Global Competition Law: Sovereignty and Covergence
The abandonment of the Havana Charter 1950 also led to the abandonment of efforts to develop a multinational legal framework for global competition. With prospects for developing a cooperative legal framework for global competition dashed, individual states were the only potential source of efforts to combat transnational anti-competitive conduct. National institutions -- legislatures and courts -- would have to set the rules for conduct on transnational markets and enforce them. The potential for conflict, resentment and abuse was obvious, but there was no available alternative.Throughout this period, the US has continued to play the dominant role in shaping transnational competition. Despite the incongruity of a system in which a single state provides the norms that govern the economic conduct of much of the world, this arrangement has come to be accepted as the natural and automatic way of thinking about the issue.
The principles of international law are principles that relate to the authority of states to regulate private conduct. It is important to distinguish the legitimacy of state action under international law from its legitimacy under that law of the state taking the action. A state may establish legal standards to measure the conduct of its own institution, but this is a fundamentally different issue that has no necessary relationship to what other states consider legitimate. Failure to distinguish between these two isseus is the source of much confusion.
These principles have developed as part of customary international law and rest on the consent of states as expressed in well-established state practice. Individual states may agree to vary the rules in their relationship with each other, but the basic jurisdictional system is a set of generally accepted principles. They have evolved as a means of reducing conflicts among states over the regulation of private conduct. By specifying spheres of jurisdictional authority public international law seeks to minimize the likelihood that conflicts will arise over which state may regulate conduct where more than one state wishes to regulate the same conduct. Without such jurisdictional rules, states could seek to regulate and enforce their own laws whereever and whenever they wished. Stronger states would be in a position to control conduct anywhere their interests were involved, while weaker states would have little capacity to deter conduct that may harm their interests. The principles governing jurisdiction evolved from traditional conceptions of the rights and duties of sovereign states in relation to each other. Developed primarily in the context of European state relationships and the frequent political and military conflicts among the states of Europe, they were intended to reduce points of potential conflict among states over the conduct of their citizens that might lead to wars. Prior to 20th century, they had limited application to economic issues.
Public international law authorizes a state to control private conduct where it has a sufficient relationship (or 'nexus') to either the conduct or the actor, and it defines the kinds of relationships that are sufficient for this purpose. It uses the concept of a state's 'jurisdictional base' to refer to these connections. However, the authority is not absolute. Public international law has long recognized two main bases of jurisdiction. One is territory: a state traditionally has authority to control conduct that occurs within its borders. A second is nationality: a state is generally authorized to regulate the conduct of its nationals, whether individuals or corporations, regardless of where it occurs. This principle causes few problems because there is seldom uncertainty about whether an individual or corporation is a national of a particular state, and most individuals and corporations do not have multiple nationalities. This relatively tidy system created few problems before the First World War. States did not generally consider themselves entitled to regulate private conduct outside their own territory except where their own nationals were concerned. There was relatively little pressure on this system, because during the late 1900s and early 1900s, there was relatively little government control of private business. In general, it was a period of 'laissez-faire' capitalism, and thus the limits of the jurisdictional system were seldom tested.
The First World War and the economic, political and social changes it entrained put new pressures on the traditional jurisdictional framework. Government expanded its role in the economy in often surprising ways, and firms sought to counteract uncertainty and shortages by seeking greater control over markets. Together with the increased awareness of economic interconnectedness, this began to erode confidence that the existing jurisdictional system was adequate for the changing circumstances.
One impetus for change came from the Permanent Court of International Justice (the predecessor of the International Court of Justice). In 1927, that court decided in the famous Lotus Case that a state may exercise prescriptive jurisdiction over conduct that took place outside of its territory on the ground that is caused harm within that territory. This principle of jurisdiction came to be known as the 'objective territoriality principle'. As in the traditional jurisdictional scheme, territory continued to provide the jurisdictional link, but here territory was the locus of the harm rather than the place where the conduct occurred that caused the harm. The circumstances of the case had nothing to do with international commerce, but its potential ramifications were wide, and it led to extensive legal controversy in Europe and the US. It was important for the development of transnational competition law, because it made the extension of the traditional jurisdictional framework and it tended to weaken the hold of the existing system.
One study by Harvard Research in International Law, which the objective territoriality principle was presented as logical, appropriate and necessary extension of the basic territoriality idea, focused on jurisdiction for crime. The scope of this extension was narrow, only applied where the consequences of conduct could be 'localized'. If A stands in country A on one side of a river and shoots B in country B on the other side of the river, country B should have jurisdiction to punish A for the crime, because it was committed on the territory of B. The consequence of the crime was specifically located in the territory of B. The extension of the territoriality principle was very cautious, and its use in the context did not undermine the territorial framework.
