Marakesh, Morocco: 1215 April 1994, MTN.TNC/MIN(94)16); WTO Agreement on
Trade-Related Investment Measures, Art 9.
(18) WTO takes steps to establish working group on competition (24 July 1997) 73
Antitrust and Trade Regulation 94.
(19) GATS, Art IX:1.
(20) GATS, Art IX:2. See also GATS, Art III bis, which provides a general right of non-
disclosure of confidential information.
(21) See MCEJ Bronckers and P Larouche, Telecommunications services and the World
Trade Organization (1997) 31:3 Journal of World Trade 5 ; P Holmes, J
Kemption, and F McGowan, International competition policy and telecommunications:
lessons from the EU and prospects for the WTO (1996) 20 Telecommunications Policy
755 ; M Naftel and LJ Spiwak, The Telecoms Trade War: The United States,
the European Union and the World Trade Organisation (Oxford: Hart Publishing, 2000)
ch 5 ; MCEJ Bronckers, The WTO Reference Paper on
Telecommunications: a model for WTO competition law in M Bronckers and R Quich
(eds), New Directions in International Economic Law: Essays in Honour of John H.
Jackson (The Hague: Kluwer Law International, 2000) 371 .
(22) AT, para 5(a).
(23) In MexicoMeasures Affecting Telecommunications Services, WT/DS240/R,
adopted 1 June 2004, para 7.288, the panel found that the AT applies to access to and
use of public telecommunications transport networks and services as a transport
means for other economic activities and for the supply of basic telecommunications
services.
(24) See <http://www.wto.org/english/tratop_e/serv_e/telecom_e/telecom_e.htm> for
a list of commitments. The Fourth Protocol came into force on 5 February 1998.
(25) The RP defines essential facilities as facilities of a public telecommunications
transport network or service that: (a) are exclusively or predominantly provided by a
single or limited number of suppliers; and (b) cannot feasibly be economically or
technically substituted in order to provide a service. The definition appears to be less
stringent than those contained in EC and US case-law. See Case C-7/07 Oscar Bronner
GmbH & Co KG v Mediaprint Zeitungs- und Zeitschriftenverlag Gmbh & Co KG [1998]
ECR I-7791; Verizon Communications Inc v Law Offices of Curtis V Trinko, LLP 540 US
682 (2004).
(26) WT/DS240/R, para 7.152. The market existed even though Mexican regulations
meant that there was no price competition in the relevant market.
(27) MexicoTelecommunications, WT/DS240/R, paras 7.156, 7.157, is a case in point.
The panel concluded that Telmex had market power with little analysis. It referred to a
decision of the Mexican authorities finding that Telmex was dominant and that
Telmex's market share was over 60%. There was no discussion of the ability of Telmex
to buy or sell services at monopoly or monopsony prices or how the government
regulations raised barriers to entry.
(28) WT/DS240/R, paras 7.158, 7.159.
(29) Bronckers and Larouche (n 21 above) 28, 29.
(30) Telecom Corp of NZ Ltd v Clear Communications Ltd [1995] 1 NZLR 385 (PC), for
example, may not have been consistent with the WTO.
(31) See, eg, MexicoMeasures Affecting Telecommunications Services, WT/DS240/R,
adopted 1 June 2004, paras 7.177, 7.183, where the panel adopted a long-term
incremental costs methodology and excluded support for the telecommunications
industry as a whole from permissible interconnection costs. Space constraints prevent
further analysis of the many issues raised by this case. See G Sidak and H Singer,
Uberregulation without economics: the World Trade Organization's decision in the
U.S.Mexico arbitration on telecommunications services (2004) 57 Federal
Communications Law Journal 1 ; EM Fox, The WTO's first antitrust case
Mexican Telecom: a sleeping victory for trade and competition (2006) 9 Journal of
International Economic Law 271 ; DJ Neven and PC Mavroidis, El mess in
TELMEX: a comment on Mexicomeasures affecting telecommunications services
(2006) 5 World Trade Review 271 .
(32) T Prosser, The Limits of Competition Law: Markets and Public Services (Oxford:
Oxford University Press, 2005) . See also Section 10.3.4.
(33) See Section 11.5.1. See also MCEJ Bronckers and P Larouche, Telecommunication
services and the Word Trade Organization (1997) 31:3 Journal of World Trade 5, 41
.
(34) P Holmes, J Kemption, and F McGowan, International competition policy and
telecommunications: lessons from the EU and prospects for the WTO (1996) 20
Telecommunications Policy 755 .
(35) Bronckers and Larouche (n 33 above) 18.
(36) See Agreement on Technical Barriers to Trade, Arts 2, 3, 4, 5, 6 and 8, Annex 1,
paras 2 and 8, and Annex 3, paras D and E; Agreement on the Application of Sanitary
and Phytosanitary Measures, Art 13; Agreement on Pre-Shipment Inspection, Art 2;
Understanding on Commitments in Financial Services, para C.2.
(37) See, eg, Allied Tube & Conduit Corp v Indian Head, Inc 486 US 492 (1988) where
the setting of standards was found to breach the US antitrust laws.
(38) See also Paris Convention for the Protection of Industrial Property, Art 5A.
(39) JH Reichman, Beyond the historical lines of demarcation: competition law,
intellectual property rights, and international trade after the GATT's Uruguay Round
(1993) 20 Brooklyn Journal of International Law 75, 101 .
(40) OECD Joint Group on Trade and Competition, Competition Elements in
International Trade Agreements: A Post-Uruguay Round Overview of the WTO
Agreements, COM/TD/DAFEE/CLP(98)26/FINAL, 28 January 1999, pp 1415
 ; D Gervais, The TRIPS Agreement: Drafting History and Analysis
(London: Sweet & Maxwell, 1998) 68 .
(41) UNCTAD and ICTSD, TRIPS and Development: Resource Book, ch 29,
<http://www.iprsonline.org/unctadictsd/ResourceBookIndex.htm>, accessed on 7
August 2007.
(42) See, eg, GA Zaphiriou, Transnational technology protection (1992) 40 American
Journal of Comparative Law 879, 889 .
(43) TRIPS, Art 31(h).
(44) TRIPS, Art 31(k).
(45) Cases C-241/91P and C-242/91P [1995] ECR I-743.
(46) TRIPS, Arts 3 and 4.
(47) TRIPS, Art 3.1, n 3.
(48) TRIPS, Art 40:3 and 40:4.
(49) Dominican RepublicMeasures Affecting the Importation and Internal Sale of
Cigarettes, WT/DS302/R, paras 7.2487.258, 7.6217.622, adopted 19 May 2005, as
modified by WT/DS302/AB/R; cf IndiaMeasures Affecting the Automotive Sector,
WT/DS146/R, WT/DS175/R, adopted 5 April 2002, paras 7.2207.270.
(50) See GATT, Ad Art XI-XIV, XVIII; CanadaImport, Distribution and Sale of Alcoholic
Drinks by Canadian Provincial Marketing Agencies (1988) BISD 35S/37 para 4.24;
CanadaImport, Distribution and Sale of Certain Alcoholic Drinks by Provincial
Marketing Agencies (1992) BISD 39S/27, paras 5.65.7; KoreaMeasures Affecting
Imports of Chilled and Frozen Beef, WT/DS 161 and 169/R, adopted 10 January 2001,
as modified by WT/DS161 and 169/ABR, para 766. See also JapanRestrictions on
Imports of Certain Agricultural Products (1988) BISD 35S/242, para 5.2.2.2.
(51) CanadaAdministration of Foreign Investment Review Act (FIRA) (1984) BISD
30S/140.
(52) Cf GATT Art XX(h), which provides an exception for certain international
commodity agreements.
(53) JapanTrade in Semi-conductors (1987) BISD 35S/116 .
(54) Ibid 109 .
(55) JapanMeasures affecting Consumer Photographic Film and Paper, WT/DS44/R,
adopted 22 April 1998, para 10.45 . See also JapanRestrictions on
Imports of Certain Agricultural Products (1988) BISD 35S/242, para 5.4.1.4.
(56) Ibid para 10.48 .
(57) Ibid para 10.49 .
(58) Ibid para 10.56 .
(59) ME Janow, Public and private restraints that limit access to markets in OECD,
Market Access After the Uruguay Round: Investment, Competition and Technology
Perspectives (Paris: OECD, 1996) 101, 11415 .
(60) See MK Young, Judicial review of administrative guidance: governmentally
encouraged consensual dispute resolution in Japan (1984) 84 Columbia Law Review
923 ; JO Haley, Authority Without Power: Law and the Japanese Paradox
(New York: Oxford University Press, 1991) ch 7 ; FK Upham, Privatized
regulation: Japanese regulatory style in comparative and international perspective
(1996) 20 Fordham International Law Journal 396 .
(61) See Section 9.4.2, n 221.
(62) See JH Jackson, World Trade and the Law of GATT (Indianapolis: Bobbs-Merrill,
1969) 3336, 3624 ; KW Dam, The GATT Law and International Economic
Organization (Chicago: University of Chicago Press, 1970) ch 18 .
(63) See, eg, DEM Sappington and JG Sidak, Competition law for state-owned
enterprises (2003) 71 Antitrust Law Journal 479 ; S McCorriston and D
MacLaren, State trading, the WTO and GATT article XVII (2002) 25 World Economy
107, 1226 .
(64) See also Understanding on the Interpretation of Article XVII of the GATT 1994.
(65) WTO Annual Report (Geneva: WTO, 1997) 59. See, eg, Accession of the People's
Republic of China, WT/L/432, 23 November 2001.
(66) See, eg, NAFTA, Art 1502.
(67) CanadaMeasures Relating to Exports of Wheat and Treatment of Imported
Grain, WT/DS276/AB/R, adopted 27 September 2004, para 85 .
(68) Ibid paras 89, 99 .
(69) Ibid para 149 .
(70) Ibid para 144 .
(71) Ibid para 145 .
(72) Ibid para 157 .
(73) See JH Jackson, World Trade and the Law of GATT (Indianapolis: Bobbs-Merrill,
1969) 356, n 5 ; 88, citing UN Doc EPCT/TAC/PV.9, (1947) 337. WTO,
Analytical Index: Guide to GATT Law and Practice (6th edn, Geneva: WTO, 1995), 88
.
(74) Panel Report on Canadian Import, Distribution and Sale of Certain Alcoholic
Products by Provincial Marketing Agencies (1988) BISD 35S/37 paras 4.144.16. See
also Republic of KoreaRestrictions on Imports of BeefComplaint by New Zealand
(1989) BISD 36S/268 paras 120122; OECD Joint Group on Trade and Competition,
Competition Elements in International Trade Agreements: A Post-Uruguay Round
Overview of WTO Agreements, COM/TD/DAFFE/CLP(98)26/FINAL, 29 January 1999, p 6
.
(75) A Sapir, P Buigues, and A Jacquemin, European competition policy in
manufacturing and services: a two-speed approach (1993) 9:2 Oxford Review of
Economic Policy 113 ; MAA Warner, Competition policy and GATS in
Pierre Sauv and Robert M Stern (eds), GATS 2000: New Directions in Services Trade
Liberalisation (Washington: Brookings Institute, 2000) 364 .
(76) GATS, Art XXVIII(h).
(77) GATS, Art VIII:5.
(78) See, eg, BelgiumMeasures Affecting Commercial Directory Services,
WT/DS80/1, 13 May 1997.
(79) GATS, Art XX.
(80) GATS, Art XVI:2(a). In sectors where market access commitments are undertaken,
Art XVI:2 prohibits, inter alia, a member from adopting or maintaining measures,
unless otherwise specified in its schedule, which: (1) limit the number of service
suppliers, whether in the form of numerical quotas, monopolies, exclusive service
suppliers, or the requirements of an economic needs test; (2) limit the total value of
service transactions or assets in the form of numerical quotas or the requirement of
an economic needs test; or (3) limit the total number of service operations or on the
total quantity of service output expressed in terms of designated numerical units in
the form of quotas or the requirement of an economic needs test (but not measures
which limit inputs for the supply of services).
(81) See the broad interpretation of the notion of market access commitments under
GATS, Art XVI given by the Appellate Body in United StatesMeasures Affecting the
Cross-Border Supply of Gambling and Betting Services, WT/DS 285/AB/R, adopted 20
April 2005. The Understanding on Commitments in Financial Services, which binds
only those WTO members that have reproduced it in their schedules of specific
commitments, goes further. Paragraph B.1 provides that each member shall list in its
schedule pertaining to financial services existing monopoly rights and shall endeavour
to eliminate or reduce them. Paragraph B.10.1 provides that each member shall
endeavour to remove or eliminate any adverse effects on other members of a range
of non-discriminatory measures, including measures that affect adversely the
ability of financial service suppliers of any other member to operate, compete or enter
the Member's market.
(82) Productivity Commission, International Cooperation on Competition Policy: An
Australian Perspective, Report 96/15 (Canberra: Australian Government Publishing
Service, 1996) 32 .
(83) SCMA, Art 1.1; United StatesMeasures Treating Export Restraints as Subsidies,
WT/DS194/R, adopted 23 August 2001, paras 8.268.49; United States
Countervailing Duty Investigation on Dynamic Random Access Mememory
Semiconductors (DRAMS) from Korea, WT/DS296/AB/R, adopted 20 July 2005, paras
10616. See also JP Trachtman, International regulatory competition, externalization,
and jurisdiction (1993) 34 Harvard International Law Journal 47, 8192 .
(84) See CanadaMeasures Affecting the Importation of Milk and the Exportation of
Dairy Products, Second Recourse to Article 21.5 of the DSU by New Zealand and the
United States, WT/DS103/AB/RW2, WT/DS113/AB/RW2, adopted 17 January 2003,
which applied Art 9.1(c) of the Agriculture Agreement.
(85) SCMA, Arts 1.2 and 2.
(86) GATT, Art XXIII:1(b); GATS, Art XXIII; see also Art VI:5. There is a moratorium on
non-violation complaints under the TRIPS Agreement. TRIPS, Art 64.2 and 3; WTO,
Ministerial Declaration, Doha Work Programme, WT/MIN(05)DEC, 22 December
2005, para 45.
(87) In European Economic CommunityPayments and Subsidies Paid to Processors
and Producers of Oilseeds and Related Animal-Feed Proteins (1990) BISD 37S/86, para
144 .
(88) European CommunitiesMeasures Affecting Asbestos and Asbestos-Containing
Products, WT/DS135/AB/R, adopted 5 April 2001, para 186.
(89) JapanMeasures affecting Consumer Photographic Film and Paper, WT/DS44/R,
adopted 22 April 1998 . The US also unsuccessfully claimed that certain
measures were inconsistent with the non-discrimination and transparency
obligations in GATT Art III:4 and X:1. The US requested consultations on a number of
Japanese measures allegedly affecting distribution services under the GATS, but did
not pursue the complaint, and also under the 1960 GATT Decision on restrictive
business practices in relation to the Japanese consumer photographic film and paper
market. A similar request for consultations to restrictive business practice was made
by the EC. Japan then requested consultations with the US pursuant to restrictive
business practices in the US consumer photographic film and paper market.
(90) Ibid paras 2.72.52 .
(91) Ibid para 10.38 .
(92) Ibid paras 10.4210.60 . See also Section 11.4.1.
(93) Australian Subsidy on Ammonium Sulphate (1950) BISD II/188, 193, 196;
Treatment by Germany of Imports of Sardines (1952) BISD 1S/53, 58; JapanTrade in
Semi-Conductors (1988) BISD 35S/116, 161.
(94) Cf BM Hoekman and PC Mavroidis, Competition, competition policy and the
GATT (1994) 17 World Economy 121, 141 .
(95) WTO Annual Report (Geneva: WTO, 1997) 51.
(96) See, eg, GuatemalaAnti-dumping Investigation Regarding Portland Cement
from Mexico, WT/DS60/AB/R, adopted 25 November 1998, para 69 n 47, where the
Appellate Body recognized that a measure may be an omission or a failure to act.
(97) JapanPhotographic Film, WT/DS44/R, paras 10.57, 10.58. There is the additional
issue of the prospective nature of remedies available under the DSU. See references
cited in Section 12.3.4, n 87 .
(98) Ibid para 10.82 .
(99) Ibid para 10.84 .
(100) Ibid para 10.85 .
(101) Ibid para 10.87 .
(102) Hoekman and Mavroidis (n 94 above) 141. See also JapanPhotographic Film,
WT/DS44/R, para 10.61; European CommunitiesMeasures Affecting Asbestos and
Asbestos-Containing Products, WT/DS135/R, adopted as modified by the Appellate
Body, 5 April 2001, para 8.285.
(103) United StatesRestrictions on the Importation of Sugar and Sugar-Containing
Products Applied under the 1955 Waiver (1990) BISD 37S/262, para 5.21. The drafting
history supports a broader approach. See EPCT/A/PV/12 (1947) 7. Quoted in E-U
Petersmann, Violation-complaints and non-violation complaints in public international
trade law (1991) 34 German Yearbook of International Law 175, 198 .
(104) JapanPhotographic Film, WT/DS44/R, paras 10.79, 10.80.
(105) Ibid. The panel thought that reasonable expectations may in principle continue
to exist with respect to tariff concessions by Japan on film and paper in successive
rounds of GATT Article XXVIII bis negotiations. Ibid paras 10.6310.71.
(106) F Roessler, Should principles of competition policy be incorporated into WTO
law through non-violation complaints? (1999) Journal of International Economic Law
413 . See also Petersmann (n 103 above) 226.
(107) See, eg, B Hindley, Competition law and the WTO: alternative structures for
agreement in J Bhagwati and RE Hudec (eds), Fair Trade and Harmonisation:
Prerequisites for Free Trade?, Volume 2, Legal Analysis (Cambridge, Mass: MIT Press,
1996) 333, 337, 339 .
(108) RC Dreyfuss and AF Lowenfeld, Two achievements of the Uruguay Round:
putting TRIPS and dispute settlement together (1997) 37 Virginia Journal of
International Law 275, 2858 . See also E-U Petersmann, International
competition rules for governments and for private business: a trade law approach for
linking trade and competition rules in the WTO (1996) 72 Chicago-Kent Law Review
545, 566 .
(109) DSU, Art 26.1(b).
(110) See Section 12.3.4 for a discussion of WTO remedies for private anticompetitive
conduct.
(111) JapanNullification or Impairment of the Benefits Accruing to the EEC under the
General Agreement and Impediment to the Attainment of GATT Objectives, GATT Doc
L/5479, C/M/167 (1983). See Petersmann (n 103 above) 21314; RE Hudec, Enforcing
International Trade Law: The Evolution of the Modern GATT Legal System (Salem:
Butterworth Legal Publishers, 1993) 512 ; BM Hoekman and PC Mavroidis,
Competition, competition policy and the GATT (1994) 17 World Economy 121, 139
.
(112) See also DSU, Arts 23:1 and 26:2.
(113) TO Bayard and KA Elliott, Reciprocity and Retaliation in U.S. Trade Policy
(Washington: Institute for International Economics, 1994) 19 .
(114) 19 USC 241120. A number of other US statutes embody a policy of
aggressive unilateralism. See, eg, Telecommunications Trade Act of 1988, 19 USC
3101; Primary Dealers Act of 1988, 22 USC 5342. While other countries have similar
procedures, only the EU and the US are of a sufficient size to support a policy of
aggressive unilateralism. The EU version of s 301 is, however, an unsuitable vehicle to
challenge private market access barriers, because of the requirement of a treaty basis
for challenges to foreign government (in)actions. See Council Regulation (EC) 3286/94
laying down Community procedures in the field of the common commercial policy in
order to ensure the exercise of the Community's rights under international trade rules,
in particular those established under the auspices of the World Trade Organization
[1994] OJ L349/71, amended by Council Regulation (EC) 356/95, [1995] OJ L41/3, arts
2(1) and 4(1). In JapanImports of Finished Leather, the Commission considered but
did not find that the complainants had proven that there was an obstacle to trade by
restrictive business practices on the part of Japanese importers and traders.
Commission Decision of 19 May 1998 adopted pursuant to Council Regulation (EC)
3286/94 concerning obstacles to trade represented by Japanese practices in respect of
imports of leather [1988] OJ L159/ 65.
(115) Trade Act 1974, s 301(a).
(116) Trade Act 1974, s 301(b).
(117) Trade Act 1974, s 301(d)(3)(B)(i)(IV).
(118) See AD Smith, Bringing down private trade barriersan assessment of the
United States' unilateral options: section 301 of the 1974 Trade Act and extraterritorial
application of U.S. antitrust law (1994) 16 Michigan Journal of International Law 241,
278 .
(119) See J Bello and AF Homer, The heart of the 1988 Trade Act: a legislative history
of the amendments to section 301 in J Bhagwati and HT Patrick (eds), Aggressive
Unilateralism: America's 301 Trade Policy and the World Trading System (Ann Arbor:
University of Michigan Press, 1990) 49 .
(120) M Mastandino, Setting market access priorities: the use of Super 301 in US
trade with Japan (1992) 15 World Economy 729, 7401 .
(121) Determinations under Section 304 of the Trade Act 1974, as amended,
Regarding Japanese Government Procurement Policies Affecting Architecture,
Engineering and Construction Services, and Retailing Consulting Services 54 Fed Reg
49150 (1989). See also H Yamane, Trade and competition in the Japanese
experience (1999) Journal of International Economic Law 537, 542 .
(122) See Initiation of Investigation Under Section 301; Semiconductor Industry
Association (1985) 50 Feg Reg 28866; Determination Under Section 301 of the Trade
Act of 1974 (1986) 51 Fed Reg 27811; U.S.Japan Semiconductor Arrangement;
Request for Public Comments on Possible U.S Actions in Response to Acts by the
Government of Japan Apparently Inconsistent With the Arrangement (1987) 52 Fed
Reg 10275; Determination Under Section 301 of the Trade Act of 1974 (1987) 52 Fed
Reg 13419. Determination Concerning Section 301 Investigation of Indonesian Acts,
Policies, and Practices Regarding Pencil Slat (1993) 58 Fed Reg 610. Initiation of
Section 302 Investigation and Request for Public Comment: Barriers To Access to the
Auto Parts Replacement Market in Japan (1994) 59 Fed Reg 52034; Extension of
Comment period for Section 302 Investigation of Barriers to Access to the Auto Parts
Replacement Market in Japan (1994) 1994 59 Fed Reg 56099; Notice of Determination
and Request for Public Comment Concerning Proposed Determination of Action
Pursuant to Section 301: Barriers to Access to the Auto Parts Replacement market in
Japan (1995) 60 Fed Reg 26745; Termination of Investigation: Barriers to Access to the
Auto Parts Replacement Market in Japan (1995) 60 Fed Reg 35253. Office of USTR,
Press Release No 9052, 21 September 1990 (discussed in JM Finger and KC Fung,
Can competition policy control 301? World Bank Policy Research Paper 1253,
February 2004) .
(123) See Eastman Kodak Company and Dewey Ballentine, Privatizing Protection:
Japanese Market Barriers in Consumer Photographic Film and Consumer Photographic
Paper, Memorandum from Eastman Kodak and Dewey Ballantine in Support of a
Petition Filed Pursuant to section 301 of the Trade Act of 1974 (Washington DC:
Eastman Kodak Company and Dewey Ballantine, 1995) 187212, 241 .
The petition followed an antidumping investigation into imported photographic paper,
which had accelerated Fuji's decision to manufacture photographic paper in the US,
which in turn switched Kodak's attention to the Japanese market. See N Komuro,
KodakFuji Film dispute and the WTO panel ruling (1998) 32:5 Journal of World
Trade 161, 1657 .
(124) See Initiation of Investigation Pursuant to Section 301 Concerning Barriers to
the Japanese Market for Consumer Photographic Film and Paper (1995) 60 Fed Reg
35447. The Japanese MITI refused the US request for consultations, stating that
Kodak's allegations related exclusively to private conduct. Letter from MITI Vice-
Minister Yoshihiro Sakamoto to USTR Ira Shapiro, reprinted (12 January 1996) Inside
US Trade 2324.
(125) Section 304 Determinations: Barriers to Access to the Japanese Market for
Consumer Photographic Film and Paper (1996) 61 Fed Reg 30929.
(126) JFTC, Survey of Transactions among Firms Regarding Photographic Color Film
for General Use and Photographic Color Paper, 23 July 1997, summarized in (1997)
30 FTC/Japan Views . While the JFTC uncovered some evidence of
exclusive dealing arrangements, it chose not to investigate further using its
compulsory powers: (29 February 1996) 70 Antitrust and Trade Regulation Reporter
244 ; (21 August 1997) 73 Antitrust and Trade Regulation Reporter 196.
(127) The Economist, 511 August 1995, pp 5960.
(128) See Restatement (Third) of Foreign Relations Law of the United States (1987)
713, comment f.
(129) US DOJ and FTC, Antitrust Enforcement Guidelines for International Operations
(DOJ and FTC, 1995) 3.2.
(130) See WH Barringer, Competition policy and cross border dispute resolution:
lessons learned from the U.S.Japan film dispute (1998) 6 George Mason Law Review
459, 4634 . Citing S Rep No 98-308, pp 467 (1984), reprinted in 1984
USCCAN 4910, 49556.
(131) Eastman Kodak Company and Dewey Ballantine, Privatizing Protection:
Japanese Market Barriers in Consumer Photographic Film and Consumer Photographic
Paper, Memorandum from Eastman Kodak Company and Dewey Ballantine in Support
of a Petition Filed Pursuant to section 301 of the Trade Act of 1974 (Washington DC:
Eastman Kodak Company and Dewey Ballantine, 1995), 171, 21516 .
(132) Barringer (n 130 above) 464.
(133) See Chapter 12.
(134) Barringer (n 130 above) 4656.
(135) See United States v Eastman Kodak Co 63 F 3d 95 (2nd Cir 1995), 97; United
States v Eastman Kodak Co 853 F Supp 1454 (WDNY 1994), 14713.
(136) Barringer (n 130 above) 4667 .
(137) Ibid 470 . Barringer represented Fujifilm in the USJapan film
dispute.
(138) See Letter from Fujifilm to USTR (15 November 1995), reprinted (5 January
1996) Inside US Trade 2022.
(139) Barringer (above n 130) 470; H Fujii, The KodakFuji dispute: a spectrum of
divergent colors and a blueprint for a new WTO procedure for disputes involving
government toleration of anticompetitive practices (1998) 2 UCLA Journal of
International Law and Foreign Affairs 317, 332 .
(140) See JapanPhotographic Film, WT/DS44/R, paras 10.110.21.
(141) See AD Smith, Bringing down private trade barriersan assessment of the
United States' unilateral options: section 301 of the 1974 Trade Act and extraterritorial
application of U.S. antitrust law (1994) 16 Michigan Journal of International Law 241,
2779 .
(142) Statement of Administrative Act, HR Doc No 103316 at 367 (1994); HR Conf
Rep No 100576, I.C.1, Actionable Foreign Acts, Policies, or Practices (e) (1988),
reprinted in (1988) USCCAN 1547, 1603. See HM Applebaum, The interface of the
trade laws and the antitrust laws (1998) 6 George Mason University Law Review 479,
485 ; WH Barringer, Competition policy and cross border dispute
resolution: lessons learned from the U.S.Japan film dispute (1998) 6 George Mason
Law Review 459, 470 .
(143) M Mastandin, Setting market access priorities: the use of Super 301 in US trade
with Japan (1992) 15 World Economy 729, 741 .
(144) Statement of Administrative Action, HR Doc, No 103316, 103d Cong, 2nd Sess
656895 (1994) 367. See also J Bello and AF Holmer, The heart of the 1988 Trade Act:
a legislative history of the amendments to section 301 in Bhagwati and HT Patrick
(eds), Agressive Unilateralism: America's 301 Trade Policy and the World Trading
System (Ann Arbour: University of Michigan Press 1990) 734 .
(145) WT/DS152/R, adopted 24 February 2000. The WTO panel was not asked to
address the WTO consistency of those provisions in ss 301310 relating to USTR
determinations and actions that do not concern the enforcement of US WTO rights,
including the provision authorizing the USTR to determine whether or not a matter
falls outside the scope of the WTO agreements. Ibid para 7.13 . For
example, in United StatesImposition of Duties on Automobiles from Japan under
Section 301 and 304 of the Trade Act of 1974, WT/DS6 (settlement notified to DSB),
the US was examining, inter alia, whether Japanese acts or policies were
unreasonable under s 301(b). This type of complaint was outside the panel's terms
of reference. Ibid para 7.130, n 699.
(146) WT/DS152/R, para 7.50, n 657.
(147) WT/DS152/R, paras 7.887.90.
(148) See Section 11.5.2.
(149) Cf TJ Schoebaum, The theory of contestable markets in international trade: a
rationale for justifiable unilateralism to combat restrictive business practices?
(1996) 30:3 Journal of World Trade 161, 16879 .
(150) SW Waller, James R Atwood and Kingman Brewsters's Antitrust and American
Business Abroad (3rd edn, New York: Clark Boardman Callaghan, 1997) 20.3
.
(151) See, eg, J Bhagwati, Aggressive unilateralism: an overview and H Milner, The
political economy of U.S. trade policy: a study of the super 301 provision in J
Bhagwati and H Patrick (eds) Aggressive Unilateralism: America's 301 Trade Policy
and the World Trading System (Ann Arbor: University of Michigan Press, 1990) 36, 163
.
(152) T Bayard and K Elliot, Aggressive unilateralism and section 301: market
opening or market closing? (1992) 15 World Economy 685 ; AO Sykes,
Constructive unilateral threats in international commercial relations: the limited case
for section 301 (199192) 23 Law and Policy in International Business 263
.
(153) TO Bayard and KA Elliott, Reciprocity and Retaliation in U.S. Trade Policy
(Washington: Institute for International Economics, 1994) 68 .
(154) Bayard and Elliott (n 153 above) 65 (success rate of 48%); Sykes (n 152 above)
(success rate of 70%).
(155) Bayard and Elliott (n 153 above) 320.
(156) J McMillan, Why does Japan resist foreign market-opening pressure? in JN
Bhagwati and RE Hudec (eds), Fair Trade and Harmonization: Prerequisites for Free
Trade? Vol 1: Economic Analysis (Cambridge, Mass: MIT Press, 1996) 515, 5234 (US
campaign against dango did not provide the public with any new information and did
not change public opinion) .
(157) See M Itoh and S Nagaoka, VERs, VIEs, and global competition in EM Graham
and JD Richardson (eds), Global Competition Policy (Washington: Institute for
International Economics, 1997) 475, 490, 4978 .
(158) American Bar Association Task Force on Trade and Antitrust Law, Trade and
Competition Policy Issues posed by Negotiated Resolution of Trade Disputes (Chicago
ABA, 2001), pp 4859 .
(159) See AD Smith, Bringing down private trade barriersan assessment of the
United States' unilateral options: section 301 of the 1974 Trade Act and extraterritorial
application of U.S. antitrust law (1994) 16 Michigan Journal of International Law 285
6 .
(160) See WH Barringer Competition policy and cross border dispute resolution:
lessons learned from the U.S.Japan film dispute (1998) 6 George Mason Law Review
223, 4756 .
(161) SW Waller, James R Atwood and Kingman Brewster's Antitrust and American
Business Abroad (3rd edn, New York: Clark Boardman Callaghan, 1997) 20.7
.
(162) See also J Davidow, Keiretsu and U.S. antitrust (1993) 24 Law & Policy in
International Business 1035 .
(163) EM Graham, U.S. antitrust laws and market access to Japan in HB Cortesi (ed),
Unilateral Application of Antitrust and Trade Laws: Toward a New Economic
Relationship Between the United States and Japan (New York: The Pacific Institute/The
Asia Institute, 1994) 95, 100 .
(164) Compare JF Rill, Competition policy: a force for open markets (1993) 61
Antitrust Law Journal 637, 647 ; S Wilks, The Revival of Japanese
Competition Policy and its Implications for EUJapan Relations (London: Royal Institute
for International Affairs, 1994) .
(165) See Chapter 13.
(166) See <www.jftc.go.jp/e-page/>.
(167) JFTC, Survey of Transactions between Firms in the Distribution of Flat Glass, 29
June 1993 , and the follow-up study, Survey Report Concerning
Distribution of Flat Glass, 20 May 1999; JFTC, Survey of Transactions among Firms
Regarding Photographic Colour Film for General use and Photographic Colour Paper,
23 July 1997 .
(168) See also Utah Pie Co v Continental Baking Co 386 US 685 (1967); DJ Gifford,
Rethinking the relationship between antidumping and antitrust laws (1991) 6
American University Journal of International Law and Policy 277, 285 .
(169) Commentators, the American Bar Association, and the US DOJ have long argued
that such proposals would be inconsistent with the GATT. See RP Alford, Why a
private right of action against dumping would violate GATT (1991) 66 New York
University Law Review 696 ; DJ Gifford and M Matsushita, Antitrust or
competition laws viewed in a trading context: harmony or dissonance? in J Bhagwati
and RE Hudec (eds), Fair Trade and Harmonisation: Prerequisites for Free Trade?,
Volume 2, Legal Analysis (Cambridge, Mass: MIT Press, 1996) 269, 299300
; HM Applebaum, The interface of the trade laws and the antitrust laws
(1998) 6 George Mason University Law Review 479, 4878 .
(170) 15 USC 72. See Gifford (n 148 above) 2923.
(171) See, eg, Zenith Radio Corp v Matsushita Elec Indus Co 402 F Supp 251 (ED Pa
1975), 259, 94 F Supp 1190 (ED Pa 1980)|1197, 121315, 513 F Supp 110 (ED Pa
1981)|723 F 2d 319 (3rd, Cir 1983), 3267, In re Japanese Elec Prods Antitrust Litig
807 F 2d 44 (3rd Cir 1986) 49, cert denied, 107 S Ct 1955 (1987). See JG Sidak, A
framework for administering the 1916 Antidumping Act: lessons from antitrust
economics (1982) 18 Stanford Journal of International Law 377 ; KW
Almstedt, International price discrimination and the 1916 Antidumping Actare
amendments in order? (1981) 13 Law and Policy in International Business 747
; HM Applebaum, The antidumping lawsimpact on the competitive
process (1974) 43 Antitrust Law Journal 590 .
(172) HR Rep No 479, 66th Cong, 2nd Sess 2 (1919). Cited in Gifford (n 148 above)
293. See also IR Feltham, SA Salen, RF Mathieson, and R Wonnacott, Competition
(antitrust) and antidumping laws in the context of the CanadaUnited States Free
Trade Agreement (1991) 17 CanadaUnited States Law Journal 71, 82 ;
AP Victor, Antidumping and antitrust: can the inconsistencies be resolved? (1983) 15
New York University Journal of International Law and Politics 339, 346 ;J
Viner, Dumping: A Problem in International Trade (New York: Augustus M Kelley
(Reprints of Economic Classics), 1923/1966) 2445 . Congress repealed
the provisions of the 1921 Act in 1979, but substantially re-enacted them as Title VII
to the Tariff Act of 1930 by Trade Agreements Act of 1979.
(173) See SW Waller, James R Atwood and Kingman Brewster's Antitrust and American
Business Abroad (3rd edn, New York: Clark Boardman Callaghan, 1997) 3.11
.
(174) Geneva Steel Company v Ranger Steel Supply Corp 980 F Supp 1209 (D Utah
1997), 1215. See also Wheeling-Pittsburgh Steel Corporation v Mitsui Co 35 F Supp 2d
597 (SD Ohio 1999); Note, Rethinking the 1916 Antidumping Act (1997) 110
Harvard Law Review 1555.
(175) United StatesAnti-Dumping Act of 1916: Complaint by the European
Communities, WT/DS136/R ( EC Report); United StatesAnti-Dumping Act of 1916:
Complaint by Japan, WT/DS162/R ( Japan Report); United StatesAnti-Dumping Act of
1916, WT/DS136/AB/R and WT/DS162/AB/R, adopted 26 September 2000. The text
examines only the key findings of the Appellate Body relevant to this study.
(176) WT/DS136/AB/R, WT/DS162/AB/R, para 99.
(177) WT/DS136/ABR, WT/DS162/AB/R, para 101.
(178) Ibid para 117.
(179) Ibid paras 119, 120.
(180) Ibid para 122 (emphasis in original, footnote omitted).
(181) Ibid para 130.
(182) Ibid para 133, n 71.
(183) Ibid para 122, n 66.
(184) Ibid para 130.
(185) The panels noted that they had not been given the task of examining the
general issue of the relationship between trade law and antitrust law. EC Report paras
6.171172; Japan Report para 6.205. The panels thought that it was unlikely that its
findings with respect to transnational price discrimination under Art VI would affect
the application of members' antitrust laws, because such price discrimination is
narrowly defined and does not include price discrimination within a jurisdiction's
territory and because transnational price discrimination by itself is unlikely to be
sanctionable under antitrust law. EC Report paras 6.173176; Japan Report paras
6.206209.
(186) Members have agreed to negotiate on subsidies and safeguards. GATS, Arts X:1,
XV:2.
(187) See, eg, OECD, Joint Report on Trade and Competition Policies by the
Committee on Competition Law and Policy and the Trade Committee (Paris: 17 May
1994, #C/MIN (94) 7) 6, para 23 ; OECD, Interim Report on Convergence
of Competition Policies by the Committee on Competition Law and Policy (Paris: 18
May 1994, #C/MIN (94) 14) 4, paras 18, 7, Annex, para A.2 ; International
Antitrust Code Working Group, Draft International Antitrust Code as a GATTMTO
Plurilateral Trade Agreement (Munich: Max Planck Institute, 1993) Art 2:2(b), para
VIII.4 ; DI Baker, AN Campbell, MJ Reynolds, and JW Rowley, The
harmonization of international competition law enforcement in L Waverman, WS
Comanor, and A Goto (eds), Competition Policy in the Global Economy: Modalities for
Cooperation (London: Routledge, 1997) 439, 441 ; MJ Trebilcock,
Competition policy and trade policy: mediating the interface (1996) 30:4 Journal of
World Trade Law 71, 96102 ; P Marsden, A Competition Policy for the
WTO (London: Cameron May, 2003) ; JL Clarke and SJ Evenett, A
multilateral framework for competition policy? in State Secretariat of Economic
Affairs (Switzerland) and SJ Evenett (eds), The Singapore Issues and the World Trading
System: The Road to Cancun and Beyond (Bern, Switzerland: Swiss State Secretarial
of Economic Affairs, 2003) . Available from
<http://www.alexandria.unisg.ch/Publications/22224>.
(188) OECD Joint Group on Trade and Competition, Outline of (A) Core Principles,
Common Approaches and Common Standards and (B) Bilateral and Multilateral
Approaches, OECD Doc COM/TD/DAFFE/CLP(98)97/REV2, Paris, 2930 June 1999, para
18 .
(189) United StatesTax Treatment for Foreign Sales Corporations Recourse to
Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW, adopted 16
March 2002, paras 209, 210 .
(190) Ibid para 213 .
(191) European Economic CommunityRegulation of Imports of Parts and
Components (1990) BISD 37S/132, para 5.2.1; CanadaAdministration of the Foreign
Investment Review Act (FIRA) (1984) BISD 30S/140, para 5.4.
(192) JH Jackson, World Trade and the Law of GATT (Indianapolis: BobbsMerrill, 1969)
28990 . Citing UN Doc E/Conf.2.C.3/SR.11, p 7 (194748).
(193) See, eg, California Retail Liquor Dealers Assn v Midcal Aluminium 445 US 97
(1980); Case 13/77 GB-Inno-BM v ATAB [1977] ECR 2115.
(194) KoreaMeasures Affecting the Imports of Fresh, Chilled and Frozen Beef,
WT/DS161/AB/R, WT/DS169/AB/R, adopted 10 January 2001, para 146 .
(195) Ibid para 149 (original emphasis) ; see also CanadaCertain
Measures Affecting the Automotive Industry, WT/DS139/R, WT/DS142/R, adopted as
modified by the Appellate Body 19 June 2000, para 10.10610.107.
(196) C-D Ehlermann and L Ehring, WTO dispute settlement and competition law:
views from the perspective of the Appellate Body's experience (2003) 26 Fordham
Journal of International Law 1505, 15289 .
(197) European CommunitiesMeasures Affecting Asbestos and Asbestos-Containing
Products, WT/DS135/AB/R, adopted 5 April 2001, para 99 .
(198) Ibid paras 1013 ; cf KoreaTaxes on Alcoholic Beverages,
WT/DS75/R, para 10.81, adopted as modified by the Appellate Body 17 February 1999;
ChileTaxes on Alcoholic Beverages, WT/DS87/R, WT/DS110/R, para 7.87, adopted as
modified by the Appellate Body 12 January 2000. See also H Horn and PC Mavroidis,
Still hazy after all these years: the interpretation of national treatment in the
GATT/WTO case-law on tax discrimination (2004) 15 European Journal of International
Law 39 .
(199) United StatesRestrictions on Imports of Tuna (1993) BISD 39S/155, para 5.11
(unadopted) ( Tuna I). A number of GATT and WTO panels have accepted the doctrine,
but the Appellate Body has not definitively ruled on the issue. See RE Hudec, The
productprocess doctrine in GATT/WTO jurisprudence in M Bronckers and R Quick
(eds), New Directions in International Economic Law (The Hague: Kluwer Law
International, 2000) 187 ; M Bronckers and N McNiels, Rethinking the
like product definition in WTO law: anti-dumping and environmental protection in T
Cottier and P Mavroidis (eds), Regulatory Barriers and the Principle of Non-
Discrimination in World Trade (Ann Arbor: University of Michigan Press, 2000) 345
; R Howse and D Reagan, The product/process distinctionan illusory
basis for disciplining unilateralism in trade policy (2000) 11 European Journal of
International Law 249 ; R Howse and E Tuerk, The WTO impact on
internal regulations: a case study of CanadaEC asbestos dispute in G De Brca and
J Scott (eds), The EU and the WTO: Legal and Constitutional Aspects (Oxford: Oxford
University Press, 2001) .
(200) United StatesSection 337 of the Tariff Act of 1930 (1990) BISD 36S/345, para
5.11.
(201) United StatesTaxes on Petroleum and Certain Imported Substances (1987)
BISD 34S/136, para 5.2.2.
(202) European Economic CommunityPayments and Subsidies paid to Processors
and Producers of Oilseeds and Related Animal-Feed Proteins (1990) BISD 37S/86,
paras 137141.
(203) CanadaImport, Distribution and Sale of Certain Alcoholic Drinks by Provincial
Marketing Agencies (1992) BISD 39S/27, paras 5.305.31.
(204) Cases C-267 and C-268/91 Bernard Keck and Daniel Mithouard [1993] ECR I-
6097. Famously, the ECJ earlier ruled that; All trading rules enacted by Member
States which are capable of hindering, directly or indirectly, actually or potentially,
intra-Community trade are to be considered as measures having an effect equivalent
to quantitative restrictions under Article 30 (now Article 28) of the EEC Treaty. Case
8/74 Procureur du Roi v Dassonville [1974] ECR 837, 852.
(205) Cases C-267 and C-268/91 Bernard Keck and Daniel Mithouard [1993] ECR I-
6097.
(206) Case C-292/92 Ruth Hnermund et al v Landesapothekerkammer Baden-
Wrttemberg [1993] ECR I-6787.
(207) Cases C-267 268/91 Keck and Mithouard [1993] ECR I-6097, para 17.
(208) JapanMeasures Affecting Consumer Photographic Film and Paper, WT/DS44/R,
adopted 22 April 1998.
(209) United StatesSection 337 of the Tariff Act of 1930 (1989) BISD 36S/387, para
5.14; United StatesStandards for Reformulated and Conventional Gasoline,
WT/DS2/R, adopted as modified by the Appellate Body 20 May 1996, para 6.14; see
also United StatesSection 211 Omnibus Appropriations Act of 1998, WT/DS176/AB/R,
adopted 1 February 2002, paras 2615, 286, 294.
(210) See CanadaMeasures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R,
adopted 20 August 1999, paras 170, 171.
(211) United StatesMeasures Affecting Alcoholic and Malt Beverages (1993) BISD
39S/206, paras 5.25, 5.26, 5.72; United StatesTaxes on Automobiles (1994) 33 ILM
1399 (not adopted), para 5.10.
(212) JapanTaxes on Alcoholic Beverages, WT/DS8/AB/R, WT/DS10/AB/R,
WT/DS11AB/R, adopted 1 November 1996, p 21; European CommunitiesRegime for
the Importation, Sale and Distribution of Bananas, WT/DS27/AB/R, adopted 25
September 1997, para 241. See RE Hudec, GATT/WTO constraints on national
regulation: requiem for an aim and effects test (1998) 32 International Lawyer 619
.
(213) European CommunityMeasures Affecting Asbestos and Asbestos-Containing
Products, WT/DS135/AB/R, adopted 5 April 2001, para 100; quoted in Dominican
RepublicMeasures Affecting the Importation and Internal Sale of Cigarettes,
WT/DS302/AB/R, adopted 19 May 2005, para 142. See also L Ehring, De facto
discrimination in world trade law: national and most-favoured-nation treatmentor
equal treatment? (2002) 36 Journal of World Trade 921 .
(214) United StatesTax Treatment for Foreign Sales Corporations Recourse to
Article 21.5 of the DSU by the European Communities, WT/DS108/AB/RW, adopted 16
March 2002, para 215; see also JapanTaxes on Alcoholic Beverages, WT/DS8/AB/R,
WT/DS10/AB/R, WT/DS11AB/R, adopted 1 November 1996, p 18 .
(215) Similar complaints were made by the EC and Japan in United StatesAnti-
Dumping Act of 1916, WT/DS136, WT/DS162, however, neither the panels nor the
Appellate Body considered the issue.
(216) 19 USC 1337(a)(1)(A)(iii).
(217) Certain Angolan Robusta Coffee, USITC Inv No 337-TA-16 (March 1978); Certain
Welded Stainless Steel Pipe & Tube, USITC Inv No 337-TA-29, 22 February 1978;
Certain Electrically Resistive Monocomponent Toner and Black Powder Preparations
Therefor, USITC Inv No 337-TA-253, March 1988. The more usual situation is that the
foreign defendant has raised antitrust or patent misuse defences or alleges
anticompetitive conduct by the US plaintiff.
(218) In United StatesSection 337 of the Tariff Act of 1930 (1990) BISD 36S/345, a
panel found that important aspects of s 337 violated GATT Art III:4 in relation to
intellectual property disputes. See B Martenczuk, Section 337 of the US Tariff Act and
world trade law (1998) 32:2 Journal of World Trade 119 . The EC has
claimed that s 337 is still inconsistent with GATT Art III and TRIPS Arts 2, 27, 41, 42,
49, 50, 51. United StatesSection 337 of the Tariff Act 1930 and Amendments
Thereto, WT/DS186/1, 18 January 2000.
(219) Cf Washington International Trade Group, Stroock & Stroock & Lavan, The
creative use of U.S. trade law against exclusionary practices in Japan in HB Cortesi
(ed), Unilateral Application of Antitrust and Trade Laws: Toward a New Economic
Relationship Between the United States and Japan (New York: The Pacific Institute/The
Asia Institute, 1994) 59, 69 .
(220) GATS, Art XVII:3.
(221) GATS, Art XVII:2.
(222) A Mattoo, National treatment in the GATS: corner-stone or Pandora's box?
(1997) 31:1 Journal of World Trade 107 ; G Verhoosel, National Treatment
and WTO Dispute SettlementAdjudicating the Boundaries of Regulatory Autonomy
(Oxford: Hart Publishing, 2002) ; M Cossy, Determining likeness under
the GATS: squaring the circle, WTO Staff Working Paper RSD-2006-08, September
2006 .
(223) See Council for Trade in Services, Guidelines for Scheduling Specific
Commitments Under the General Agreement on Trade in Services, S/L/92, 23 March
2001, paras 15, 16; K Nicolades and JP Trachtman, From policed regulation to
managed recognition in GATS in P Sauv and RM Stern (eds), GATS 2000: New
Directions in Service Trade Liberalization (Washington: The Brookings Institute, 2000)
241, 253 .
(224) See Cossy (above n 222).
(225) TRIPS, Art 3:1. See also Article 5(1) of the Berne Convention for the Protection of
Literary and Artistic Works, entered into force 5 December 1887.
(226) TRIPS, Art 3, n 3.
(227) TRIPS, Art 40. Article 40 makes it clear that the measures prohibiting
anticompetitive practices must be consistent with other provisions of TRIPS, which
includes the national treatment obligations in Art 3.
(228) See United StatesSection 211 Omnibus Appropriations Act of 1998,
WT/DS176/AB/R, adopted 1 February 2002, paras 2423; European Communities
Protection of Trademarks and Geographical Indications for Agricultural Products and
Foodstuffs, WT/DS174/R, WT/DS290/R, adopted 20 April 2005.
(229) See Section 5.2.5. See also SF Ross, Afterworddid the Canadian Parliament
really permit mergers that exploit Canadian consumers so the world can be more
efficient? (1998) 62 Antitrust Law Journal 641 (analysing the combined effect of the
Canadian merger guidelines and NAFTA) .
(230) Communication from Korea, WT/WGTCP/W/212, 24 September 2002;
Communication from the European Community and its member states,
WT/WGTCP/W/222, 19 November 2002.
(231) Communication from the European Community and its member states,
WT/WGTCP/W/222, 19 November 2002.
(232) Communication from Korea, WT/WGTCP/W/212, 24 September 2002.
(233) See SPS Agreement, Art 4.2; TBT Agreement, Arts 2.7 and 6.3; GATS, Art VII. The
agreements encourage members to mutlilateralize mutual recognition. The TBT
Agreement refers to the idea of equivalence, whereby members are encouraged to
accept as equivalent technical regulation of other Members, even if those regulations
differ from their own, provided they are satisfied that these regulations adequately
fulfil the objectives of their own regulations. TBT Agreement, Art 2.7. See also SPS
Agreement, Art 4.1.

