Competition Law and Development (Global Competition Law and Economics) - Hardcover

Hardcover

ISBN 10: 0804785716 ISBN 13: 9780804785716

Publisher: Stanford Law Books, 2013

Synopsis

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

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

About this title

About the Author

D. Daniel Sokol is Associate Professor of Law at the University of Florida Levin College of Law. Thomas K. Cheng is Assistant Professor of Law at the University of Hong Kong. Ioannis Lianos is the City Solicitors' Trust Reader in Competition and European Union Law at the Faculty of Laws, University College London.

Excerpt. © Reprinted by permission. All rights reserved.

Competition Law and Development

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

Stanford University Press

Copyright © 2013 Board of Trustees of the Leland Stanford Junior University
All rights reserved.

ISBN: 978-0-8047-8571-6

Contents

Contributors...............................................................
vii
Introduction D. Daniel Sokol, Thomas K. Cheng, and Ioannis Lianos.........
1
1. Economic Development and Global Competition Law Convergence David J. 
Gerber.....................................................................
13
2. Is There a Tension Between Development Economics and Competition? 
Ioannis Lianos, Abel Mateus, and Azza Raslan...............................
35
3. Who Needs Antitrust? Or, Is Developing-Country Antitrust Different? A 
Historical-Comparative Analysis Aditya Bhattacharjea......................
52
4. Competition Law and Development: Lessons from the U.S. Experience 
Thomas C. Arthur...........................................................
66
5. Competition Law in Developing Nations: The Absolutist View George L. 
Priest.....................................................................
79
6. Resource Constraints and Competition Law Enforcement: Theoretical 
Considerations and Observations from Selected Cross-Country Data Vivek 
Ghosal.....................................................................
90
7. Competition and Development: What Competition Law Regime? Abel Mateus..
115
8. Prioritizing Cartel Enforcement in Developing World Competition 
Agencies D. Daniel Sokol and Andreas Stephan..............................
137
9. Contracts and Cartels: Reconciling Competition and Development Policy 
Barak D. Richman...........................................................
155
10. Your Money and Your Life: The Export of U.S. Antitrust Remedies Harry 
First......................................................................
167
11. Rethinking Competition Advocacy in Developing Countries Allan Fels 
and Wendy Ng...............................................................
182
12. Domestic and Cross-Border Transfer of Wealth Ariel Ezrachi............
199
13. The Patent-Antitrust Interface in Developing Countries Thomas K. 
Cheng......................................................................
212
14. Embedding a Competition Culture: Holy Grail or Attainable Objective? 
David Lewis................................................................
228
15. India's Tryst with "the Clayton Act Moment" and Emerging Merger 
Control Jurisprudence: Intersection of Law, Economics, and Politics Rahul 
Singh......................................................................
249
Notes......................................................................
271
Index......................................................................
309

CHAPTER 1

Economic Development andGlobal Competition Law Convergence

David J. Gerber

Global convergence seems to many to be the best, perhaps the only, availablestrategy for reducing the conflicts, costs, and uncertainties that the currenttransnational competition law regime imposes on global economic activity.The failed attempt to include competition law in the World Trade Organizationin the early 2000s has led many to conclude that multinational coordinationregarding competition law has little or no chance of success and thattherefore convergence is the only available strategy for improving the legalframework for transnational markets. This convergence strategy is based onthe idea that the countries of the world (or at least most of them) will voluntarilymove toward a central model of competition law and that this processwill reduce the costs, uncertainties, and risks associated with the currentjurisdictional system.

This chapter examines a fundamental assumption on which the globalconvergence strategy is based—namely, that a large number of countries outsidethe United States and Europe will voluntarily adopt a specific conceptionof competition law that we will here call the "economics-based model"of competition law (EBM). This view of competition law relies on a specificform of economic analysis as the basis for competition law. The EBM hasbeen developed primarily in the United States, and thus the issue is whethera model of competition law created in a highly developed country with a large,open market can attract widespread acceptance and emulation by decisionmakers in a large number of countries that are not highly developed economicallyand that do not operate in a large, open market. The entire convergencestrategy is built on this assumption, because it can achieve its statedgoals only if there is widespread participation by developing countries. Thisassumption has received little systematic attention, at least until recently, butits central importance calls for closer scrutiny of its conceptual and empiricalfoundations.