After the Second World War: competition and law in a hostile and divided world (cold war era). Jurisdiction over private economic conduct now became a politicized and highly contested issue. US dominance was a key factor that facilitated the expansion of jurisdictional principles, appeared to be using its dominance to impose its market-oriented and competition-based form of society to other countries. Antitrust came to be seen as a US product, and the expansion of jurisdictional principles as a means of imposing it on others. Outside US, in Europe and Japan, recovery from the destruction of war long called for government intervention and control. In many countries, shortages, rationing and price controls continued for decades where competition did not play a prominent role. Ideological factors often supported skepticism toward competition. Marxism in labor movements contained degrees of hostility towards 'capitalism'.
The US' expansion of its jurisdictional authority allowed US to act unilaterally, without the need to consult with others. According to US doctrine, this jurisdictional unilateralism was justified under existing international law. In the Alcoa case in 1944, the court claimed that the Sherman Act applicable to foreign conduct because such conduct was intended to affect imports into the US and did affect them. One immediate effect of the decision was to justify and encourage US efforts to use antitrust to promote the cause of competition across the globe. The US was the only country with extensive competition law experience, thus it was the only one with the knowledge and expertise to undertake this task.
During those years, many countries needed economic support from the US, and they were unlikely to complain about US action. US occupation officials imposed antitrust law in occupied Japan and Germany. Cartels and high levels of economic concentration were widely seen as having contributed to the rise of militarism in Japan and to both fascism and militarism in Germany, and competition was heralded as an antidote to these evils. US officials thus imposed US antitrust principles in those two countries during the post-war period.
The defeat of the Havana Charter project lent further urgency to US efforts, because it was now clear that competition law principles would not be developed on a coordinated basis. From this perspective, the expansion of US jurisdiction in support of antitrust law represented a move toward constructing a better world. However, many perceived the US claims as a threat to the jurisdictional framework that had been constructed by the interactions and understandings of states over centuries, the framework to minimize conflicts among states. During 1950s and 1960s foreign countries often protested against US jurisdictional claims based on the effects principle. Governments and scholars in Europe argued that the principle had never been accepted as a basis for jurisdiction under international law, therefore, the US was violating international law when it asserted jurisdiction on that basis. However, resistance to the effects principle gradually weakened, especially after 1970s, as increasing number of states recognized that under modern economic conditions it was useful to have jurisdictional authority over conduct outside their territory that had effects within their territory. The effects principle was specifically written into the German antitrust statue that was enacted in 1958. By early 1980s effects were considered basis of jurisdiction by France, Denmark and Sweden. In European Union law, the European Court of Justice long avoided endorsing the effects principle, but it stretched the territoriality principle in other ways that led to a similar scope of application for EU antitrust law.
The evolution of a jurisdiction-based regime for global competition law in the decades after Second World War reveals much about its characteristics and highlights some of the consequences of a global competition law regime based solely on the principles of sovereignty. For decades, after international cartels were initially recognized as a global problem, the general assumption was that because the problem was a threat to global markets, it would have to be addressed on a coordinated, multilateral basis. Without incentives to seek agreement or cooperation with other countries, US legal institutions simply applied a set of principles that had been developed for other purposes in other contexts. Competition law for global markets became basically a US enterprise in which the decisions that counted were the decisions of US institutions.
A prominent conflict provides examples of some of the negative consequences that inhere in a global competition law regime based exclusively on sovereignty.
The most spectacular case is the Microsoft case, in which American authorities decided that several important Microsoft business practices had not violated US antitrust law, but the European Commission disagreed and found the same conduct a violation of EU law. This led to a long series of sometimes acrimonious responses and political intrigues for years. Some commentators believe that this conflict itself significantly damaged Microsoft, parts of the industry, and cooperation among competition law officials.