Dispute Settlement and Enforcement

Chris Noonan
DOI:10.1093/acprof:oso/9780199207527.003.0012
Abstract and Keywords

This chapter examines the position of private parties and states in disputes under an
international competition law agreement. It focuses on the WTO Dispute Settlement
Understanding (DSU) because it already has dealt with, and will deal with further,
international competition law disputes. It argues that a dispute settlement process for
international competition law may be more effective if it was part of the WTO.
However, the nature of DSU procedures limits the types of disputes that can be
effectively dealt with by the DSU and should limit the ambitions of any WTO
agreement on competition law.

Keywords: WTO, Dispute Settlement Understanding, competition law

12.1 Introduction
The practical significance of an international agreement on competition law will
depend on the applicable dispute resolution and enforcement mechanisms. However,
international competition rules may not be acceptable if a dispute settlement body
could influence the development of national competition laws and/or determine the
outcome of individual competition law cases. If a competition law agreement was part
of a broader international regime, such as the WTO, the substantive content of the
agreement on competition law will be limited by the existing dispute settlement
mechanism.
International competition law creates rights and obligations for private parties, states
and state agencies and international organizations under both national and
international law. Dispute settlement mechanisms may therefore be needed to resolve
disputes between members of any of these groups under one or more system of law.
This Chapter only examines the position of private parties and states in disputes
under an international competition law agreement. The focus is on the WTO DSU, 1
because it already has dealt with, and will deal with further, international competition
law disputes. An examination of the DSU also helps identify issues that any other
international competition law dispute settlement mechanism would have to address.
A worldwide international agreement creating competition law rights and obligations
for individuals and private firms would not be acceptable to many states. An
international agreement on competition law rules could still affect the interests and
behaviour of private parties by directing the contracting states to do, or not to do,
certain things that affect the rights and obligations of private parties under national
law. It is unlikely that private parties would be given rights to enforce such an
international agreement at either the international or national level. States could,
nonetheless, permit non-governmental entities to participate in, and/or compel the
government to initiate, inter-state dispute settlement procedures.
(p.464) The agreement to establish the WTO with a binding third party inter-state
dispute resolution mechanism was the product of a unique set of circumstances. 2 The
DSU helps self-interested states sustain a mutually beneficial international agreement
by identifying and authorizing sanctions against breaches of that agreement. The
industrialized countries have much to gain from a rules-based international trading
system. Rules facilitate planning by business, reduce uncertainty and encourage long-
term investment. There is a widespread belief that the DSU has been successful.
While the DSU moved international trade towards a more rules-based system, it was
not intended to, or able to, ensure strict compliance with the terms of the WTO
agreements.3 Broader geopolitical considerations will also sometimes dissuade some
states from initiating or pursuing DSU proceedings.4
Many international agreements contain imprecise rules that paper over differences.
While such drafting techniques may permit agreement, they also give dispute
settlement bodies more power to make policy and political choices. The increasingly
legalistic approach to dispute settlement within the WTO makes it harder for states to
negotiate rules on competition law, in part because states do not wish to give panels
too much influence over national competition law. Binding inter-state dispute
settlement is likely to have a relatively limited role in the international competition law
system, because of the reluctance of states to concede the extensive powers needed
to resolve inter-state international competition law disputes.
A fair and transparent process, in which non-governmental organizations can
participate, producing well-reasoned decisions, which can be subject to meaningful
debate by experts, is required if decisions of the DSU are to be respected.
Paradoxically, the better the process, the more difficult it will be to negotiate a WTO
agreement on competition law. Nonetheless, the WTO DSU could still play a useful role
under an agreement that contained the limited set of international competition
principles.
12.2 Private Party Participation in International Competition Law Dispute Settlement
12.2.1 Panel Proceedings Initiated by Non-Governmental Organizations
Private parties will often have the best information and incentives to challenge trade
barriers and anticompetitive conduct. Allowing individuals to access the WTO dispute
settlement mechanism would promote the WTO's objectives (p.465) of reducing
trade barriers and improving transparency and providing a certain environment for
trade and investment. It might also de-politicize some proceedings by separating
trade issues from the broader relationship between states.
Although some regional trade agreements create private rights, in the foreseeable
future a WTO agreement is unlikely to create private rights under an international
competition law agreement that may be exercised on the international plane.5 The
participation of private parties could upset the delicate balance of carefully negotiated
rights and obligations. Unlike private litigants, government trade representatives will
usually take into account broader institutional and political considerations before
initiating a trade dispute.6 While WTO members agreed to a more rule-oriented
system, they have not yet accepted strict rule of law in the WTO. Private rights of
action would make members more reluctant to agree to commitments and insist on
more careful delineation of commitments.
Before WTO members would support the right of private parties to initiate competition
law complaints, private individuals and firms in a significant number of WTO members
would need to believe that they would receive sufficient benefits from such rights. The
private persons that could have an incentive and ability to initiate competition law
complaints are likely to be large business enterprises or associations. However, it is
not clear that private rights in competition law cases would be a priority for these
business groups.7 The interests of large firms in bringing competition law complaints
would need to be balanced against their interests in not being defendants.
In many countries anticompetitive conduct could lead to both public and private
proceedings. The same is true of other areas covered by WTO agreements, including
intellectual property rights. In most countries, however, private competition law
actions have been exceptional and public authorities have been responsible for the
investigation and prosecution of competition law violations. Therefore, it is likely that
relatively few countries and relatively few firms in those countries would see private
rights to bring complaints about anticompetitive conduct as desirable. As discussed in
Section 12.2.2 and 12.2.3, if a member wants private parties to be able to initiate DSU
proceedings, it could effectively do this unilaterally.
There is widespread concern that the WTO as an organization and its members are
already too concerned with the business interests, particularly of multinational
(p.466) enterprises, rather than the concerns of developing countries and
environmental, labour, and social groups. Allowing private parties to initiate disputes
may risk the further marginalization of non-business interests, which will generate
opposition. Greater participation of private parties in the DSU itself may not be
possible in the area of competition law without allowing greater participation in other
areas, which could generate widespread opposition.
If private parties were allowed to initiate complaints in relation to international
competition law, the fact gathering abilities of WTO panels would have to be
significantly improved. See Section 12.3.2. Alternatively, private parties might also
need to be given the right to collect information from throughout the world (possibly
with the assistance of national governments or courts). Although it is not impossible
for international organizations to be given extensive information gathering abilities,
the WTO DSU is currently largely reliant on the information presented by national
governments. Inadequate procedural rules, in particular the absence of rules allowing
for early dismissal of groundless or vexatious complaints and defences, create a
significant risk that the DSU would be used as a strategic weapon by private
complainants against competitors.8 If non-governmental organizations were given
access to the DSU, DSU proceedings should not be permitted until national
administrative and judicial remedies are exhausted.9 Otherwise, some firms may
prefer to use the DSU to settle ordinary business disputes that should be handled by
national courts, possibly in an attempt to raise the costs and difficulty of national
governments enforcing national laws, and national regulatory processes could be
undermined. The limited remedies available under the WTO DSU will also limit the
incentive of private firms to bring complaints. See Section 12.3.4. A system of trade
compensation and suspension of concession would also not be workable in the case of
private complaints where the WTO member did not comply with the recommendations
of a panel or the Appellate Body.
12.2.2 Application of International Competition Law in National Courts
If private parties were able to bring claims based on WTO rules before national courts,
that is, the international obligations were directly applied in national legal systems,10
a higher level of treaty compliance would be expected. Direct (p.467) application
could be implemented unilaterally by each member. In some countries, WTO
agreements are likely to be directly applicable.11 However, despite the possibility of
direct application of international treaties in their legal systems, the US12 and the EU13
have taken steps to ensure that the WTO agreements are not given direct effect. In
light of their recognition that the GATT is not directly applicable,14 and the position in
the US and EU, the Japanese courts are unlikely to find that the WTO is directly
applicable. The direct application of a WTO agreement on international competition
law would face an insurmountable list of domestic and international legal, political,
and practical problems, especially if treaties were given a higher status than domestic
law.15 The possibility of the direct application would affect national preferences for
rules of an international agreement on competition law and most likely would inhibit
states from entering an agreement.
Irrespective of whether a WTO provision is directly applicable, the courts in the EU, 16
Japan,17 New Zealand,18 the US19 and many other countries interpret municipal laws
amenable to more than one interpretation in a manner consistent with the
international obligations of their country. Most of the arguments against direct
application of WTO rules do not apply to the principle of consistent interpretation,
because the national legislator has the ability to modify judicial interpretations of WTO
rules. A WTO agreement on competition law rules will not ensure enforcement, but
could influence the interpretation of (p.468) national statutes by national courts,
which may help achieve some consistency in the implementation of the agreement.
12.2.3 Participation of Non-Governmental Organizations in Proceedings
Member Control of Access to DSU Proceedings
Some countries have legislation that allows private parties or representatives of an
industry to require the government to conduct an investigation into whether another
country has violated a WTO agreement. The most important examples are section 301
and Council Regulation (EC) 3286/94.20 Other countries have administrative
procedures whereby private firms can bring to the attention of their government
conduct of another WTO member, which may lead to the initiation of DSU
proceedings. The member, however, usually retains ultimate control over the initiation
and conduct of any DSU proceedings.
There had always been substantial input by private parties in dispute resolution
proceedings under the GATT 1947 and that has not changed under the WTO. The
JapanMeasures Affecting Consumer Photographic Film and Paper case is widely
referred to as the KodakFiji dispute. Both companies were extensively involved in all
stages of the dispute and engaged in extensive public relations campaigns to support
their positions.21 A WTO member may often want representatives of an industry or
another non-governmental group to be part of the government team. The government
will benefit from the knowledge of the non-governmental representatives and the non-
governmental group may gain some influence over the conduct of the proceedings. A
US statute expressly grants rights of consultation to certain interested parties before
and during panel proceedings.22 The ultimate right to determine the course of the
proceedings, however, remains with the government. An individual can only attend
hearings under the DSU if they have the status of a government official, which is a
matter within the discretion of governments.23 This option is frequently used to allow
private counsel to appear in a hearing.
While only a WTO member may bring a complaint under the DSU, the Appellate Body
has confirmed that WTO members have a very broad discretion (p.469) on when to
bring a case.24 To intervene in proceedings, a third party must have a substantial
interest in the matter before a panel.25 These broad rights facilitate the indirect
access of private parties to WTO dispute resolution proceedings, because a private
party may be able to approach more than one member state with a view to
persuading that state to takes its case to the WTO.26 Thus, WTO members may
effectively provide quasi-private rights of action, which reduces the need for further
international action in relation to private rights of access.27 Demands for further
private access to DSU proceedings are likely to come from entities that cannot
convince their government of the legal and political merits of taking a case. These
organizations may have a limited ability to directly present their views to panels and
the Appellate Body.
Access to DSU Proceedings through Amicus Curiae Briefs
Not without some controversy, non-governmental organizations have been given
some access to the WTO panels and the Appellate Body by decisions of the Appellate
Body to allow amicus curiae briefs in certain circumstances.28 In United StatesImport
Prohibition of Certain Shrimp and Shrimp Products, the Appellate Body held, first, that
the Appellate Body could consider the relevant legal arguments made by non-
governmental organizations in the appeal process, which were submitted as an
integral part of the US submissions.29 Secondly, the panel had discretionary authority
either to accept and consider or to reject information and advice submitted to it,
whether requested by a panel or not from any individual or body.30 Thirdly, the panel
was entitled to consider the submissions of non-governmental organizations adopted
by a party to the (p.470) proceedings as its own.31 In European Communities
Measures Affecting Asbestos and Asbestos-Containing Products, the Appellate Body
decided it had legal authority to accept and consider unsolicited material and
published a procedure to facilitate receipt of such information. However, without
giving any reasons, the Appellate Body decided not to consider any of the amicus
briefs submitted. In practice, non-governmental organizations have a very limited
ability to participate in proceedings or provide information to a WTO panel or the
Appellate Body independently of a WTO member.
Amicus briefs provide a vehicle to express legal, social, and public concerns not
articulated by the parties to the dispute, thereby serving both to inform the WTO and
provide a voice to groups under-represented at the national level. Although non-
governmental organizations may not participate as of right and the type of
participation is restricted, merely allowing amicus briefs moves the DSU and WTO
towards a more rule-oriented system and promotes transparency. The issues of
procedural justice are raised by the exclusion of private parties from WTO DSU
proceedings where substantial interests of those parties are directly affected, such as
when a WTO complaint addresses anticompetitive conduct (or a member's regulation
or non-regulation of that conduct). However, the effect of a WTO agreement on
competition law on private interests would not necessarily be significantly different
from than under most other WTO agreements. Although significant pressure to open
DSU proceedings to non-governmental organizations has been exerted by
environmental and consumer groups, if proceedings were opened firms and business
associations would also gain access. If there was a WTO agreement on competition
law, the information gathering and analytical efforts of private firms and consumer
groups could supplement those of individual governments. Non-governmental
organizations could also play a significant role in assisting a WTO panel or the
Appellate Body interpret international competition law rules and understand the
degree of diversity that exists among national competition laws. Open-ended non-
governmental participation could, however, significantly add to the cost and length of
proceedings.
Alternatively, the WTO Secretariat could be required to report on the impact of the
decision on a range of different interests, or be permitted to participate as an
advocate on behalf of WTO membership as a whole, to represent under-represented
interests, or even to bring cases against members. However, a bigger role for the
Secretariat is likely to appeal to neither the bulk of the WTO membership nor to
environmental and consumer groups. Developing countries oppose amicus briefs,
because they fear they would lose what little influence they have over the WTO to
non-governmental actors from the EU and US.32 Thus, (p.471) any attempt to make
the WTO and the DSU significantly more responsive to non-governmental actors is
likely to be successfully opposed and, in any event, would not significantly expand
representation of under-represented groups in competition law cases.
12.3 Supervision of Competition Law and Enforcement
The WTO DSU panels do not have the capacity to handle a full range of competition
law disputes. If panels are asked to address issues that are beyond their institutional
capacity, errors will result, which will undermine the authority of the DSU.
12.3.1 The Constitution of the Panel
The ability of GATT panellists to settle trade disputes was enhanced by the process
being dominated by an elite group of international bureaucrats, lawyers, and
economists who shared a common frame of reference. The involvement of trade
diplomats in WTO panels and the Dispute Settlement Board (DSB) review adds
political support and legitimacy to the legal rulings, which may have increased
compliance.33 For high quality competition law analysis, WTO panellists need to be
schooled in competition law and policy, not just trade diplomacy. The involvement of
respected members of national competition law communities (officials, lawyers,
economists, and/or adjudicators) in WTO disputes dealing with competition law cases
could add legitimacy in the eyes of competition lawyers, which could reduce the level
of criticism from the group that would be most able and likely to attack a panel
decision. Any WTO agreement on competition law should therefore specify additional
qualifications for panels dealing with competition law cases.
12.3.2 Information Gathering and Analysis
Issues for Decision by WTO Panels
The practical significance of a WTO agreement on competition law would be
determined in large part by the ability of the dispute settlement process to gather and
analyse the relevant information. A WTO panel might be faced with (p.472)
determining one or more of the following questions.34 First, does a national
competition law comply with an agreed set of competition law principles? Here, the
factual inquiry will largely be the interpretation of national legislation, administrative
and judicial decisions, and other government measures.
Secondly, has a country failed, either systematically or in a particular case, to apply
its competition laws in accordance with an agreed set of competition law principles?
On the assumption that the relevant competition laws per se satisfy any agreed
principles, the panel review may be effectively an assessment of whether government
agencies or courts have correctly followed and applied national law, or international
rules like transparency, impartiality, or non-discrimination. In either case, a panel may
be required to review administrative or judicial processes and the evidence and
arguments of the complainants at a national level in order to make a judgment about
the validity of and motivation for enforcement actions. Where there is no national
investigation, the panel will need to develop its own factual record.
Thirdly, has a country complied with its obligation under an agreement on
enforcement cooperation and judicial assistance? The obligations could cover
consultation, information gathering and disclosure, consideration of the foreign issues
under negative and positive comity obligations, and so forth. The information required
might often be contained in the files of the relevant enforcement agencies and court
records. However, in some situations, such as where there is an allegation that a
foreign agency did not investigate or cooperate fully, an investigation of the
underlying facts may be required.
Information Gathering by WTO Panels
The WTO panel process is poorly suited to determining contentious factual issues or
the de novo investigation of anticompetitive conduct. The factual inquiry by a GATT
panel has been described as an iterative process of arriving at a cluster of
undisputed facts.35 The WTO panels are increasingly dealing with difficult questions
of fact or on mixed questions of law and fact. The vast majority of the information
relied upon by panels is provided by the parties. In addition to submissions from the
parties, WTO panels may seek information and technical advice from any individual
or body which it deems appropriate, subject to certain notification and confidentiality
requirements, and seek information from any relevant source and may consult with
experts to obtain opinions on certain aspect of the matter.36 This may entail the
establishment of an expert review group.37 Information may come from individuals,
bodies and (p.473) members. Members should respond promptly and fully to
requests from panels and expert bodies. So far panels have appointed scientific and
linguistic experts to assist, but no economic experts.38 If panels were to consider
competition law matters, the appointment of an economic expert could improve the
capacity of a panel and add legitimacy to its decision. Panels have also sought expert
advice from the International Monetary Fund and the World Intellectual Property
Organization.39 If there was an international organization with expertise on
competition law, in appropriate cases, a panel could receive expert advice from such
an organization. Such an organization could provide information, inter alia, on the
range of national competition law practice in a particular area, or what is regarded as
best practice.
The Appellate Body has held that where a member refuses to supply the information,
a panel may draw adverse inferences.40 If panels are seeking information from private
persons within the jurisdiction of a member, they must inform the member.41 Members
are not obliged to compel private persons to provide information. Private persons,
including defendants in competition law cases, are unlikely to volunteer information
against their interests.42 Less clear is whether members are obliged to provide
information that was previously obtained through compulsory processes.
WTO panels appear to be in a less advantageous position than an international
commercial arbitral tribunal. The access of a panel to evidence of business conduct
and market conditions would be hit and miss. The ability of WTO panels to receive
unsolicited information could allow access to greater expert evidence and so improve
the ability of a panel to analyse competition law disputes. However, without access to
the necessary primary information, expert evidence may have only a limited impact.
The ability of panels to gather evidence is also restricted by the fairly tight timeframe
for the completion of a panel and Appellate Body report once a decision has been
taken to establish a panel. Thus, WTO panels would not have the capacity to gather
the necessary information to apply a competition law rule to business conduct in
many cases.
(p.474) Testing Probative Value
The Appellate Body has given WTO panels significant discretion in the determination
of whether to consult experts and what weight to give to any of the evidence before
it.43 The fact finding process of panels has given rise to some due process concerns
and may not be well suited to hearing a competition law case at first instance. In
some cases, dispute panels have received evidence of uncertain probative value,
which the parties have had only a limited ability to test its probative value.44 The
parties to the dispute should be able to comment on and test all of the information
provided to the panel. These concerns would be greater if a WTO competition law
agreement prescribed specific competition law rules that members had to apply,
because WTO panels could easily get drawn into investigating specific conduct when
determining whether a member had acted consistently with its WTO obligations.
Although the due process concern applies to all DSU proceedings, if DSU proceedings
were seen as an alternative forum for the litigation of competition law cases, many
members and business interests would (legitimately) insist on similar levels of
scrutiny of expert opinions that take place in national proceedings.
Risk of Disclosure of Confidential Information
Competition laws invariably contain rules requiring competition authorities to protect
the confidentiality of certain information they gather. This may include restrictions on
disclosure of the confidential information and the use of the confidential information
by the competition authority. Various provisions in the DSU contain obligations for
information to be kept confidential, including Articles 13.1, 14, and 18.2. However, the
provisions do not always make clear who is allowed access to the confidential
information; what sanctions may be applied to those that break their confidentiality
obligations; and who will decide if information is confidential. Thus, a firm that
supplies confidential information to a panel cannot be sure that it will not find its way
to its rivals through foreign governments. Competition law cases may provide a
greater, but not materially different, need for a WTO agreement to regulate private
lawyers and officials involved in WTO panel disputes to ensure, inter alia, that
confidential business information is kept confidential. Panels have used their power
under Article 12.1 of the DSU to adopt alternative procedures to protect confidential
information.45 The problem is similar to that faced by competition authorities that
(p.475) wish to exchange confidential information. A number of solutions are
possible.46 National legislation is needed to allow national competition authorities and
other bodies to disclose information to a WTO panel.
Combined Effect of Rules on Evidence Gathering and Burden of Proof
In WTO DSU proceedings, a party who asserts a fact is generally responsible for
providing proof of that fact.47 The outcome of the proceedings will often be
determined by the rules on the burden of proof. ArgentinaMeasures on the Export of
Bovine Hides and the Import of Finished Leather illustrates the problem.48 The EU
alleged that a de facto export prohibition on raw and semi-tanned bovine hides (which
was claimed to be implemented, in part, through the authorization of representatives
of the Argentinean tanning industry to participate in customs control procedures for
the export of hides) was in violation of, inter alia, Article XI:1 of the GATT. The panel
accepted that it was possible that a government could implement a measure that
operated to restrict exports through its interaction with a private cartel, but found that
the EU failed to prove both such a link and the existence of the cartel alleged. 49 The
panel recognized that it will be difficult for one member to prove that there is a cartel
operating within the jurisdiction of another member.50 The evidence before the panel
was quite thin: a newspaper article and opinion piece, a press release from the
frigorficos and a statement by a member of the Congreso de la Nacin.51 No
complaint had been made by the frigorficos (slaughter houses) to the Argentinean
competition authority.52 Unsurprisingly, the level of proof required was not reached.
It may also be costly and difficult to prove to a WTO panel that a government measure
has actually affected the competitive relationship between like products on the basis
of market trends.53 If the burden of proof for anticompetitive conduct or effects was
less than that applied in a domestic court, the legitimacy and authority of panel
decisions would be undermined, as would national processes.
Most competition law cases involve detailed factual inquiries or complicated and
controversial applications of economic analysis. For example, price fixing cases often
revolve around (p.476) proof of an agreement; merger cases revolve around proof of
market conditions; access to essential facilities cases revolve around the analysis of
generally undisputed facts. The parties to a dispute may not have an incentive to
actively assist information gathering by panels. The location of the relevant evidence
and rules on burden of proof will often make it very difficult for an allegation of
anticompetitive conduct to be upheld by a WTO panel if there has not been a national
investigation or court proceeding to uncover the facts. Even if there is such an
investigation or proceeding, a panel would be largely reliant on the information
appearing in the record, which could make it hard to prove an allegation of bias or
inadequate investigation by a national authority or court. In the absence of a full
factual record, the outcome of the case will often be determined by the burden of
proof. That outcome should not be assumed to be defective, but may reflect a trade-
off members have implicitly made between, on the one hand, administrative costs
and interference with national regulatory autonomy and, on the other hand, the risk of
regulation unnecessarily restricting trade.54
If WTO panels are to effectively examine allegations of anticompetitive business
conduct, national competition law authorities will need to be required to investigate
non-trivial complaints in a timely manner and report on that investigation, and the
complainants must have pursued the matter to completion through private court
proceedings. Competition law authorities will need to be willing to conduct high
quality, expert fact finding with, if necessary, compulsory information gathering
powers whenever reasonable evidence is presented of a possible competition law
violation. Where trans-border conduct is in issue, national competition law authorities
and courts may need assistance from foreign courts and/or national authorities. Even
where a competition law authority is unable or unwilling to conduct a full
investigation, the complainant's home state should not take a dispute to the WTO
until its own competition authority has sought to conduct its own fact-finding
investigation and the results support the complainant.55 The complainant's home
competition authority may need to gain access to foreign documents and witnesses
by consent or in accordance with an agreement on enforcement cooperation. Many
countries dislike the extraterritorial demands for evidence that accompany an
international antitrust case. However, other WTO rules, such as the WTO antidumping
rules, assume the legitimacy of the extraterritorial gathering of information on cost
and price transaction data.
There is a positive feedback loop between international enforcement cooperation and
a WTO agreement on competition law rules. The international enforcement
cooperation agreements assist the operation of DSU proceedings, while the WTO
competition law rules (assuming they include obligations for (p.477) transparency
and investigation of complaints and cover transborder conduct) provide an incentive
for members to engage in enforcement cooperation. If there is an agreed set of
international rules and effective cooperation between competition law authorities, the
WTO process would be virtually redundant, which is a desirable result.
12.3.3 Reviewing Competition Law Actions
Decisions to Interpret WTO Rules as Competition Rules
Other than the texts of the WTO Agreements themselves, the decisions of WTO
dispute settlement panels and the Appellate Body are the most important source of
WTO law. The DSB will rarely, if ever, be able to reach a consensus not to adopt a
panel or Appellate Body report.56 Therefore, the panels and Appellate Body will in
practice have the power to provide definitive interpretations and to determine the
extent to which they will treat their own reports as authoritative. Panels are likely to
follow the decisions of the Appellate Body, unless they can distinguish the Appellate
Body decision. The Appellate Body is likely to follow its own precedent, unless there is
a good reason for doing otherwise, because of the value of precedent and because the
Appellate Body is effectively a standing judicial body with a small, stable
membership.57 Nonetheless, the prospects of the existing agreements evolving
through interpretation to impose significant limitations on national competition laws
are limited.58
Articles 3.2 and 19.2 of the DSU provide that recommendations and rulings of the DSB
and the findings and recommendations of the Appellate Body and panels cannot add
to or diminish the rights and obligations provided in the covered agreements.59 Legal
activism is further restrained by the usual terms of reference for a panel, which
require panels to consider a matter referred to the DSB in the light of the relevant
provisions in the multilateral or plurilateral WTO agreement(s) cited by the parties to
the dispute,60 and clarify the provisions of the WTO Agreements in accordance with
customary rules of interpretation of public international law.61 As the Appellate Body
has stated: The proper (p.478) interpretation of [any] Article is, first of all, a textual
interpretation.62 Thus, there are some legal limitations on the ability of the Appellate
Body to develop WTO law through activist interpretation.
The Appellate Body cannot stretch WTO rules too far without the risk of weakening its
authority, especially at a time when the legitimacy of the WTO is under attack from
some members and non-governmental organizations. The Appellate Body has
generally stuck closely to the various legal texts. However, a number of its
interpretations have criticized, especially where treaty language in question was
intended, by at least some negotiators, to be ambiguous and to permit a range of
national practices.63 The Appellate Body has also applied a number of legal techniques
to avoid deciding controversial issues, especially where doing so is not necessary to
settle the dispute.64
The desire to avoid the appearance of judicial activism will also make the Appellate
Body weary of trying to avoid filling in the detail of an international competition law
agreement that contained broad, ill-defined standards where the parties could not
agree on the precise terms, where it can avoid doing so. This is also likely to be the
case where the Appellate Body must interpret the existing WTO rules that impact on
competition law. In any event, any desire of WTO panellists and the Appellate Body to
develop competition law rules could be frustrated by the need to wait until a WTO
member makes a relevant complaint.
Standard of Review in DSU Proceedings
The issue of the appropriate standard of review of administrative and judicial acts
arises where any international agreement contains disciplines on domestic
competition laws that can be enforced through dispute settlement proceedings.65 The
standard of review applied by WTO panels has been controversial. 66 It is a key
determinant of the extent to which the dispute settlement (p.479) mechanism
intrudes into national affairs and its authority to evaluate compliance by governments
with an international agreement necessary for an effective rule-based trading
system.67 The standard of review should reflect the balance established in that
agreement between the jurisdictional competence conceded by the WTO members to
the WTO and the jurisdictional competence retained by the members for themselves. 68
The standard of review is derived from the combined effect of the relevant substantive
provisions in a WTO agreement and Article 11 of the DSU. Article 11.1 of the DSU
provides, in the relevant part, that a panel should make an objective assessment of
the matter before it, including an objective assessment of the facts of the case and
the applicability of and conformity with the relevant covered agreements. So far as
legal questions are concerned, members must correctly apply the customary rules of
interpretation of public international law.69 In DSU proceedings, the existence of
government measures and the meaning of domestic law are questions of fact. The
Appellate Body has said the applicable standard is neither de novo review as such, nor
total deference to the findings of national authorities.70 Thus, panel proceedings
cannot and should not represent a substitute for proceedings conducted by national
investigating authorities.
The Appellate Body report in United StatesSafeguard Measures on Imports of Fresh,
Chilled or Frozen Lamb Meat from New Zealand and Australia illustrates how the
relationship between specific WTO agreements and Article 11 of the DSU may lead to
a less than deferential standard of review.71 Article 4.1(a) of the Safeguards
Agreement defines serious injury as a significant overall impairment in the position
of a domestic industry. Article 4.2(a) provides that in determining whether increased
imports have caused or are threatening to cause serious injury to a domestic industry,
the competent authorities shall evaluate all relevant factors of an objective and
quantifiable nature having a bearing on the situation of that industry (emphasis
added). Article 3.1 requires: The competent authorities shall publish a report setting
forth their findings and reasoned conclusions reached on all pertinent issues of fact
and law. The Appellate Body held that an objective assessment of a claim under
Article 4.2(a) has two elements. First, a panel must review whether competent
authorities have evaluated all relevant factors, and, second, whether the authorities
have provided a reasoned and adequate explanation of how the facts support their
determination.72 By regulating the process by which the national authority made a
determination of (p.480) serious injury, significant discipline on the use of safeguard
measures has been established:73
a panel can assess whether the competent authorities' explanation for its
determination is reasoned and adequate only if the panel critically examines that
explanation, in depth, and in the light of the facts before the panel. Panels must,
therefore, review whether the competent authorities' explanation fully addresses the
nature, and, especially, the complexities, of the data, and responds to other plausible
interpretations of that data. A panel must find, in particular, that an explanation is not
reasoned, or is not adequate, if some alternative explanation of the facts is plausible,
and if the competent authorities' explanation does not seem adequate in the light of
that alternative explanation.