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

Two themes are central to the analysis. The first is that claims for convergenceas global policy are often built on inadequately supported assumptionsabout the participation of developing countries. The second is that there is afundamental tension between the goals of economic development and thestrategy of global competition law convergence.

Concepts and Assumptions

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

Clarifying the concept of convergence is particularly important, not onlybecause it is the focus of this chapter but also because there is much confusionabout its use. The term "convergence" is often used loosely to refer to thereduction of differences, but without clarifying which differences are involved,in what ways they are reduced, and between which actors they arereduced, the term is too vague to be useful and it is often misleading. Thecore meaning of convergence, and the one we will use here, refers to a processthat reduces the distance between individual points and a central point(the all-important convergence point). Here the convergence point is a competitionlaw model with a particular set of characteristics, and convergence is aprocess that leads other systems increasingly to resemble that model.

As used here, convergence refers to a specific type of process with twomain characteristics. The first refers to the "what" of the process. Our concernis with the decisions of state decision makers and with the incentives thatshape those decisions. "Decision" here includes not only or even primarilythe formal decisions of legislatures or courts, but all decisions that relate tothe enactment, application, and implementation of competition law. Thesecond element refers to the "how" of the process. I include only decisionsthat are made independently and voluntarily—i.e., those that are neither thesubject of an obligation (created by agreement or otherwise) nor subject tocoercive pressures from external sources.

Convergence as Global Competition Policy

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

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

Many of the tensions and problems within the jurisdictional system arerooted in the evolution of these jurisdictional principles. Prior to World WarII, international law principles generally authorized a state to apply its lawsonly to its own nationals (nationality principle) or to conduct that occurredwithin its territory (territoriality principle). In this arrangement, the potentialfor conflicts over jurisdiction was limited. Individuals and corporations seldomhad more than one legal "nationality," and relevant conduct seldomoccurred in more than one place. Since World War II, however, the so-calledeffects principle has been added as a basis for jurisdiction. It authorizes a stateto apply its norms to those who engage in conduct that has certain kinds ofconsequences within that state. According to it, any state that is significantlyaffected by the conduct may be entitled to regulate it. This has greatly increasedthe potential for conflicts arising from concurrent regulation of thesame conduct by multiple states, and this, in turn, has increased the costs,complexities, and risks of transnational business operations.

The globalization wave that began in the 1990s has brought the weaknessesand limitations of the system into high relief through the combinedeffect of two forces. One is the increasing globalization of markets. Marketshave become more global because geographical and political barriers to operatingon many of them have eroded. The other is increased reliance oncompetition laws to protect markets. The number of countries with competitionlaws has expanded dramatically, as have the resources supporting applicationof such laws, and this has further increased the probability of jurisdictionalconflicts among states as well as the complexity, cost and uncertaintyof operating on transnational markets. This reliance has intensified pressures onthe jurisdictional system and focused attention on disparities in the rules ofconduct on those markets. It has become increasingly obvious that such differencescreate significant burdens and costs for businesses that may be subjectto the laws of more than one jurisdiction.

Reactions to this burden on global economic activity have led in twodirections. One was initially centered in Europe, where in the 1990s leadersof the European Commission seized on the opportunity presented by thenewly created World Trade Organization (WTO) and sought to include acompetition law regime in the WTO. The effort received some support,but many developing countries opposed it, although their reasons appear tohave had little to do with the merits of the basic idea. U.S. representativesalso failed to support it. After several years of discussions, the WTO decidednot to put competition law on its agenda.