In July 2001, the European Commission blocked a merger between General Electric and Honeywell that would have been the largest industrial merger in history. Both were US corporations and headquartered in the US, and each had numerous activities and subsidiaries around the globe. The merger had been approved by US antitrust authorities in late 2000, and many assume that with US approval the merger would not face serious regulatory obstacles elsewhere. They were wrong, and the European Commission's rejection of the merger created a furor, including angry denunciation of the decision, EU competition law in general, and, in private, of competition law officials involved in the decision. The reactions came from US government officials and politicians as well all as from leading businessmen, journalists and academic commentators. The merger was intended to achieve efficiencies and competitive advantages, in particular, that the combination of GE's strength in the production of large aircraft engines and Honeywell's specialization in avionics and non-avionics components, together with GE's capital financing abilities, would allow the merged company to offer customers more attractive product packages and thus compete more effectively with is only major competitor -- the European Airbus consortium. Prior to the proposed merger, GE was the world's largest producer of large and small jet engines for commercial and military aircraft. Honeywell enjoyed a 50-60 percent market share in avionic products. On May 2001, the Commission informed the companies of its objection to the merger. Jack Welch, the CEO of GE, appealed personally to Competition Commissioner Mario Monti, unsuccessful. Eventually GE did make some of the concessions required by the Commission, but the Commission enjoined the merger from taking place in the European market, and the merger plan was abandoned.
The WTO established a working group that between 1998 and 2001 issued several reports that the group would focus on the feasibility of WTO competition law framework. The effort was failed when both the US and a group of developing countries declined to support. The 2003 Cancun ministerial conference produced no agreement on the issue, and the WTO officially disbanded the working group and dropped antitrust from the agenda in July 2004.
In the wake of rejection of competition law at the WTO level, bilateral agreements have proliferated. Bilateral trade agreements sometimes contain chapters related to competition. They typically do not impose onerous obligations on the parties, but are designed to set up voluntary mechanisms for exchanging information and providing the parties with opportunities to influence each other's competition law practices. In recent agreements between the EU and developing countries, the EU has insisted on competition chapters that require partner states to enact specific provisions in their competition laws.
Regional economic agreements often also contain provisions relating to competition law. This category includes both regional trade agreements (RTA) and regional integration projects. RTAs seek to reduce obstacles to trade within a specific geographical region. Competition law provisions are typically included in order to prevent the erection of private barriers to trade that could undermine the effort to reduce public trade barriers. Such provisions have been common since the European Common Market was created in 1950s. The 1996 NAFTA agreement between the US, Mexico and Canada seeks to reduce restraints on the flow of goods, persons and capital across North American borders, it includes competition provisions, but they have played a marginal role in its implementation. IN MERCOSUR project that includes countries in the southern part of latin America that began in 1990s, competition law harmonization has been part of the project, but it has had little significance. There have been several recent attempts at regional economic integration in Africa in the 200s, but they are generally too new to asses.
However, some bilateral and regional agreements have played roles in spreading knowledge of competition law and expertise in implementing it.
Convergence (or sometimes 'harmonization') appeared to be the only viable strategy for dealing with the problems.
The US' expansion of its jurisdictional authority allowed US to act unilaterally, without the need to consult with others. According to US doctrine, this jurisdictional unilateralism was justified under existing international law. In the Alcoa case in 1944, the court claimed that the Sherman Act applicable to foreign conduct because such conduct was intended to affect imports into the US and did affect them. One immediate effect of the decision was to justify and encourage US efforts to use antitrust to promote the cause of competition across the globe. The US was the only country with extensive competition law experience, thus it was the only one with the knowledge and expertise to undertake this task.
During those years, many countries needed economic support from the US, and they were unlikely to complain about US action. US occupation officials imposed antitrust law in occupied Japan and Germany. Cartels and high levels of economic concentration were widely seen as having contributed to the rise of militarism in Japan and to both fascism and militarism in Germany, and competition was heralded as an antidote to these evils. US officials thus imposed US antitrust principles in those two countries during the post-war period.
The defeat of the Havana Charter project lent further urgency to US efforts, because it was now clear that competition law principles would not be developed on a coordinated basis. From this perspective, the expansion of US jurisdiction in support of antitrust law represented a move toward constructing a better world. However, many perceived the US claims as a threat to the jurisdictional framework that had been constructed by the interactions and understandings of states over centuries, the framework to minimize conflicts among states. During 1950s and 1960s foreign countries often protested against US jurisdictional claims based on the effects principle. Governments and scholars in Europe argued that the principle had never been accepted as a basis for jurisdiction under international law, therefore, the US was violating international law when it asserted jurisdiction on that basis. However, resistance to the effects principle gradually weakened, especially after 1970s, as increasing number of states recognized that under modern economic conditions it was useful to have jurisdictional authority over conduct outside their territory that had effects within their territory. The effects principle was specifically written into the German antitrust statue that was enacted in 1958. By early 1980s effects were considered basis of jurisdiction by France, Denmark and Sweden. In European Union law, the European Court of Justice long avoided endorsing the effects principle, but it stretched the territoriality principle in other ways that led to a similar scope of application for EU antitrust law.