The same approach would be possible in a WTO agreement on competition law that
contained concepts like injury to competition, anticompetitive effect, or impede
trade. Many panel and Appellate Body decisions in safeguards cases found
determinations of national authorities to be in violation of a WTO agreement because
the national authority did not address a particular factor that the WTO agreement
requires the national authority to address. If an agreement did not specify the factors
that need to be considered, or that all factors need to be considered, by a national
authority, a review of the determination of a national authority by a panel would give
national authorities a wider margin of appreciation, at least where the agreement
made it clear that nothing in the agreement requires a member to adopt any
particular concept of anticompetitive conduct in its competition law. Nonetheless, the
combination of a requirement for reasoned judgments and transparency could impose
not insignificant restrictions on the interpretation of what is anticompetitive conduct.
Article 17.6 of the Antidumping Agreement sought to provide a more lenient standard
of review for antidumping measures. Some government representatives thought it
would be desirable to have language to limit the standard of review applied by a WTO
panel and believed that US administrative law jurisprudence provided a useful
model.74 However, Article 17.6 may not have achieved its promoters' objectives.
Article 17.6(i) provides that in its assessment of the facts of the matter, the panel
shall determine whether the national authorities' establishment of the facts was
proper and the evaluation was unbiased and objective. If that is the case, the panel
cannot overturn the determination of an authority if the panel may have reached a
different conclusion. However, provided the panel does not seek to engage in a de
novo review, it is not yet clear how different a panel's review of the assessment and
evaluation of the facts under Article 17.6(i) would be to a review under Article 11. 75
This is appropriate given the far greater fact gathering (p.481) resources at the
disposal of national governments as opposed to a WTO panel. In some national
competition law proceedings, private firms may be the real participants and
governments may not have had any opportunity to present evidence in the national
proceedings. WTO members should not be held responsible for the fact finding of
courts where private firms were responsible for the selection and analysis of the
evidence. A WTO agreement on competition law should adopt a similar standard of
review as that contained in Article 17.6(i).
Article 17.6(ii) sought to limit the ability of panels to review national interpretations of
the Antidumping Agreement by establishing a two-step process for panel review of
interpretative questions.76 First, the panel must consider whether the provision of the
agreement admits of more than one interpretation. If not, the panel must vindicate
the provision's only permissive interpretation. If the panel determines that the
provision admits of more than one interpretation, the panel then considers whether
the national interpretation is within the set of permissible interpretations. If so, the
panel must defer to the interpretation of the provision by the national government.
However, because the panel is instructed to follow the customary rules of
interpretation of public international law in the first step, which are intended to lead
to a single interpretation, WTO panels may only infrequently find that the provisions of
an agreement admit of more than one interpretation.77 That is, it is not clear what sort
of ambiguity in an agreement's provision is sufficient to lead a reviewing panel to the
second step.
Thus, while members may not wish to give panels the ability to define all general
terms in WTO agreements, express treaty language may be required to prevent a
general term being given a specific meaning by a panel.
Appropriate Standard of Review for Competition Law
While a national court will review an administrative action under national law, a WTO
panel might have the task of ascertaining whether the same action and/or the
underlying laws are consistent with an international norm. The determination of the
appropriate standard of review for national competition law proceedings and DSU
proceedings raises different legal and policy issues.78 If the substantive WTO
competition rules do not seek to impose one model of competition law, the standard
of review should not attempt to do so through the back door. The WTO system is
largely dependent on voluntary compliance. Activist panels that do not respect
national differences could alienate members. Panel reports are more likely to be
respected by members and others if the (p.482) reports are fair, unbiased, accurate,
and convincingly reasoned. Panels should therefore act within the limit of their
competence and should generally defer to national authorities where the authority is
better placed to make the decision. In competition law cases, national authorities
would seem to have a comparative advantage over WTO panels in fact gathering,
knowledge of the industrial structure and laws of the relevant countries, and often the
analysis of competition. An understanding of social conventions and business customs
may also be necessary to understand the competitive significance of conduct. Thus,
the standard of review should generally give substantial deference to findings of fact
by national authorities, provided they have considered all the available evidence and
there is a reasoned and adequate explanation of how the facts support the
determination.
Without detailed provisions on substantive competition laws, national decisions could
be reviewed to determine whether or not they are based on economic principles and
methods. The review could be like that under the SPS Agreement to determine
whether SPS measures are based on science. The use of economic rationality could be
even be argued to be implicit in a requirement for an unbiased and objective
assessment of the evidence in competition law cases to the extent that national
competition laws pursue economic objectives. However, panels may not be the
appropriate body to judge between competing economic theories. It is also unclear
that the gains from cooperation would be sufficient to warrant panels being given
such a broad authority over the development of national competition law. In the case
of health risks, a measure may still be based on science, and therefore legal under the
SPS Agreement or Article XX(b) of the GATT, when it is based on a minority scientific
opinion.79 If such a rule was applied to competition law, where the respondent party
can provide an economically plausible theory from qualified and respected sources,
the measure should be upheld.
An economic rationality test might still restrict national choices too much, especially if
a competition had non-economic objectives, such as the protection of economic
opportunities. An alternative would be to review a decision for means ends rationality.
For example, Chapter 19 of the North American Free Trade Agreement (NAFTA)
provides for the establishment of expert panels to review administrative decisions in
antidumping and countervailing duty cases to determine whether the administrative
agencies have acted consistently with the terms of these domestic laws. 80 The
capacity for administrative review in NAFTA is much higher than that under the WTO
Antidumping Code, because of the procedural guarantees NAFTA parties have
incorporated in statutes and (p.483) administrative regulations.81 Thus, even if a WTO
agreement contained very general obligations on competition law, merely requiring
national decisions to meet certain procedural criteria could be a powerful form of
review.
The desirability of a deferential standard of review for substantive antitrust issues
does not mean that all aspects of antitrust cases should receive such deferential
treatment. The application of international rules requiring procedural fairness and
transparency or prohibiting national laws that are facially discriminatory need not be
subject to a deferential standard of review. There is no reason why national authorities
will have more expertise in interpreting the international agreement than an
international panel. Other than applying these core principles, national competition
law measures should only be reviewed for their consideration of the relevant factors
and the adequacy of the reasoning. Such an approach could give members
considerable freedom and not impose a single global standard. This is also consistent
with the arguments in Chapters 4 to 6 and 11 that the requirement of non-
discriminatory and consistent treatment is the key international discipline for reducing
international competition law problems.
Special Problems with Reviewing Obligations to Enforce Competition Laws
The effect of a competition law depends on its enforcement. The level of enforcement
will depend on, inter alia, procedural and remedial rules, the enforcement policy of
competition authorities and incentives for private parties to enforce competition laws.
A WTO competition law agreement may need to specify minimum procedural and
remedial rules and provide for private access to the courts for compensatory damages
actions and injunctions and/or the ability of private parties to compel public
authorities investigate an alleged breach. The enforcement provisions in, and
experience with, the TRIPS Agreement are likely to influence the enforcement
provisions of a WTO agreement on competition law. The TRIPS enforcement provisions
aim to recognize basic differences between national legal systems, while being
sufficiently precise to provide for the effective enforcement action.82 Article 41(1) of
TRIPS requires members to have effective enforcement procedures, but Article 41(5)
states that: Nothing in this Part creates any obligation with respect to the distribution
of resources as between enforcement of intellectual property rights and the
enforcement of law in general. A similar qualification on enforcement obligations in a
WTO agreement on competition law would give members some, possibly too much,
(p.484) discretion on what level of enforcement resources they apply to competition
law or to different aspects of competition law.
Flexibility, however, provides greater scope for the evasion of obligations. The DSU is
generally better suited to identifying sins of commission rather than sins of omission
(unless particular conduct is required). A pattern of non-enforcement of competition
law, coupled with an allegation that that country had the resources to carry out its
obligations, would be difficult to establish, especially in countries where there is a
chronic shortage of resources and expertise or where an investigation appeared to
have been truncated. If a WTO agreement on competition law prohibited the
systematic tolerance of anticompetitive practices, a panel would need to review
individual cases before it could determine whether there had been any tolerance of
anticompetitive practices. Without the ability to review individual cases, an
international obligation on WTO members to adopt and enforce a competition law
would be easily evaded, especially when combined with a deferential standard of
review and the rules on burden of proof. Even if there is the ability to review individual
decisions, the WTO procedures are likely to be toothless unless there is evidence of
bias or inconsistent enforcement decisions, or the decision is not adequately
reasoned.
Concern about a country's competition authority not competently or impartially
enforcing its competition law is best addressed through several means. First, the ICN
and OECD may encourage the publication of enforcement guidelines, the clarification
of substantive rules and enforcement priorities, and the specification of the type of
evidence an enforcement agency would usually look for before commencing an
investigation. Secondly, the WTO could require or other bodies could encourage all
countries to provide effective private rights of action in a similar manner to the
approach of the ECJ towards the EC competition law. The ECJ stated that it is for the
domestic legal system of each Member State to designate the courts and tribunals
having jurisdiction and to lay down the detailed procedural rules governing actions for
safeguarding rights which individuals derive directly from Community law, provided
that such rules are not less favourable than those governing similar domestic actions
(principle of equivalence) and that they do not render practically impossible or
excessively difficult the exercise of rights conferred by Community law (principle of
effectiveness).83 Thirdly, the WTO could require the competition authorities of one
country to cooperate with the enforcement authorities of other countries and
investigate an allegedly anticompetitive conduct on the request of such authorities, if
certain criteria are met. See Chapter 13.
12.3.4 Remedies
Unlike general international law, the principal remedy under the WTO is a prospective
remedy, which does not attempt to restore the status quo ante or (p.485) otherwise
compensate the prevailing party for WTO-inconsistent actions taken by the defending
party.84 Under WTO practice, where a competition law was found to be inconsistent
with a WTO obligation, a panel would most probably simply recommend the relevant
member bring its law into conformity with its WTO obligations.85 Exceptionally and
controversially, several GATT and WTO panels have suggested the refund of
antidumping and countervailing duties and in one case a subsidy.86
Petersmann believes that the usual remedy for panel findings of violations of
international minimum standards would generally be only an obligation for a member
to reconsider the decision in light of the panel findings.87 The recommendations would
not be addressed to the enterprises that may have engaged in anticompetitive
conduct. A variety of remedies may be ordered under a competition law, including
ordering mandatory and prohibitory injunctions, periodic reporting and inspections,
fines, compensatory and punitive damages, divestiture of assets, contracts void or
unenforceable, payment of legal costs, and licensing of intellectual property rights.
Often the imposition of a remedy, or decision not to impose a remedy, will have
irreversible market effects. For example, a merger might not be able to be
unscrambled, a prohibited merger transaction might not be able to be resurrected or a
victim of a successful predatory scheme might have permanently exited the market.
National competition laws generally do not provide a mechanism for competition
authorities or courts to reopen final decisions. If such decisions could be re-opened,
business certainty and investment could be harmed. Where no official action was
taken, a recommendation to reconsider findings, such as where access (or the price of
access) to a network or a long-term exclusive dealing arrangement is challenged,
could affect the outcome. Even then, irreversible changes in market structure and
behaviour may make it impossible to (p.486) re-open a case. Furthermore, legislation
would be required before national officials and courts would have the power to re-
open cases and give effect to WTO DSB recommendations.
In addition to the usual nine to twelve months for the completion of the panel and
appeal processes, members may be given up to fifteen months to implement the
recommendations of the panel and Appellate Body.88 The process can take longer
where disagreement arises over whether corrective measures in fact bring a member
into compliance with its obligations. Although the time frame does not necessarily
compare unfavourably with some national appellate processes, the inability of the
WTO DSB to settle actions by directing a course of action creates uncertainty and can
substantially prolong competition law proceedings. Furthermore, the WTO process
would take place after national proceedings had terminated. The longer the time
taken to finalize WTO proceedings, the less likely the WTO would be able to undo the
anticompetitive effects or enable a previously prohibited transaction to go ahead. The
panels do not have the power to give interim relief.89
If corrective measures cannot be implemented, the losing respondent may negotiate
with the prevailing party for mutually acceptable compensation in the form of trade
concessions that must be offered on a most-favoured-nation basis. If no agreement on
compensation is reached within 20 days of the expiration of the reasonable period,
the prevailing party will almost always be authorized by the DSB to retaliate against
the losing respondent by suspending the application to only the losing respondent of
concessions or other obligations.90 The complaining party should first seek to suspend
concessions or other obligations with respect to the same sector(s) as that in which a
violation was found and the level of the suspension of concessions or other
obligations authorized by the DSB shall be equivalent to the level of nullification or
impairment.91 The suspension of concessions as a means to put pressure on the
defendant has a certain political logic, but is generally economically harmful to the
party suspending its obligations. Suspension has been sought and implemented in
very few WTO cases, which raises doubts about whether the actual imposition of
sanctions is effective in ensuring compliance, especially for smaller countries. Tit-for-
tat retaliation is (p.487) not desirable, even if practical, for competition law
violations.92 Compensation also makes little sense if restricted to the field of
competition law.
The inability of DSU panels to provide an effective and timely remedy will reduce the
incentive for firms to push their governments to commence DSU proceedings in a
specific competition law case. Governments may commence proceedings where they
are concerned about a general practice. On the other hand, if the DSU is generally
unable to assist private firms that complain about anticompetitive market access
barriers, those firms will be required to seek redress under the laws of the country
with closed markets (or the extraterritorial enforcement of their home country
competition law or by encouraging their home government to request positive
comity). Firms and their home governments should be encouraged to complain to the
competition authority (or commence court proceedings) in the territory where the
allegedly anticompetitive conduct is occurring, rather than lobby their home
government to immediately raise the issue of inadequate enforcement of competition
law in WTO proceedings. The WTO should not be used as a device to forestall
compliance with the orders of a national courts or competition authorities. Various
features of the DSU collectively provide an incentive for the exhaustion of non-WTO
remedies before commencing WTO proceedings.
Clarification of the type of remedies available could alleviate some concern about a
WTO panel being able to review individual decisions. A WTO agreement on
competition law should confirm that a panel or the Appellate Body can only
recommend that a member bring its competition law or enforcement policy into
conformance with the WTO agreement, and members will not be required to, rescind
final decisions of courts or competition authorities.
12.3.5 Disputes over Jurisdiction
In addition to giving WTO panels and the Appellate Body competence to decide
questions and to resolve disputes arising under covered agreements, 93 the DSU
gives these bodies the authority to make such other finding as will assist the DSB in
making recommendations or in giving the rulings provided for in the covered
agreements.94 Article 3.2 of the DSU and Article 31(3)(c) of the Vienna Convention on
the Law of Treaties require an interpreter of a WTO agreement to take into account as
part of the context any relevant rules of international law applicable in the relations
between the parties. The Appellate Body has also emphasized that the General
Agreement is not to be read in clinical isolation (p.488) from public international
law.95 Thus, WTO agreements should be read consistently with other applicable
norms of international law, including, presumably, the customary international law
rules on jurisdiction. Most of the discussion of extraterritoriality in relation to the WTO
has focused on whether the general exceptions in Article XX of the GATT are subject to
a jurisdictional limitation.96 However, issues of jurisdiction can arise in other contexts,
including a non-violation or situation complaint before the WTO.97
A panel may be required to comment on the legality of an assertion of jurisdiction in a
number of competition law-related circumstances. For example, a panel could
(conceivably) use customary international law on jurisdiction to help support an
interpretation of Article 23 of the DSU to the effect that the extraterritorial application
of competition law is prohibited in paradigm market access, but not when the
challenged conduct has direct and substantial effects on another country. The same
could occur in cases involving government-supported export cartels that are
challenged under Article XI of the GATT. If a WTO agreement required members to
prohibit anticompetitive conduct within their territory or jurisdiction (such as the
Telecommunications Reference Paper and Article XVII:1(c) of the GATT), a panel might
need to determine the appropriate scope of application of competition law, including
whether conduct that occurs substantially within a member's territory, but has
extraterritorial effects and conduct that only has limited connections with a territory
but substantial effects within that territory, should be addressed. As discussed in
Section 11.5.4, the GATS non-discrimination obligation also has a territorial dimension.
These determinations could be affected by a panel's understanding of customary
international law on jurisdiction.98 If a separate agreement on competition law
jurisdiction and cooperation existed, the risk of jurisdictional matters being wrongly
decided by a WTO panel or Appellate Body would be reduced.
12.3.6 Other Dispute Settlement Options
The Swiss government once threatened to take its complaints about the
extraterritorial application of US antitrust law to the International Court of Justice
(p.489) in the Swiss Watchmakers Case.99 However, no competition law case has ever
been heard by the International Court of Justice (ICJ). Of the many proposals for
reforming the international competition law system, few, if any, have called for the
use of the ICJ to settle international disputes. The reasons are most likely the general
acceptance of the effects doctrine, an unwillingness to allow the ICJ to determine
important domestic and international policy issues, a belief that the court is not well
qualified to handle competition law disputes, and the absence of international legal
rules able to resolve the disputes.
A stand-alone multilateral or plurilateral competition law agreement with a binding
dispute resolution mechanism is less likely to be accepted than one that is part of a
broader international regime, such as the WTO. Although such an agreement could be
beneficial for all participants, apart from the group of major industrialized nations,
there might not be a sufficient incentive for all countries to cooperate because of their
different sizes and level of interaction. See Section 2.4.
Ad hoc arbitration is an important means by which both international commercial and
inter-state disputes are settled. Former Legal Adviser of the US State Department
Monroe Leigh once suggested that nations should refer disputes over the
extraterritorial application of competition law to ad hoc three-person arbitral tribunals
that could issue binding decisions on whether the assertion of jurisdiction in a
particular case was consistent with international law and/or principles agreed by the
parties to the arbitration agreement.100 Such a proposal could even be implemented
under Article 25 of the DSU. However, after a dispute has arisen, one party will usually
have an incentive not to agree to arbitration. A more multilateral convention on
competition law jurisdiction, judgments and cooperation would appear to be a
prerequisite to resolving jurisdictional conflicts. However, most other international
agreements on conflicts of law and judicial assistance operate effectively without
binding third party dispute resolution. See Section 2.4.3(b) and Chapter 13.
Literally thousands of international investment treaties and investment agreements
between an investor and the host state make provision for the arbitration of
investment disputes. The use of international arbitration of investments disputes is
widely accepted by developing and developed countries, because it provides a
relatively expert and neutral forum to settle disputes.101 The widespread use of
arbitration means that some competition law-related disputes about market access
and market presence will inevitably be the subject of arbitration proceedings.
(p.490) The scope for review of competition law-related actions will depend on the
treaty or agreement in question. Most treaties contain host state obligations on non-
discrimination, non-expropriation, and respect for international law. For example, a
foreign investor may claim under Chapter 11 of NAFTA that an application, or non-
application, of national competition law has not accorded to investors of another party
treatment no less favorable than that it accords, in like circumstances, to its own
investors with respect to the establishment, acquisition, expansion, management,
conduct, operation, and sale or other disposition of investments or treatment in
accordance with international law, including fair and equitable treatment and full
protection and security, or has directly or indirectly nationalize[d] or expropriate[d]
an investment of an investor of another Party in its territory or take a measure
tantamount to nationalization or expropriation of such an investment.102 The precise
scope of the protection against expropriation under customary international law and
many treaties has been much discussed. One NAFTA Chapter 11 Arbitral Tribunal
adopted an extremely broad interpretation of Article 1110 to prohibit covert or
incidental interference with the use of property which has the effect of depriving the
owner, in whole or in significant part, of the use of reasonably-to-be-expected
economic benefit of property even if not necessarily to the obvious benefit of the host
State.103 If an environmental regulation can be expropriation, so might a new or
strengthened competition law.104 Specific provisions in investment agreements may
further affect the ability of a government to apply a competition law enacted or
amended after the investment was made.105
State investor arbitration may protect investors against post-investment government
actions and in some circumstances competition law actions preventing a foreign
investor from entering a market through a merger or acquisition. The post-investment
government actions could be legislative or governmental, or arise out of a partnership
or buyer/seller dispute. Even if there was a treaty basis for such a claim, potential
investors would normally not have the information or incentives to challenge private
anticompetitive actions allegedly denying (p.491) market access. Stateinvestor
arbitration will not address market access barriers for goods, nor problems with the
extraterritorial application and enforcement of competition law and multi-jurisdictional
investigations.
There is WTO precedent for allowing exporters to challenge the actions of certain
private firms on the grounds that those firms acted inconsistently with the rules that a
member was obliged to impose on that private firm.106 The adoption of a procedure
allowing private firms to initiate arbitration for competition law-related disputes could,
however, permit private firms to avoid dealing with their complaints under national
competition laws and/or through national courts and competition authorities. An
agreement that allowed foreign firms commencing or defending competition law
claims, or any firms commencing or defending an international competition law case,
such a choice of forum is unlikely to be acceptable to either the EU or the US, because
it would significantly affect their own enforcement activities.
The advantage of using arbitration to settle privatestate antitrust disputes is the
ability to use established arbitration centres, national laws on arbitration, and
international agreements on the enforcement of arbitration awards. The enforcement
of individual arbitration awards is significantly aided by the wide acceptance and use
of the New York Convention.107 However, relief would be limited to a monetary remedy.
More generally, arbitrating market access disputes raises similar practical, political,
and policy objections to those that were discussed in relation to a WTO panel
reviewing the application of a national competition law under a WTO agreement. An
attempt to use arbitration widely to settle international competition law disputes
would require significant institution building.
12.4 Conclusion
A dispute settlement process for international competition law may be more effective
if it was part of the WTO. However, the nature of DSU procedures limits the types of
disputes that can be effectively dealt with by the DSU and should limit the ambitions
of any WTO agreement on competition law. The WTO dispute settlement process
should not be relied upon to create or flesh out a set of substantive competition law
standards. If there is a WTO obligation to adopt and effectively enforce a competition
law, a DSU review of a set of competition law rules and their application should be
restricted to a requirement that decisions are based on the facts, adequately
reasoned, and the processes are fair and impartial. (p.492)
Notes:
(1) See E-U Petersmann (ed), International Trade Law and the GATT/WTO Dispute
Settlement System (The Hague: Kluwer Law International, 1997) ;D
Palmeter and PC Mavroidis, Dispute Settlement in the World Trade Organization:
Practice and Procedure (The Hague: Kluwer Law International, 1999) ;Y
Guohua, B Mercurio, and L Yongjie, WTO Dispute Settlement Understanding: A
Detailed Interpretation (The Hague: Kluwer Law International, 2005).
(2) GR Shell, Trade legalism and international relations theory: an analysis of the
World Trade Organization (1995) 44 Duke Law Journal 829 ; JH Jackson,
The World Trading System: Law and Policy of International Economic Relations (2nd
edn, Boston: MIT Press, 1997) ch 4.
(3) Jackson, Ibid .
(4) See, eg, United StatesThe Cuban Liberty and Democratic Solidarity Act,
WT/DS38.
(5) Many commentators have advocated for non-state actors to have standing to bring
claims under the WTO agreements. See references cited in M Lukas, The role of
private parties in the enforcement of the Uruguay Round agreements (1995) 29:5
Journal of World Trade 181, 202, nn 186, 187 .
(6) JH Bello, Some practical observations about WTO settlement of intellectual
property disputes (1997) 37 Virginia Journal of International Law 357.
(7) Industries that are heavily dependent on intellectual property rights in the major
developed countries have expressed an interest in private parties having access to
WTO dispute resolution. See, eg, Bello (n 6 above) (representing US pharmaceutical
industries).
(8) For example, it may be possible to use complaints about trade barriers as a means
of erecting international market sharing arrangements, because of the guaranteed
right of compensation or retaliation under the DSU.
(9) JH Jackson, WJ Davey, and AO Sykes, Legal Problems of International Economic
Relations (3rd edn, St Paul, Minn: West, 1996) 121921.
(10) Direct application refers to the situation where treaty norms are treated directly
as norms of domestic law without a further act of transformation. See I Brownlie,
Principles of Public International Law (5th edn, Oxford: Oxford University Press, 1998)
ch 2.
(11) See, eg, J Cicero, International law in Mexican courts (1997) 30 Vanderbilt
Journal of Transnational Law 1035.
(12) Uruguay Round Agreements Act 1994, s 102(c)(1); 19 USC 3512.
(13) Case C-280/93 Germany v Council [1994] ECR I-4973; Case C-149/96 Portuguese
Republic v Council [1999] ECR-I 8395; Case C-377/02 Leon Van Parijs v Belgisch
Interventie en Restitute Bureau, judgment 1 March 2005. For a fuller analysis see P
Eeckhout, The domestic legal status of the WTO agreement: interconnecting legal
systems (1997) 34 Common Market Law Review 11 ; S Griller, Judicial
enforceability of WTO law in the European Union: annotation to Case C-149/96,
Portugal v. Council (2000) 3 Journal of International Economic Law 441 ;
P Eeckhout, Judicial enforcement of WTO law in the European Unionsome further
reflections (2002) 5 Journal of International Economic Law 91 ; PJ Kuijper
and M Bronckers, WTO law in the European Court of Justice (2005) 42 Common
Market Law Review 1313.
(14) Y Iwasawa, The relationship between international law and national law:
Japanese experiences [1993] British Yearbook of International Law 333, 35761.

(15) JH Jackson, Status of treaties in domestic legal systems: a policy analysis

(1992) 86 American Journal of International Law 310.
(16) See, eg, Case C-61/94 Commission v Federal Republic of Germany [1996] ECR I-
3989, para 52; Case C-53/96 Hermes International v FHT Marketing Choice BV [1998]
ECR I-3603.
(17) Iwasawa (n 14 above).
(18) See, eg, Elitunnel Merchanting Ltd v The Regional Collector of Customs,
CA305/98, 12 April 2000, para 15; Integrity Cars (Wholesale) Ltd v Chief Executive of
New Zealand Customs Service, CA129/00, 20 March 2001, para 21.
(19) Murray v Schooner Charming Betsy 6 US (2 Cranch) 64, 188 (1804) per Marshall
CJ; Turtle Island Restoration Network v Donal Evans 234 F 3d 1282 (Fed Cir 2002),
128990; Nippon Steel Corp v United States 337 F 3d 1373 (Fed Cir 2003); Allegheny
Ludlum Corp v United States 367 F 3d 1339 (Fed Cir 2004); but see Timken Co v
United States 354 F 3d 1334 (Fed Cir 2004); Corrus Staal BV v Department of
Commerce 395 F 3d 1343 (Fed Cir 2005).
(20) See Section 11.5.1.
(21) E Hernndez-Lpez, Recent trends and perspectives for non-state actor
participation in World Trade Organization Disputes (2001) 35:3 Journal of World Trade
469, 4813.
(22) See Uruguay Round Agreements Act 1994, s 127; 19 USC 3537.
(23) European CommunitiesRegime for the Importation, Sale and Distribution of
Bananas, WT/DS27/AB/R, adopted 25 September 1997; IndonesiaCertain Measures
Affecting the Automobile Industry, WT/DS54/55/59/64/R, adopted 23 July 1998. See D
Palmeter, The need for due process in WTO proceedings (1997) 31:1 Journal of
World Trade 51, 53 ; PD Ehrenhaft, Right to counsel in WTO dispute
settlement proceedings: a 1998 resolution of the American Bar Association (1998) 1
Journal of International Economic Law 159 ; The CCBE Resolution (1998)
1 Journal of International Economic Law 182.
(24) European CommunitiesRegime for the Importation, Sale, and Distribution of
Bananas, WT/DS27/AB/R, adopted 25 September 1997, pp 5961. Under Art XXIII of
the GATT 1994, a WTO member has standing to sue if its should consider that its
right to a trade benefit is being nullified or impaired. DSU, Art 3.8. Article 3.7 of the
DSU merely cautions members to bring complaints if a dispute proceeding would be
fruitful.
(25) DSU, Art 10.2. See also DSU, Art 4.11.
(26) See TJ Schoenbaum, WTO dispute settlement: praise and suggestions for
reform (1998) 47 International and Comparative Law Quarterly 647, 6534.

(27) Cf Schoenbaum Ibid 6538.

(28) United StatesImport Prohibition of Certain Shrimp and Shrimp Products,
WT/DS58/AB/R, adopted 6 November 1998, paras 99110; United StatesImposition
of Countervailing Duties on Certain Hot-Rolled Lead and Bismuth Carbon Steel
Products Originating in the United Kingdom, WT/DS138/AB/R, 7 June 2000, paras 39
42; Communication from the Appellate Body, WT/DS135/9, 8 November 2000;
European CommunitiesMeasures Affecting Asbestos and Asbestos-Containing
Products, WT/DS135/AB/R, adopted 5 April 2001, paras 5056. Other international
dispute settlement bodies accept amicus curiae briefs, but not usually where the
procedures are strictly inter-state. See G Marceau and M Stiwell, Practical
suggestions for amicus curiae briefs before the WTO adjudicating bodies (2001) 4
Journal of International Economic Law 155 ; GC Umbricht, An amicus
curiae brief on amicus curiae briefs at the WTO (2001) 4 Journal of International
Economic Law 774 ; R Howse, Membership and its privileges: the WTO,
civil society, and the amicus brief controversy (2003) 9 European Law Journal 496.

(29) (1998) WT/DS58/AB/R, paras 83, 88.

(30) Ibid paras 108, 104.
(31) (1998) WT/DS58/AB/R, para 109.
(32) GC Shaffer, The World Trade Organization under challenge: democracy and the
law and politics of the WTO's treatment of trade and environment matters (2001) 25
Harvard Environmental Law Review 1, 618 ; DP Steger, Afterword: the
trade and conundruma commentary (2002) 96 American Journal of
International Law 135, 1401.
(33) RE Hudec, Dispute settlement in Jeffrey J Schott (ed), Completing the Uruguay
Round: A Results Oriented Approach to the GATT Trade Negotiations (Washington:
Institute for International Economics, 1990) 180, 188.
(34) Cf PC Mavroidis and SJ Van Siclen, The application of the GATT/WTO dispute
resolution system to competition issues (1997) 31:5 Journal of World Trade 5, 1921.

(35) JC Thomas, The need for due process in the WTO proceedings (1997) 31:1
Journal of World Trade 45, 46 . Ascribing the phrase to Petros Mavroidis.
(36) DSU, Art 13:1.
(37) DSU, Art 13:4, Annex 4.
(38) J Pauwelyn, The use of experts in WTO dispute settlement (2002) 51
International and Comparative Law Quarterly 325.
(39) IndiaQuantitative Restrictions on Imports of Agricultural, Textile and Industrial
Products, WT/DS90, panel and Appellate Body reports adopted on 22 September
1999; United StatesSection 119(5) of the US Copyright Act, WT/DS160, panel and
Appellate Body reports adopted on 27 July 2000.
(40) CanadaMeasures Affecting the Export of Civilian Aircraft, WT/DS70/AB/R,
adopted 20 August 1999, paras 181206; United StatesDefinitive Safeguard
Measures on Imports of Wheat Gluten from the European Communities,
WT/DS166/AB/R, adopted 19 January 2001, paras 1706.
(41) DSU, Art 13:1.
(42) If panels were given the power to compel private parties to provide information,
directly or indirectly through members, it would be necessary to determine, inter alia,
which individuals or bodies would be exempt, which information would be privileged,
what sanctions would be applied in the event of non-compliance, and whether
information acquired by competition authorities must be disclosed. Mavroidis and Van
Siclen (n 34 above) 401.
(43) See, eg, European CommunitiesMeasure Concerning Meat and Meat Products,
WT/DS26/AB/R, WT/DS38/AB/R, adopted 22 June 1998, paras 132, 133.
(44) Pauwelyn (n 38 above) 34850.
(45) See, eg, United StatesDefinitive Safeguard Measures on Imports of Wheat
Gluten from the European Communities, WT/DS166/AB/R, adopted 19 January 2001,
para 171.
(46) See B Zanettin, Cooperation Between Antitrust Agencies at the International
Level (Oxford: Hart Publishing, 2002) 2726.
(47) United StatesMeasure Affecting Imports of Woven Wool Shirts and Blouses from
India, WT/DS33/AB/R, adopted 23 May 1997, p 14.
(48) WT/DS155/R, adopted 16 February 2001.
(49) Ibid paras 11.4411.55.
(50) Ibid para 11.51.
(51) Ibid para 11.52.
(52) Ibid para 11.48.
(53) A similar problem arises in showing serious prejudice under the Agreement on
Subsidies and Countervailing Measures. Cf IndonesiaCertain Measures Affecting the
Automobile Industry, WT/DS54/R, adopted 23 July 1998; KoreaMeasures Affecting
Trade in Commercial Vessels, WT/DS273/R, adopted 11 April 2005 with United States
Subsidies on Upland Cotton, WT/DS267/AB/R, adopted 3 March 2005.
(54) Cf European CommunitiesMeasure Concerning Meat and Meat Products,
WT/DS26/AB/R, WT/DS38/AB/R, adopted 13 February 1998, para 115.
(55) DE Rosenthal, Jurisdiction and enforcement: equipping the multilateral trading
system with a style and principles to increase market access (1998) 6 George Mason
University Law Review 543, 553.
(56) DSU, Art 16.4 and 17.14.
(57) D Palmeter and PC Mavroidis, The WTO legal system: sources of law (1998) 92
American Journal of International Law 398, 4046.
(58) Cf Report of Group of Experts, Competition Policy in the New Trade Order:
Strengthening International Cooperation and Rules (Brussels: European Commission,
DGIV, 1995) 256.
(59) See also DSU, Art 3.9; WTO Agreement, Art IX:2.
(60) DSU, Arts 1 and 7.1. The texts of several covered agreements refer to
international agreements outside the WTO. A number of complex and controversial
issues arise where some or all of the parties to a dispute are parties to bilateral,
regional, or multilateral agreements outside the WTO that overlap with the WTO
agreements. See J Pauwelyn, The role of public international law in the WTO: how far
can we go? (2001) 95 American Journal of International Law 535.
(61) DSU, Art 3.2.
(62) JapanTaxes on Alcoholic Beverages, WT/DS8/AB/R; WT/DS10/AB/R;
WT/DS22/AB/R, adopted 1 November 1996, p 19.
(63) See RH Steinberg, Judicial lawmaking at the WTO: discursive, constitutional, and
political constraints (2004) 98 American Journal of International Law 247
; L Bartels, The separation of powers in the WTO: how to avoid judicial
activism (2004) 53 International and Comparative Law Quarterly 861.
(64) WJ Davey, Has the WTO dispute settlement system exceeded its authority?
(2001) 4 Journal of International Economic Law 79.
(65) The EU Report of Group of Experts, Competition Policy in the New Trade Order:
Strengthening International Cooperation and Rules (Brussels: European Commission,
DGIV, 1995) 25, 51 suggested that a limited standard of review can only be imposed
in a review of national authorities' application of rules of reason.
(66) See SP Croley and JH Jackson, WTO dispute procedures, standard of review, and
deference to national governments (1996) 90 American Journal of International Law
193 ; M Oesch, Standards of review in WTO dispute resolution (2003) 6
Journal of International Economic Law 635 ; C-D Ehlermann and N
Lockhart, Standard of review in WTO law (2004) 7 Journal of International Economic
Law 491 ; H Spamann, Standard of review for World Trade Organization
in trade remedy cases: a critical analysis (2004) 38 Journal of World Trade 509.

(67) Croley and Jackson (n 66 above) 197.

(68) European CommunitiesMeasure Concerning Meat and Meat Products,
WT/DS26/AB/R, WT/DS38/AB/R, adopted 13 February 1998, para 115.
(69) Ibid para 118.
(70) Ibid para 117.
(71) WT/DS177/AB/R and WT/DS178/AB/R, adopted 16 May 2001.
(72) Ibid para 103.
(73) Ibid para 106.
(74) Croley and Jackson (n 66 above). The US case that recognized the
appropriateness of the federal courts' deference to the factual and legal
determinations of federal administrative agencies was Chevron USA, Inc v National
Resources Defense-Council, Inc 467 US 837 (1984).
(75) See United StatesAntidumping Measures on Certain Hot-Rolled Steel Products
from Japan, WT/DS184/AB/R, adopted 23 August 2001, paras 557, 62; United States
Investigation of the International Trade Commission in Softwood Lumber from
Canada, WT/DS277/AB/RW, adopted 9 May 2006, para 93.
(76) Croley and Jackson (n 66 above) 200.
(77) Ibid 200201 . See also United StatesAntidumping Measures on
Certain Hot-Rolled Steel Products from Japan, WT/DS184/AB/R, adopted 23 August
2001, paras 5766.
(78) SP Croley and JH Jackson, WTO dispute procedures, standard of review, and
deference to national governments (1996) 90 American Journal of International Law,
193, 20910.
(79) EC Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R,
WT/DS48/AB/R, adopted 22 June 1988, paras 165 and 194; European Communities
Asbestos and Asbestos-Containing Products, WT/DS135/AB/R, adopted 5 April 2001,
para 178.
(80) R Bhala and K Kennedy, World Trade Law: The GATTWTO System, Regional
Agreements and U.S. Law (Charlottesville: Lexis Law, 1998) 60615 provide a
summary overview.
(81) GR Winham, NAFTA chapter 19 and the development of international
administrative law: applications in antidumping and competition law (1998) 32:1
Journal of World Trade 65, 78.
(82) See, eg, JH Reichman, Enforcing the enforcement procedures of the TRIPS
Agreement (1997) 37 Virginia Journal of International Law 335 . Many of
the bilateral trade agreements entered into by the industrialized countries contain
what has been called TRIPS+ provision designed to provide further requirements on
enforcement.
(83) Case C-453/99 Courage Ltd v Crehan [2001] ECR I-6297, para 29.
(84) Cf Chorzow Factory case, PCIJ, Ser A, No 17 (1928) 47. See PC Mavroidis,
Remedies in the WTO system: between a rock and a hard place (2000) 11 European
Journal of International Law 763 ; P Gran, Remedies under WTO law
(2001) 4 Journal of International Economic Law 755 ; H Spamann, The
myth of rebalancing retaliation in WTO dispute settlement practice (2006) 9 Journal
of International Economic Law 31.
(85) DSU, Art 19.2. Members have an international legal obligation to perform the
recommendation of a panel. See JH Jackson, The WTO Dispute Settlement
Understandingmisunderstandings on the nature of legal obligation (1997) 91
American Journal of International Law 60 ; JH Jackson, International law
status of WTO dispute settlement reports: obligation to comply or option to buy out?
(2004) 98 American Journal of International Law 109 ; cf AO Sykes, The
remedy for breach of obligations under the WTO Dispute Settlement Understanding:
damages or specific performance? in M Bronckers and R Quick (eds), New Directions
in International Economic Law: Essays in Honour of John H. Jackson (Boston: Kluwer
Law International, 2000) 347 . In the case of a non-violation complaint,
there is no obligation on a member to withdraw the offending measure. DSU, Art
26:1(a).
(86) See, eg, AustraliaSubsidies Provided to Producers and Exporters of Automotive
LeatherRecourse of Article 21.5 of the DSU by the United States, WT/DS126/RW,
adopted 11 February 2000.
(87) Reflection paper of Professor Petersmann in European Commission, DG IV,
Competition Policy in the New Trade Order: Strengthening International Cooperation
and Rules, Report of the Group of Experts (Brussels: European Commission, 1995) 51.
(88) DSU, Art 21:3(c) and 21:4. Generally, a member can expect up to eight months
for administrative implementing measures and twelve months for legislative action.
See P Monnier, The time to comply with an adverse WTO ruling: promptness within
reason (2001) 35:5 Journal of World Trade 825.
(89) There is provision for hearing cases urgently. DSU, Art 12.9.
(90) DSU, Art 22.
(91) DSU, Art 22.4. A complainant may cross-retaliate in other sectors or under other
WTO agreements. For example, a developing country denied market access for
agricultural products could retaliate by withdrawing intellectual property obligations
relating to pharmaceuticals. European CommunitiesRegime for the Importation,
Sale and Distribution of BananasRecourse to Arbitration by the European
Communities under Article 22.6 of the DSU, WT/DS27/ARB/ECU, decision of 24 March
2000. See A Subramanian and J Watal, Can TRIPS serve as an enforcement device for
developing countries in the WTO? (2000) Journal of International Economic Law 403.