A second response has been a convergence strategy, which emerged duringthe WTO discussions relating to competition law and was seen by manyas an effort to provide an alternative to including competition law in theWTO. It has been strongly supported by U.S. interests, who in 2001 gavethis support institutional form by sponsoring the creation of the InternationalCompetition Network (ICN), which many view as a vehicle forconvergence. I have elsewhere discussed in detail the evolution of convergenceas policy and there is no need to recount that story in full here. Themain point is that the turn to convergence as a global strategy has been conditionedby the specific circumstances of the period in which it emerged.

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

Convergence as global competition policy has emerged in a context inwhich the EBM is generally viewed as the only politically viable convergencepoint. The main reason is that the United States is a central player ininternational commercial relations and U.S. officials have made clear thatthey would not accept a different conception of competition law as the convergencepoint. In addition, the EBM appears to be the only well-articulatedand clearly identifiable "model" for competition law. There are other conceptionsof competition law and other practices, but they are seldom conceptualizedand developed in ways that would allow them to serve as models forglobal convergence. According to this strategy, most countries will graduallymove toward a conception of competition law that was created in the UnitedStates and has been propagated primarily by its institutions, scholars, andlawyers. The reference here is not to the specific institutional arrangementsof U.S. antitrust law, but to the central idea that economics should provide thenormative framework for competition law.

The EBM posits that a specific form of economics should define the substantivecontent of competition law—i.e., it should provide the criteria fordetermining whether conduct is consistent with competition law. There issome disagreement about the specific standards to be used in performing thisfunction, but the key point is that neoclassical economics provides the standardfor determining whether conduct is anticompetitive and also supplies thelanguage and the methods necessary for that analysis.

This basic analysis has important enforcement implications. It insists thatcompetition law should intervene in business decision making only if there isstrong evidence that the conduct causes economic harm. It thus urges constraintin competition law enforcement and emphasizes the potential harmsand risks from intervening in economic decision making. This leads to anenforcement focus on cartels (horizontal agreements among competitors) inpart because the economic harm from such agreements tends to be demonstrableand quantifiable. It also discourages enforcement based on verticalrelationships and unilateral conduct, because the harm from such conduct isoften significantly more difficult to prove and far more dependent on theparticular circumstances of the case involved. Economists can, with someconfidence, identify the economic harm resulting from horizontal agreements,but the profession has less confidence (and sometimes even categoricaldenial) of competitive harm in other contexts.

Convergence as Global Policy: Standard Justifications

In order to analyze the incentives for a developing country to move towardthis convergence point, we look briefly first at some of the standard claimsfor relying on convergence as the central strategy for global competition lawdevelopment. We can then relate them to the concerns, incentives, and perspectivescommon in developing countries.

For purposes of this analysis, I distinguish between two types of claimssupporting a convergence strategy. One refers to the process of convergence anddisregards its content. The other focuses on the content of the process—thepoint toward which convergence is expected to move. These two types ofjustification are often intermingled, but failure to distinguish between themimpedes analysis.

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

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

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

A second justification refers to what I call "network benefits," those derivedfrom participating in the process. The convergence process creates acommon frame of reference for discussion and thus facilitates communicationand encourages interactions among participants. This allows officialsand others to learn from each other and may identify common problems andlead to agreement about "best practices" to deal with specific issues.

The third process-based claim refers to its low cost in relation to otherstrategies for responding to the limitations of the jurisdictional system. Participationrequires very limited resources from the participants. They neednot, for example, engage in long and costly negotiations. It also imposes limitedopportunity costs, because there are no binding obligations that precludea country from pursuing what its leaders perceive to be in their best interests.

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

(Continues...)

Excerpted from Competition Law and Development by D. Daniel Sokol, Thomas K. Cheng, Ioannis Lianos. Copyright © 2013 Board of Trustees of the Leland Stanford Junior University. Excerpted by permission of Stanford University Press.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.

Edition details

• Publisher: Stanford Law Books
• Publication date: 2013
• Language: English
• ISBN 10: 0804785716
• ISBN 13: 9780804785716
• Binding: Hardcover
• Edition number: 1
• Number of pages: 328
• Editor: Sokol D. Daniel, Cheng Thomas K., Lianos Ioannis