The evolution of a jurisdiction-based regime for global competition law in the decades after Second World War reveals much about its characteristics and highlights some of the consequences of a global competition law regime based solely on the principles of sovereignty. For decades, after international cartels were initially recognized as a global problem, the general assumption was that because the problem was a threat to global markets, it would have to be addressed on a coordinated, multilateral basis. Without incentives to seek agreement or cooperation with other countries, US legal institutions simply applied a set of principles that had been developed for other purposes in other contexts. Competition law for global markets became basically a US enterprise in which the decisions that counted were the decisions of US institutions.
A prominent conflict provides examples of some of the negative consequences that inhere in a global competition law regime based exclusively on sovereignty.
The most spectacular case is the Microsoft case, in which American authorities decided that several important Microsoft business practices had not violated US antitrust law, but the European Commission disagreed and found the same conduct a violation of EU law. This led to a long series of sometimes acrimonious responses and political intrigues for years. Some commentators believe that this conflict itself significantly damaged Microsoft, parts of the industry, and cooperation among competition law officials.
In July 2001, the European Commission blocked a merger between General Electric and Honeywell that would have been the largest industrial merger in history. Both were US corporations and headquartered in the US, and each had numerous activities and subsidiaries around the globe. The merger had been approved by US antitrust authorities in late 2000, and many assume that with US approval the merger would not face serious regulatory obstacles elsewhere. They were wrong, and the European Commission's rejection of the merger created a furor, including angry denunciation of the decision, EU competition law in general, and, in private, of competition law officials involved in the decision. The reactions came from US government officials and politicians as well all as from leading businessmen, journalists and academic commentators. The merger was intended to achieve efficiencies and competitive advantages, in particular, that the combination of GE's strength in the production of large aircraft engines and Honeywell's specialization in avionics and non-avionics components, together with GE's capital financing abilities, would allow the merged company to offer customers more attractive product packages and thus compete more effectively with is only major competitor -- the European Airbus consortium. Prior to the proposed merger, GE was the world's largest producer of large and small jet engines for commercial and military aircraft. Honeywell enjoyed a 50-60 percent market share in avionic products. On May 2001, the Commission informed the companies of its objection to the merger. Jack Welch, the CEO of GE, appealed personally to Competition Commissioner Mario Monti, unsuccessful. Eventually GE did make some of the concessions required by the Commission, but the Commission enjoined the merger from taking place in the European market, and the merger plan was abandoned.
The WTO established a working group that between 1998 and 2001 issued several reports that the group would focus on the feasibility of WTO competition law framework. The effort was failed when both the US and a group of developing countries declined to support. The 2003 Cancun ministerial conference produced no agreement on the issue, and the WTO officially disbanded the working group and dropped antitrust from the agenda in July 2004.
In the wake of rejection of competition law at the WTO level, bilateral agreements have proliferated. Bilateral trade agreements sometimes contain chapters related to competition. They typically do not impose onerous obligations on the parties, but are designed to set up voluntary mechanisms for exchanging information and providing the parties with opportunities to influence each other's competition law practices. In recent agreements between the EU and developing countries, the EU has insisted on competition chapters that require partner states to enact specific provisions in their competition laws.
Regional economic agreements often also contain provisions relating to competition law. This category includes both regional trade agreements (RTA) and regional integration projects. RTAs seek to reduce obstacles to trade within a specific geographical region. Competition law provisions are typically included in order to prevent the erection of private barriers to trade that could undermine the effort to reduce public trade barriers. Such provisions have been common since the European Common Market was created in 1950s. The 1996 NAFTA agreement between the US, Mexico and Canada seeks to reduce restraints on the flow of goods, persons and capital across North American borders, it includes competition provisions, but they have played a marginal role in its implementation. IN MERCOSUR project that includes countries in the southern part of latin America that began in 1990s, competition law harmonization has been part of the project, but it has had little significance. There have been several recent attempts at regional economic integration in Africa in the 200s, but they are generally too new to asses.
However, some bilateral and regional agreements have played roles in spreading knowledge of competition law and expertise in implementing it.
Convergence (or sometimes 'harmonization') appeared to be the only viable strategy for dealing with the problems.
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