(92) In any event, arbitration panels may be reluctant to permit tit-for-tat retaliation.
In United States1916 Antidumping Act, WT/DS136/ARB, 24 February 2004, the EC
was denied permission to apply an antidumping law like the US law that was found to
be inconsistent with the WTO, which was a hybrid antitrustantidumping law.
(93) DSU, Art 1:2.
(94) DSU, Art 11.
(95) United StatesStandards for Reformulated and Conventional Gasoline,
WT/DS2/AB/R, adopted 20 May 1996, p 17.
(96) L Bartels, Article XX of GATT and the problem of extraterritorial jurisdiction: the
case of trade measures for the protection of human rights (2002) 36 Journal of World
Trade 353.
(97) TJ Schoenbaum, WTO dispute settlement: praise and suggestions for reform
(1998) 47 International and Comparative Law Quarterly 647, 653 (referring to the US
Helms-Burton legislation).
(98) See also Art 4.2 of the DSU, which requires consultations before the
establishment of a panel concerning measures affecting the operation of the covered
agreements taken within the territory of the former. An Interpretative Note defines
measures as measures taken by regional or local governments or authorities within
the territory of a Member. The requirement that the measures must be taken within
the territory of the respondent does not appear in Art XXII:1 of the GATT (or Art 64 of
TRIPS). Article XXII of the GATS simply refers to the DSU.
(99) See J Rahl (ed), Common Market and American Antitrust (New York: McGraw-Hill,
1970) ch 6.
(100) Remarks of Monroe Leigh Before the American Branch of the International Law
Association, 14 November 1981. Cited in JP Griffin, Possible resolutions of
international disputes over enforcement of U.S. antitrust laws (1982) 18 Stanford
Journal of International Law 279, 308.
(101) J Paulsson, Third world participation in international investment arbitration
(1988) 2 ICSID Review 19.
(102) NAFTA, Arts 1102, 1103, 1110.
(103) Metalclad Corp v Mexico, NAFTA Chapter 11 Arbitral Tribunal, 30 August 2000,
(2001) 40 ILM 36, 50. Subsequent agreements have sought to clarify, and narrow, the
circumstances where a regulation may be found to be equivalent to expropriation.
See, eg, AustraliaUnited States Free Trade Agreement, Art 11.7, Annex 11-B.
(104) T Wlde and AJ Gunst, International energy trade and access to energy
networks (2002) 36:2 Journal of World Trade 191, 209 suggest that
there might be cases where regulations granting of third parties rights to access
energy network used to carry gas and electricity may be found to be an expropriation,
including when access conditions do not allow for full recovery of costs. See also A
Mourre, Private arbitration and regulatory adjudication in the telecommunications
industry: the new balance between private and public interests (2005) 22 Journal of
International Arbitration 207.
(105) See, eg, Attorney-General v Mobil Oil NZ Ltd [1989] 2 NZLR 649 (HC); Mobil Oil
Corporation v New Zealand ICSID Case No ARB/87/2. After the Findings on Liability,
Interpretation and Allied Issues, 4 May 1989, (1997) 4 ICSID Report 140, the parties
settled and the proceedings were discontinued.
(106) WTO Agreement on Preshipment Inspection, Art 4.
(107) Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New
York 1958.

International Enforcement Cooperation and Judicial Assistance

Chris Noonan
DOI:10.1093/acprof:oso/9780199207527.003.0013
Abstract and Keywords

This chapter discusses the various forms of international competition law enforcement
cooperation pursued by the international community. Section 13.2 briefly surveys the
existing international arrangements for cooperation on competition law. Sections 13.3
to 13.6 discuss four major international competition law issues identified in previous
chapters: (1) gathering information located abroad; (2) enforcement of the judgments
and orders abroad; (3) investigation of harmful conduct taking place within another
country; and (4) coordination of investigations and court proceedings. It is argued that
given the improbability of agreement on a global competition code and the
unworkability of inter-state dispute resolution on competition law, international
competition law problems need to be (and can be) addressed through enforcement
cooperation between competition authorities and international judicial assistance.

Keywords: international competition law, international cooperation, enforcement,

free trade agreements, investigations
13.1 Remaining Problems and Solutions
Chapter 13 discusses the various forms of international competition law enforcement
cooperation that the international community has pursued. It has already been argued
that enforcement cooperation should be considered as part of the broader, more
holistic inquiry into international competition law problems. Section 13.2 briefly
surveys the existing international arrangements for cooperation on competition law. 1
Sections 13.3 to 13.6 discuss four major international competition law issues identified
in previous chapters: (1) gathering information located abroad; (2) enforcement of the
judgments and orders abroad; (3) investigation of harmful conduct taking place within
another country; and (4) coordination of investigations and court proceedings.
Acceptable solutions to these problems will need to be compatible with many different
national competition law enforcement processes.2 National processes will, however,
need to meet several basic conditions before significant international cooperation is
likely to be acceptable to other countries. The body administering the competition
rules will need to be impartial and free from external political pressures and
corruption. It must also have the legal, human, and financial resources to be able to
effectively implement national competition law and fulfil its international obligations.
The law must be applied promptly and without unnecessary expense. Complainants
must be able to make a complaint inexpensively, and feel that the complaint actually
will be investigated. Procedures must be fair and allow defendants to respond to all
allegations and (p.494) appeal against adverse decisions. The decisions of courts and
regulators must be transparent and reasoned, and outcomes of cases must be
reasonably predictable. These conditions would basically all fall within a WTO
obligation requiring transparent, fair, and effective enforcement procedures.
13.2 The Evolution of Competition Law Cooperation
13.2.1 The Types of Enforcement Cooperation Agreement
Since 1959, the US has entered into a large number of bilateral competition law
cooperation agreements.3 The content of these agreements has changed over time,
becoming less concerned with conflict avoidance and more concerned with facilitating
enforcement. The Federal Republic of GermanyUS Agreement relating to Mutual
Cooperation regarding Restrictive Business Practices of 1976, which essentially
codified the then current practice of the two countries,4 was perhaps the first
agreement that was intended to provide a framework for a competition authority in
one country to give assistance to an authority in the other, rather than provide a
means of reducing tension over extraterritoriality. This is illustrated by Article 4(1), by
which the parties agreed, subject to certain exceptions, not to inhibit or interfere with
any antitrust investigation or proceeding of the other party.
Since 1967, the OECD has also adopted many recommendations on competition law
cooperation and conflict avoidance, which are similar in content to the bilateral
cooperation agreements. Although the content and the purpose of these
recommendations also evolved, the nature of the obligations has not changed
radically since 1967. In 1995, the OECD issued its latest Revised Recommendation of
the Council concerning Co-operation between Member Countries on Anticompetitive
Practices affecting International Trade.5 The 1995 Recommendation contains no
initiatives for new forms of international competition law cooperation, but provides
more detailed suggestions on when and (p.495) how OECD members should
cooperate. It emphasizes cooperation rather than conflict avoidance. Although most
bilateral cooperation agreements are largely legally redundant in light of the OECD
Recommendation, cooperation under the OECD instruments tends to be considerably
less intensive and case-oriented than cooperation under bilateral instruments.
After the mid-1980s, a number of bilateral competition law enforcement cooperation
agreements to which the US was not a party were entered. The first appears to be the
FranceFederal Republic of Germany Agreement concerning Cooperation on
Restrictive Business Practices of 1984, which provides a bilateral contractual basis for
the OECD Council Recommendation referred to above.6 The agreement deals mostly
with cooperation, rather than conflict avoidance. Many of the international
competition law cases that affect both France and Germany are likely to be governed
by EC law. Australia, Brazil, Canada, Chile, Costa Rica, Fiji, Israel, Japan, Mexico, New
Zealand, Papua New Guinea, Taiwan, and the UK, amongst others, have also entered
bilateral cooperation agreements.7 Many free trade agreements also contain
obligations concerning cooperation on competition law. See Section 13.2.3.
Most competition law cooperation agreements are soft agreements, which do not
override national laws or permit the sharing of confidential information between
countries, and may not even bind the parties under international law to cooperate in
any particular case. Furthermore, many of the obligations in such agreements use
general language without a precise meaning, or are qualified by reference to the
public interest. Thus, the legally soft nature of the cooperation agreements mean that
the many minor differences in the texts of most of the bilateral agreements are of
limited significance.
More recently, several harder bilateral agreements provide for mutual legal
assistance in criminal antitrust cases. The CanadaUS Treaty of Mutual Assistance on
Criminal Matters, for example, provides for inter-jurisdictional assistance by the
respective Departments of Justice in gathering information, locating people, and
obtaining testimony and records under subpoenas and search warrants for the
purposes of both investigation and prosecution.8 While (p.496) either country may
refuse to execute a request if it is contrary to its public interest, Canada and the US
have cooperated in a number of competition law cases, including the prosecution of
international cartels in the plastic dinnerware industry, the thermal fax paper industry,
and ductile iron pipe. Cooperation has often involved simultaneous raids, sharing of
seized information, and prosecutions in more than one country.9 The CanadaUS
mutual legal assistance treaty (MLAT) also appears to have been important in that it
indicated to the US that more was to be gained from cooperation than unilateral
attempts to gather evidence from abroad.10 The US has entered into numerous other
MLATs and extradition treaties that potentially cover antitrust matters.11
The agreements and treaties discussed above do not apply to private competition law
actions. However, international judicial assistance is sometimes possible in relation to
such actions under national law and/or regional or multilateral conventions for
cooperation in international civil and commercial In most of these agreements,
competition law enforcement cooperation is merely part of a much wider commitment
to cooperate in law enforcement. Finally, there are also a couple of harder competition
law-specific agreements, which permit cooperation in non-criminal public enforcement
actions. See Sections 13.3.6 and 13.3.7. Within the agreements, there is the
foundation for a broad competition law cooperation arrangement that applies to
criminal, administrative, and civil actions. All of these types of enforcement
agreement will be necessary to provide a solution to international competition law
problems.
13.2.2 Conflict Avoidance and Soft Cooperation
The Adaptation of Agreements to the Individual Bilateral Relationships
The first bilateral competition law cooperation agreement was the 1959 Fulton-Rogers
Understanding on an Antitrust Notification and Consultation Procedure, which was
modified in 1969 by Basford-Mitchell Joint Statement concerning Cooperation in
Antitrust Matters in light of the 1967 OECD Council Recommendation concerning
Cooperation between Member Countries (p.497) on Restrictive Business Practices
Affecting International Trade.12 The 1959 Understanding evolved out of a series of US
antitrust actions collectively known as the Canadian Radio Patents cases, which the
Canadian government viewed as seriously interfering with Canada's right to economic
self-determination.13 Eleven consultations occurred between 1965 and 1979.14 The
Understanding probably reduced the friction between the two countries and helped to
settle minor disputes,15 but could not avoid or resolve disputes where there was a
major conflict between national policies and interests. There are three reasons for this
failure: each party misunderstood the other's expectations of the purpose of the
Understanding;16 the lack of clearly defined conciliation procedures and the absence
of substantive criteria and defined national interests;17 and the issue of the US
application of antitrust laws to activities outside the US undertaken in compliance or
response to foreign government policies was left unaddressed.18
The 1969 Understanding was superseded by the Memorandum of Understanding
between the Government of the United States of America and the Government of
Canada as to Notification, Consultation and Cooperation with respect to the
Application of National Antitrust Laws of 1984.19 The 1984 Understanding contained
more detailed procedures. However, the absence of substantive criteria to reconcile
competing national interests probably prevented the Understanding from being useful
to resolve serious disputes. The provisions on information gathering reflect the mixed
purposes of the agreement. The Understanding required, to the extent practicable,
each party to first seek any desired information within its own territory, attempt to
obtain information from the other's territory first through voluntary rather than
compulsory process, and frame requests for information as narrowly as possible. 20 The
1984 Understanding was superseded by 1995 Agreement between the Government of
the United States of America and the Government of Canada Regarding the
Application of Their Competition and Deceptive Marketing Practices Laws, which fell
short of a comprehensive antitrust mutual legal assistance agreement of the sort
permitted by the US International Antitrust Enforcement Assistance Act 1994.21
(p.498) There is no clear division between agreements that were intended to reduce
conflicts arising from the extraterritorial application of US antitrust law and
agreements that were intended to assist the enforcement of the competition laws in
both countries. Similar provisions that provide for notification, consultation,
information exchange, and negative comity appear in both types of agreement.
Provisions on enforcement cooperation and coordination appear to have originally
been included as a means of discouraging extraterritoriality. Thus, while the type of
clauses in the successive USCanada cooperation agreements did not fundamentally
change, the parties' attitudes towards cooperation and competition law changed,
which in turn altered the purpose and effect of the cooperation agreements.
The level of detail in an enforcement cooperation agreement appears to depend on
the level of maturity of the competition law regimes of the parties and their
commitment to competition law enforcement. This pattern can be seen in several
agreements entered into by Australia. The AustraliaUnited States Agreement relating
to Cooperation on Antitrust Matters of 1982 was agreed in the aftermath of the
Uranium litigation. The parties agreed to cooperate in the enforcement (including
discovery and investigations) of their respective competition laws, unless the
proposed investigation or enforcement action would adversely affect the national
interests of the party whose cooperation was sought.22 Unlike the 1984 CanadaUS
Understanding, it was agreed that using the legal process to obtain information or
documents located in the other's territory does not in itself adversely affect national
interests or provide a basis for using a blocking statute, provided Australia was given
advance notice of such legal process.23 There is provision for protection of the
confidentiality of the information and a requirement that Australia consents to any
information or documents it provided being used in evidence in any judicial or
administrative proceedings.24 In 1999, the above agreement was supplemented with
the Agreement Between the Government of the United States of America and the
Government of Australia on Mutual Antitrust Enforcement Assistance, 25 which was
agreed pursuant to the US International Antitrust Enforcement Assistance Act of 1994
and the Australian Mutual Assistance in Business Regulation Act 1992 and the Mutual
Assistance in Criminal Matters Act 1987. The extensive provisions for information
exchange and cooperation under the 1999 Agreement reflect a mutual confidence in
each other's competition law and enforcement and a high level of inter-agency trust.
A Co-operation and Co-ordination Agreement between the Australian Trade Practices
Commission and the New Zealand Commerce Commission was signed on 29 July
1994, which according Article 2.1 was: (p.499)
to promote co-operation and co-ordination between the agencies and lessen the
possibility of differences between the agencies in the application of their competition
and consumer laws where these differences are not the result of statutory provisions.
The on-going exchange of information and co-operation in a number of areas will
enable each agency to be more efficient and effective and better utilise scarce
resources.

Article 3.1 envisages cooperation extending to virtually all aspects of the competition
law agency activities. The agreement is notable for the relative hardness of its
obligations and the fact that the obligation to cooperate is generally only restricted by
the need of the parties to comply with their laws.26 Cooperation generally cannot be
refused because of limited resources or overriding public interests. A partial exception
is Article 10, which requires one party to take account of the important interests of the
other agency (not the country to which the agency belongs). Article 5.1 lists a variety
of types of information that may be exchanged and the purposes for which the
information may be exchanged, including the improved application of competition
laws, the avoidance of unnecessary duplication, and the facilitation of coordinated
investigations. Article 4.1 provides that a requested agency need not supply
information where the disclosure of that information is prohibited by the law of the
country of the requested agency, or that information was supplied to the requested
agency on the basis that it must not be disclosed. The remainder of Article 4 obliges
the requesting agency to keep confidential information confidential and permits the
requested agency to require specific measures for the protection of confidential
information as a pre-condition of the transfer of information. These are not strict or
detailed requirements for confidentiality, but seemed to be premised on a familiarity
with each other's legal system and inter-agency trust.27 Article 5.3.1 contains a very
broad promise of assistance, which includes providing access to information in the
files of the requested agency, including confidential files; and preparing witness
statements, conducting formal interviews, and obtaining information and documents
on behalf of the requesting agency. It has suggested it would be desirable to forge
further administrative links between the ACCC and the New Zealand Commerce
Commission.28
The Cooperation and Coordination Arrangement between the Taipei Economic and
Cultural Office and the Australian Commerce and Industry Office Regarding the
Application of Competition and Fair Trading Laws, which was signed on 13 September
1996, is very similar to the Co-operation and Co-ordination Agreement between the
Australian Trade Practices Commission and the New Zealand Commerce Commission.
Much of the text and numbering (p.500) of the Articles are identical.29 However, a
number of significant changes have been made (presumably) to reflect the differences
between the political relationship between Australia and New Zealand and Australia
and Taiwan, and the closer approximation of the Australian and New Zealand legal
systems. The most important differences are that the obligation to exchange
information in the AustraliaTaiwan agreement is qualified by reference to perceived
prejudice to important interests of its jurisdiction by the requested agency,30 and the
obligation not to release to any other authority any confidential information provided
in accordance with this arrangement without the prior written permission of the
requested agency is made explicit.
Thus, any multilateral competition law enforcement cooperation arrangement or
framework agreement would likely need to permit differentiation between countries
on the basis of the level of maturity of the competition law system and evidence of
commitment to enforcement, and may need to be flexible enough to take into account
the peculiarities of individual bilateral relationships.
The Form and Influence of the United StatesEuropean Communities
Cooperation Agreement
The most important enforcement cooperation agreement is the Agreement Regarding
the Application of Competition of their Competition Laws signed by the US
government and the EC Commission in September 1991.31 The agreement is
significant because it is between the two biggest economic powers that regularly deal
with competition law matters of global importance. The EU and the US competition
laws have different substantive rules and enforcement procedures and overlapping
jurisdictions. Prior to this agreement, the EU had entered trade agreements with
competition law provisions aimed at trade distorting practices, but not enforcement
cooperation agreements. These agreements have often contained substantive
competition rules (modelled on EU law). The US, on the other hand, had entered a
number of cooperation agreements. After the EUUS Agreement the US regained an
interest in the inclusion of competition law provisions in trade agreements. A review of
the many speeches of officials touching on international cooperation on the websites
of the EU and US competition authorities shows that the authorities have generally
been enthusiastic supporters of the cooperation agreement.32 The agreement
increased informal contacts and contributed to the resolution of a number of cases.
The success of the agreement and (p.501) the importance of the participants has
inevitably meant that a number of other bilateral enforcement cooperation
agreements have been modelled on the 1991 ECUS Agreement.
The Agreement was designed to solidify and add certainty to the previously informal
arrangements; to alleviate the effects of past and future conflicts, especially over
extraterritoriality; and to extend current cooperation by providing for positive comity
with respect to enforcement.33 However, perhaps most importantly, as the Preamble
notes, the basis of the agreement is the belief that the sound and effective
enforcement of the Parties' competition laws would be enhanced by cooperation and,
in appropriate cases, coordination between them in the application of those laws.
The agreement was motivated by several developments, in particular the realization
by the US during the Structural Impediments Initiative talks that private conduct could
impede trade and that unilateralism was not a viable solution; the Wood Pulp decision
expanded the scope of application of EU competition law; the EU Merger Regulation
had dramatically increased the possibility of conflict between US and EU; and the
recognition by the EU, especially by Sir Leon Brittan, that cooperation with the US was
a desirable objective. Although not a new idea and falling short of the precise
delineation of jurisdiction originally sought by the EU,34 the positive comity provision
was seen as an important innovation that effectively allocated cases between the
competition authorities in a small group of cases. The testing of positive comity by the
two major economic powers probably facilitated the inclusion of similar provisions in a
number of other bilateral agreements. It is significant that this type of enforcement
cooperation agreement is linked to the parties' view of jurisdiction and appropriate
forum in competition law cases.
The content of the EUUS Agreement has its origins in the 1986 OECD Council
Recommendation. The agreement also contains certain legal and practical
improvements and clarifications. For example, the terms competition laws and
competition authorities are defined.35 The definition excludes industry-specific
regulation and regulators, such the US Federal Communications Commission, the
Department of Transportation, the Federal Reserve Board and the Interstate
Commerce Commission. The presence of industry-specific regulators complicates the
task of establishing a comprehensive, hard law system of enforcement cooperation.
The remaining Articles of the Agreement deal with notification (Article II); exchange of
information (Article III); cooperation and coordination in enforcement activities (Article
IV); cooperation regarding anticompetitive activities in the territory of one party that
adversely affect the interests of the other party, that is, positive comity (Article V);
avoidance (p.502) of conflicts over enforcement activities (Article VI); consultation
(Article VII); confidentiality of information (Article VIII); existing laws (Article IX);
communications under the agreement (Article X); and entry into force, termination,
and review (Article XI). The provisions are representative of the type of provisions that
appear in other detailed cooperation agreements. These are discussed in the
remainder of Section 13.2.2. The broader issues surrounding information gathering,
positive comity, and coordination of investigations are examined in Sections 13.3,
13.5, and 13.6.
Notification and Exchange of Information
Article II(1) of the 1991 ECUS Agreement provides that the parties shall notify each
other whenever the competition authorities of one become aware that their
enforcement activities may affect important interests of the other. Article II(2)
provides a reasonably broad and inclusive list of situations where notification of
enforcement activities would ordinarily be appropriate.36 Article II(3) provides the
specific times at which mergers must be notified for both the EU and the US. Article
II(4) covers the time of notification of other matters, which is ordinarily to be when it
becomes evident that notifiable circumstances are present, and in any event far
enough in advance of a formal act done in the investigation and enforcement of a
case to enable the views of the other party to be taken into account. Article II(6)
provides that sufficient information must be notified to permit an initial evaluation by
the recipient party of any effects on its interests. Other cooperation agreements have
similar provisions.
The notification provision is the provision in the OECD Recommendations that is most
often used. The number of notifications made per year has been rising, which
presumably reflects growing international cooperation and an increased number of
international cases. The 1979 OECD Recommendation led to about 600 notifications
between 1980 and mid-1985, and over 300 notifications and requests have been
made under the 1986 Recommendation between October 1991 and March 1993.37
Bilateral agreements have further boosted the number of notifications, most notably
the 1991 ECUS Agreement. In the year prior to the agreement US enforcers sent four
notifications and received two, (p.503) while in the first two years after the
agreement was signed US enforcers sent about 60 notifications and received about
40.38 The number of bilateral notifications has continued to grow.39
Notification ensures that all agencies have a minimum level of awareness about the
activities of other agencies and provides information about potential infringements. It
is also a means to begin more elaborate forms of cooperation between agencies.
Close cooperation between enforcement agencies and the exchange of non-
confidential information may lead to fewer differences in the application of
competition laws and help agencies to better understand foreign law and acquire
publicly available information from the other jurisdiction, including public filings with
other US regulatory agencies.40 The enforcement agencies may also benefit from the
analysis of the same problem from another agency and cross-border comparisons.
The routine exchange of views can remove misunderstandings or alleviate concerns
about the enforcement activities of other agencies, which might be based on
inaccurate press or diplomatic reports.41 Notification also increases the level of contact
and trust between the personnel in the two agencies and encourages the formation of
a common intellectual pool of ideas about antitrust enforcement. The degree of and
potential for cooperation between the agencies should thus increase. The
institutionalization of notification requirements in a competition authority 42 may help
to maintain cooperation over time and through changes in personnel.
However, many, if not all, of the notifications that take place under cooperation
agreements could take place without any international agreement. The notification
obligations do not generally apply to the initiation of private antitrust actions, the
antitrust enforcement activities by sub-national governments, or regulatory actions by
government bodies other than antitrust enforcement authorities. Notification
obligations have not always been followed.43 Sometimes (p.504) notifications are
made when it is too late for the notified party to influence an investigation.44 More
recent cooperation agreements have specified in greater detail the timing and content
of notifications. Some countries still fear that firms being investigated will be tipped
off. More tightly defined criteria for notification may improve compliance and also limit
notification to what is in fact necessary, and thereby allow competition law agencies
to get on with their investigations.45
National laws on confidentiality sometimes prevent notification or limit its usefulness.
Article VIII(1) provides that neither party is required to disclose any information where
that disclosure: (1) is prohibited by the law of the party possessing the information; or
(2) would be incompatible with important interests of the party possessing the
information. This provision is reinforced Article IX, which provides that nothing in the
agreement shall be inconsistent with existing laws. In some countries the competition
agency is prohibited from disclosing the names of even the parties to a transaction or
the notification of a proposed transaction until the agency has formally decided to
commence an investigation or the transaction becomes public knowledge. The US
accepted that the use of information obtained by the European Commission through
compulsory process is strictly limited and could not be disclosed to the US
authorities.46 Confidentiality requirements may also limit the ability of the European
Commission to disclose information received from the US authorities with its own
member states, even where the cases directly affects that member state.47 All non-
public information provided by either party in accordance with the Agreement must be
considered as confidential by the receiving party, which should oppose any request for
disclosure to a third party unless such disclosure is authorized by the undertaking
concerned, or required under the law of the receiving party.48
Article III contains a general provision for the exchange of information between
competition authorities relevant to all aspects of their work, but again this is subject
to Articles VIII and IX. Article III(2) requires biannual meetings between the personnel
of the competition authorities where further information exchanges are to take place.
It has been widely acknowledged that the provisions on confidential information seem
to limit the usefulness of the cooperation agreement. The European Commission has
commented that sometimes case handlers have not been able to enter into detailed
discussion on the proposed remedy in cases of concern to both the EU and the US
without disclosing confidential information and the consent of the parties has not
been forthcoming.49 Where US authorities have (p.505) obtained a judgment on the
basis of a plea bargain, very limited information can be exchanged.50 When it is not in
the interests of all parties concerned for antitrust investigations to take place as
quickly as possible, it is unlikely that all parties will agree to an exchange of
confidential information. In the case of international cartels, for example, it is unlikely
that defendants will grant waivers for the exchange of confidential information.
Although the information exchange provisions of the 1991 ECUS Agreement could be
improved, significant improvements would require the use of a quite different legal
instrument of cooperation. See Section 13.3.
Negative Comity
The first sentence of Article VI of the 1991 ECUS Agreement states that [w]ithin the
framework of its own laws and to the extent compatible with its important interests,
each Party will seek, at all stages in its enforcement activities, to take into account the
important interests of the other Party. Similar provisions appear in virtually all other
cooperation agreements. Article VI(2) recognizes that the potential for an adverse
impact on a party's interests is generally greater at the remedial, rather than the
investigatory stage. Article VI(1) attempts to narrow important interests down to
activities in which there has been some official involvement. The requirement that
important interests should normally be reflected in antecedent laws, decisions, or
statements of policy by its competent, authorities may discourage governments from
manufacturing an important interest after an investigation has commenced, or
covert government encouragement of restrictive business practices.
Where it appears that the enforcement activities of one party may adversely affect
important interests of another party, Article VI(3) provides an inclusive list of factors
that the parties must consider in seeking to accommodate the competing interests of
both parties. The factors are: (1) the relative significance to the anticompetitive
activities involved of conduct within the enforcing party's territory as compared to
conduct within the other party's territory; (2) the presence or absence of a purpose on
the part of those engaged in the anticompetitive activities to affect consumers,
suppliers, or competitors within the enforcing party's territory; (3) the relative
significance of the effects of the anticompetitive activities on the enforcing party's
interests as compared to the effects on the other party's interests; (4) the existence or
absence of reasonable expectations that would be furthered or defeated by the
enforcement activities; (5) the degree of conflict or consistency between the
enforcement activities and the other party's laws or articulated economic policies; and
(6) the extent to which the enforcement activities of the other party with respect to
the same persons, including (p.506) judgments or undertakings resulting from such
activities, may be affected. These factors are similar, but not identical, to the factors
listed in Section 3.2 of the 1995 US International Guidelines. The Guidelines list the
nationality of the persons involved or affected by the conduct. Nationality is not listed
in Article VI(3), but is listed in Article II(2)(c) as a situation where notification should be
made. Other more recent cooperation agreements have included a few additional
factors.51 Although it is understandable that enforcement agencies would not wish to
fetter their discretion, the negative comity provisions provide little indication of when
a party would do something different from what it would do without such an
agreement.
Although the 1991 EUUS Agreement defines important interests to include
conduct believed to have been required, encouraged or approved by the other
party, the negative comity provision does not guarantee any greater protection for
foreign conduct that was not compelled by a government. Negative comity provisions
will not help countries that are concerned about the enforcement of competition in
other countries undermining their policies or interests for essentially the same
reasons that balancing tests failed. Other cooperation agreements have produced a
similar result. There are several reported examples of the US enforcement authorities
showing increased sensitivity to Canadian concerns, including some deference to
Canadian views and interests and enforcement cooperation.52 However, rather than
permitting action in Canada that harmed US consumer welfare, the US authorities
appeared to have deferred to the Canadian authorities in deciding whether the
transaction would in fact harm either Canadian or US consumer welfare. Australia was
unable to get an agreement from the US that if the DOJ chose not to bring an antitrust
action, this would prevent private actions.53 Thus, negative comity provisions will not
reduce enforcement and cannot be expected to do more than act as a mechanism to
allocate enforcement responsibilities when the allegedly anticompetitive conduct has
anticompetitive effects on more than one country.54 In other words, negative comity
has become like a forum conveniens principle for competition law investigations.
(p.507) Consultation
An international cooperation agreement should allow a competition agency to request
consultations at any time and the other party should be required to promptly and in
good faith respond to the request for consultation. Under the 1991 ECUS Agreement
the parties agreed to prompt consultations at the request of one of the parties
regarding any matter related to this Agreement, including possible consultation
between the heads of the competition authorities.55 Nonetheless, disputes will arise,
and have arisen, which a basic consultation procedure is not able to resolve. The 1991
ECUS Agreement requires each party to take into account the principles of
cooperation set forth in the agreement and be prepared to explain to the other party
the specific results of its application of those principles to the issue that is the
subject of consultation.56 This is potentially a useful procedure. However, the
principles are neither detailed nor precise enough to provide meaningful guidance.
In the past, states preferred non-public, bilateral diplomatic approaches and often
ignored consultation procedures internationally agreed.57 The 1979, 1986 and 1995
OECD Recommendations have all contained procedures providing for conciliation of
inter-state competition law disputes.58 The conciliation procedures have not been well
used.59 Today, the consultation procedures are used frequently. To improve the utility
of the consultation process, all inter-government consultations should be routed
through national competition law authorities. Ministries responsible for industrial
policy and foreign policy should be required (at least initially) to make their views
known through the procedures established under competition law enforcement
cooperation agreements. This will increase the importance of the cooperation
agreement and the importance of competition law authorities in international disputes
arising out of the application of competition law. Disputes are also more likely to be
able to be settled in the context of consultations between two competition law
agencies that have developed a working relationship with each other (and both
recognize that they may be engaged in similar disputes with each other and other
countries in the future, and therefore have a greater commitment to see it work) and
share similar policy views.
(p.508) Reimbursement
Article 7 of the Federal Republic of GermanyUS Agreement relating to Mutual
Cooperation regarding Restrictive Business Practices provides for reimbursement of
expenses incurred in giving assistance requested by the other party. Paragraph 9 of
the Appendix of the 1995 OECD Recommendation recognizes that cooperation may
require cost sharing, without suggesting how such costs are to be shared. The
reimbursement of the costs of the state or agency requested to provide assistance
has been a significant issue for many small developing countries in relation to mutual
legal assistance treaties and schemes.60 In some cases guidelines for reimbursement
have been issued.61 While large competition law agencies may be prepared to bear
the costs of assisting a foreign agency, competition agencies from developing
countries may not be able to provide substantial assistance without reimbursement.
The incorporation of these features may help to ensure the effective enforcement of
competition laws.
Room for Improved Enforcement Cooperation
A great deal of general information and views are shared among competition law
officials of the member countries of the OECD. Bilateral cooperation agreements have
also assisted authorities to reach consistent approaches to negotiated relief and have
assisted some businesses resolve potential difficulties quicker than otherwise. The
provisions have clearly been valuable, but will not solve all problems.
For an international agreement for cooperation in the enforcement of competition laws
to be practical, the parties will need to have reasonably similar competition laws and a
significant trading relationship. Higher levels of coordination of competition law
enforcement appear to require even greater similarity of competition laws, familiarity
of the competition law enforcers with the competition laws and procedures in other
countries, and high levels of contact and trust between competition law agencies.
Trust is needed for cooperation, yet trust is built on successful cooperation.
Cooperation should therefore be a gradually deepening process. A multilateral
enforcement cooperation agreement cannot be expected to produce the same level of
trust and flexibility possible in bilateral cooperation. This suggests that the
international competition law system should accommodate tiered levels of
cooperation. A WTO agreement containing a set of core competition law principles
may assist in broadening the scope of and intensifying existing cooperation
arrangements.
A set of independent bilateral agreements is unlikely to assist coordinating
enforcement action where more than one state may have an interest in regulating the
same conduct, such as an international merger that affects the markets (p.509) of
several countries. One interpretation of the adoption of a centralized merger control
system in the EU, but a cooperative and non-centralized one between the EU and
EFTA states, was because of the number of parties involved each arrangement.62
Some problems cannot be solved without a high degree of centralization.
The Boeing/McDonnell Douglas merger revealed further limitations of existing bilateral
cooperation agreements. Despite notifications and consultations, and the European
Commission limiting the scope of its action to the civil side of the firms' operations to
take account of US defence interests, the US FTC and the European Commission were
unable to reach commonly accepted solutions. While trade policy concerns may have
been present, no amount of cooperation between enforcement agencies can produce
a harmonious result when there are differences in substantive laws that the
enforcement cannot change. Schaub, however, points to a number of benefits that
arose from this case: it has helped the Commission overcome the US perception that it
is a junior partner; the jurisdiction of the Commission over such mergers was not
contested by US authorities; the credibility of the Commission in Europe was
strengthened because it obtained concessions from Boeing that no member state
acting alone could have obtained; and certain concessions obtained from Boeing to
resolve the competition the problems we identified concern issues qualified by the US
Federal Trade Commission as troubling.63
Transnational procedural and remedial cooperation is limited under the 1991 ECUS
Agreement, because neither party can protect the interests of the other party except
incidentally to their own enforcement activities. The operation of the cooperation
agreements is dependent on the discretion national competition authorities have
under existing lawsif the conduct of concern to a foreign state is not also illegal (and
of concern) to the state receiving a request, the receiving authority may not be able to
assist (at least if assistance involves the use of its compulsory powers). The exercise
of this discretion may also be subject to judicial control. Cooperation may be declined
on national interests grounds or because national law does not permit an international
perspective to be taken of the conduct and conflict in issue. There are national legal
restrictions preventing the exchange of confidential information, or a mechanism to
coordinate searches in international cartel cases and pool evidence, under the 1991
ECUS Agreement. The level of cooperation and conflict avoidance between the EU
and US has been largely due to merging parties consenting to cooperation and
information exchanges. Many of these failings require legislation. Administrative or
executive (p.510) agreements may have proved a useful testing ground, but in the
long run will prove inadequate to achieve the goals of international antitrust.
Private actions are completely unaffected by the requirements of the comity
obligations in cooperation agreements and are not entitled to enforcement assistance.
Again, the key may be an inter-governmental obligation on core principles and
suitable cooperation mechanisms, in particular on information gathering abroad. One
useful addition to a plurilateral agreement on enforcement cooperation would be an
agreement for the mutual recognition of competition law judgments. Compensatory
damages awards could be enforced and contractual provisions would not be enforced
if they had been held to be in breach of a relevant competition law. This would imply
recognition of the jurisdiction of the countries where a contract provision was held to
be invalid. The agreement may have to provide for the right of countries to refuse to
recognize a foreign competition law judgment in certain cases.
Small and developing countries may sometimes find it difficult to combat international
anticompetitive practices by large multinational corporations, because of the difficulty
of obtaining the necessary information and enforcing orders. Multinational enterprises
are likely to be more responsive to the competition authorities of the major
economies. Although international cooperation could be beneficial to the smaller
countries, these countries cannot realistically expect cooperation from any of the
major economies when the smaller country seeks to apply standards significantly
different from those of the major economy. An international agreement that contained
core principles would, however, improve the legitimacy of the demands of smaller
countries for enforcement cooperation in cases involving foreign multinational
enterprises. International judicial assistance in the area of competition law could
increase the power of the courts in a small country, because of assistance in evidence
gathering and enforcement.
Major economies may be more prepared to cooperate with a small country if
enforcement cooperation agreements contained jurisdictional or forum selection rules
that tended to make the major economy the forum conveniens or the lead jurisdiction
in the international cases of most concern to them. Rules that focused on the primary
location of economic effects and the ability to gather information and enforce
judgments would often favour the major economies. Only the major jurisdictions are
likely to have the resources and expertise necessary to undertake this sort of case in
the first place.
13.2.3 Competition Law Disciplines in Free Trade Agreements
Increasingly, regional trade agreements contain provisions on competition law. 64
Unlike most of the enforcement cooperation agreements, which take national (p.511)
laws and policies as given, the trade agreements seek to shape national law and
policy. As a group, these provisions are suggestive of the role and content of a WTO
agreement on competition law. Some provisions, however, arise out unique
circumstances and relationships.
Several regional trading arrangements provide for a level of centralization and an
institutional structure that would not be acceptable at the multilateral level. See
Chapter 2. The non-models for multilateral cooperation often include a
supranational body that has investigatory and decision-making powers and/or the
acceptance of one common set of competition law rules. In addition to the EU and the
European Economic Area,65 a number of developing countries have also created or are
in the process of creating regional competition laws and supranational competition
law agencies.66 The agreements between the EU and its member states and potential
candidates for accession would also not be acceptable models for a multilateral
agreement, because the agreements required the candidate countries to apply EU
competition law rules to anticompetitive conduct affecting trade between the
parties.67 The agreements reflect the significant bargaining power of the EU relative to
candidate countries and the more developed competition law in the EU relative to that
in the acceding states.
(p.512) At the other extreme is the North American Free Trade Agreement (NAFTA). It
has a chapter on Competition policy, monopolies and state enterprises, but the
parties are merely required to adopt or maintain measures to proscribe anti-
competitive business conduct, consult from time to time, and recognize the
importance of cooperation and coordination of competition law enforcement. 68 Even
these weak provisions are expressly excluded from dispute settlement under the
agreement. Article 7.1 of the Free Trade Agreement between the Government of
Canada and the State of Israel and Article J-01 of the CanadaChile Free Trade
Agreement contain almost identical provisions.69 Article 1504 of NAFTA established a
working group on trade and competition, but its mandate expired in 1999 without a
final report being issued.70 The EU has also entered into trade agreements that
contain no provisions on competition law or the obligations on anticompetitive
conduct are hortatory or very general and highly qualified obligations.71 These
agreements do not reach the level of detail that the EU aspires to for a WTO
agreement on competition law.
The EFTA Models
Restrictive business practices are regulated in the European Free Trade Agreement
(EFTA) without supranational institutions.72 Article 15 of the Stockholm Convention
provides that agreements which have, as their object or result, the prevention,
restriction or distortion of competition within the Area of the Association and actions
to take unfair advantage of a dominant position within the Area of the Association are
declared incompatible with the Convention in so far as they frustrate the benefits
expected from the removal or absence of duties and quantitative restrictions on trade
between Member States.
(p.513) In 1965, the EFTA Council promulgated rules on the implementation and
enforcement of the restrictive business practices provisions.73 Thereafter, any member
state could initiate consultation with another on the simple complaint of a private firm
or on the prima facie showing of a possible infringement of Article 15. Member states
are obliged to help in the investigation to the extent that their restrictive legislation
and practices will allow. All consultations were to be informal and confidential. In the
event of the failure to reach agreement through negotiation, recourse to the formal
complaint procedure before the EFTA Council was possible. The Council was
empowered to investigate and issue a recommendation. If the recommendation was
not complied with, the Council could authorize retaliatory measures against the
recalcitrant member state. There have been several bilateral consultations. 74 Firms did
not have standing in the consultation procedure. On the other hand, the EFTA Council
did not have any power to compel firms to supply information, modify their behaviour
or initiate an investigation. Thus, the EFTA model provides no assistance in addressing
the international competition problems identified in Section 13.1.1.
The substantive obligations in the competition Article of the early free trade
agreements between the EEC and the EFTA countries75 and Israel76 are broadly the
same as Article 15 of the Stockholm Convention. The declaration about this clause
made by the Community, which was annexed to each of the agreements, provides
that it will assess any practices contrary to the Article on the basis of criteria arising
from the application of the rules of then Articles 85, 86, 90, and 92 of the Treaty
establishing the European Economic Community.77 The more recent Euro
Mediterranean Agreements contain similar provisions.78
The competition law Articles of the ECEFTA agreements impose obligations on the
contracting parties, not private undertakings.79 It is up to each contracting party to
implement the competition Article within its own territory. Paragraph 2 of the
competition Article provides that: Should a contracting party consider (p.514) that a
given practice is incompatible with this Article, it may take appropriate measures
under the conditions and in accordance with the procedure laid down in [the
agreementgenerally Article 27]. The contracting parties are obliged to supply the
Joint Committee with all relevant information and give it the assistance it requires in
order to examine the case and, where appropriate, to eliminate the practice objected
to. In the event that the contracting party concerned fails to eliminate the practice
within the period fixed, or if no agreement can be reached by the Joint Committee
within three months of the referral, the other contracting party may adopt safeguard
measures and in particular withdraw tariff concessions. In selecting measures, priority
must be given to those which least disturb the functioning of the free trade
agreement.
The EU has apparently resorted to the clause on only one occasion, when the Swiss
law relating to business secrets was impeding the Community's investigation in the
Hoffman-La Roche case. The Swiss authorities were not asked to take any specific
action with respect to the matter.80 In the Wood Pulp case, the ECJ rejected the Finnish
companies' argument that the free trade agreement between the EC and Finland
precluded the application of Articles 81 and 82 of the EC Treaty to Finnish firms. 81 The
court stated that the free trade agreement presupposes that the contracting parties
have rules which enable them to take action against practices incompatible with the
free trade agreement. In any event, where the anticompetitive conduct extends
beyond the bilateral relationship, reference to the Joint Committee could not have led
to an appropriate remedy. Thus, competition provisions in a trade agreement need to
coexist with extraterritorial enforcement, at least where competition enforcement is
not centralized.
Recent Free Trade Agreements
A significant number of recent free trade agreements, with both developed and
developing countries parties, have included provisions on competition law. The
following agreements, it is believed, are illustrative of a developing pattern.
Chapter XI of the CanadaCosta Rica Free Trade Agreement requires each party to
adopt or maintain measures to proscribe anticompetitive activities (including
anticompetitive agreements, anticompetitive practices by an enterprise or group of
enterprises that has market power in a relevant market or group of markets, and
mergers or acquisitions with substantial anticompetitive effects) and take appropriate
enforcement action pursuant to those measures.82 Some countries might consider the
list of anticompetitive activities as overly broad. However, the parties may directly or
indirectly exclude anticompetitive activities from their competition law or authorize
such activities in accordance with such (p.515) laws. The only requirement is that all
such exclusions and authorizations must be transparent and should be periodically
assessed by each party to determine whether they are necessary to achieve their
overriding policy objectives.83 Each party must establish or maintain an impartial
competition authority, which is independent of political interference in carrying out its
enforcement functions.84 In addition, the parties agreed to the principles of
transparency (measures to proscribe anticompetitive activities should be published),
non-discrimination (the measures taken to prescribe anticompetitive activities should
be applied on a non-discriminatory basis), and procedural fairness (judicial and quasi-
judicial proceedings should be fair and equitable and there should be an appeal or
review process to any final decision).85 Fair proceedings require a written decision on
the merits of the case. The agreement also contains fairly general cooperation and
technical assistance provisions.86 Chapter XI is not subject to binding dispute
resolution, but one party may request consultations with the other on the matters
covered by Chapter XI.87
Despite the fact that Singapore did not have a comprehensive competition law, Article
2.1 of Chapter 12 of the JapanSingapore Economic Partnership Agreement required
each party, in accordance with its applicable laws and regulations, take measures
which it considers appropriate against anti-competitive activities, in order to facilitate
trade and investment flows between the Parties and the efficient functioning of
markets.88 Although Article 3 requires cooperation in the field of controlling
anticompetitive activities, Article 8 of the Implementing Agreement effectively
restricts enforcement cooperation to those sectors where Singapore has established
regulatory authorities that apply competition rules, which at the time were electricity,
gas, and telecommunications. The subsequent USSingapore Free Trade Agreement
required each party to adopt or maintain measures to prescribe anticompetitive
business conduct, with the objective of promoting economic efficiency and consumer
welfare, and [to] take appropriate action with respect to such conduct.89 Singapore
promised to enact a general competition law by January 2005. The only constraints on
the implementation of a competition law are contained in Article 12.2.2:
Each party shall establish or maintain an authority responsible for the enforcement of
its measures to proscribe anticompetitive business conduct. The enforcement policy of
the Parties' national authorities responsible for the enforcement of such measures
includes not discriminating on the basis of the nationality of the subjects of their
proceedings. (p.516) Each Party shall ensure that a person subject to the imposition
of a sanction or remedy for violation of such measures is provided with the
opportunity to be heard and to present evidence, and to seek review of such sanction
or remedy in a domestic court or independent tribunal.

The parties recognized the value of cooperation and coordination of competition law
and policy development, but did not detail what this would entail.90 A party could
request consultations regarding specific matters arising under these provisions, but
would have had no recourse to the dispute settlement mechanism set up under the
agreement.91 The parties agreed in Article 12.5 that each party may request the other
party to make available public information concerning the enforcement of its
measures proscribing anticompetitive business conduct, government enterprises, and
designated monopolies, and exemptions to its measures proscribing anticompetitive
business conduct. The USAustralia Free Trade Agreement contains similar
obligations.92 Article 14.2.2 of that Agreement, however, requires that enforcement
policies treat non-nationals no less favourably than nationals in like circumstances,
rather than not discriminating on the basis of nationality. Both obligations are
applicable to enforcement policies, rather than competition laws.
In the Free Trade Agreement between the Republic of Korea and the Republic of Chile,
the parties undertook to apply their respective competition laws in a manner
consistent with this Chapter so as to avoid that the benefits of the liberalization
process in goods and services may be diminished or cancelled out by anti-competitive
business conduct.93 The parties furthered acknowledged the importance of
embracing principles on competition that would be accepted by both Parties in
multilateral fora, including the WTO.94 Thus, although the agreement does not
contain the same core principles as the USSingapore or the USAustralia free trade
agreements, Chile and Korea appear ready to accept such principles. The EUMexico
free trade agreement95 and the EUChile association agreement96 contain little more
than an undertaking by the parties to apply their respective competition laws so as to
avoid the benefits of the agreement being diminished or cancelled out by anti-
competitive activities and to establish a mechanism for cooperation between
competition agencies.
(p.517) In 2001, while only ten Latin American or Caribbean countries had a
competition law,97 all the trade arrangements in the region contained some
commitment on competition law. Thirty-four Latin American or Caribbean countries
even agreed that the proposed Free Trade Area of the Americas (FTAA) should address
competition law. The Third Draft Agreement for the FTAA of 21 November 2003
contains a detailed chapter on competition policy.98 The negotiations, however, appear
to have reached stalemate on other issues.
Conclusion
A great many free trade agreements contain obligations on competition law. However,
unless the agreements seek to create a regional competition law or associate the
country with an existing regional competition law, the provisions on competition law
tend to impose only minimal obligations with fairly general enforcement cooperation
commitments. The agreements generally do not specify any substantive competition
law rules or contain binding dispute resolution mechanisms applicable to competition
law. More recent agreements show a willingness to accept that certain core principles
are applicable to competition laws.99 However, the agreements have not carefully
defined those principles. The core principles address many of the conditions that a
competition agency must satisfy if other agencies are to enter into close cooperative
relationships with it. The free trade agreements have sought to supplement, rather
than replace, the broader international cometition law system.
13.3 Foreign Assistance in Investigation and Analysis
13.3.1 Introduction
In the US, the enforcement agencies and private litigants have powerful tools for
collecting information locally and abroad. Nonetheless, the inability to collect evidence
from abroad and get the individuals and companies involved before the (p.518)
courts is still seen as the most significant obstacle to enforcement of the US antitrust
laws in international cases.100 Furthermore, no aspect of the extension of the
American legal system beyond the territorial frontier of the United States has given
rise to so much friction as the request for documents in investigation and litigation in
the United States.101 Paragraph 8 of the Appendix of the 1995 OECD Council
Recommendation on Co-operation between Member Countries on Anticompetitive
Business Practices Affecting International Trade, accordingly, encourages members to
use self-restraint and take into account the procedural and substantive laws of other
countries when exercising their investigatory powers with a view to obtaining
information located abroad, to rely on locally located information where possible, and
make requests for information as specific as possible. These factors point to the need
for international cooperation. This section aims to provide a brief overview of the
national and international procedures available to gather information in or for
competition law proceedings, and identify their limitations.
13.3.2 Exchange of Confidential Information under Enforcement Cooperation
Agreements
There are compelling reasons why national competition authorities should protect the
confidentiality of some of the information they gather. The obligation to protect the
confidentiality of information may arise in a number of ways, including through an
agreement between the authority and the supplier of the information, and a statutory
requirement that an authority keep certain types of information it may acquire in the
course of performing its duties confidential.102 Competition authorities are often
permitted to only exchange public information and information that is confidential to
an agency under enforcement cooperation agreements. See Section 13.2.2. Many
competition authorities tend to err on the side of caution and withhold any information
that might be confidential.103 Furthermore, the investigatory powers of competition
authorities may often not be used in the search for information not related to an
investigation of a potential breach of the competition law of the forum.
(p.519) To permit the exchange of confidential information, most countries will need
to enter into a treaty that overrides existing national law for every international
competition law cooperation agreement, or enact legislation like the US International
Antitrust Enforcement Assistance Act of 1994 (IAEAA). The latter approach avoids the
delays and costs of legislative action each time an agreement is signed.
Many lawyers and their clients have expressed the concern that bilateral competition
law cooperation agreements may not adequately protect confidential information.
Within the group of established competition authorities, it is not clear that the risk of
illegal disclosure by a competition authority would be significantly different for
information acquired under a bilateral cooperation agreement as opposed to
information acquired directly. It is also not clear that the risk of disclosure of
information received under a bilateral cooperation agreement is greater than
information received by other government agencies under the many criminal mutual
legal assistance treaties and regulatory mutual legal assistance agreements outside of
competition law.
Some countries may be reluctant to permit the exchange of confidential information
with a competition authority that has an obligation to disclose the information to sister
agencies or the sub-federal government agencies or member states,104 or that allows
members of the public or affected private parties to have access to government files.
In other regulatory areas, the problem has been reduced by creating exceptions to
laws requiring disclosure of information.105
13.3.3 Limitations on the Power of National Authorities and Courts to Investigate
Conduct Abroad
The Extraterritorial Application of Domestic Investigative and Discovery
Rules
The US legal system provides the most varied and potent means of conducting
unilateral investigations and discovery abroad. If the US is unable to gather all the
information located abroad that it requires, a purely unilateral approach would be
inadequate in any country. In the US, the choice of investigatory tool will in large part
be determined by the nature of the proceedings. Before testimony or the production
of documents will be ordered or discovery obtained, there must be personal
jurisdiction over the person or entity from whom the information is sought; and that
person or entity must have control over the documents or information (p.520)
sought. This is true whether or not the information is sought from a party or a non-
party.106 Once control is established, documents must be produced wherever they are
located.107
In criminal investigations, the US DOJ can gather information through its leniency
policy or other voluntary cooperation, by executing court-issued search warrants, and
pursuant to grand jury a subpoena that requires the recipient of the subpoena to
produce documents and/or give oral testimony before the grand jury. A search warrant
must be executed within the US.108 A grand jury subpoena cannot be serviced outside
of the US on non-US residents or citizens.109 Even if the foreign company cannot be
served, an US subsidiary or agent may be required to produce documents located
abroad if it has control over those documents.110
Civil Investigative Demands (CIDs) may be issued under the Antitrust Civil Process Act
or the FTC Act.111 CIDs can be issued before a complaint is filed and can be directed
against targets and non-targets of the investigation. They can require an individual,
corporation, or other entity to produce documents in its possession, custody, or
control, to answer written interrogatories, or to give oral testimony. Personal service
for CIDs can be made outside the US in accordance with the Federal Rules of Civil
Procedure.112 The FTC Act, however, does not permit service by registered mail of a
subpoena on a person located outside the US.113 Barring a patent lack of subject
matter jurisdiction, a court will not halt a CID on the grounds of a lack jurisdiction or
international comity.114 The 1995 International Guidelines, however, state that [i]n
conducting investigations that require documents that are located outside of the
United States, or contacts with persons located outside the United States, the
Agencies first consider requests for voluntary cooperation when practical and
consistent with enforcement objectives.115
(p.521) In private antitrust actions, discovery is governed by the Federal Rules of Civil
Procedure. Rule 26(a) lists several methods of obtaining discovery: deposition upon
oral or written questions; written interrogatories; production of documents or things or
permission to enter upon land or other property, for inspection and other purposes;
physical and mental examinations; and requests for admissions. Under rule 34 a party
can serve a request on another party, without leave of the court, indicating the
documents required to be produced. If the party requested does not respond or
objects to the production of the documents, the requesting party may apply to the
court for an order to compel discovery.116
A non-party witness can be compelled to produce documents only by a subpoena
duces tecum. Such a subpoena can be issued against a US national or resident (but
not a foreign national) located outside the US, if the court finds both that the evidence
sought is necessary in the interests of justice and that it is not possible to obtain it
in admissible form in any other manner.117
Rule 28(b) provides three methods for obtaining foreign discovery: notice;
commission; and letter rogatory. The notice procedure, set out in rules 30 and 31,
does not require the intervention of either a US or a foreign court. In many civil law
countries, where examination of witnesses is typically a judicial act, it may be difficult
or impossible to obtain a deposition on notice. Under the commission procedure, the
party seeking the examination must apply to the district court in which the action is
pending for issuance of a commission appointing a person, which could be required to
be a judicial or other officer of the foreign country, before whom the examination will
take place. Some foreign countries are hostile to allowing a deposition to be taken in
their territory under these circumstances. Most civil law countries will compel an
unwilling witness to appear upon receipt of a letter rogatory. Some countries will not
compel testimony in the absence of a treaty, such as the Hague Convention on Taking
of Evidence Abroad in Civil and Commercial Matters. If a witness will testify voluntarily
and the laws of the foreign country do not prohibit the taking of such testimony, then
rule 19 provides a means whereby such evidence can be obtained without the
involvement of the authorities of foreign countries.
Extraterritorial Investigation by Courts and Competition Authorities in Civil
Law Countries
One consequence of the view that extraterritorial discovery is an infringement of
judicial sovereignty is that many civil law countries restrict the ability of their courts
and agencies and sometimes the parties to the litigation to gather evidence from
abroad. The German Cartel Office, for example, is not permitted to require the formal
service of process abroad, let alone search for or inspect documents in the foreign
offices of firms or hear witnesses abroad, without the consent and (p.522) assistance
of a foreign government.118 The European Commission takes the view that it can send
requests for information outside the EU (and EEA), but cannot impose sanctions if a
firm fails to reply.119 If a foreign undertaking has a branch of a sales office or wholly
owned subsidiary within the EU, the parent may be served under economic unit
theory, which may require the supply of information under the control of the entity,
even if located outside of the EU.120
In most civil law countries, the limited powers of defendants in most countries to
discover and introduce into evidence documents in the possession of the opposing
party or a third party in civil litigation means that it may often be irrelevant whether
documents are located inside or outside the forum. For example, the law relating to
discovery means that Japanese courts are unlikely to provide an attractive forum for
the litigation of international competition law cases. Civil litigation is based on the
principle that each party must present evidence to support its claim. Documents or
statements other those submitted voluntarily are required to be obtained by a court
usually for itself by examination of witnesses, issuance of orders, and the like. Even in
exceptional cases where the court requests cooperation of other government
authorities or foreign courts, the request is required to be made by the court itself. 121
The court, upon the application of a party, may order the other party or a third person
to produce certain documents.122 Parties that demand documents have experienced
great difficulties in identifying with sufficient specificity the documents they wished to
have the other party or third parties produce.123 Thus, in Japan, there is no equivalent
to pre-trial discovery as seen in the US. It is also uncertain how Japanese litigants
could avail themselves of the opportunity for pre-trial discovery in the US through 28
USC 1782 without the involvement of the Japanese court or diplomatic channels.
Letters Rogatory
A letter rogatory is a letter of request from a court in one country to a court in a
foreign country requesting international judicial assistance. Such letters can be used
to obtain information from foreign governments and private parties and can be used
in civil and criminal proceedings. Courts are usually authorized by (p.523) domestic
law to execute letters rogatory, but are under no obligation to do so.124 In many other
countries, letters rogatory are not honoured unless they come from a proper court and
do not involve pre-trial discovery. In the US, however, foreign courts and competition
authorities adjudicating competition law cases and persons interested in such
proceedings (including complainants before a competition authority) may request the
US federal courts to order a person to give testimony or to produce a document.125
The US courts have discretion to decline to order the discovery requested.126
However, letters rogatory are not used frequently in antitrust investigations. Letters
rogatory are often regarded as slow,127 expensive, and unpredictable. There can be
problems using them in criminal antitrust cases where the other country's antitrust
laws do not include criminal penalties and that country insists on dual criminality as a
precondition to lending judicial assistance.128 In the Uranium case, letters rogatory
seeking foreign judicial assistance in obtaining evidence were rejected by the highest
English and Canadian courts, because of the conflict between the underlying action
and forum public policy.129 However, more recently the US DOJ has received judicial
assistance from a number of countries in international cartel cases, including search
and seizures of foreign premises.130
The Hague Convention
One of the principal objectives of the Hague Convention on the Taking of Evidence
Abroad in Civil or Commercial Matters is to bridge the differences between common
law and civil law systems. The Hague Convention allows evidence to be sought by
submitting a letter of request from the trial court to the competent authority of the
foreign country requesting a foreign court obtain evidence or perform some other
judicial act, employing diplomatic or consular officers, or employing persons
commissioned by a court.131 The letter of request method, which is the most
important, is like the letters rogatory process except that the letter need not go
through diplomatic channels. The state of execution applies its own law and
procedures in executing the letters of request unless the requesting party requests
that another procedure be used.132 The request must be (p.524) carried out insofar as
the request is not incompatible with the internal laws of the executing state.133 States
must execute requests even if the requested state claims exclusive subject matter
jurisdiction over the action or the state's internal law does not recognize the particular
cause of action at issue.134
There are several restrictions on the scope of such requests. First, Article 23 permits a
signatory country to declare that it will not execute letters of request for the purpose
of pre-trial discovery. Few countries have not issued such a declaration. Secondly, a
witness may refuse to give evidence if he or she has a privilege or duty to do so either
under the law of requested state or the requesting.135 Thirdly, a signatory country can
refuse to execute a letter where it considers that its sovereignty or security would be
prejudiced thereby.136 Fourthly, it appears that the US and the EU competition
authorities have never used the Hague Convention to obtain information from
abroad.137 The Convention only applies to civil or commercial matters, which excludes
criminal antitrust proceedings and it appears that some countries consider non-
criminal government-initiated competition law enforcement proceedings not to be a
commercial or civil matter, but an administrative proceeding. Under the Convention,
the request must come from a judicial authority, which means competition
authorities would need to request a court to submit a letter of request.
The Hague Convention has also been undermined by Socit Nationale Industrille
Arospatiale v United States Dist Court for S Dist Iowa, where the US Supreme Court
held that the Hague Convention was a permissive supplement, not a pre-emptive
replacement, to other means of obtaining evidence from abroad, namely ordinary
rules on discovery.138 The lower courts have not uniformly followed the comity analysis
suggested the Supreme Court.139 The English courts also held that the Hague Evidence
Convention should not be seen as exclusive and mandatory.140
13.3.4 Opposition to Unilateral Foreign Investigations and Discovery
Many countries have complained that US extraterritorial investigation and discovery
breaches international law and infringes their judicial sovereignty, even (p.525) when
information is voluntarily solicited.141 Of course, little information of value is likely to
be voluntarily provided by a defendant in an action seeking penalties or damages. In
civil law countries there is little or no pre-trial discovery and the judge, rather than the
parties, questions the witnesses and decides which documents to request. An even
greater number of countries object to certain features of US investigation and
discovery practice, such as the method of service of an order for production of
documents abroad; the breadth of the discovery permitted under US law;142 the
disregard of the separate corporate identity of parent and subsidiary; and the clash
with foreign blocking or secrecy laws.
A significant number of countries have statutes that block or limit the production of
documents and the taking of evidence located in the territory of the forum in
connection with foreign legal proceedings.143 Some blocking statutes are applicable
only to particular industries, such as shipping or uranium, or particular types of
foreign proceeding. Some countries, such as Australia,144 Canada,145 New Zealand,146
and the UK147 have blocking statutes that apply only when a ministerial order is made.
Most of the statutes were adopted or updated, often urgently, in response to
particular US investigations. The Canadian Attorney-General is empowered to issue
blocking orders whenever, in his or her opinion, a foreign tribunal is seeking to
exercise jurisdiction or powers of a kind or in a manner that has adversely affected or
is likely to adversely affect significant Canadian interests in relation to international
trade or commerce involving a business carried on in whole or in part in Canada or
that has otherwise infringed or is likely to infringe Canadian sovereignty. 148 The
Attorney-General may also prohibit the doing of an act that will facilitate the
production or identification of documents,149 and prohibit testimony by Canadian
citizens or residents concerning the content of documents which themselves could be
covered by a blocking (p.526) order.150 Penalties include a maximum of five years
imprisonment.151 Pre-emptive seizure of documents by court order is permitted where
there is reason to believe that a blocking order may not be honoured.152 The statute is
loosely worded and has not been particularly successful in shielding Canadian firms
from US discovery orders.153 Interestingly, the US has also enacted blocking
legislation.154
Other countries have statutes that seek to block all extraterritorial discovery not
authorized by domestic law or international agreement.155 Japan has taken the
position that US discovery procedures violate international law where they seek to
compel unilateral production of documents within its territory.156 While Japan has no
blocking statute as such, Japanese firms may be instructed through administrative
guidance not to comply with US orders to produce documents.
Following Socit Internationale pour Participants Industrielles et Commerciales, SA v
Rogers,157 the US courts generally upheld litigants' discovery requests despite foreign
blocking statutes.158 Because of the risk of adverse findings against the foreign
litigant, the foreign state's interest in preventing disclosure is rarely strong enough to
justify the risk and therefore foreign litigants tend to yield to the US position.159 In PPG
Industries, Inc v Pilkington, plc, the Ninth Circuit even affirmed an order aimed at
preventing Pilkington seeking protection under the British Protection of Trading
Interests Act.160 Thus, blocking statutes with no other legitimate purpose, especially
ones giving discretion to ministers, are unlikely to be effective.
13.3.5 The Limitations of Mutual Legal Assistance Treaties
Mutual legal assistance treaties (MLATs) generally provide for mutual legal assistance
in all matters relating to the investigation, prosecution, and suppression of crime,
including the taking of testimony, search and seizure, and sometimes the collection of
fines. Requests for assistance are transmitted from the designated (p.527) central
authority in one country to the designated central authority in another country, which
then transmits the request to the authorities that are competent to execute it. Such
authorities are usually the courts, which may issue subpoenas, search warrants, or
other orders.
There are a large number of MLATs.161 The US, for example, has signed over 50. Some
MLATs do not apply to competition law cases, because the MLAT requires dual
criminality and one of the states does not criminalize competition law violations. The
SwitzerlandUS Treaty on Mutual Legal Assistance Matters specifically excludes
antitrust matters.162 However, an increasing number of countries have criminalized
certain types of competition law violations. The CanadaUS MLAT, which entered into
force in 1990,163 has frequently and successfully been used to obtain evidence for
criminal antitrust proceedings.164
MLATs have several advantages as mechanisms to cooperate in competition law
enforcement. First, while similar assistance may be available without a treaty, MLATs
create legally binding obligations and set out fairly limited conditions under which
assistance can be denied. Being part of a wider scheme of law enforcement
cooperation, one state is less likely to find a request for cooperation in a competition
law case to be contrary to its public interest least the other state responds in the
same way to its own request. Secondly, despite the central authorities being the point
of contact, USCanadian experience shows that a high level of cooperation between
competition authorities is possible within the framework of a MLAT. Thirdly,
cooperation is possible even if the conduct being investigated is of no concern to one
of the countries. Fourthly, the existence of a MLAT also pre-commits a country to
cooperation, which makes it harder for a defendant to try to play one agency off
against another or claim that it is prepared to cooperate with one agency if the
information is not shared with another agency.
However, MLATs have their limitations. First, the requirements for the issue of search
warrants and other court orders are those of the country where the order is to be
implemented. The different standards applied by different countries may, therefore,
prevent simultaneous investigations. Secondly, the ability of one country to share
information with another depends on the precise terms of the MLAT and the legal
relationship between the treaty (and any implementing legislation) and the existing
legal rules protecting confidentiality or conferring immunity or privilege. For example,
in the US there has been some discussion of whether a court can order disclosure of
documents before a grand jury to foreign (p.528) competition law enforcers.165
Finally, mutual legal assistance treaties are generally limited to cooperation in
criminal acts. The vast majority of competition law investigations are administrative
proceedings or public or private civil cases. For example, the European Commission,
as opposed to its member states, has no criminal competition jurisdiction. Thus, MLATs
will not be useful in most competition law investigations.
13.3.6 International Antitrust Enforcement Assistance Act
The International Antitrust Enforcement Assistance Act of 1994 (IAEAA) allows the DOJ
and the FTC to negotiate bilateral mutual assistance agreements with foreign
antitrust authorities, including those of regional economic integration
oragnizations,166 under which the agencies could make requests to foreign agencies
for evidence located abroad, and consider requests from foreign agencies for evidence
located in the US.167 Antitrust mutual assistance agreements (AMAAs) negotiated
pursuant to the IAEAA are executive agreements and are subordinate to federal
legislation. The IAEAA was modelled on the successful cooperation provisions in
section 21(a)(2) of the US Securities Exchange Act.168 The US enforcement agencies
supported the IAEAA because of inadequacies of the 1991 USEC Agreement; past
failures to gather information through unilateral measures; the success of the US
Canada MLAT; the use of similar agreements in other areas; and changing foreign
attitudes to antitrust and extraterritoriality.169 The US agencies briefed selected foreign
competition authorities about the IAEAA.170 However, foreign agencies were reportedly
cool towards the idea of entering a bilateral confidential information exchange
agreement.171
The US has signed only one AMAA. Australia was able to implement an AMAA under
the Australian Mutual Assistance in Business Regulation Act 1992, which is intended to
supplement other mechanisms available to provide international assistance, including
MLATs.172 The Act is subject to any information gathering blocking orders under section
7 of the Foreign Proceedings (Excess (p.529) of Jurisdiction) Act 1984.173 Both the
Australian Commonwealth regulator that is asked to gather information and the
Attorney-General must approve the giving of mutual assistance and they have a wide
discretion to either refuse such assistance or impose conditions on the giving of such
assistance.174
Subject to the provisions of the IAEAA, both the US Attorney-General and the FTC are
authorized to provide a foreign antitrust authority with antitrust evidence to assist
the foreign antitrust authority in determining whether a person has violated or is
about to violate any of the foreign antitrust laws administered or enforced by the
foreign antitrust authority or in enforcing any of such foreign antitrust laws.175
There are two mechanisms available to US antitrust authorities under the IAEAA to
assist foreign authorities: (1) they may use their normal investigatory powers on
behalf of the foreign agency;176 or (2) they may apply to a US federal court for an
order requiring a party to give testimony or produce documents or other things in
response to the foreign request.177 The IAEAA also makes it clear that a person cannot
be compelled to provide evidence in violation of any legally applicable right or
privilege.178 The Attorney-General may seek a federal court order requiring a person in
the US to produce evidence for use by a foreign antitrust authority. Such an order may
specify that the practice and procedure of the foreign partner be used to obtain the
information, which allows information gathering to take place in a manner consistent
with the evidentiary and other requirements of the foreign agency, to the extent that
this is consistent with US law.179 The DOJ and FTC are allowed to disclose antitrust
evidence to foreign authorities obtained through the use of their investigatory powers
under the Antitrust Civil Process Act and the Federal Trade Commission Act (such as
the production of documents, testimony, and statements through civil investigative
demands), notwithstanding obligations of confidentiality imposed by these Acts.180
Information obtained under the Hart-Scott-Radino Act as part of a pre-merger review
process cannot be shared.181 This was the result of US business concerns and the
political difficulty of sharing information with a foreign agency that (p.530) cannot be
shared with state Attorneys-General.182 The same information could, however, be
shared if it was obtained through other means, such as through the US agencies using
their normal investigatory powers.
There are also restrictions on foreign agency access to certain information obtained in
conjunction with a grand jury investigation. The IAEAA treats a foreign antitrust
authority like a state official for these purposes. It accordingly authorizes the
disclosure of grand jury information at the investigative, rather than litigation, stage,
except that the foreign antitrust authority must show a particularized need for the
information.183 The concept of a particularized need was left undefined, but the
House Report was concerned to let US courts decide whether disclosure of grand jury
evidence to a foreign antitrust authority should be granted when the evidence is in
the form of testimony given under a grant of immunity from prosecution by US
antitrust authorities.184 Since many US international cartel investigations begin with
grand jury investigations, the effect of the requirement for a particularized need
creates some uncertainty. The IAEAA does not authorize US officials to empanel a
grand jury on behalf of a foreign authority to obtain evidence of a foreign competition
law violation, nor does it provide a basis for search and seizure within the US at the
request of a foreign authority.
The IAEAA prohibits the DOJ and FTC from disclosing any evidence received under and
in violation of an AMAA, but does not prevent disclosure of such antitrust evidence to
a defendant in an action or proceeding brought by the Attorney General or the
Commission for a violation of any of the Federal laws if such disclosure would
otherwise be required by Federal law.185 The disclosure of evidence received from a
foreign authority under either the Freedom of Information Act or the Privacy Act would
also seem to be prohibited.186 A private plaintiff would therefore not have access to
the information. Information admitted into evidence will be disclosed to the public as
part of the court record, subject to the possibility of a protective order being made by
the court to protect commercially sensitive information.187 Supplementing discovery
are routine pre-trial orders, generally mandating that parties provide one another with
lists (p.531) documenting all evidence to be introduced at trial, even if the evidence
is legitimately withheld from discovery under one of the discovery limits.188
Respondents will thus at least know that the evidence exists. In relation to disclosure
to other US law enforcement authorities, it is not entirely clear whether the IAEAA's
confidentiality guarantee in section 8(b) would automatically prevent the US DOJ or
the FTC disclosing information to other federal agencies that enforce the antitrust laws
or even the state's Attorneys-General.189 The AustraliaUS AMAA appears to attempt
to address the issue by defining an enforcement agency for the purposes of the
agreement.
All foreign requests for assistance must be made to the AttorneyGeneral, who may
deny a foreign request for assistance.190 The US will decline assistance if the DOJ or
the FTC determine that the request does not satisfy the requirements of the IAEAA.191
First, assistance is only available in relation to foreign antitrust laws that are
substantially similar to any of the [US] antitrust laws and that prohibit conduct similar
to conduct prohibited under the [US] antitrust laws.192 While the US is unlikely to
enter an AMAA with a country without similar antitrust laws, it is unclear how
defences, exceptions, and industry-specific regulations might be treated.193 Secondly,
the foreign antitrust authority must have provided or will provide reciprocal assistance
to the US authorities that is comparable in scope to the assistance provided by the
US. Thirdly, the foreign antitrust authority is subject to laws and procedures that are
adequate to maintain securely the confidentiality of information that may be provided
and which provide no less protection than the protection provided by such evidence
under US law. Fourthly, the antitrust evidence to be provided is not in the prohibited
class of information that cannot be provided under the IAEAA. Fifthly, the foreign
authority will not disclose or use evidence obtained under the IAEAA for any purpose
other than the administration or enforcement of the foreign antitrust laws, unless such
disclosure is essential to a significant law enforcement objective, in which case the
Attorney-General of the FTC may give consent in writing under certain conditions.
Finally, the provision of assistance must be consistent with the public interest of the
US. The IAEAA only mentions potential conflicts of interest as a result of foreign state-
owned enterprises. The House Report lists the following factors: (1) whether the
affected party has been notified of the foreign request and has had an opportunity to
convey its views; (2) whether the foreign antitrust authority is prepared to grant
immunity to the affected individual comparable in scope to that granted by US
antitrust enforcement officials; and (3) whether the future (p.532) business plans of a
company are requested.194 The public interest standard is ill defined and broader than
that contained in most mutual legal assistance treaties. The DOJ has indicated that it
may be against the public interest to disclose the content of applications under the
leniency policy.195 Defendants may be able to negotiate agreements with the DOJ on
the disclosure to, and use of antitrust evidence by, foreign antitrust authorities. 196
There are several obstacles to the negotiation of agreements like those contemplated
by the IAEAA.197 Such agreements are likely to be one-sided in favour of the US,
because the US claims to have very extensive extraterritorial competition law
jurisdiction. There is also an unwillingness to exchange information, because of the
risk in the US of criminal proceedings, particularly against business executives, and
treble damages suits following an enforcement action. Agreements on competition law
core principles and jurisdiction and enforcement responsibilities may allay certain
concerns. If some countries feared that assisting the US could monopolize too much of
their time and resources, provisions on reimbursement of cost could be included. It is
likely that small countries are net beneficiaries of global antitrust enforcement.
The IAEAA is also problematic because of the possibility that information received for
competition law enforcement purposes may be passed on to sub-federal or member
state competition authorities or sister enforcement agencies at the national or
regional level. An AMAA may therefore be inconsistent with normal patterns of
information exchange within a country or region. Some US firms may be concerned
that information provided to a competition authority will be passed on to another
agency, which would leak the information to national competitors, especially state-
owned competitors. Article X(3)(b) of the CanadaEC Agreement addresses this
concern by prohibiting the disclosure to national authorities of information provided by
the Canadian Bureau.
Some enforcement agencies might fear that an agreement on information exchange
would reduce the willingness of parties to voluntarily supply information and thereby
threaten the enforcement of the forum's laws. Like US firms, non-US firms may be
concerned about the exchange of information in pre-merger notifications.
A possible obstacle to the exchange of information is the scope of the privileges
against self-incrimination and any immunity attaching to client lawyer
communications varying among jurisdictions. Therefore, it is possible that the
information requested by one agency may be privileged under the law of the (p.533)
requesting party, but not under the law of the requested party. The solution adopted
in Article 11 of the Hague Evidence Convention was that in the execution of a letter
of request the person concerned may refuse to give evidence in so far as he has the
privilege or duty to refuse to give evidence (a) under the law of the State of execution;
or (b) under the law of the State or origin.
The IAEAA does not provide foreign authorities with an automatic right to request the
US agencies to gather and supply information, because, it appears, of a fear that the
information will be misused abroad. To the extent that the IAEAA reflects a growing
awareness in the US of foreign competition law processes, the prospects of improved
international antitrust cooperation may have increased.
13.3.7 Integration of Trans-Tasman Investigation and Discovery into Domestic Regimes
The Commerce Act and the Trade Practices Act essentially allow one competition
authority to use its compulsory investigatory powers in another country, albeit only in
relation to one competition law rule. The provision of enforcement assistance is not
subject to any national interest test nor is it affected by blocking statutes. See Section
13.4.4.
13.3.8 Conclusions
No state is likely to assist in the gathering of information by another state where the
latter's enforcement efforts will harm the first state's important interests.198 However,
if states believe that a functioning international competition law system is desirable,
they may take a longer term view and see it as in their interests to prevent the
enforcement of national laws being hampered because documents or personnel are
located abroad. Concerns about foreign competition law enforcement actions could be
reduced if enforcement cooperation was embedded in a more general framework
containing rules on jurisdiction and core principles. A range of mechanisms are
necessary for the provision of foreign assistance to accommodate the different forms
competition law proceedings may take.
Large firms that may be investigated will often have considerable influence with the
local government, and that influence may be decisive where the government is
dependent on the firms for information and decisions must be made under a tight
timeframe. If cooperation in information gathering took place within a comprehensive
legal and policy framework, the national interest and claims of local business can be
better evaluated. Enforcement cooperation should be handled through courts or
competition agencies, which are able to apply the relevant legal rules and assess the
claims made by local firms, and are likely to require foreign cooperation in their own
enforcement activities at some later time.
(p.534) The competition authorities need to have the ability to share confidential
information and the agency that receives that confidential information must be
obliged to keep that information confidential and not use that information for any
purpose other than competition law enforcement. International cooperation
agreements are likely to be of more value where they permit one enforcement agency
to collect testimony and documents for an enforcement agency in another country.
Effective and cost-effective cooperation agreements may lead to less reliance on
unilateral measures and reduce concerns about judicial sovereignty. The IAEAA was
drafted by the US to advance US interests. If the IAEAA was based on an international
agreement, rather than trying to set the terms of international agreements, it may
have wider appeal.
It is unlikely that many states are at present willing to agree to an information sharing
agreement that does not provide for certain exceptions. However, these should be
specified with reasonable detail in the agreement, even if the judgment of whether or
not they apply is left to the country that wishes to withhold information.
Improvements in information gathering processes for private competition law actions
are likely to await a revision of the Hague Evidence Convention. The Hague
Convention, however, is perceived to have more deficiencies in common law countries
than civil law countries. In countries where there is little private competition law
litigation, there will be little interest in improved information gathering from abroad.
13.4 Recognition and Enforcement of Competition Law Judgments
13.4.1 Recognition and Enforcement of Foreign Judgments
Different countries show different degrees of willingness to enforce foreign money
judgments. Most US states do not require reciprocity and are liberal in enforcing
foreign money judgments that are not penalties or tax judgments. 199 In the absence of
an international agreement, Australia, England, and New Zealand courts will only
recognize a foreign judgment under the common law and statutory regimes based on
the common law.200 The practice in civil law countries varies, but most have statutory
provisions setting out the conditions under which (p.535) foreign judgments may be
enforced.201 Many international agreements facilitate the recognition and enforcement
of foreign judgments. In Europe, for example, Council Regulation (EC) 44/2001 and the
Brussels and Lugano Conventions provide a system for the allocation of jurisdiction in
civil and commercial matters and the reciprocal recognition and enforcement of
judgments between EU member states.
Space constraints prevent a full discussion of the recognition and enforcement of
foreign competition law judgments. In many countries the recognition and/or
enforcement of foreign money judgments for injury caused by a breach of a foreign
competition law may be possible, provided: (1) the judgment is not inconsistent with
the public policy of the recognizing state; (2) the judgment not inconsistent with the
conception of jurisdiction of the recognizing court; (3) there has not been a denial of
justice; and (4) the judgment is not a penal or tax judgment.202 Many states require
reciprocity, which generally requires that the country in which the foreign court
rendering the judgment is situated would recognize the same type of judgment, and
under similar conditions, if it was rendered by the recognizing court. By contrast, the
enforcement of interim and non-money competition law judgments under the general
law is unlikely.203
The restrictive conception of jurisdiction applied, especially under the common law in
the Commonwealth,204 as a pre-condition to the enforcement of foreign judgments,
may prevent the enforcement of many foreign competition law judgments. An
agreement on jurisdiction over competition law defendants may be necessary for the
enforcement of foreign competition law judgments.
The public policy exception may be another significant hurdle to the enforcement of a
foreign competition law judgment. The increasing recognition of the legitimacy of the
effects doctrine and the application of competition law in international cases has
reduced the possibility that the enforcement of a foreign competition law judgment
would be declined on the basis of public policy.205 The situation may be different where
the foreign judgment would interfere with government policy in the country where
enforcement is sought or the law is discriminatory against nationals of that country.
While the precise boundaries of the rule that the courts will not enforce a foreign
penal or revenue judgment are (p.536) not clear,206 a private action for damages
under competition law falls within the field of private law.207
13.4.2 Blocking and Clawback Statutes
Blocking statutes attempt to block the enforcement of foreign antitrust judgments.
Clawback statutes create a local cause of action for the recovery of the non-
compensatory portion of any treble damages award or judgment. 208 The British
Protection of Trading Interests Act created three main procedures to counter foreign
judgments. First, it extended the power of the British Government to forbid
compliance by British citizens and businesses with orders of foreign authorities, where
those orders have extraterritorial effect and prejudice British trading interests.
Secondly, it prohibited British courts from enforcing foreign judgments involving the
award of multiple damages and certain other judgments touching upon the control of
restrictive practices.209 Thirdly, it established a right for British citizens or businesses
against which foreign courts have awarded multiple damages to recover (or clawback)
the non-compensatory element from the original plaintiff by an action in a British
court. The Australian and Canadian blocking and clawback statutes were modelled on
the Protection of Trading Interests Act 1980.
The clawback provision of the Protection of Trading Interests Act was intended to
assist the British government and British firms in their battles with private US antitrust
litigants. In the Uranium litigation, the provision was the principal factor influencing
the plaintiff's decision to settle.210 The form and the use of blocking statutes has
evolved with the evolution of competition policies, rather than more abstract ideas
about jurisdiction. Although the statutes were controversial when enacted,211 the
blocking provisions have rarely been used and no recovery has yet been made under
a clawback statute. The District Court in Laker (p.537) suggested that the US courts
should normally interfere with foreign clawback judgments.212 One of the US
complaints about the clawback provisions was that such statutes could thwart the
exercises of jurisdiction that were consistent with conservative theories of territorial
jurisdiction.213 Thus, the defining characteristic of the legislation is the discretion it
creates, rather than its details.
The blocking and clawback statutes outlined above are incompatible with an
international agreement on reciprocal enforcement of competition law judgments or
the predictable enforcement of foreign competition law judgments under existing
rules. However, the virtual non-use of blocking statutes and the complete absence of
use of clawback statutes suggests that, if the US and the states with blocking statutes
could agree on a set of competition law conflict rules, further agreement on the
reciprocal enforcement of competition law money judgments may be possible,
provided such judgments were for single damages and a country could refuse to
enforce judgments that harm national security or important national interests.
13.4.3 Obstacles to International Agreement
The US proposed at the Hague Conference an international convention on recognition
and enforcement of foreign judgments. The European countries opposed a convention
on judgments that did not deal with jurisdiction. No agreement could be reached. The
1999 Draft Hague Convention on Jurisdiction and Foreign Judgments in Civil and
Commercial Matters did not cover competition law judgments.214 Nonetheless, the
negotiation of an agreement among industrialized countries providing for the
enforcement of private foreign competition law money judgments is not inherently
impossible. It is widely recognized that the non-enforcement of foreign competition
law judgments increasingly will undermine the laws and policies of all states. Many
countries already accept that competition law disputes are arbitrable and resulting
awards are enforceable.215 The Brussels and Lugano Conventions apply to private
competition law actions.
While it may not be in the interest of an individual state to enforce every foreign
judgment, it might be in the interests of a group of states to agree to (p.538) enforce
judgments that are rendered consistent with a set of agreed principles. Enforcement
of judgments is more likely where there is greater familiarity and respect between
legal systems. If there is a mutual recognition of the legitimacy of the competition
laws of partner countries and court procedures, the major obstacle to an international
agreement on the recognition of competition law private money judgments would be
the absence of an international agreement on jurisdiction. An agreement on core
competition law principles could facilitate the acceptance that foreign competition
laws are bona fide and not contrary to public policy in the recognizing state.
While a broad multilateral convention of judgments and jurisdiction is presently
impossible, it might be possible to negotiate a specific agreement on competition law
judgments. This solution was accepted in ANZCERTA. See Section 13.4.4. By being
only applicable to a small legal field the consequences of an international agreement
may be more predictable. Furthermore, because of the requirement for competition
law jurisdiction that the defendant's conduct has substantial anticompetitive effects
on the forum, it could be easier to accommodate the EU and US concerns about
personal jurisdiction and due process requirements in such a convention. A smaller
step forward would be the inclusion into a WTO agreement on competition law a
provision that provides that foreign private competition law money judgments,
rendered consistent with core principles and agreed rules on jurisdiction, shall not be
characterized as an impermissible attempt to enforce foreign penal or public laws, or
as inconsistent with forum public policy or jurisdictional requirements.216
13.4.4 The Enforcement and Recognition of Trans-Tasman Competition Law Judgments
The Australia New Zealand Closer Economic Relations Trade Agreement (ANZCERTA)
came into force in 1983.217 In 1986, New Zealand enacted the Commerce Act 1986,
which was modelled on the Australian Trade Practices Act 1974. Following the signing
in 1988 of a Memorandum of Understanding on the Harmonisation of Business Law,218
the national provisions dealing with abuse of dominance were amended to apply to
trans-Tasman markets.219 The (p.539) amendments were linked with the elimination
of antidumping measures on trans-Tasman trade.220
In the following decade and a half, Australian and New Zealand competition laws were
both amended and interpreted by the courts, sometimes leading to more and other
times less convergence.221 Patterson writes that change has been driven by domestic
agendas, and consultation paid little more than lip service.222 The Australian and New
Zealand governments felt, and continue to feel, that any costs associated with
increased constraints on the reform of their competition laws were not outweighed by
any benefits that might arise from eliminating further differences between
competition laws, but there may be gains from greater enforcement cooperation. 223
Section 36A(2) of the New Zealand Commerce Act provides that a person must not
take advantage of the person's substantial degree of power (if any): (1) in a market; or
(2) in a market in Australia; or (3) in a market in Australia and New Zealand, for the
purpose of: (a) restricting the entry of a person into a market that is not a market
exclusively for services; (b) preventing or deterring a person from engaging in
competitive conduct in a market that is not a market exclusively for services; or (c)
eliminating a person from a market that is not a market exclusively for services.224
Section 46A of the Australian Trade Practices Act contains mirror provisions. These
provisions provide for the application of the usual substantive rules on abuse of
dominance in section 36 of the Commerce Act and section 46 of the Trade Practices
Act to trans-Tasman markets.
The reference to markets that were not exclusively markets for services reflects the
coverage of ANZCERTA in 1988 and the link with antidumping measures. The
provisions, in effect, provide for the extraterritorial application of competition law
within the region. The trans-Tasman monopolization provisions cover predatory or
exclusionary conduct in both the home and export markets of firms operating in either
Australia or New Zealand. This means that sections 36A and 46A would appear to
apply to cases of dumping as well as the paradigm market access cases. The
market access aspect of the trans-Tasman misuse of market power provisions mean
that exclusionary conduct in a New (p.540) Zealand market could be challenged
under either the Commerce Act or the Trade Practices Act. Sections 36A and 46A also
appear to recognize the possibility of market power in one country being used for
anticompetitive purposes in a market in another country. The only reported case
under section 36A or section 46A was an unsuccessful interlocutory application under
sections 46 and 46A of the Trade Practices Act.225
New procedural mechanisms were put in place to facilitate the enforcement of the
trans-Tasman misuse of market power provisions. The Australian Federal Court may sit
in New Zealand to hear section 46A allegations against New Zealand firms and the
New Zealand High Court may sit in Australia to hear corresponding allegations under
section 36A. In these circumstances both Australian and New Zealand lawyers will
have standing before both courts. Related legislation allows both courts to exercise
jurisdiction in the other country for the purpose of issuing and enforcing subpoenas,
injunctions, and judgments.226
Section 98H of the Commerce Act provides the Commerce Commission with the power
to obtain information from persons ordinarily resident in Australia or carrying on
business in Australia through the service of a notice on such a person, where the
Commission considers it necessary or desirable for the purposes of carrying out its
functions under section 36A of the Commerce Act. Such documents can either be
supplied directly to the Commission or via the ACCC. Effectively, this provision means
that the key investigatory power the Commerce Commission uses in domestic cases
can be used in Australia for the purposes of investigating breaches of section 36A.
Section 99A provides the basis for the ACCC to exercise a reciprocal power under
sections 155A and 155B of the Trade Practices Act in New Zealand.
Australian and New Zealand legislation also sets out special procedures for the
registration and enforcement of certain competition law judgments, orders, and
injunctions to aid enforcement in trans-Tasman monopolization cases.227 Upon
application, the Federal Court of Australia must register a judgment given in the High
Court in New Zealand in proceedings arising under sections 36A, 98H and 99A of the
Commerce Act, unless, on the date of application, the judgment has been wholly
satisfied or could not be enforced in New Zealand.228 Upon registration, the judgment
is enforceable as if it were a judgment of the Federal Court of Australia.229 Reciprocal
provisions exist in New Zealand law.
The possibility of extending the extraterritorial reach of their respective provisions of
the Trade Practices Act and the Commerce Act to trans-Tasman (p.541) markets, in a
similar manner to the way in which sections 46A/36A apply, has been considered
several times by Australian and New Zealand officials, but not acted upon. 230 Without
the close ties between the countries and the similarity of legal systems and
competition laws, the trans-Tasman monopolization provisions would not have been
agreed. However, with the exception of the paradigm market access cases, the same
type of arrangement could be achieved between two countries that apply the effects
doctrine. A modified version of the ANZCERTA model could then be applied if there
was an agreement on rules on jurisdiction, enforcement cooperation, and the
enforcement of judgments. While the trans-Tasman monopolization enforcement
provisions would probably be seen as involving too great an infringement of
sovereignty for most countries, less demanding regimes permit the widespread
enforcement of competition law judgments.
13.4.5 Potential Conflict between Competition Law Remedies
The enforcement of remedies and sanctions has been the focus of foreign complaints
in a number of US antitrust cases. Even where one court does not prohibit or require a
defendant to do some act in contravention of the law of the place where the act is to
be done, judicial orders may be seen as infringing the sovereignty and/or interfering
with government policies of another country. As a general rule, the courts in the US or
a Commonwealth country may enjoin a party over whom they have in personam
jurisdiction from engaging in conduct outside the territory of the forum. That does not
mean that in personam jurisdiction permits the court to order foreign relief without
any jurisdictional limits.231 While the acceptance of the jurisdictional principles
suggested in Part II could reduce some of the concerns about extraterritorial remedies,
a broad range of orders for extraterritorial relief will still be possible.
The competition agencies and courts of several countries have sought to enjoin
mergers that would take place outside the territory of forum state.232 Some
competition agencies and courts have also required foreign firms to do particular acts
abroad. In Instituto Chemioterapico Italiano SpA & Commercial Solvents Corp v EC
Commission, for example, the ECJ approved an order requiring Commercial (p.542)
Solvents and Istituto to supply Zoja with specified amounts of previously withheld
chemical product needed for Zoja to supply both its European and non-European
customers and to submit proposals for future supply.233 This required affirmative acts
of Commercial Solvents in the US.234
In the ICI case, an US court ordered ICI to grant immunity under all its English patents
for the making of nylon yarn, which included English patents that had been
exclusively licensed to ICI by du Pont, even though ICI had granted exclusive licences
for both its own English patents and those that had been licensed from du Pont to
another English company, BNS. BNS was not a party to the US litigation or subject to
the US court's jurisdiction.235 The English Court of Appeal upheld an interlocutory
injunction sought by BNS against ICI that prevented ICI from complying with the US
judgment on the grounds that it inferred with BNS's contractual rights under the
exclusive licences.236 The Court of Appeal, viewing ICI and BNS as independent
entities, considered that the US court lacked jurisdiction to make the order. The result
was essentially that the original court order was unwound; because ICI was not able to
grant du Pont immunities, Judge Ryan declined to order du Pont to grant ICI
immunities so that it could export to the US. Irrespective of what the English courts
thought of the US policy, the US order was undermined because of concerns that the
US had exceeded its jurisdiction and the fundamental fairness of the US decision.
In the IBM case, the European Commission charged that IBM took various steps, when
it developed a new computer, to make it difficult for competitors to make peripherals
that were plug-compatible. In particular, IBM did not disclose sufficient details in
time to allow competitors to develop peripherals in time to compete with IBM's own
peripherals. This was similar to the case the US DOJ and private litigants had not
succeeded on in the US.237 The US Assistant Attorney-General for Antitrust was sent to
Europe to explain why the remedy proposed by the Commission was not desirable and
had harmful effects on the US economy. A similar situation has arisen with the
Commission's investigation of Microsoft.238 If the EU does not exceed its jurisdiction as
understood by the (p.543) US and there are no significant procedural improprieties,
the US government may only be able to encourage the EU to adopt the US view on
the appropriate policy and only remedies that are necessary and have the least
extraterritorial effects. Any other alternative would probably require the US to enter
an agreement delineating the exclusive competition law jurisdiction of the countries.
In the few decisions that expressly address the issue of conflicts of law, the US courts
have avoided enjoining or mandating conduct in foreign countries that would violate
the law of the country where the conduct in question should or should not take
place.239 Some consent decrees and judgments have required the respondent to report
any foreign government action that might interfere with US antitrust orders.240 The
consent decrees that terminated the 1950s oil cartel investigation, however,
exempted both conduct compelled or required by foreign law and conduct done
pursuant to request or official pronouncement of policy of the foreign nation. 241
Those decrees may be best seen as a product of their time and the politics of the oil
industry.
Courts and competition agencies normally have a degree of flexibility in the form that
equitable relief takes or in the negotiation of a remedy with the respondent, at least in
common law jurisdictions. In addition to considering standard factors such as the
effect on an innocent third party, feasibility and necessity of the requested relief, and
the public interest, some courts have been influenced by several factors peculiar to
international cases. An injunction prohibiting the US subsidiary of a foreign supplier
from importing automobiles with air conditioners installed prior to importation was
remanded where it appeared that the order might violate the foreign supplier's right
to non-discrimination under the GATT and a Friendship, Commerce and Navigation
Treaty between the US and Germany.242 Perhaps less appropriately, the US interest in
promoting US foreign direct investment was cited by one court as a reason to refuse
divestiture of a US firm's minority participation in a foreign firm.243
(p.544) The flexibility in crafting remedies could allow states to adopt remedial
practices that minimize the conflict with other states. This could be done through
agreement on best practice. For example, a country that is affected by a merger that
affects several countries should not prohibit the merger unless there is no other
remedy that is able to cure the anticompetitive effects of the merger. The ability to
grant an effective remedy, especially where such a remedy might involve the court in
ongoing supervision of foreign conduct of a foreign firm, should be taken into account
when a court determines whether it is an appropriate forum to hear a dispute and
whether one competition authority should defer to another.244
Conflict cannot be eliminated, but the acceptance of several principles could reduce
conflict over remedies: acceptance of sound rules on jurisdiction and forum selection;
the extraterritorial enforcement of competition law should be consistent with the
promotion of global consumer welfare; remedies should involve the minimum
intervention necessary, be non-discriminatory, and have the least effect possible on
foreign markets; courts and enforcement authorities should be fully informed of the
law and the activities of the courts and competition authorities in other countries, and
where possible seek to coordinate their enforcement activities; and gradual
convergence towards best practice on remedies should be encouraged through
organizations like the ICN.
13.5 Positive Comity
13.5.1 The Concept of Positive Comity
Positive comity is the principle that a country should (1) give full and sympathetic
consideration to another country's request that it opens or expands a law
enforcement proceeding in order to remedy conduct in its territory that is
substantially and adversely affecting another country's interests and, (2) take
whatever remedial action it deems appropriate on a voluntary basis and in
considering its legitimate interests.245 A positive comity obligation contains an
implicit choice of law and forum rules. Sections 8.2.7, 11.5.1, and 12.3.3 argued that
positive comity could potentially provide a more effective and politically acceptable
alternative to either section 301 or the extraterritorial application of competition law
to a paradigm market access case. Section 13.5 further examines the utility of
positive comity obligations.
The earliest positive comity obligations were contained in the US Treaties of
Friendship, Navigation and Commerce signed by the US after World War II. The parties
agreed to consult and to take such measures as deemed appropriate (p.545) with a
view to eliminating the harmful effects of restrictive business practices.246 Article IX of
the GATS is essentially an updated version of this provision. See Section 11.2.3.
Parties involved in antitrust proceedings have on at least two occasions contended,
unsuccessfully, that the restrictive business practices clause in a Treaty of Friendship,
Commerce and Navigation was a substitute for judicial enforcement of the antitrust
laws.247 The clauses proved ineffective in resolving disputes or increasing foreign
competition law enforcement.248
Since 1967, the OECD recommendations on cooperation in competition have also
contained a positive comity obligation, to which more detail has been progressively
added. In the past, a number of countries have cooperated informally and on an ad
hoc basis to investigate certain allegations of anticompetitive behaviour. For example,
the US has on several occasions brought to the attention of the JFTC anticompetitive
behaviour in Japan that the US believed impaired its ability to export to Japan.
However, it was not until the 1991 ECUS Agreement that the concept of positive
comity became widely known. A number of other bilateral competition law
enforcement cooperation agreements contain detailed positive comity provisions.249
13.5.2 The Experience under the ECUS Agreement
Article V of the 1991 ECUS Agreement addresses the concern that the interests of
one country can be adversely affected by the decision of another country not to
enforce its competition laws. The object of the provision is to alleviate that concern by
increasing enforcement. Article V(2)(3) lays down a procedure whereby one party can
notify the other party and request appropriate enforcement activities when it
believes that anticompetitive activities carried out on the territory of the other Party
are adversely affecting its important interests. The procedure requires the notifier to
provide details and offer to cooperate in the investigation; suggests (p.546) that the
parties may find it useful to discuss the matter; allows the notified to decide whether
or not to initiate enforcement activities; and requires the notified to advise the notifier
of is decision, the outcome of any enforcement activities initiated, and to the extent
possible of significant interim developments. Article V(4) makes it clear that both the
notifier and the notified remain free to make their own enforcement decisions with
respect to the notified conduct.
Many commentators regarded the inclusion of a positive comity obligation in a
bilateral agreement as a major step forward in the effort to solve international
competition law problems. However, while there appear to have been several informal
requests or consultations that could be treated as instances of positive comity,250
 there has only been one formal request for positive comity under the 1991 ECUS
Agreement.251 In January 1997, the US government made its first formal request under
the positive comity provision of the 1991 Agreement. The DOJ requested the European
Commission to investigate possible anticompetitive activity by European airlines that
might be preventing the US-based computer reservation systems from competing
effectively in certain European countries.252 The US request was accompanied by the
results of its initial investigation. The Commission issued a statement of objections
against Air France in March 1999 and found that Air France had abused its dominant
position. The case was closed after Air France signed a code of conduct. The US was
kept informed of progress.253 Despite their limited formal use, enforcement officials
continue to support positive comity provisions.
In 1998 an Agreement between the European Communities and the Government of
the United States of America on the Application of Positive Comity Principles in the
Enforcement of their Competition Laws (the Positive Comity Agreement) was signed.254
Article 1(2) states that the purposes of that agreement are to: (a) Help ensure that
trade and investment flows between the Parties and competition and consumer
welfare within the territories of the Parties are not impeded by anticompetitive
activities for which the competition laws of one or both Parties can provide a remedy,
and (b) Establish cooperative (p.547) procedures to achieve the most effective and
efficient enforcement of competition law . Article II(1) defines adverse effects to
mean harm caused by anticompetitive activities to (a) the ability of firms in the
territory of a Party to export to, invest in, or otherwise compete in the territory of the
other Party, or (b) competition in a Party's domestic or import markets. Article II(7)
defines anticompetitive activities to mean any conduct or transaction that is
impermissible under the competition laws of a Party. The definition of
anticompetitive activities limits the nature of the harm that one party can suffer in a
manner consistent with the argument in Chapter 6 and Section 11.5.1.
Article III restates the positive comity obligation contained in the 1991 Agreement.
The major innovation of the Positive Comity Agreement is the agreement for the
requesting party to normally defer or suspend enforcement activities during the
pendency of enforcement actions in the territorial Party when the conditions set out
in Article IV(2) are satisfied. Article IV(2) requires, inter alia:
(a) The anticompetitive activities at issue
1 (i) do not have a direct, substantial and reasonably foreseeable impact on
consumers in the Affected Party's territory, or
2 (ii) where the anticompetitive activities do have such an impact on the
Affected Party's consumers, they occur principally in and are directed
principally towards the other Party's territory;
(b) The adverse effects on the interests of the Affected Party can be and are likely to
be fully and adequately investigated and, as appropriate, eliminated or adequately
remedied pursuant to the laws, procedures, and available remedies of the Territorial
Party. The Parties recognize that it may be appropriate to pursue separate
enforcement activities where anticompetitive activities affecting both territories justify
the imposition of penalties within both jurisdictions;

The preamble to the Positive Comity Agreement states that the agreement does not
prejudice the position of the parties on jurisdiction. However, the obligation to
normally defer or suspend enforcement action (subject to certain conditions being
met) is similar to the use of stays of proceedings and the doctrine of forum non
conveniens in private competition law litigation to reduce the duplication of
enforcement actions. The condition in Article IV(2)(a)(i) is consistent with the
argument in Chapter 8 on what arguably is, and should be, the limit of US
extraterritorial jurisdiction. Article III(2) of the Positive Comity Agreement appears to
be an acknowledgment that market access barriers should be judged against the
standards of local law. Article IV(2)(a)(ii) can be seen as an expression of the
proportionality principle and a method of choosing a lead jurisdiction. See Section
13.6.4. The focus on the ability of the territorial party to adequately investigate and
provide a remedy in Article IV(2)(b) is also consistent with a forum non conveniens
approach. The Positive Comity Agreement suggests that the proposal advanced in
Section 10.4.3 is politically credible.
Article IV(2)(b) and (c) sets out requirements for the adequacy, thoroughness, and
promptness of any enforcement action by the territorial party and type and (p.548)
level of communication and cooperation between the parties. The latter essentially
requires the affected party to have a continuing knowledge of the results and
direction of the investigation and any possible settlement and some influence over
enforcement action.
Although there is no obligation on the parties to defer,255 the obligation in Article IV(2)
for the affected party to inform the territorial party of why it will not defer, if the
conditions listed are met, may provide some pressure for the parties to defer. If the
reasons for not deferring are made public and are based on concerns about
effectiveness and efficiency in the enforcement of competition law, rather than ad hoc
concerns about defence, industrial policy, and the protection of politically powerful
industries, publication could positively reinforce the positive comity obligation and
provide a basis for a more refined cooperation agreement. It may also be useful to
have an obligation for a country to explain why it did not defer its own enforcement
obligations in a case where the positive comity obligation could apply.
13.5.3 Refining and Strengthening Positive Comity
Positive comity is useful from the point of view of the requesting state, because it
eliminates various jurisdictional and information gathering problems associated with
the application of its law to foreign anticompetitive practices. From the point of view
of a private firm, positive comity may help it to get its complaints about
anticompetitive conduct in a foreign market adequately investigated. For the
requested state and its firms, positive comity may avoid unwanted extraterritorial
assertions of jurisdiction. The legal profession and business communities in the US
and EU supported the Positive Comity Agreement and suggested that the use of
positive comity in an even wider range of circumstances was desirable.256 The
agreement was seen as improving enforcement, reducing multiple investigations, and
limiting the extraterritorial application (of US) competition law.
Existing positive comity agreements only oblige countries to give consideration to the
request to commence enforcement proceedings. There are commonly believed to be
limits to the extent to which one country will enforce its competition law at the behest
of another country. The requesting country also needs to be assured that the
requirements in Article IV(2)(c) of the 1998 ECUS Positive Comity Agreement for a full
and properly resourced investigation are met. As that agreement recognizes, this can
be addressed by keeping the requesting party (p.549) fully informed. A further step
could be an obligation on the requested country to produce a reasoned report setting
out its conclusions, if so requested. Greater assurance of impartiality may arise if the
requesting country had the right to have one of its staff members observe the
investigation in question.
Positive comity could be strengthened if the requesting and the requesting
competition authorities could agree to a methodology for investigations, perhaps
beginning with the identification of the relevant economic model that will be used by
the requested authority. This may reduce the risk that the termination of
investigations is seen as being motivated by non-competition law concerns. The
convergence of competition laws and a greater understanding of foreign laws, which
the ICN and OECD processes are leading, may also improve the confidence in positive
comity.
The requested country is likely to have the best access to information on the allegedly
anticompetitive conduct. Positive comity helps to overcome problems in exchanging
confidential information. An inability to share confidential information between
competition authorities may restrict the inability of the requested party to keep the
requesting country fully informed. On the other hand, if there was a binding
agreement on the exchange of confidential information in place, some countries may
prefer to request enforcement assistance rather than enforcement. Therefore, the
ability to exchange confidential information may be linked to the resolution of
jurisdictional issues.
In 1996, the EU proposed a WTO competition law agreement containing a binding
positive comity obligation, whereby a requested country would have been obliged to
investigate and report within a fixed time whether or not it would take enforcement
action.257 Such a binding positive comity obligation risks the diversion of scarce
enforcement resources from priority enforcement areas. A binding positive comity
obligation would be almost functionally equivalent to a WTO obligation to enforce
competition law against anticompetitive conduct that nullifies or impairs any benefit
accruing to another state under a trade agreement. A positive comity obligation would
also overcome the difficulties of investigating anticompetitive conduct through the
DSU and would produce the type of information that a DSU proceeding would need. A
WTO obligation to enforce competition law and positive comity agreements are
complementary remedies. See Section 12.3.3.
Positive comity will be most useful in challenging exclusionary conduct within the
territory of the requested country, because it overcomes significant jurisdictional and
information gathering problems. Although exclusionary conduct may benefit local
firms at the expense of foreign firms, the territorial competition authority will still have
an incentive to take action to protect local consumers. Thus, the requested country
should be able politically to justify an enforcement (p.550) action against local firms
at the request of a foreign government, because it merely involves a non-
discriminatory application of competition law to protect local consumers.
In international cartel cases, positive comity is unlikely to assume a large role,
because most affected jurisdictions will prefer to retain jurisdiction and impose their
own penalties, which can be related to the harm that their consumers suffer. The rules
limiting the application of most competition laws to conduct that only affects foreign
markets means that positive comity is unlikely to be useful to address most foreign
export cartels. As argued in Chapter 5, most export cartel cases are best dealt with by
the application of the competition law in the importing country to the extent that the
export cartel harms competition in the importing country. The proper role of the
exporting country is to avoid encouraging or facilitating such conduct and to provide
enforcement cooperation and judicial assistance to affected countries. Positive comity
may, however, be useful to challenge foreign import cartels or boycotts of imports by
foreign firms.
Positive comity will not eliminate multi-country review of international mergers,
because of the short deadlines that competition authorities operate under when
assessing a merger and the unwillingness of a country to risk not having its important
interests adequately protected by asking another country to investigate a merger.258
13.6 Coordinating Parallel Investigations
Multi-state investigations are common and raise numerous practical concerns both as
to strategy and substance that do not exist in the case of an investigation by a single
state.259 Coordination between enforcement agencies in multi-state cases may
improve the effectiveness and efficiency of enforcement. Reducing the number of
courts or competition authorities doing the same task saves resources and reduces
the risk of conflicting or inconsistent decisions and orders. Coordination may also
reduce transaction and compliance costs and prevent the enforcement actions of one
authority undermining those of another. See Section 5.4.2.
Some enforcement cooperation agreements encourage the coordination of multi-state
competition law investigations.260 A number of competition authorities have attempted
to coordinate their enforcement activities with other (p.551) authorities in individual
cases. Coordinated dawn raids in international cartel cases by the competition
agencies in Canada, the EU, Japan, and the US are becoming increasingly common. 261
However, cooperation agreements have generally provided little guidance on the
occasions when an authority should (or should not) act and the precise actions it
should (or should not) take. Without a supranational competition authority that may
override national authorities, there are inherent limits to the extent of coordination
possible.
13.6.1 Coordination of Investigations under the ECUS Agreement
The coordination (or lack thereof) between the EU and the US competition authorities
has attracted considerable attention. Article IV(1) of the 1991 ECUS Agreement
provides that: The Competition authorities of each Party will render assistance to the
competition authorities of the other Party in their enforcement activities, to the extent
compatible with the assisting Party's laws and important interests, and within its
reasonably available resources. Although the references to important interests and
resources leaves plenty of scope for a party to elect not to render the requested
assistance, a close relationship and repeated interaction between authorities could
still lead to a high level of cooperation, if there were clear rules.
Article IV(2) provides that where both parties have an interest in pursuing
enforcement activities with regard to related situations, they may agree that it is in
their mutual interest to coordinate their enforcement activities. In considering whether
to coordinate their enforcement activities a non-exhaustive list of factors which the
parties must take into account is provided, which appears to focus on lowering the
cost and increasing the effectiveness of antitrust investigations, proceedings, and
remedies for both antitrust authorities and business.262 This is broadly consistent with
the approach to forum selection advocated in Part II of this book. Article IV(3) provides
that if the parties agree to coordinate enforcement activities, each party shall conduct
its enforcement activities expeditiously and, so far as possible, consistently with the
enforcement objectives of the other party. Article IV(4) gives either party the right to
limit or terminate its participation in any coordinated effort and engage in individual
efforts.
In a number of cases the EU and the US agencies have been able to agree to
coordinate their investigations and the announcement of the results of (p.552)
investigations.263 Contacts between the European Commission and the US agencies
are often established at an early stage where a common interest has been identified.
On 30 October 2002, the USEU Merger Group issued a set of best practices for
coordinating merger review.264 The document recognized that the success of
coordination depends on the active participation and cooperation of the parties to the
transaction and would, in most cases, require the parties to discuss timing with the
agencies before filing in either jurisdiction.265 Although it would be desirable to have
firm rules on the coordination of timing, flexibility is needed to respond to variation in
the work level of the competition authorities and the complexity of cases.
The 1991 ECUS Agreement encouraged the EU and the US agencies to avoid limiting
the ability of other reviewing authorities to craft effective remedies for merger cases
by its own remedial order. In a number of cases the EU and the US have been able to
coordinate the negotiation of remedies with the merging parties.266 There are also a
number of cases where several national agencies had concerns about aspects of a
merger, but only one agency required an undertaking from or entered into an
agreement with the merging firms, which included obligations to address different
concerns of different agencies.267 The Best Practice note states that: The reviewing
agencies recognize that the remedies offered by the merging parties may not always
be identical, in particular because the effects of a transaction may be different in the
US than in the EU. Nevertheless, a remedy accepted in one jurisdiction may have an
impact on the other. Thus: To the extent consistent with their respective law
enforcement responsibilities, the reviewing agencies should strive to ensure that the
remedies they accept do not impose inconsistent obligations upon the merging
parties.268
The possibility of coordination is limited by the duty of each authority to enforce its
own law and only its own law. It has been argued that ECUS cooperation has been
dependent on the similarity between the parallel investigations.269 (p.553) Where the
agencies considered different transactions or conduct, defined markets differently or
analysed competition differently, it is unlikely that either agency would see any value
in investing extensive resources in cooperation, let alone foresee any possibility of an
agreement on a common remedy. Even if the agencies have some prosecutorial
discretion, without the ability to exchange confidential information and without quite
similar substantive competition law, coordination may be the exception rather than
the rule.
13.6.2 United States Antitrust Federalism
The experience with coordination within the US and the EU makes for an interesting
contrast. Virtually all of the US states have their own antitrust statutes that generally
parallel the federal antitrust laws.270 However, in a number of areas, state
enforcement law and enforcement practice has been more advantageous for plaintiffs,
in particular indirect purchasers.271 In the US, antitrust federalism is seen primarily as
giving rise to practical, not theoretical, concerns.272 The US Constitution permits the
application of state antitrust law even where there is some impact on interstate
commerce.273 Furthermore, the pre-emption of state antitrust law by federal antitrust
law would occur only when compliance with both state and federal law is impossible
or when state law stands as an obstacle to the accomplishment and execution of the
full purposes and objectives of Congress.274 Both private and state plaintiffs have
used state antitrust claims as a means of extracting favourable settlements from
defendants wishing to avoid litigation in multiple fora.275 The risk of defendants having
to litigate in several countries in international competition law cases is generally
small. The US tolerance of duplicative proceedings and recoveries in domestic cases is
likely to make the US relatively tolerant of the small risk of parallel litigation in
international competition law cases.
Although state antitrust enforcement has a long history, cooperative enforcement
efforts have largely only taken place over the last two decades. There is now a formal,
regularized coordination process undertaken by the states through the Multistate
Antitrust Taskforce of the National Association of Attorneys-General (p.554) (NAAG),
which has apparently been active and quite successful in coordinating multistate
antitrust actions.276 The Taskforce acts as an ad hoc enforcement unit, with a small
group of states taking the lead in any investigation and litigation. One state typically
issues administrative subpoenas or civil investigative demands under its laws and
informs the respondents that their responses will be shared with other states.277
Actions are, however, usually brought under US federal law, so the institutional
framework in which cooperation takes places means that the experience is of limited
relevance to international competition law.
Various arrangements have been entered into to permit federalstate cooperation and
coordination. The greater coordination may, in part, reflect the decisions of the
Supreme Court that enlarged the authority of states in antitrust matters. A
consequence of the latter is that multiple inconsistent decisions are more likely, which
increases the gains from coordination and the negotiating position of the states. The
existence of the federal regime and arrangements providing for cooperation between
state and federal agencies provides another means of coordinating among states that
does not exist at the international level. For example, agreements provide for the
exchange of personnel between state and federal agencies (including the cross-
deputization of attorneys) and to give state agencies a right of first refusal to
prosecute matters that are of local interest.278 The degree of coordination achieved
within the US may also not be routinely achievable internationally, because in the US
the federal and state agencies are reviewing essentially the same markets using
essentially the same criteria.279
13.6.3 Intra-European Union Coordination
The new EU procedures for the enforcement of Articles 81 and 82 seek to create a
network of national competition authorities and national courts applying EU
competition law.280 The national courts and competition agencies have authority to
apply both Article 81(1) and (3). The European Commission and courts, however,
retain a central role in coordinating between the member states and the European
institutions. The resulting model is not suitable for world competition law because it is
reliant on a regional supranational body to step in if there is (p.555) conflict between
the member states or centralized enforcement is desirable. For example, if the
Commission initiates an investigation in a case under investigation by a national
competition authority, the national authority will be relieved of competence. National
courts and competition authorities must always apply Article 81 to agreements that
may affect trade between member states and such agreements cannot be prohibited
under separate national competition law rules if the agreement is consistent with
Article 81.281 In addition to the potential for central control, Regulation 1/2003 also
contains a number of mechanisms to reduce the likelihood of the parallel application
of Articles 81 and 82.282 Articles 11 and 12 of Regulation 1/2003 create an information
sharing and consultation network. Article 13(1) provides that where the competition
authority of one member state is investigating an agreement or a practice, this would
be sufficient grounds for another competition authority or the Commission to not open
an investigation. Article 13(2) provides that a competition authority may reject a
complaint already dealt with by another authority. The Commission Notice on
Cooperation within the Network of Competition Authorities provides further detail on
the allocation of cases within the network. These provisions are only of limited
relevance to worldwide cooperation on competition law, because within the EU the
national competition authorities will in most cases apply the same competition law,
which adopts a Community-wide rather than a national point of view for the purposes
of market definition and determination of harm to competition and consumer welfare.
The Agreement on the European Economic Area and associated protocols requires
coordination between the EU and the EFTA Surveillance Authority and EFTA states.
However, the relationship between the EU and EFTA states is not a simple horizontal
arrangement between states, but involves the EFTA states effectively deferring to the
EU in certain defined instances as if the EFTA states were members of the EU. Again,
such a model could not be applied at a multilateral level.
13.6.4 Prerequisites for Improving Coordination of Investigation and Enforcement
International coordination of enforcement actions often depends on the investigating
agencies obtaining the consent of the parties, which will vary between cases. Where
merging parties believe transaction costs could be reduced if the agencies were able
to coordinate their investigations, they may negotiate an agreement with the group of
states investigating a transaction to harmonize timetables (p.556) and demands for
documents. In other cases, the respondents may be concerned about the exchange of
information between agencies and refuse the exchange of confidential information, or
attempt to limit such exchanges by agreement to obstruct coordination.
The settlement of multi-state claims in the US, for example, requires respondents to
consider a number of strategic issues, including the effect that settlement with some
states will have on litigation with other states; whether other states will attempt to
join in a settlement even though they were not part of the initial investigation; the
different remedies that different states desire or are legally limited to accepting; US
DOJ and FTC consent settlements are subject to public comment and publication in the
Federal Register; if circumstances change, modification of settlements may be difficult
in a multi-state setting and therefore respondents might need to carefully negotiate a
modification procedure; and respondents should try to limit the right of every state in
a multi-state group to have the ability to directly monitor the implementation of the
settlement, perhaps by one state being in charge of monitoring.
Although some controls on cooperation between competition agencies are necessary,
the public interest is unlikely to be served by allowing the parties being regulated to
determine whether the regulators can cooperate. The current situation denies the
agencies a legitimate means of gathering information and allows the merging parties
to game the agencies. States should agree to give their agencies increased freedom
to pursue international coordination.
There may be a greater need for coordination of pre-merger reviews, leniency
applications, searches of business premises, and orders for injunctive relief. With
respect to investigation into past conduct, the competition authorities and courts in
different jurisdictions are more likely to reach the same result in international cases
where there is a high level of information exchange between authorities and the
authorities and/or courts in one jurisdiction can take advantage of the evidence
presented or facts established (such as the existence of an agreement or below cost
pricing) in another jurisdiction. This is likely to require further agreements of
enforcement cooperation and international judicial assistance. States could, however,
unilaterally modify domestic law to facilitate reliance on evidence and findings of fact
in other jurisdictions and improve the prospect of national investigations reaching the
same conclusion.
The rules of civil procedure may also allow the consolidation of international
competition law litigation across several countries where the actions are closely
linked. Reducing the number of simultaneous investigations may allow the
enforcement agencies to save resources by sequencing their investigations and
sharing the results of their analyses. The gains from sharing the results of
investigations are likely to be greater in situations where per se rules are being
applied or competitive conditions do not differ significantly between countries. Such
changes may receive less domestic political support than coordination of pre-merger
reviews, because large firms will have more to lose than to gain from parallel
investigations, prompt decisions, and information sharing.
(p.557) Agreements on coordination may be based on the participants choosing
whether to opt in or opt out of cooperation in defined circumstances. The choice will
depend on a variety of factors, including cost and resource availability and the
difficulty of identifying the circumstances where cooperation is desirable and what
cooperation will entail. In general, Baker et al suggest, an opt-out approach is
appropriate where the objective is to soften a mandatory rule by building in a safety
valve, whereas an opt-in approach works well when good incentives for participation
are available.283 While there are clear benefits from an opt-out approach, it is not
clear that the high level of diversity present in the current global legal and economic
landscape and the widespread aversion to significantly greater centralization of
competition law enforcement would make such an approach politically feasible at a
global level. An opt-in approach to coordination may also be necessary because of the
impossibility of formulating precise rules that accommodate the diversity of national
interests and cases.
The obligation to consider coordination should arise whenever two or more
jurisdictions that are party to a cooperation agreement are reviewing a merger or
investigating anticompetitive conduct. However, the types of coordination that are
practical will depend on the facts of an individual case. To identify cases where more
than one country is reviewing a transaction or undertaking an investigation, all parties
to the coordination agreement should be required to notify the fact that they are
reviewing a transaction to a central database. Such a notification system is only likely
to work among competition agencies committed to enforcement. All parties to such an
agreement should also require the merging parties to report whether the merger has
been notified to any other agency or is otherwise being reviewed by any other agency.
Agencies can impose such requirements unilaterally. For example, paragraph IV(8) of
the EC Form C Complaint pursuant to Article 7 of Regulation (EC) 1/2003 requires the
complainant to: Provide full information about whether you have approached,
concerning the same or closely related subject-matters, any other competition
authority and/or whether a lawsuit has been brought before a national court. 284
Once the agencies interested in a merger have been identified, a timetable and set of
procedures can be developed for the interested agencies to decide what form
coordination will take, including procedures for sharing information as an investigation
progresses. Many of the more recent international competition law cooperation
agreements have attempted to improve coordination by regularizing the occasions
and manner in which one agency will contact another.
(p.558) 13.6.5 Choosing a Lead Jurisdiction
To reduce the transaction costs in multiple jurisdictions reviewing a single transaction
essentially requires a reduction in the number of jurisdictions reviewing that
transaction. To that end, proposals for the appointment of lead jurisdictions have
been made. The proposals vary considerably, but usually entail the competition
authority in one jurisdiction acting as a coordinating body for cases that affect more
than one country. A lead jurisdiction arrangement that would have the least effect on
the autonomy of other competition law authorities would merely have the lead agency
act as an international clearing house for information gathered by all of the interested
investigating agencies and the comments of these agencies. A stronger lead agency
arrangement might have the lead agency make an initial assessment of the case,
which could be sent to the other jurisdictions as a recommendation or might be given
some evidential weight in the other jurisdictions.
A firm lead agency arrangement could see the lead agency determined by
consultation between the interested agencies and that agency given certain
dispositive powers over a particular case. Such an arrangement should be
accompanied by an agreement between competition agencies to cooperate in the
investigation and enforcement of the action. A lead agency arrangement would also
require reasonably definite rules to determine which agency would be the lead agency
in any given case. If there were no clear rules and agencies could not agree, a
comity analysis that involves considering a number of factors is unlikely to assist to
determine a lead agency. A rule simply providing that jurisdiction will be allocated on
the basis of global efficiency or welfare would also be unsatisfactory.
Like the forum selection approach advocated in Chapter 10 and contained in the
coordination provision in the 1991 ECUS Agreement, a rule identifying a lead agency
should focus on the efficient enforcement of competition law. Therefore, rather than
considering all national interests, the primary focus should be the availability of
resources, relative cost of conducting and investigation, access to information, ease of
enforcement, and expertise.285 It would still be necessary for each national authority
to determine that their enforcement interests would be satisfactorily met through
another authority conducting the investigation in the circumstances of the case. This
decision would involve consideration of several factors, including national substantive
and procedural laws, the resources and attitudes of competition authorities, similarity
of effects of the conduct between investigations, and the significance of the
commerce involved.
(p.559) If the lead agency is not clearly identified under an international rule, an
international dispute resolution mechanism or decision-making processes would be
needed to select the lead agency. The short time period in which such a jurisdiction
would need to be determined would be too short for the use of a rules-based dispute
resolution mechanism. In any event, if states cannot agree on a clear set of rules to
designate the lead jurisdiction, they are unlikely to agree to this determination being
delegated to an independent supranational body.
There is less need to identify a single lead jurisdiction if the lead jurisdiction is not
given powers to determine an issue for all concerned countries. If the lead jurisdiction
does not have dispositive powers, its function is limited to gathering information from
private parties and enforcement agencies, disseminating that information to sister
agencies, and possibly making a recommendation as to the appropriate action. Such a
model may, however, only result in a small reduction in transaction costs.
Major international transactions can have different effects on different countries,
because competitive conditions differ between national markets. This is likely to be
relatively common for international mergers. Therefore, individual countries are
unlikely to want to surrender control over any particular class of transactions, because
before they have investigated a transaction they are unlikely to know whether it is a
transaction that affects their country differently from other countries. An ad hoc lead
jurisdiction arrangement is unlikely to result in any one jurisdiction been made the
lead jurisdiction before all other jurisdictions have analysed the case and decided
whether or not they believe their interests will be served by allowing another
jurisdiction deal with the case under their law.
The nature of the coordination possible and desirable will depend upon the type of
merger case in issue. The parties to a coordination arrangement may need to choose
from two or three types of coordination or may agree that certain patterns of
coordination are appropriate for different types of merger. In some cases,
consultations between agencies could lead to the conclusion that the agency in the
country most affected by a transaction should be the lead agency and the others
should defer to the decisions of that agency. In other cases, coordinated investigations
may be more appropriate with a lead jurisdiction (or two lead jurisdictions) providing
information and analysis to other agencies, which retain the right to make
independent enforcement decisions. In other cases, multiple investigations with no
lead jurisdiction may be desirable.
Any rule that determined the lead jurisdiction on the basis of the amount of sales or
assets in the jurisdiction would favour large countries, even when such countries are
not likely to be affected by the anticompetitive effects of a merger. Similarly, if
jurisdictions where the sales or assets were less than a certain percentage of the total
sales or assets of the merging parties were to be designated as the lead jurisdiction
that might mean that many small countries would not be able to affect a merger even
if they are the only countries adversely affected. The designation of a lead jurisdiction
is only likely to be feasible when a truly integrated international market is involved
and therefore the effects of the merger are likely (p.560) to be the same in all
affected countries. In such a case, where the merging parties are likely to possess
only a relative small share (say 20 per cent) of any plausible market in a country and
the merger was being reviewed by a major jurisdiction, there could be a presumption
that the small state will not independently review the merger. The merging parties
may even make submissions and provide information to support a country declining to
review a merger in favour of a lead jurisdiction. A rule that designated the lead
jurisdiction to be the country where the centre of gravity of the merger was, or where
the largest effects were felt, is unlikely to be unworkable, because of the difficulty of
defining those terms.
Smaller countries will be more likely to accept the EU or the US as a lead jurisdiction
and not separately challenge a transaction if there are information sharing protocols
in place. The smaller countries need to understand what the lead jurisdiction is doing,
and why, throughout an investigation if they are to have faith that the enforcement
action of a lead jurisdiction will protect its interests.
After the GE/Honeywell case, the US may fear that aggressive enforcement of the EU
competition law could prevent many efficient mergers in the US and restrict the
activities of US businesses. The US may therefore have an interest in an agreement
allocating cases in such a way that it decides those that are more important to the US
(assuming it cannot encourage the EU to adopt US competition law). The US is most
likely to want to exclude the application of EU competition law in cases that involve US
firms and most directly affect the efficiency of US production. Thus, if any lead
jurisdiction model is acceptable it is likely to involve the home state being given some
preference over transactions involving local firms and where a majority of sales are
made locally. However, given the US experience with multi-state domestic antitrust
enforcement and the uncertainty about the potential effects of a merger until after an
investigation, it is not clear that the US or the EU would accept any significant formal
limitation on their ability to apply their merger laws.
A lead jurisdiction model would not work unless there was a high level of trust
between competition authorities and an acceptance of certain general principles of
international competition law to ensure that a lead jurisdiction did not act in self-
interested way that was harmful to other states. More generally, there may be a
trade-off that states must make between a reduction in the number of jurisdictions
reviewing a transaction and the extent of the international obligations that must be
agreed, to ensure that interests of non-reviewing jurisdictions are being protected.
However, without a significant convergence of substantive competition laws and an
agreement to allow national welfare considerations to be overridden by global welfare
considerations in some cases, the use and the significance of a lead jurisdiction model
will be limited. This would require legislation in many countries. A lead jurisdiction
arrangement would have to be multilateral, not merely a series of bilateral
agreements, to be practical, because the business practices in issue will frequently
affect more than two jurisdictions.
Notes:
(1) Space constraints prevent a full review of the historical development of
international competition law cooperation. See KC Kennedy, Competition Law and the
World Trade Organisation: The Limits of Multilateralism (London: Sweet & Maxwell,
2001) 22145 ; UNCTAD, Competition Provisions on Regional Trade
Agreements: How to Assure Development Gains (New York: United Nations, 2005).

(2) Within the EU, this is expressly recognized in Council Regulation (EC) 1/2003 of 16
December 2002 on the implementation of the rules on competition laid down in
Articles 81 and 82 of the Treaty, Art 35 [2003] OJ L1/1; EC Commission Notice on
cooperation within the Network of Competition Authorities [2004] OJ C 101/43, para 2.
(3) The US has agreements with Australia, Brazil, Canada, Germany, Israel, Japan, and
Mexico. See <www.usdoj.gov>, accessed on 1 March 2007.
(4) B Hawk, United States, Common Market and International Antitrust: A Comparative
Guide (2nd edn, Englewood Cliffs: Prentice Hall Law and Business, 1991 supp), vol 1A,
738.
(5) C(95)130/FINAL, 27 and 28 July 1995, available from
<http://www.oecd.org.libproxy1.nus.edu.sg>, accessed on 1 March 2007. The 1995
Recommendation superseded the OECD Recommendations of 1967, 1973, 1979, and
1986. See OECD, Competition Law Enforcement: International Co-operation in the
Collection of Information (Paris: OECD, 1984) ; OECD, Concentration and
Competition Policy (Paris: OECD, 1979) ; OECD, Restrictive Business
Practices of Multinational Enterprises: Report of the Committee of Experts on
Restrictive Business Practices (Paris: OECD, 1977) . See also OECD
Recommendation Concerning Effective Action Against Hard Core cartels, OECD
C(98)35/Final, 30 March 1998; OECD Recommendation of Council on Merger Review,
OECD C(2005)34, 23 March 2005; OECD Competition Committee, Best Practices for
the Formal Exchange of Information between Competition Authorities in Hard Core
Cartel Investigations, October 2005, available from
<http://www.oecd.org.libproxy1.nus.edu.sg>, accessed on 1 March 2007.
(6) Reprinted in (1987) 26 ILM 531.
(7) Australia has bilateral cooperation agreements with Fiji, Korea, New Zealand,
Papua New Guinea, Taiwan, and the US, and tripartite agreements with Canada and
New Zealand, and New Zealand and the UK, available from <http://www.accc.gov.au>,
accessed on 1 March 2007.
Canada has bilateral agreements with Chile, the EU, Korea, Japan, Mexico, the UK, and
the US, and a tripartite agreement with Australia and New Zealand, available from
<http://www.competitionbureau.gc.ca.libproxy1.nus.edu.sg>, accessed on 1 March
2007.
Japan has bilateral agreements with Australia, Canada, the EU, and the US, available
from <www.jftc.go.jp/e-page/>, accessed on 1 March 2007.
(8) Treaty between the Government of the United States of America and the
Government of Canada on Mutual Legal Assistance in Criminal Matters, 18 March
1985; see also Treaty on Extradition between the United States of America and
Canada, 3 December 1971, as amended. Reprinted in American Bar Association,
International Antitrust Cooperation Handbook (Chicago: ABA, 2004) 449, 634.

(9) See, eg, United States v Plastics, Inc Crim No 94-00245, 6 Trade Reg Rep (CCH)
45,094, No 4071 (ED Pa 9 June 1994); United States v Kanzaki Papers, Inc Crim No 94-
10176NMG, 6 Trade Reg Rep (CCH) 45,094, No 4086 (D Mass 14 July 1994). Joint
investigations have begun to open up some interesting new legal issues for criminal
procedure, such as access to exculpatory evidence collected by a foreign government.
See AP Victor, Jurisdiction and enforcement: the growth of international criminal
antitrust enforcement (1998) 6 George Mason University Law Review 493, 499.

(10) See, eg, CS Stark, Jurisdiction and enforcement: international cooperation in the
pursuit of cartels (1998) 6 George Mason University Law Review 533, 537.

(11) A number are reprinted in the International Antitrust Cooperation Handbook

(above n 8). The first person the US sought to extradite in an antitrust matter has
fought it through the UK courts. See Norris cleared to take extradition fight to Lords,
13 March 2007,
<http://www.business.timesonline.co.uk.libproxy1.nus.edu.sg/tol/business/law/corpora
te/article1508737.ece>.
(12) Joint Statement concerning Cooperation in Antitrust Matters, 3 November 1969,
reprinted in AV Lowe, Extraterritorial Jurisdiction (Cambridge: Grotius, 1983) 226.

(13) BR Campbell, The CanadianUnited States antitrust notification and consultation

procedure. A study in bilateral conflict resolution (1978) Canadian Bar Review 459,
460.
(14) B Hawk, United States, Common Market and International Antitrust: A
Comparative Guide (2nd edn, Englewood Cliffs: Prentice Hall Law and Business, 1991
supp), vol 1A, 792.
(15) Campbell (n 13 above) 474; JS Stanford, The application of the Sherman Act to
conduct outside the United States: a view from abroad (1978) 11 Cornell
International Law Journal 195, 196.
(16) Campbell (n 13 above) 492.
(17) Hawk (n 4 above) 793.
(18) Stanford (n 15 above) 197.
(19) Reprinted in (1984) 23 ILM 275.
(20) Ibid Art 5.
(21) See Canadian counsellors ponder issues of confidentiality in data exchanges (5
October 1995) 69 Antitrust and Trade Regulation Reporter 397.
(22) 1982 AustraliaUS Agreement, Art 5(1).
(23) Ibid Art 5(2).
(24) Ibid Art 3.
(25) The Agreement Between the Government of the United States of America and the
Government of Australia on Mutual Antitrust Enforcement Assistance, Art II(G).
(26) See Art 3.2.
(27) See Art 4.2.
(28) A Fels, Building a modern Trade Practices Act: A trans-Tasman analysis, Speech
to the New Zealand Institute of Economic Research, 18 September 2002, p 7
; Australian Government Productivity Commission, Australian and New
Zealand Competition and Consumer Protection Regimes, Research Report (Canberra:
Productivity Commission, 2004).
(29) For example, where Art 5.2.2 of the AustraliaNew Zealand agreement was
dropped, Art 5.2.3 of the AustraliaTaiwan agreement was incorrectly numbered Art
5.2.4.
(30) Arts 3.2, 4.1.
(31) Reprinted in (1991) 30 ILM 1487.
(32) The competence of the Commission to conclude the agreement was, however,
successfully challenged in Case 327/91 France v Commission [1994] ECR I-3641. The
matter was able to be regularized by a joint decision of the Commission and the
Council: [1995] OJ L95/47, corrected [1995] OJ L131/38.
(33) WK Walker, Extraterritorial application of U.S. antitrust laws: the effect of the
European CommunityUnited States Agreement (1992) 33 Harvard International Law
Journal 583, 586, 587.
(34) Antitrust in Global Markets Financial Times, 27 September 1991, at 18.
(35) Article I(2).
(36) These situations are when the enforcement activities: (1) are relevant to the
enforcement activities of the other party; (2) involve anticompetitive activities (other
than a merger or acquisition) carried out in significant part in the other party's
territory; (3) involve a merger or acquisition in which one or more of the parties to the
transaction, or a company controlling one or more of the parties to the transaction, is
a company incorporated or organized under the laws of the other party or one of its
states or member states; (4) involve conduct believed to have been required,
encouraged, or approved by the other party; or (5) involve remedies that would, in
significant respects, require or prohibit conduct in the other party's territory.
(37) R Geiger, Joint ventures, competition policy and international trade: recent
developments in the OECD (1986) 7 Canadian Competition Policy Record 40, 43
; N Hachigian, Essential mutual assistance in international antitrust
enforcement (1995) 29 International Lawyer 117, 137 . B Zanettin,
Cooperation Between Antitrust Agencies at the International Level (Oxford: Hart
Publishing, 2002) 78 cites slightly lower figures.
(38) See JP Griffin, EC and U.S. extraterritoriality: activism and cooperation (1994)
17 Fordham International Law Journal 353.
(39) See Zanettin (n 37 above) 79 for a summary of notifications under the ECUS
Agreement. The mergers that were notified were also a large proportion of all of the
mergers investigated. For example, in fiscal year 1999 to 31 July, the FTC had issued
38 second requests in merger cases, and 21 of them involved notifications to foreign
governments; 12 have involved substantial discussions with foreign authorities. In
addition, there have been about a dozen other mergers in which discussions took
place between FTC staff and other enforcement authorities where the FTC concluded
that no enforcement was necessary. See RG Parker, Global merger enforcement,
International Bar Association, Barcelona, Spain, 28 September 1999.
(40) See, eg, Commission report to the Council and the European Parliament on the
application of the Agreement between the European Communities and the
Government of the United States of America regarding the application of their
competition laws 10 April 1995 to 30 June 1996, COM(96)479 Final, 8 October 1996,
4.2.3 and 4.3.
(41) Ibid 4.2.3.
(42) Ibid 3.2.
(43) RA Whish and D Wood, Merger Cases in the Real World: A Study of Merger
Control Procedures (OECD: Paris, 1994) 823.
(44) Zanettin (n 37 above) 79.
(45) See Whish and Wood (n 43 above) 8.
(46) See Exchange of Interpretative Letters with the Government of the United States
of America [1995] OJ L131/38.
(47) Ibid .
(48) Ibid .
(49) Commission report to the Council and the European Parliament on the application
of the Agreement between the European Communities and the Government of the
United States of America regarding the application of their competition laws 10 April
1995 to 30 June 1996, COM(96)479 Final, 8 October 1996, 4.4; Commission (above n
40) 2.2.3.
(50) Commission (n 40 above) 2.2.2.
(51) See, eg, Agreement between the Government of Japan and the European
Community Concerning Cooperation on Anticompetitive Activities, Brussels, 10 July
2003, Art 6.3.
(52) For example the US DOJ deferred to the concerns of the Canadian government on
the proposed acquisition of Versatile Corporation, a Canadian tractor manufacturer, by
John Deere & Company, an American manufacturer of agricultural equipment. The
companies argued that the transaction should be permitted because Versatile was a
failing firm. The US DOJ expressed the view that it was a close question whether
Versatile was a failing firm, but in light of the 1984 USCanada Memorandum of
Understanding, the substantial Canadian interests at stake, and the Canadian
government's independent evaluation of Versatile's status, the DOJ was willing to treat
Versatile as a failing firm. US DOJ Press Release, 20 June 1986. Cited in SW Waller,
James R. Atwood and Kingman Brewsters's Antitrust and American Business Abroad
(3rd edn, New York: Clark Boardman Callaghan, 1997), vol 1, 2.18, n 1 .
(53) B Hawk, United States, Common Market and International Antitrust: A
Comparative Guide (2nd edn, Englewood Cliffs: Prentice Hall Law and Business, 1991
supp), vol 1A, 797.
(54) Report of Group of Experts, Competition Policy in the New Trade Order:
Strengthening International Cooperation and Rules (Brussels: European Commission,
1995) 19.
(55) Art VII(1).
(56) Art VII(2).
(57) J Davidow and L Chiles, The United States and the issue of the binding or
voluntary nature of international codes of conduct regarding restrictive business
practices (1978) 72 American Journal of International Law 247, 268.
(58) 1979 OECD Recommendation, Art I.B.7; 1995 Recommendation, Art I.B.7 and 8.
(59) They were not used as of 1984. OECD, Competition Law Enforcement:
International Co-operation in the Collection of Information (Paris: OECD, 1984) paras
157, 164 . In the Kodak/Fuji dispute, Fujifilm suggested, during the course
of the s 301 investigation, that the consultation and conciliation mechanism in the
1986 Cooperation Recommendation be used. Although Japan preferred to rely on its
own competition authorities, it nevertheless supported this approach. See WH
Barringer, Competition policy and cross border dispute resolution: lessons learned
from the U.S.Japan film dispute (1998) 6 George Mason Law Review 459, 471.

(60) See D McClean, International Co-operation in Civil and Criminal Matters (2nd edn,
Oxford: Oxford University Press, 2002) ch 6.
(61) Articles 9, 14 and 26 of the Hague Convention on the Taking of Evidence Abroad
in Civil and Commercial Matters precisely specify when the requested state may claim
reimbursement.
(62) D Neven and P Seabright, Trade liberalization and the cooperation of
competition policy in L Waverman, WS Comanor, and A Goto (eds), Competition
Policy in the Global Economy: Modalities for Cooperation (London: Routledge, 1997)
381, 400.
(63) A Schaub, International co-operation in antitrust matters: making the point in
the wake of the Boeing/MDD proceedings EC Competition Policy Newsletter, vol 4, no
1, February 1998.
(64) O Solano and A Sennekamp, Competition provsions in regional trade
agreements, OECD Trade Policy Working Paper No 31, 21 March 2006.
(65) See L Oritz Blanco (ed), EC Competition Procedure (2nd edn, Oxford: Oxford
University Press, 2006) ch 28.
(66) Treaty of Asuncin, entered into force 29 November 1991; MERCUSOR Protocol for
the Defence of Competition, entered into force 8 September 2000; Annex to the
MERCUSOR Protocol for the Defence of Competition, signed 18 June 1997; Agreement
on the Regulations of the MERCUSOR Protocol for the Defence of Competition, signed
5 December 2002, <http://www.sice.oas.org/Mercosur/instmt_e.asp>, accessed on 1
March 2007.
The Official Codified Text of the Andean Subregional Integration Agreement (the
Cartagena Agreement or the Andean Community), Arts 93, 94, signed 25 June 2003;
Andean Community Commission, Decision 605, Rules for the Protection and Promotion
of the Free Competition in the Andean Community, 29 March 2005,
<http://www.sice.oas.org/Andean/instmt_s.asp> or
www.comunidadandina.org/endex.htm, accessed on 1 March 2007.
Protocol VIII: Competition Policy, Consumer Protection, Dumping and Subsidies
amending the Treaty Establishing the Caribbean Community, signed 14 March 2000,
<http://www.caricom.org/jsp/secretariat/legal_instruments/protocolviii.jsp?
menu=secretariat>, accessed on 1 March 2007.
Common Market for Eastern and Southern Africa, formed 8 December 1994, Art 55;
Draft COMSEA Competition Regulations, February 2003; Draft COMSEA Competition
Rules, February 2003, <www.comesa.int/trade/issues/policy/view>, 1 March 2007.
(67) See, eg, the Treaty of Accession to the European Union 2003; Agreement
establishing an association between the European Communities and their Member
States, of the one part, and the Republic of Poland, of the other part [1993] OJ L348/1;
Decision No 1/96 of the Association Council of 16 July 1996 adopting implementing
rules for the application of the competition provisions applicable to undertakings
provided in Art 63(1)(i), (1)(ii) and (2), of the Europe Agreement between the EC and
Poland [1996] OJ L208/24. Similar agreements were concluded with many other
European countries that are now members of the EU. Turkey, Croatia, and the former
Yugoslav Republic of Macedonia are the current candidate countries. See
<http://ec.europa.eu/comm/competition/international/enlargement/index.html>, 1
March 2007. See M Fritsch and H Hansen (eds), Rules of Competition and EastWest
Integration (Boston: Kluwer Academic, 1997) ; A Evans, Competition and
other economic provisions in A Ott and K Inglis (ed), Handbook on European
Enlargement: A Commentary on the Enlargement Process (The Hague: TMC Asser
Press, 2002) 551.
(68) North American Free Trade Agreement between the Government of Canada, the
Government of the United Mexican States and the Government of the Unites States of
America (1993) 32 ILM 289 and 605, Art 1501. See also NAFTA, Art 1704.
(69) See WT/REG31/2, 23 January 1997; CanadaChile: Free Trade Agreement (1997)
36 ILM 1067.
(70) KC Kennedy, Competition Law and the World Trade Organisation: The Limits of
Multilateralism (London: Sweet & Maxwell, 2001) 87.
(71) See, eg, the ACPEC Partnership Agreement (the Cotonou Agreement) [2000] OJ
L317/3, Art 45. See also the Partnership and Cooperation Agreements between the
European Communities and their Member States, of the one part, and the Republic of
Azerbaijan, of the other part, [1999] OJ L246/3, Art 43, and the similar agreements
with Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russian Federation, Ukraine,
Uzbekistan, and the Framework Agreement for Commercial and Economic Cooperation
between the European Communities and Canada [1976] OJ L260/3, Art II.2.
(72) Stockholm Convention, entered into force 3 May 1960 (1960) 370 UNTS 5. After 1
January 1995, the EFTA was left with only four member statesIceland, Liechtenstein,
Norway, and Switzerland. After May 1995, Switzerland was the only member of the
EFTA not a member of the EEA. Thus, EFTA's competition rules are of limited practical
significance. The Stockholm Convention was updated by the Vaduz Convention in
2001, including the competition law provisions, which are now in Art 18. See
<http://secretariat.efta.int>, accessed on 1 March 2007.
(73) See G Marceau, Anti-Dumping and Anti-Trust Issues in Free-trade Areas (Oxford:
Clarendon Press, 1994) 195.
(74) See DB Furnish, A transnational approach to restrictive business practices
(1970) 4 International Lawyer 321, 336 ; B Allan and C Bright, Restrictive
agreements and dominant positions: opening new markets in C Bright (ed), Business
Law in the European Economic Area (Oxford: Clarendon Press, 1994) 82.
(75) Austria, JO 1972, L300/2, Art 23; Finland [1973] OJ L328/2, Art 23; Iceland, JO
1972, L301/2, Art 24; Norway [1973] OJ L171/2, Art 23; Portugal, [1972] JO L301/165,
Art 26; Sweden, [1972] JO L300/97, Art 23; Switzerland, [1972] JO L300/189, Art 23.
(76) Agreement between the European Economic Community and the State of Israel
[1975] OJ L136/3, Art 12, superseded by the EuroMediterranean Agreement
establishing an association between the European Communities and their Member
States, on the one part and the State of Israel, on the other part, [2000] OJ L147/3.
(77) See, eg, the declaration in relation to trade agreement with Switzerland [1972] OJ
L300/189.
(78) See, eg, Algeria [2005] OJ L265/2, Art 41, Annex 5; Tunisia [1998] OJ L97/2, Art
36; and West Bank and Gaza Strip [1997] OJ L187/3, Art 30.
(79) J-F Bellis, International trade and the competition law of the European
Community (1979) 16 Common Market Law Review 647, 6514.
(80) Bellis (n 79 above) 655.
(81) Joined Cases 89, 104, 114, 116, 117 and 125129/85 [1988] ECR 5193.
(82) CanadaCosta Rica Free Trade Agreement, entered into force 1 November 2002,
Art XI.2.1 and 3, available from
<http://www.sice.oas.org/Trade/cancr/English/cancrin.asp>, accessed on 1 March
2007; cf Art XI.7.
(83) Ibid Art XI.2.3.
(84) Ibid Art XI.2.5.
(85) Ibid Art XI.2.2, 4, 6 and 7.
(86) Ibid Art XI.3 to XI.5.
(87) Ibid Art XI.6.
(88) Communication from Japan, WT/WGTCP/W/195, 12 August 2002.
(89) United StatesSingapore Free Trade Agreement, signed 6 May 2003, Art 12.2.1,
can be found at
<http://www.iesingapore.gov.sg.libproxy1.nus.edu.sg/wps/postal/FTA>.
(90) United StatesSingapore Free Trade Agreement, signed 6 May 2003, Art 12.4.
(91) Ibid Arts 12.6 and 12.7.
(92) AustraliaUnited States Free Trade Agreement [2005] ATS 1, Art 14.
(93) Free Trade Agreement between the Republic of Korea and the Republic of Chile,
entered into force 1 April 2004, Art 14.2.1. See <http://www.sice.oas.org/Trade/Chi-
SKorea_e/ChiKoreaind_e.asp>, accessed on 1 March 2007.
(94) Ibid, Art 14.2.3.
(95) Decision No 2/2000 of the EU/Mexico Joint Council of 23 March 2000 [2000] OJ
L157/10, Art 39, Annex XV; Economic Partnership, Political Coordination and
Cooperation Agreement between the European Community and its Member States on
the one part and the United States of Mexico on the other part [2000] OJ L 276/44, Art
11.
(96) Agreement establishing an association between the European Community and its
Member States, of one part, and the Republic of Chile, of the other part [2002] OJ
L352/3, Arts 17280.
(97) See FTAANegotiating Group on Competition Policy, Inventory of Domestic Laws
and Regulations relating to Competition Policy in the Western Hemisphere,
FTAA.ngcp/inf/03/Rev.2, 22 March 2002 , <http://www.ftaa-
alca.org/ngroups/NGCP/Publications/DomLaws_e.asp>, accessed on 1 March 2007.
(98) See <http://www.ftaa-alca.org/ngroups/ngcomp_e.asp>, accessed on 1 March
2007. KC Kennedy, Competition Law and the World Trade Organisation: The Limits of
Multilateralism (London: Sweet & Maxwell, 2001) 8894 briefly summarizes
developments to 2000.
(99) See also APEC Principles to Enhance Competition and Regulatory Reform,
adopted by APEC Economic Leaders' Meeting, 13 September 1999, available from
<http://www.apec.org.html>, accessed on 1 March 2007. The APEC Principles
contained four broad principles: non-discrimination between economic entities;
comprehensive application of the principles; transparency in policies, rules, and their
implementation; and accountability within domestic administrations. However, APEC
members could not agree on the need for a competition law or the effective
enforcement of such laws.
(100) RE Donovan, International criminal antitrust investigations: practical
considerations for defense counsel (1995) 64 Antitrust Law Journal 205, 236 (citing
testimony of Anne Bingaman and James Rill during the hearings on the International
Antitrust Enforcement Bill) . See also United States v General Elec Co 869
F Supp 1285 (SD Ohio 1994), 1300; In re Uranium Litig 480 F Supp 1138 (ND Ill 1979),
1155.
(101) Restatement (Third) of the Foreign Relations Law of the United States (1987)
442, reporter's note 1.
(102) B Zanettin, Cooperation Between Antitrust Agencies at the International Level
(Oxford: Hart Publishing, 2002) 1218.
(103) RA Whish and D Wood, Merger Cases in the Real World: A Study of Merger
Control Procedures (OECD: Paris, 1994) 105.
(104) L Oritz Blanco (ed), EC Competition Procedure (2nd edn, Oxford: Oxford
University Press, 2006) 8791.
(105) See, eg, 15 USC 78x(d), which provides that information received by the
Securities Exchange Commission from a foreign authority pursuant to a memorandum
of understanding will be exempt from release under exemption 3 of the Freedom of
Information Act, if public disclosure would violate that country's laws.
(106) Personal jurisdiction is briefly discussed in Section 8.2.2. Discovery may,
however, be ordered to determine the facts relevant to establishing personal
jurisdiction. Insurance Corp of Ireland v Compagnie des Bauxites de Guine 456 US
694 (1982).
(107) See, eg, Socit Internalionale pour Participations Industrielles et
Commerciales, SA v Rogers 357 US 197 (1958), 2045. Although a control test is
used in some foreign jurisdictions, foreign courts are more reluctant than the US to
find control over documents held by foreign subsidiaries and firms. Cf Lonrho Ltd v
Shell Petroleum Co [1980] 2 WLR 367 (CA), [1980] 1 WLR 627 (HL).
(108) Federal Rule of Criminal Procedure 41.
(109) Federal Rule of Criminal Procedure 17(e); United States v Haim 218 F Supp 922
(SDNY 1963), 926.
(110) AD Victor, Jurisdiction and enforcement: the growth of international criminal
antitrust enforcement (1998) 6 George Mason University Law Review 493, 496
; Donovan (n 100 above) 2157.
(111) 15 USC 131114; 15 USC 57b-1(c)(1).
(112) 15 USC 1312(d)(2).
(113) FTC v Compagnie de Saint-Gobain-Pont--Mousson 636 F 2d 1300 (DC Cir 1980).
(114) Australia/Eastern USA Shipping Conference v United States 19821 Trade Cas
64,721 (DDC 1981), on reconsideration, 537 F Supp 807 (DDC 1982); Associated
Container Transp (Australia) Ltd v United States 705 F 2d 53 (2nd Cir 1983); United
States v Timer Warner, Inc 1997 US Dist LEXIS 2752 (DDC 1997).
(115) 1995 International Guidelines 4.2.
(116) Rule 37(a).
(117) 28 USC 1783.
(118) B Zanettin, Cooperation Between Antitrust Agencies at the International Level
(Oxford: Hart Publishing, 2002) 423.
(119) C Kerse and N Khan, EC Antitrust Procedure (5th edn, London: Sweet & Maxwell,
2005) 153.
(120) Cases 48/69, etc, ICI v Commission [1972] ECR 619. Greater uncertainty
surrounds the ability of the Commission to serve an undertaking outside the EU by
post.
(121) I Mori, The difference between U.S. discovery and Japanese taking of evidence
(1989) 23 International Lawyer 3 . See also A Harada, Civil discovery
under Japanese law (1983) 16 Law in Japan 21 ; CF Goodman, Justice
and Civil Procedure in Japan (New York: Oceana, 2004) ch 9.
(122) Code of Civil Procedure 1996, s 220. See Y Taniguchi, The 1996 Code of Civil
Procedure of Japana procedure for the coming century? (1997) 45 American Journal
of Comparative Law 767, 7759.
(123) In order to lessen the difficulty of specifying a document, the new Code of Civil
Procedure requires the applicant only to give the facts that would enable the holder of
the document to identify it. Code of Civil Procedure, s 222.
(124) See, eg, 28 USC 1781.
(125) 28 USC 1782.
(126) See Intel Corp v Advanced Micro Devices, Inc 542 US 241 (2004).
(127) RE Donovan, International criminal antitrust investigation: practical
considerations for defense counsel (1995) 64 Antitrust Law Journal 205, 208 reports
that letters rogatory sent abroad take six months to one year to execute.
(128) See, eg, Diane P Wood, International enforcement at the antitrust division,
address before the Greater Cleveland International Lawyers Group, 17 January 1995.

(129) In re Westinghouse Uranium Contract Litigation [1978] AC 547; Gulf Corp v Gulf
Canada Ltd (1980) 111 DLR (3d) 74.
(130) See American Bar Association, International Cooperation Handbook (Chicago:
ABA, 2004).
(131) Articles 3, 1516, 17, 33.
(132) Article 9.
(133) Article 9.
(134) Article 12.
(135) Article 11.
(136) See, eg, Rio Tinto Zinc Corp v Westinghouse Electric Corp [1978] AC 547 (HL).
(137) See N Hachigian, Essential mutual assistance in international antitrust
enforcement (1995) 29 International Lawyer 117, 1356.
(138) Socit Nationale Industrille Arospatiale v United States Dist Court for S Dist
Iowa 482 US 522 (1987).
(139) See JC Plaster, The Hague Evidence Convention: the need for guidance on
procedures and resolution of conflicts in transnational discovery (1994) 27 Vanderbilt
Journal of Transnational Law 185, 1959 ; CD Wallace, Extraterritorial
discovery: ongoing challenges for antitrust litigation in an environment of global
investment (2002) 5 Journal of International Economic Law 353.
(140) Mackinnon v Donaldson Lufkin Corp [1986] 1 All ER 653 (Ch D).
(141) See M Akehurst, Jurisdiction in international law (19723) 46 British Yearbook
of International Law 145, 1778 ; L Collins, International law aspects of
obtaining evidence abroad in CJ Olmstead (ed), Extra-territorial Application of Laws
and Responses Thereto (Oxford: International Law Association/ECS Publishing, 1984)
184 ; American Bar Association, Obtaining Discovery Abroad (2nd edn,
Chicago: ABA, 2005).
(142) The features usually mentioned are rules permitting discovery (and
interrogatories) from persons not party to the proceedings, the enormous range of
documents that can be requested, and the even greater range of documents and
witness depositions that can be demanded by subpoena in criminal or regulatory
proceedings.
(143) See AV Lowe, Extraterritorial Jurisdiction (Cambridge: Grotius, 1983)
; ABA, Obtaining Discovery Abroad (n 141 above).
(144) Foreign Proceedings (Excess of Jurisdiction) Act 1984.
(145) Foreign Extraterritorial Measures Act, RSC 1985, c F-29; Competition Act, RSC
1985, c C-34, s 82.
(146) Evidence Amendment Act 1980.
(147) Protection of Trading Interests Act 1980. Between 1980 and 1993, it was only
applied in the Laker Airways saga and an Australian merger decision. See [1993]
British Yearbook of International Law 644.
(148) Foreign Extraterritorial Measures Act 1984, s 3(1).
(149) Ibid s 3(1)(b).
(150) Foreign Extraterritorial Measures Act 1984, s 3(1)(c).
(151) Ibid s 7.
(152) Ibid s 4. See In re Uranium Antitrust Litig 480 F Supp 1138 (ND Ill 1979), 11534.
(153) Atwood, Brewster, Waller (n 52 above) 4.16, n 2. Citing Petruska v Johns-
Manville 83 FRD 32 (ED Pa 1979).
(154) See, eg, Export Administration Regulations, Restrictive Trade Practices or
Boycotts, 15 CFR 760. See generally
<http://www.bis.doc.gov/AntiboycottCompliance/Default.htm>.
(155) See, eg, Law No 80-538 of 16 July 1980, JO, 17 July 1980, p 1799, 1980 DSL 285
(France); Swiss Criminal Code, Art 271(1). Both reprinted in American Bar Association,
Obtaining Discovery Abroad (2nd edn, Chicago: ABA, 2005) 10812, 2223.

(156) See United States v Toyota Motor Corp 569 F Supp 1158 (CD Cal 1983), 1163.
(157) 357 US 197 (1958).
(158) See ABA, Obtaining Discovery Abroad (n 155 above) ch IV; see also
Restatement (Third) of the Foreign Relations Law of the United States (1987) 441(2);
1995 International Guidelines 4.2; cf Case IV/26.186 CSV [1976] OJ L192/27.
(159) MR Joelson, An International Antitrust Primer (The Hague: Kluwer Law
International, 2001) 967.
(160) [1994] US App LEXIS 14427.
(161) See generally D McClean, International Co-operation in Civil and Criminal
Matters (2nd edn, Oxford: Oxford University Press, 2002) ch 6.
(162) 25 May 1973, 27 UST 2019, Art 2.1.
(163) Treaty between the Government of Canada and the Government of the United
States on Mutual Legal Assistance in Criminal Matters, signed 18 March 1985.
Reprinted in (1985) 24 ILM 1092.
(164) See B Zanettin, Cooperation Between Antitrust Agencies at the International
Level (Oxford: Hart Publishing, 2002) 149 ; American Bar Association,
International Antitrust Cooperation Handbook (Chicago: ABA, 2004) 5564.

(165) See RE Donovan, International criminal antitrust investigations: practical

considerations for defense counsel (1995) 64 Antitrust Law Journal 205, 2261
. Space constraints prevent a discussion of this issue.
(166) 15 USCA 6211(9).
(167) 15 USCA 620112.
(168) 15 USCA 78u(a)(2). See N Hachigian, Essential mutual assistance in
international antitrust enforcement (1995) 29 International Lawyer 117, 1416.
(169) HR Rep No 103-772, 3 October 1994, reprinted in 1994 USCCAN 36524. Cited
in Donovan (n 165 above) 2367.
(170) DP Wood, International enforcement at the antitrust division, address before
the Greater Cleveland International Lawyers Group, 17 January 1995.
(171) LL Laudati and TJ Friedbacher, Trading secretsthe International Antitrust
Enforcement Assistance Act (1996) 16 Northwestern Journal of International Law and
Business 478, 479 , n 5.
(172) Mutual Assistance in Business Regulation Act 1992, ss 5(2), 19.
(173) Ibid s 20.
(174) Ibid ss 79.
(175) 15 USCA 6201. The term antitrust evidence is defined broadly to mean
information, testimony, statements, documents, or other things that are obtained in
anticipation of, or during the course of, an investigation or proceeding under any of
the Federal antitrust laws or any of the foreign antitrust laws. 15 USCA 6211(1).
(176) 15 USCA 6203.
(177) 15 USCA 6204.
(178) 15 USCA 6202(d); 6203(c).
(179) 15 USCA 6204(b)(2)(B). It is likely that a court would look to precedent under
28 USCA 1782 and the legislative history of the IAEAA to determine whether or not to
grant the request of a foreign agency.
(180) 15 USCA 6204; 15 USCA 1313; 15 USCA 46, 57b-2.
(181) 15 USCA 6204(1). There are also absolute bans on sharing national security
and foreign policy information required to be kept secret under Executive Order
12356, and antitrust evidence that is classified under 42 USCA 2162. 15 USCA
6204(3), (4).
(182) B Zanettin, Cooperation Between Antitrust Agencies at the International Level
(Oxford: Hart Publishing, 2002) 163.
(183) 15 USCA 6204(2); Federal Rule of Criminal Procedure 6(e)(3)(C)(iv).
(184) HR Rep No 103772, 3 October 1994, reprinted in 1994 USCCAN 3658. See RE
Donovan, International criminal antitrust investigations: practical considerations for
defense counsel (1995) 64 Antitrust Law Journal 205, 239 ; LL Laudati
and TJ Friedbacher, Trading secretthe International Antitrust Enforcement
Assistance Act (1996) 16 Northwestern Journal of International Law and Business
478, 4945.
(185) 15 USCA 6208(b). See Federal Rule of Criminal Procedure 16(a)1)(C); Federal
Rule of Civil Procedure 26(b); 16 CFR 4.10(g).
(186) See 5 USC 552(b)(1), (3), (4), (5), and (7)(A) and (D), Freedom of Information
Act; 28 CFR 16.7, DOJ procedure for processing requests for disclosure of information
subject to the business information exemption to the Freedom of Information Act; 5
USC 552a, Privacy Act.
(187) Zanettin (n 182 above) 1689.
(188) Laudati and Friedbacher (n 184 above) 483.
(189) Compare Laudati and Friedbacher (n 184 above) 4839 with Zanettin (n 182
above) 1659.
(190) 15 USCA 6202(a).
(191) 15 USCA 6207(a).
(192) 15 USC 62011(7).
(193) See also Laudati and Friedbacher (n 184 above) 4902.
(194) HR Rep No 103-772, 3 October 1994, reprinted in 1994 USCCAN 36601. Cited
in RE Donovan, Essential mutual assistance in international antitrust enforcement
(1995) 29 International Lawyer 117, 240.
(195) SD Hammond, An update of the Antitrust Division's criminal enforcement
program, ABA Section of Antitrust Law, Cartel Enforcement Roundtable, Washington
DC, 16 November 2005.
(196) Donovan (n 194 above) 241.
(197) See B Zanettin, Cooperation Between Antitrust Agencies at the International
Level (Oxford: Hart Publishing, 2002) 12845.
(198) See, eg, Rio Tinto Zinc Corp v Westinghouse Elec Corp [1978] AC 547 (HL).
(199) GB Born, International Civil Litigation in United States Courts: Commentary and
Materials (3rd edn, The Hague: Kluwer Law International, 1996) ch 12 ;J
Hogan-Doran, Enforcing Australian judgments in the United States (and vice versa):
how the long arm of Australian courts reaches across the Pacific (2006) 80 Australian
Law Journal 361.
(200) P Nygh and M Davies, Conflict of Laws in Australia (7th edn, Butterworths, 2002)
; J Hill, International Commercial Disputes in English Courts (3rd edn,
Oxford: Hart Publishing, 2005) ch 12 ; D Goddard and H McQueen, Private
International Law in New Zealand (Wellington: New Zealand Law Society, 2001).

(201) See, eg, JapanT Sawaki, Recognition and enforcement of foreign judgments in
Japan (1989) 23 International Lawyer 29 ; MP Waxman, Enforcing
American private antitrust decisions in Japan: is comity real? (1995) 44 DePaul Law
Review 1119 ; M Takehita, The recognition of foreign judgments by the
Japanese courts (1996) 39 Japanese Annual of International Law 77 ;N
Tada, Enforcement of foreign judgments in Japan regarding business activities
(2003) 46 Japanese Annual of International Law 75.
(202) The conditions for recognition of judgments may be liberalized by treaty. See D
McClean, International Co-operation in Civil and Criminal Matters (2nd edn, Oxford:
Oxford University Press, 2002) ch 12.
(203) Trade Practices Commission v Australia Meat Holdings Pty Ltd (1988) ATPR 40
876.
(204) See Adams v Cape Industries Plc [1990] Ch 433 (CA), 5301.
(205) Cf British Nylon Spinners Ltd v Imperial Chemical Industries Ltd [1953] Ch 19
(CA).
(206) Huntington v Attrill [1893] AC 150 (PC); Attorney-General (UK) v Heinemann
Publishers Australia Pty Ltd (1988) 165 CLR 30; Attorney-General for the UK v
Wellington Newspapers Ltd [1988] 1 NZLR 129 (CA); United States of America v Inkley
[1989] QB 255 (CA); European Bank Ltd v Robb Evans of Robb Evans & Associates
[2004] NSWCA 82.
(207) British Airways Board v Laker Airways Ltd [1985] AC 58 (HL), 89.
(208) See C Noonan, The extraterritorial application of New Zealand competition law
(2007) 22 New Zealand Universities Law Review 369.
(209) See Lewis v Eliades [2004] 1 All ER (Comm) 545. The enforcement of an award
of exemplary damages is not against English public policy. SA Consortium General
Textiles v Sun and Sand Agencies Ltd [1970] QB 279 (CA), 300. In Japan, the Supreme
Court has refused to enforce judgments ordering punitive damages, but has enforced
the compensatory award in the judgment. See Tada (n 201 above) 901.
(210) B Hawk, United States, Common Market and International Antitrust: A
Comparative Guide (2nd edn, Englewood Cliffs: Prentice Hall Law and Business, 1991
supp), vol 1A, 783.
(211) See AV Lowe, Blocking extraterritorial jurisdiction: the British Protection of
Trading Interests Act, 1980 (1981) 75 American Journal of International Law 257
; AF Lowenfeld, Sovereignty, jurisdiction, and reasonableness: a reply to
A.V. Lowe (1981) 75 American Journal of International Law 629.
(212) Laker Airways Ltd v Pan American World Airways 559 F Supp 1124 (DDC 1983),
1136, n 51.
(213) Note from US Ambassador to London to the British Foreign Secretary, Note No
56 at 2 (9 November 1979) Note from the British Embassy, Washington, to the United
States Department of State, Note No 255 (27 November 1979) (1979) 50 British
Yearbook of International Law 362; Lord Mackay, moving second reading in the House
of Lords of the Protection of Trading Interests Bill (1980) 51 British Yearbook of
International Law 446.
(214) See WE O'Brien, The Hague Convention on Jurisdiction and Judgments: the way
forward (2003) 66 Modern Law Review 491 . The Convention on
Excusive Choice of Court Agreements, 30 June 2005, Art 2(2)(h), also excluded
competition law.
(215) See, eg, Mitisubishi Motors Corp v Soler Chrysler-Plymouth, Inc 473 US 614
(1985); New Zealand v Mobil Oil New Zealand Ltd [1989] 2 NZLR 649; Case C-126/97
Eco Swiss China Time Ltd v Benetton International NV [1999] ECR I-3055; ET Plus SA v
Jean-Paul Welter [2005] EWHC 2115 (Comm).
(216) Cf AustraliaUnited States Free Trade Agreement [2005] ATS 1, Art 14.7.
(217) Australia New Zealand Closer Economic Relations Trade Agreement, and
Exchange of Letter [1983] ATS 2; Protocol to Australia New Zealand Closer Economic
Relations Trade Agreement on Acceleration of Free Trade in Goods [1988] See
<http://www.dfat.gov.au/geo/new_zealand/index.html>; accessed on 1 March 2007.
(218) Superseded in 2000 by the Memorandum of Understanding on Coordination of
Business Law.
(219) Australian and New Zealand Governments, ANZCERTA, Memorandum of
Understanding between the Government of Australia and the Government of New
Zealand on Harmonisation of Business Law, Report to Governments by Steering
Committee of Officials (Canberra and Wellington: June 1990) ; New
Zealand Ministry of Commerce, Review of the Commerce Act 1986: Reports and
Decisions (Wellington: August 1989) Annex 1.
(220) Trade Practices (Misuse of Trans-Tasman Market Power) Act 1990 (Aust);
Dumping and Countervailing Duties Amendment Act 1990 (NZ).
(221) See New Zealand Government, Review of the Commerce Act 1986,
Interdepartmental Report (Wellington: New Zealand Government, 1992) 601
; KM Vautier and PJ Lloyd, International Trade and Competition Policy:
CER, APEC and the WTO (Wellington: Institute for Policy Studies, 1997).
(222) RH Patterson, A Policy at Risk: An Evaluation of the Competition Thresholds in
the Commerce Act 1986 (PhD Thesis, University of Auckland, 1994) 417.
(223) See, eg, the Australian and New Zealand Governments, The Harmonisation of
Australian and New Zealand Business Law, Report to Government by Steering
Committee of Officials (Canberra and Wellington: 1992) 18 and Appendix II
; Australian Government Productivity Commission, Australian and New
Zealand Competition and Consumer Protection Regimes, Research Report, 14
December 2004.
(224) See also the definition of market in s 3(1A) to 3(1C) and the territorial scope of
application of the Act in s 4(2) of the Commerce Act 1986.
(225) Berlaz Pty Ltd v Fine Leather Care Products Ltd (1991) ATPR 41118.
(226) Judicature Act 1908 (NZ), ss 56H, 56I, 56M.
(227) Federal Court of Australia Act 1976 (Aust), ss 32w to 32Za; Reciprocal
Enforcement of Judgments Act 1934 (NZ), ss 8A to 8I.
(228) Federal Court of Australia Act 1976 (Aust), s 32w(2) and (3).
(229) Ibid s 32w(7).
(230) See, eg, Productivity Commission (n 223 above). See also Fels, Building a
Modern Trade Practices Act: A trans-Tasman analysis, Speech to the New Zealand
Institute of Economic Research, 18 September 2002, 6.
(231) See, eg, Brunswick Corp 96 FTC 151 (1980) 160, aff'd as modified, sub nom,
Yamaha Motor Co v FTC 657 F 2d 971 (8th Cir 1981), cert denied, 456 US 915 (1982)
(FTC limited ban on future acquisitions of stock or assets of firms engaged in
production in for the United States ). See also Restatement (Third) of the Foreign
Relations Law of the United States (1987) 415, comment h; M Akehurst, Jurisdiction
in international law (19723) 46 British Yearbook of International Law 145, 21012
; B Hawk, United States, Common Market and International Antitrust: A
Comparative Guide (2nd edn, Englewood Cliffs: Prentice Hall Law and Business, 1991
supp), vol 1A, 7501.
(232) See, eg, United States v Everest & Jennings Int'l 19791 Trade Cas 62,508 (CD
Cal 1979) (XIV enjoining a US wheelchair manufacturer and its foreign subsidiaries
from acquiring any other person manufacturing or selling wheelchairs in Canada,
Western Europe or the UK).
(233) Cases 67/73 (1974) 13 CMLR 309, 3445.
(234) See also In the Matter of Institut Merieux SA 1989 FTC LEXIS 98; 1990 FTC LEXIS
291; 1994 FTC LEXIS 61 (consent decree required a Canadian company to licence a
vaccine to a FTC-approved licence). The Canadian Government formally protested.
See EM Graham and MAA Warner, Multinationals and competition policy in North
America in L Eden (ed), Multinationals in North America (Calgary: University of
Calgary Press, 1994) 463, 46970.
(235) United States v Imperial Chemical Industries Ltd 100 F Supp 504 (SDNY 1951),
105 F Supp 215 (SDNY 1952), 231.
(236) British Nylon Spinners Ltd v Imperial Chemical Industries Ltd [1952] 2 All ER 780
(CA). The result was confirmed at trial: British Nylon Spinners Ltd v Imperial Chemical
Industries Ltd [1954] 3 All ER 88 (Ch D).
(237) Noted in DF Vagts, A turnabout in extraterritoriality (1982) 76 American
Journal of International Law 591, 593.
(238) European Commission, Commission concludes on Microsoft investigation,
imposes conduct remedies and a fine IP/04/382, 24 March 2004; European
Commission, Microsoftquestions and answers on Commission decision
MEMO/01/70, 24 March 2004; Case COMP/C-3/37.792 Microsoft Commission Decision
of 24 March 2004, C(2004)900 final.
(239) See United States v General Elec Co 115 F Supp 835 (DNJ 1953), 878; United
States v Imperial Chem Indus 100 F Supp 504 (SDNY 1951), 105 F Supp 215 (SDNY
1952), 230. After the intervention of the Swiss government, the order in United States
v Watchmakers of Switzerland Information Center, Inc 1963 70,600 (SDNY 1962) was
modified to reflect the overriding authority of Swiss law over conduct in Switzerland.
United States v Watchmakers of Switzerland Information Center, Inc 1965 71,352
(SDNY 1965); JA Rahl (ed), Common Market and American Antitrust (New York:
McGraw-Hill, 1970) 336.
(240) See, eg, United States v United Fruit Co 19781 Trade Cas 62,001 (ED La 1978)
(VII); United States v General Elec Co 115 F Supp 835 (DNJ 1953), 878 (XI).
(241) See United States v Standard Oil Co, (NJ) superseding final judgments in
Standard Oil Co, (NJ) and Gulf Oil Corp 1969 Trade Cas 72,742 (SDNY 1968), 72,
743.
(242) Calnetics v Volkswagen of America, Inc 532 F 2d 674 (9th Cir), 6923, cert
denied, 429 US 940 (1976).
(243) United States v General Elec Co 155 F Supp 835 (DNJ 1953), 875.
(244) Mannington Mills, Inc v Congoleum Corp 595 F 2d 1287 (3rd Cir 1979).
(245) OECD Committee on Competition Law and Policy, Report on Positive Comity
Making International Markets More Efficient Through Positive Comity in Competition
Law Enforcement DAFFE/CLP(99)19, adopted 67 May 1999, p 18.
(246) United StatesItaly Treaty of Friendship, Commerce and Navigation, signed 26
July 1949 (1948) 79 UNTS 171, XVIII; (1951) 404 UNTS 326, Art VIII. Similar provisions
appear in other US treaties, including treaties with Denmark (1951) 421 UNTS 105, Art
XVIII; France (1959) 401 UNTS 75, Art XI; Germany (1954) 273 UNTS 3, Art XVIII;
Greece (1951) 224 UNTS 279, Art 14; Ireland (1950) 206 UNTS 269, Art XV; Israel
(1951) 219 UNTS 237, Art XVII; Japan (1953) 206 UNTS 143, Art XVIII; Korea (1956)
302 UNTS 281, Art XVIII; Nicaragua (1956) 367 UNTS 3, Art XVIII; Pakistan (1959) 404
UNTS 259, Art XVIII. Other commercial treaties concluded by the US after World War II
also contained provisions on restrictive business practices. See, eg, Economic
Cooperation Agreement between the United States of America and the United
Kingdom, 6 July 1948, (1948) 22 UNTS 264, Art II(3). See also CD Edwards, Regulation
of monopolistic cartelization (1953) 14 Ohio State Law Journal 252, 26571.

(247) United States v RP Oldham Co 152 F Supp 818 (ND Cal 1957); In the Matter of
the Grand Jury Investigation of the Shipping Industry 186 F Supp 298 (DDC 1960).
(248) JT Haight, The restrictive business practices clause in United States treaties: an
antitrust tranquilizer for international trade (1960) 70 Yale Law Journal 240; Rahl (n
239 above) 449.
(249) See, eg, Agreement between the Government of Japan and the Government of
the United States Concerning Cooperation on Anticompetitive Activities, Art V,
available from <http://www.usdoj.gov>, accessed on 1 March 2007.
(250) B Zanettin, Cooperation Between Antitrust Agencies at the International Level
(Oxford: Hart Publishing, 2002) 18990 cites as examples the IRI/AC
Nielsen, Boeing/McDonnell Douglas, and the 1982 Japanese Soda Ash cartel
investigations.
(251) Report by the Committee on Competition Law and Policy, Making international
markets more efficient through positive comity in competition law enforcement
(1999) 1:3 OECD Journal of Competition Law and Policy 36, 52.
(252) DOJ Press Release, Justice Department asks European Communities to
investigate possible anticompetitive conduct affecting U.S. airlines' computer
reservation systems, 28 April 1997.
(253) B Zanettin, Cooperation Between Antitrust Agencies at the International Level
(Oxford: Hart Publishing, 2002) 189.
(254) The Positive Comity Agreement appears to formalize the approach to
enforcement coordination adopted by the US DOJ and the EC Commission in the
investigation into the practices of AC Nielsen Company. See also the 2004 Agreement
between the Government of Canada and the Government of the United States on the
Application of Positive Comity principles to the Enforcement of their Competition Laws.
Both agreements are available from <http://www.usdoj.gov>, accessed on 1 March
2007.
(255) See especially subparagraph IV(2)(b) and paragraph IV(4).
(256) Comments of the Section of Antitrust Law, American Bar Association, On the
Draft Agreement Between the Government of the United States of America and the
European Communities on the Application of Positive Comity Principles in the
Enforcement of their Competition Laws, April 1997; International Chamber of
Commerce, ICC Comments on EUUS Positive Comity, Commission on Law and
Practices relating to Competition, 12 March 1997, Doc No 225/467.
(257) L Brittan and K Van Miert, Towards an International Framework of Competition
Laws (1996) 24 International Business Lawyer 454.
(258) DA Valentine, Jurisdiction and enforcement: building a cooperative framework
for oversight in mergersthe answer to extraterritorial issues in merger review
(1998) 6 George Mason University Law Review 525, 530.
(259) See, eg, RE Donovan, International criminal antitrust investigation: practical
considerations for defense counsel (1995) 64 Antitrust Law Journal 2056
; SP Mahinka and KM Sanzo, Multistate antitrust and consumer
protection investigations: practical concerns (1994) 63 Antitrust Law Journal 213,
213.
(260) See, eg, 1995 OECD Recommendation, para I.A.2, appendix, para 5.
(261) See, eg, Japanese agency raids offices in investigation of electrode pricing
(1998) 74 Antitrust and Trade Regulation Report 564.
(262) The factors are: (1) the opportunity to make more efficient use of their resources
devoted to the enforcement activities; (2) the relative abilities of the parties'
competition authorities to obtain the information necessary to conduct the
enforcement activities; (3) the effect of such coordination on the ability of both parties
to achieve the objectives of their enforcement activities; and (4) the possibility of
reducing costs incurred by persons subject to the enforcement activities.
(263) See B Zanettin, Cooperation Between Antitrust Agencies at the International
Level (Oxford: Hart Publishing, 2002) 878 . Cases reportedly involving
significant trans-Atlantic cooperation include Gencor/Lonrho, Exxon/Mobile,
Worldcom/MCI, MCI Worldcom/Sprint, BT/AT&T, Air Liquide/BOC, AOL/Time Warner, and
Oracle/Peoplesoft.
(264) USEU Merger Working Group, Best Practices on Co-operation in Merger
Investigations (30 October 2002) . See <http://www.usdoj.gov>.
(265) Ibid paras 4 and 5.
(266) See, eg, Case IV/M.938 Guinness/Grand Metropolitan, Commission Decision of
15 October 1997 [1998] OJ L288/24; Re Guinness PLC/Grand Metropolitian PLC, FTC
File No 971 0081, Agreement Containing Consent Order, 17 April 1998; Case No
IV/M.1140 Halliburton/Dresser Commission Decision of 6 July 1998 [1998] OJ C239/16;
United States v Halliburton Company and Dresser Industries, Inc Civil Action No:98-CV-
2340. See Zanettin (n 263 above) 8891.
(267) ME Janow, Transatlantic cooperation on competition policy in SJ Evenett, A
Lehmann, and B Steil (eds), Antitrust Goes Global: What Future for Transatlantic
Cooperation? (Washington/London: Brookings Institution/Royal Institute of
International Affairs, 2000) 29, 512.
(268) USEU Merger Working Group, Best Practices on Co-operation in Merger
Investigations (30 October 2002), paras 14 and 15.
(269) Zanettin (n 263 above) 11315.
(270) See SP Mahinka and KM Sanzo, Multistate antitrust and consumer protection
investigations: practical concerns (1994) 63 Antitrust Law Journal 213, 215, 216
; DH Ginsburg and SH Angstreich, Multinational merger review: lessons
from our federalism (2000) 68 Antitrust Law Journal 219 ; American Bar
Association, Antitrust Law Developments (5th edn, Chicago: ABA, 2002) ch IX;

(271) F Brown and C Chamberlin, Recent developments in state antitrust law (1995)
International Commercial Litigation 40, 41.
(272) Mahinka and Sanzo (n 239 above) 214.
(273) See, eg, Exxon Corp v Governor of Maryland 437 US 117 (1978).
(274) California v American Stores Co 495 US 271 (1990); California v ARC America
Corp 490 US 93 (1989), 101.
(275) See Mahinka and Sanzo (n 70 above) 2335; RH Folsom, State antitrust
remedies: lessons from the laboratories (1991) 35 Antitrust Bulletin 941, 9589.

(276) See the website of the <NAAG at http://www.naag.org>.

(277) American Bar Association (n 270 above) 825.
(278) See, eg, Protocol for Increased State Prosecution of Criminal Antitrust Offences,
28 March 1996, <http://www.naag.org>, accessed on 1 March 2007.
(279) See, eg, National Association of Attorneys-General Pre-Merger Disclosure
Compact, adopted 12 December 1987, modifications adopted 2022 March 1994;
Protocol for Coordination in Merger Investigations between the Federal Enforcement
Agencies and the State Attorney-Generals, adopted 18 March 1998;
<http://www.naag.org> accessed on 1 March 2007.
(280) Council Regulation (EC) 1/2003 of 16 December 2002 on the implementation of
the rules on competition laid down in Articles 81 and 82 of the Treaty [2003] OJ L1/1.
See C Kerse and N Khan, EC Antitrust Procedure (5th edn, London: Sweet & Maxwell,
2005) ; L Oritz Blanco (ed), EC Competition Procedure (2nd edn, Oxford:
Oxford University Press, 2006) .
(281) Council Regulation (EC) 1/2003, Arts 11 and 3. The duty to avoid conflicting
decisions was narrowly interpreted in Crehan v Innterpreneur Pub Co [2006] 3 WLR
148 (HL).
(282) See R Nazzini, Concurrent Proceedings in Competition Law: Procedure, Evidence
and Remedies (Oxford: Oxford University Press, 2004).
(283) DI Baker, AN Campbell, MJ Reynolds, and JW Rowley, The harmonization of
international competition law enforcement in L Waverman, WS Comanor, and A Goto
(eds), Competition Policy in the Global Economy: Modalities for Cooperation (London:
Routledge, 1997) 439, 447.
(284) EC Commission Notice on handling of complaints by the Commission under
Articles 81 and 82 of the EC Treaty [2004] C101/65.
(285) The US DOJ and FTC have concurrent jurisdiction in several areas. On 2
December 1993, the agencies issued Clearance Procedures for Investigations, which
provide for the allocation of cases between the two agencies. Where both agencies
want to investigate a case, the conflict is resolved based on which agency has more
expertise in the relevant industry gained from recent substantial investigations.
Wilson suggests that such a rule could be applicable to international mergers. J
Wilson, Globalization and the Limits of National Merger Control (The Hague: Kluwer
Law International, 2003) 7980, 126.
The Emerging Principles of International Competition Law
Chris Noonan
DOI:10.1093/acprof:oso/9780199207527.003.0014
Abstract and Keywords

This chapter briefly summarizes the conclusions of this study and presents a set of
emerging principles of international competition law. The emerging principles seek to
align the components of the international competition law system that builds a
consensus among states that the long-term interests of all states would be advanced
if international competition law had the overall objective of maximizing global
consumer welfare. The emerging principles include (1) subsidiarity; (2) no common
competition law; (3) a multifaceted international institutional agreement; (4) non-
discrimination and consistency; (5) procedural fairness; (6) transparency; (7) ensuring
effective enforcement; (8) competitive effects jurisdiction; (9) international
enforcement cooperation and judicial assistance; (10) from technical assistance to
enforcement cooperation; and (11) dispute settlement.

Keywords: international cooperation, international competition law system, consumer

welfare, emerging principles
This chapter seeks to extrapolate from the emerging trends to identify a set of
international competition law principles. It is as much normative as it is descriptive.
Acceptance of the identified principles would provide an economically sound and
politically feasible means to improve international competition law.
The international community tends to eschew comprehensive agreements in favour of
specific solutions to narrowly identified problems. The future of international
competition law therefore depends on careful planning. The participants must be able
to learn, and gains must be made incrementally, as the processes unfold and new
institutions and regimes are created. The development of international competition
law might stall by attempting to reach a final solution in one go.
The process should start by building a consensus among states that the long-term
interests of all states would be advanced if international competition law had the
overall objective of maximizing global consumer welfare. The emerging principles of
international competition law detailed below seek to align the components of the
international competition law system with this objective. They are intended to form no
more than a framework to guide more specific unilateral actions and bilateral and
multilateral agreements that would have legal effect.
Principle 1: Subsidiarity
International competition law problems should be approached from the perspective
that differences in competition laws and their administration are legitimate and not
inherently undesirable. A strong case must be made for joint international action. This
reflects the desirability of each country being able to adopt a law that suits its own
circumstances and to experiment, as well as acknowledging the many political and
legal obstacles to successfully negotiating an international agreement to adopt
common substantive competition laws. See Chapters 2 and 3.
(p.562) Principle 2: No Common Competition Law
Although competition laws are converging, it would be impossible and undesirable to
attempt to agree on a common set of competition law rules applicable in all countries.
It is unlikely that an agreement on minimum standards could cover more than the
most egregious hard core cartels, which would be of little value if most countries
already prohibit such conduct. Even with an agreement imposing minimum standards,
uniform application is unlikely without an international institution to interpret and
enforce the agreement. See Section 3.3. The WTO dispute settlement panels and
Appellate Body also lack the capacity and legitimacy to define minimum standards
over time through the interpretation of a rule requiring members to eliminate
anticompetitive conduct or specific types of anticompetitive conduct that affect
trade. See Chapter 12. A WTO agreement that contained a few core competition law
principles, such as those set out below in Principles 4 to 7, would be consistent with
other WTO disciplines and, as was argued in Chapters 4 to 6, would reflect the
maximum level of regulation justifiable to address international competition law
problems. Signs of the acceptance of this principle can be seen in a number of
national and international laws. See Section 13.2.3.
Principle 3: A Multifaceted International Institutional Arrangement
While national competition laws and the enforcement of competition laws will remain
the engine room of international competition law, a multifaceted international
institutional arrangement is required. The institutions should allow for tiered levels of
participation by states and increasing cooperation over time. Four types of
international instrument are required.
There should be a plurilateral agreement, which commits the parties to enact a
competition law prohibiting unilateral anticompetitive conduct by dominant firms, joint
conduct that lessens competition in a market, mergers that lessen competition in a
market, and hard core cartels without dictating the content of these rules. The
agreement should also establish an independent, properly staffed and funded
enforcement authority; and ensure that competition law and its enforcement is
consistent with Principles 4 to 7. The implementation of the agreement would be
assisted if it was a part of the WTO.
There should also be an international organization, like the ICN (and henceforth
referred to as the ICN), to promote the convergence and coordination of national
competition laws by developing best practice guidelines and protocols for cooperation
and coordinating the provision of technical assistance to developing countries.
(p.563) The work of the ICN could formally and informally feed into the WTO
processes. Membership of the ICN should be as broad as possible, but with members
participating at different levels depending on their needs, resources, and acceptance
of international obligations. The levels of participation should be structured in such a
way that all member countries have an incentive to adopt the best practices
formulated by the ICN and fully participate in ICN activities.
A number of bilateral and multilateral enforcement cooperation agreements and
mutual legal assistance agreements designed for competition law will be needed. The
ICN should develop model cooperation agreements between national authorities and
courts. See Principle 9. Finally, there should be an international convention of
competition law judgments and jurisdiction. See Principle 8.
Principle 4: Non-Discrimination and Consistency
Throughout this study it has been argued that non-discrimination and consistency
should be the primary international disciplines on competition laws. In Chapter 4, it
was argued that the concerns sometimes expressed about competitiveness arising
from differences between competition laws are generally insignificant. To the extent
that there is a problem, it could be addressed by requiring each country with a
competition law to apply that law consistently to all industries and firms (including
public and private enterprises). The consistency obligation is effectively a requirement
for non-discrimination between industries and activities within a country.
Chapter 6 argued that the same non-discrimination and consistency principles would
be the best means to address market access concerns. It was also argued, however,
that international mechanisms are needed to ensure that competition law authorities
effectively address complaints about private market access barriers. See Principle 7.
One feature of international competition law has been the different treatment of
consumers and producers under a competition law depending on their location and/or
nationality. Chapter 5 argued that requiring national competition laws to always treat
local and foreign consumers alike could have undesirable effects, especially for small
states. However, non-discriminatory treatment could be achieved at a system level.
The adverse affects that the consumers in one country feel as a result of the
toleration of anticompetitive conduct in another country could be eliminated by
allowing and facilitating the extraterritorial application of competition law. Non-
discrimination between producers could require states to ignore the nationality of the
owners of producers and the location of production facilities. This would provide an
incentive for states to move towards adopting a global consumer welfare objective
when applying national competition law, especially in the application of efficiency
defences and public interests tests.
(p.564) The non-discrimination and consistency principles proposed in Chapters 4 to
6 are related to the various types of discrimination prohibited under the WTO
agreements. Where a government neither compels nor provides an incentive for a firm
to do a specific act, that act should not generally be challengeable under the WTO,
but would be challengeable under national competition laws. With the exception of
soft competition law obligations and the Telecommunications Reference Paper,
anticompetitive conduct is generally only regulated by the WTO if there is substantial
government involvement or (arguably) if it is the result of an exception from a general
rule. However, the various national treatment rules will each impose different
constraints on national competition laws. Collectively, these rules could impose
significant limitations on national competition laws. It would be useful to establish a
presumption that an exception that was consistent with a WTO agreement on
competition law was presumed to be consistent with the various other rules identified
in Chapter 11.
If a competition law exception is non-discriminatory, and the respondent can show
that a rational relationship of means to ends exists between the exception and the
policy objective being pursued, the exception should be permitted. Where the
exception is discriminatory, the respondent should have to show that the exception is
necessary to achieve some policy objective and is not, in the words of Article XX of
the GATT, a means of arbitrary or unjustified discrimination between countries where
the same conditions prevail, or a disguised restriction on international trade. In
practice, there may not be a sharp line between Principle 4 and the requirements for
transparency. See Principle 6.
Principle 5: Procedural Fairness
In international competition law, the issue of procedural fairness for foreign nationals
arises mainly in the context of the extraterritorial application of competition law and
the protection of foreign firms under national competition laws. On the former see
Principle 8. The WTO Working Group on Trade and Competition Policy recognized the
relevance of procedural fairness as a core principle. Any international rules
implementing such principles must be flexible to accommodate the differences in
legal systems and competition law investigation and enforcement mechanisms. Four
broad categories of procedural guarantee were acknowledged. 1 First, firms should
have notice that formal proceedings against them are pending and a statement of the
authority's objections. Secondly, firms should be able to submit their views and
evidence in advance of any ruling. Thirdly, firms involved in competition proceedings
should be able to have decisions affecting them reviewed by an independent judicial
body. Fourthly, the protection of confidential information should be guaranteed.
(p.565) The difficulty of formulating detailed binding rules may be avoided if an
organization like the ICN was involved in developing best practice guidelines in this
area and reviewing its members' laws and practices. Many developing country
submissions to the WTO have emphasized the need of developing countries to have a
procedural system suitable to their specific national conditions and in accordance with
their level of development. This would be seen as less of a problem if a WTO
agreement on competition law was a plurilateral agreement. International
enforcement cooperation and judicial assistance agreements are unlikely where one
country perceives the competition law enforcement of the other country to not meet
high standards of procedural fairness. Thus, developing countries that do not commit
to the procedural fairness principle are likely to receive more limited enforcement
assistance. Developing countries should, however, receive technical assistance to
help improve the quality of their procedural fairness.
Principle 6: Transparency
The transparency of competition law and its enforcement should be a core principle of
any international agreement on competition law. Transparency improves the
predictability of competition laws and confidence in markets; encourages competition
law agencies and courts to improve the quality of their work; and reduces the
potential for corruption, political influence, and lax enforcement. Many of the WTO
agreements contain general obligations relating to the publication and notification of
national laws, regulations, judicial decisions, and administrative rulings of general
application.2 The basic obligations are for laws, regulation, judicial decisions, and
administrative rulings of general application that affect trade to be published and
administered in a uniform, impartial, and reasonable manner. To a significant extent
the requirement for consistency in Principle 4 is a commitment for competition laws to
be administered in a uniform, impartial, and reasonable manner. While there is a
growing body of WTO case-law on general transparency principles, it would be
desirable to have more precise and definitive guidance on transparency and
notification obligations applicable to competition law and exemptions thereto.
While no submissions to the WTO Working Group on Trade and Competition Policy
opposed transparency as such, a number of members were concerned about the
potential scope of such obligations or argued for flexibility in implementation for
developing countries. If there is national transparency, the cost of international
transparency should be quite small.
There should be an obligation to publish competition laws, enforcement policies,
guidelines, procedures, and exemptions from competition laws and encouragement
(p.566) to publish annual reports and speeches of enforcement officials.
Transparency would be further improved if there was agreement on the required
content and level of detail in the guidelines issued, and if the public and other national
competition authorities were given the opportunity to comment on the draft
guidelines before they became effective. The ICN could have a role in formulating best
practice guidelines on enforcement. Article 2.5 of the Agreement on Technical Barriers
to Trade, which requires members to explain the justification for a regulation, may be
usefully applied to competition law exemptions. This would assist in the
implementation of Principle 4. Transparency is not incompatible with a broad public
interest test defence, but could be undermined if political decisions were a part of
national competition law.
There should be an obligation to publish through the Internet or otherwise written
adjudicative decisions, announcements of enforcement actions, guidance from
administrative bodies, and case settlements. The possibility of public scrutiny may
produce better reasoned decisions. The more detail and the more reasoned a decision,
the more value it is for outsiders attempting to understand the law. However, the
administrative burden on agencies could be significant if written reasons were
required for all enforcement decisions. It may be possible to disseminate the gist of
the case and the underlying policy decision and thus a procedure could be created to
determine which cases should be the subject of a written report.
Principle 7: Ensuring Effective Enforcement
There should be a general obligation to ensure that the appropriate institutions,
procedures, remedies, and resources are in place to ensure the effective enforcement
of national competition law. Chapter 12 argued that the WTO DSU should not be used
to review the substantive merits of individual competition law cases and would be
ineffective in ensuring that competition law was enforced. A combination of
mechanisms is needed to ensure the effective enforcement of competition law.
The best way to assure foreign firms of non-discriminatory enforcement may be to
provide an effective and inexpensive right of private action for competition law
violations. This would involve agreement that compensatory damages and injunctive
relief remedies can be ordered in appropriate cases, for which Articles 41 to 50 of
TRIPS provide a precedent.
In countries where private competition law litigation is difficult and uncommon, it may
be desirable to agree on a complaints procedure like that of the EU.3 (p.567) Where
the Commission rejects a complaint by decision under Article 7(2) of Council
Regulation (EC) 1/2003 it must state its reasons for doing so. The statement of
reasons must disclose in a clear and unequivocal fashion the reasoning followed by
the Commission in such a way as to enable the complainant to ascertain the reasons
for the decision and to enable a competent community court to exercise its power of
review. The complainant may also seek judicial review of the Commission's disposition
of the complaint.4
A more effective means of ensuring the investigation of allegedly anticompetitive
conduct than providing for ex post review by an international organization would be to
allow for the ex ante involvement of other competition law authorities. There are
several possibilities. The first is to give the competition authorities of all countries
standing before the courts of other countries to enforce the competition laws of the
forum country. A second is to include stronger positive comity obligations, together
with enhanced information sharing provisions, in enforcement cooperation
agreements. The need for an ongoing relationship and trust between national
competition law authorities, and granting officials from another country observer
status in the investigation of another, could be very effective mechanisms to ensure
enforcement.
Principle 8: Competitive Effects Jurisdiction
The normative conclusions from Part II can be summarized as a series of rules that
could be agreed to govern the jurisdiction in international competition law cases.
These rules draw on the Brussels Convention on Jurisdiction and the Enforcement of
Judgments in Civil and Commercial Matters and the draft Hague Convention on
Jurisdiction and Judgments. The competition law rules should be incorporated in a
binding international convention.
Rule 1: A court shall not have jurisdiction in a competition law action over conduct
unless substantially all of that conduct takes place in the territory of the forum state,
or the conduct has an substantial, direct, and foreseeable effect on competition within
the forum. Conduct will have an effect on competition law where the conduct resulted
in or would be likely to result in a price rise to consumers or a price drop to sellers. In
other words, consumer welfare is harmed.
Rule 2: In addition to the grounds for exclusive jurisdiction listed in the Brussels and
draft Hague Conventions, the courts and/or competition authority of a state where
substantially all of the challenged conduct took place will have exclusive jurisdiction
unless the conduct substantially, directly, and foreseeably affects the consumer
welfare in another country. In other words, in paradigm market access (p.568) cases
the country where the conduct allegedly preventing or restricting imports takes place
should have exclusive jurisdiction.
Rule 3: A case can be made for an agreement formalizing the scope of the existing
international competition law defences, and indirectly identifying the situations when
a foreign measure needs to be challenged in an inter-governmental forum. A case can
also be made for an agreement providing for the mutual recognition of certain
competition law exceptions, so enlarging the exclusive jurisdiction of all states in
certain fields of regulation.
Rule 4: In civil actions, the country where the conduct occurs or the injury is felt may
exercise jurisdiction.
Rule 5: A court may hear closely related civil competition law actions against multiple
defendants, provided that the court has jurisdiction under rules 1 to 3 against one of
the defendants.
Rule 6: The court may, on application by a party, suspend its proceedings if in that
case it is clearly inappropriate for that court to exercise jurisdiction and if a court of
another state has jurisdiction and is clearly more appropriate to resolve the dispute.
Rule 7: The above rules should not be applied in such a way as to discriminate in
favour of local plaintiffs or defendants.
Rule 8: Competition law authorities should apply the same principles mutadis
mutandis to their investigation and prosecution of competition law cases. As part of
the good faith implementation of the above agreed rules, governments should be able
and willing to intervene in private competition law proceedings in their own courts to
encourage the correct application of the above rules and provide any necessary
factual information.
Principle 9: International Enforcement Cooperation and Judicial Assistance
Countries should be encouraged to enter basic enforcement cooperation agreements
containing provisions on notification, coordination of investigations, exchange of non-
confidential information, and comity. Negative and positive comity can assist in the
allocation of enforcement responsibilities. Enforcement cooperation should be linked
to a broader scheme of international cooperation, in particular a plutilateral
agreement on core competition law principles. All parties to the plurilateral agreement
should be prepared to discuss entering basic enforcement cooperation and assistance
agreements with all other parties. Positive comity and obligations to enforce
competition laws may be mutually reinforcing.
More advanced agreements could provide for the exchange of confidential information
between competition authorities and information gathering on behalf of foreign
authorities and courts in civil, administrative, and criminal proceedings. It would also
be desirable to conclude agreements that facilitated (p.569) information gathering
and the enforcement of judgments in private competition law litigation. An agreement
on jurisdiction may facilitate an agreement on the enforcement of foreign competition
law judgments for compensatory damages. An arrangement like that proposed by the
Hague Convention on Jurisdiction and Judgments that just applied to competition law
may be possible.
While increased coordination of competition law enforcement is desirable, in many
cases the divergent interests of countries will limit the prospects of reducing the
number of competition law agencies reviewing a transaction. Coordination will work to
the extent that it can improve the efficiency of the enforcement of competition laws.
Coordination is dependent on a high level of information exchange between
competition agencies. The appointment of a lead jurisdiction is only likely to be
feasible where the markets in question are truly international, all countries are likely
to be affected in the same way by the merger, and the application of the law of the
lead jurisdiction would not ignore the interests of other countries. Greater coordination
implies the acceptance of a degree of integration of national competition laws into
international competition law that most States at present appear unwilling to accept.
Principle 10: From Technical Assistance to Enforcement Cooperation
While technical assistance should be adapted to the circumstances of each developing
country, the provision of technical assistance should be regularized and coordinated.
See Section 3.2. The same organization should also be involved in coordinating the
development of best practices and enforcement cooperation. The more advanced that
a competition authority receiving technical assistance is, the greater will be its
interests in receiving technical assistance that takes the form of case-specific advice
on investigative techniques and economic analysis.
Principle 11: Dispute Settlement
Only Principles 4 to 7 proposed for a plurilateral agreement on competition law should
be subject to binding dispute resolution. The nature of the Principles means that WTO
panels would not review individual decisions of enforcement agencies and courts
unless they were of general application. Even if such decisions were reviewed, the
result in the individual case could not be affected because of the prospective nature of
WTO dispute settlement remedies. The applicable standard of review should be
designed to protect the discretion of members to make factual findings and
conclusions in individual cases. Members should also not be able to bring a WTO
complaint unless that violation with Principles 4 to 7 has adversely affected its trade
or investment interests.
(p.570) Principle 12: Competition Law and Policy Review
The WTO Trade Policy Review Mechanism (TPRM) is a process for the regular review of
the trade policies and practices of members by other members and the WTO
Secretariat.5 A competition policy review mechanism could improve access to
information about laws and policies and their trade effects; encourage states to carry
out their obligations through peer pressure and publicity, especially where a challenge
through the DSU is unlikely; provide a forum to multilaterally discuss what are unfair
trade policies so that they are not unilaterally defined; clarify the policies of other
states and encourage less use of non-transparent policy instruments such as
administrative guidance; suggest policy changes or improvements to governments
based on the experience of other states; and improve the understanding of
international competition law.
If the results of the review are publicly available and the review focuses on both
domestic and foreign effects of a competition policy, the benefits of the mechanism
are likely to be greater for all countries. An open review mechanism, like the TPRM,
may be able to increase public support for the mission of the WTO and help address
public concerns about accountability and legitimacy. WTO trade policy reviews already
comment on competition law issues.6 A number of commentators have proposed the
use of non-binding case reviews to promote better enforcement of competition law.
A competition policy review mechanism will only be useful if certain conditions are
met.7 First, the WTO Secretariat or the reviewing organization must be appropriately
resourced, including staff with the necessary expertise. Secondly, the TPRM report will
be more useful if there are WTO rules or other agreed principles of international
competition law against which national laws and policies can be evaluated. The ICN or
OECD may be better placed to engage in a review of other aspects of national
competition laws and policies, which could be evaluated against other softer
international agreements or best practice guidelines as they were developed. Finally,
the role of national delegations to the WTO in the review serves to increase the
legitimacy and effectiveness of the process, because untruthful answers by national
delegates are likely to harm the reputation of the individual and the country that
individual represents.8 Trust and a reputation for trustworthiness are likely to have a
similar effect among senior enforcement officials at the ICN or OECD.
Notes:
(1) WTO WGTCP, Annual Report of the Working Group, WT/WGTCP/6, 9 December
2002 .
(2) See, eg, GATT, Art X; GATS, Art III; TRIPS, Art 63.
(3) Council regulation (EC) 1/2003 of 16 December 2002 on the implementation of the
rules on competition laid down in Articles 81 and 82 of the Treaty [2003] OJ L1/1, Art
7(2); EC Commission Notice on handling of complaints by the Commission under
Articles 81 and 82 of the EC Treaty [2004] OJ C101/65, paras 7576.
(4) See, eg, T-241/97 Stork Amsterdam BV v Commission [2000] ECR I-309, 3289.
(5) See JS Mah, Reflections on the Trade Policy Review Mechanism in the World Trade
Organization (1997) 31:5 Journal of World Trade 49 .
(6) See, eg, Trade Policy Review, Reports of Secretariat for Canada, WT/TPR/S/179, 14
February 2007, paras 23648 , Costa Rica, WT/TPR/S180, 12 March 2007,
paras 17885, Macao, China, WT/TPR/S/181, 26 March 2007, paras 88100. See also
WTO Annual Report (WTO, 1997) 7980.
(7) R Blackhurst, Strengthening GATT surveillance of trade-related policies in E-U
Petersmann and M Hilf (eds), The New GATT Round of Multilateral Trade Negotiations:
Legal and Economic Problems (2nd edn, Deventer/Boston: Kluwer Law and Taxation
Publishers, 1991) 123, 1434 .
(8) See Mah (n 5 above) 54.