Global Competition

Global Competition: Law, Markets, and Globalization
By David J. Gerber, 2010

The process of global economic integration promises much to many. Its potential for improving human welfare is immense. Global markets create opportunities to buy, sell, and work: they reduce costs of production and waste; and they direct assets to their 'highest and best' uses. They can also promote democracy, contribute to political stability, enhance individual freedoms and support human rights. The promise is universal. Yet the promise is also vague. It is accompanied by much uncertainty about the extent of its benefits, who is likely to receive which benefits, and when the promised gains might be realized. Few doubt that global competition produces wealth for some, but many do not see benefits for themselves. Global markets do not distribute their benefits evenly -- either among recipients or over time. Many not only doubt that they will receive benefits from global competition, but also fear its consequences, and see global markets as more likely to harm than to benefit them. Individuals and communities can lose at the hands of global competition. Those who lose jobs, opportunities and the capacity to pay for goods and services find little solace in the claim that the process may benefit global economic welfare. Perceptions of the competitive process are at the core of these conflicting views of global competition.

Competition laws are intended to protect the process of competition from restraints that can impair its functioning and reduce its benefits. When effectively implemented, they can play important roles in supporting the compettive process and thereby maximizing the benefits it can provide. 

Most national legal systems have competition laws. For global markets, however, there is no competition law. The norms of competition are provided by those legal systems that have sufficient economic leverage or political power to enforce their laws outside their borders. Without an effective legal framework for global competition, anti-competitive conduct may impair the efficiency of markets, thereby depriving people everywhere of the economic resources and opportunities such markets can generate, especially for those who are in greatest need of them. Where the rules for conduct on global markets are provided and enforced by a single powerful state or group of states, this may generate suspicion and even hostility toward those markets from those who have no voice in this process. 

The regime of 'unilateral jurisdictionalism' authorizes states to apply their own laws to conduct outside their territory under certain conditions -- without the obligation to take the interests of other states into account. It represents a default postilion that is used in the context of transnational competition law because a regime specifically designed to protect global competition has yet to be developed. The limitations of the jurisdictional regime have not gone unnoticed, and efforts have begun to address some of them in the late 1990s, when European leaders with support from Japan sought to introduce competition law into the newly-created WTO. Lack of US support doomed these efforts. It has led many to abandon the ideal of multilateral agreement for protecting comeptiton and to seek solutions in greater convergence among competition law systems and in bilateral and regional agreements. These strategies also have serious weaknesses, and their potential for dealing with the problems and potentials of globalization may be limited. To be sure, some convergence has occurred, and bilateral and regional agreements have made some progress, but neither approach represents an adequate fundamental weaknesses of the jurisdictional regime, and bilateral and regional agreements can add to the complexity and cost of operating in that regime. 

Beyond the Jurisdictional Regime: Reconsidering Competition law for Global Markets

Deficiencies in the jurisdictional regime, evolving relationships among states, and changes in the structure of competition itself, call for fundamental reconsideration of competition law on the global level. 

There are two basic approaches to combating anti-competitive conduct on the global level.
One is based on convergence. it accepts the existing jurisdictional mechanism and expects national competition law systems to align with each other in ways that improve it. The analysis suggests that a convergence strategy can produce some benefits, but that it cannot adequately address many of the key issues of competition law for global markets.
A second strategy is based on multilateral agreement. Such a strategy goes beyond the jurisdictional regime and creates obligations on states to combat anti-competitive conduct on global markets. It thus responds to the pressures and incentives of globalization by entering new territory. The analysis concludes that an agreement-based strategy has the potential to address the main weaknesses of the jurisdiction-based regime and that it has much potential value for developing a more effective global competition law regime.
This analysis also suggests that traditional forms of agreement are not likely to be adequate to the challenge. It needs a particular kind of agreement that is specifically adapted to the needs of long-term global competition law development, refer to as a "commitment pathway" strategy. In it, states commit to a process rather merely agree to be members of an institution or to accept a particular set of rules.

This concept builds on 3 basic facts: one is widespread recognition of the potential value of combating anti-competitive conduct. Most states agree that competiton law can have value for them. A second recognizes that there are significant differences in views about the contents and functions of comeptition law. The third fact is that under these circumstances the alignment of interests necessary to secure an effective global competition law regime can only be developed over time.

With these givens, the outlines of a strategy in which states commit to a shared pathway, i.e. to a set of short-term and long-term goals together with a set of implementing strategies and plan. 

The objective of such a strategy would not be to establish a full set of norms and institutions to which all participants must adhere at a specific time and on the same conditions, but ot coordinate commitments. Such a strategy can both support the economic potential of global competition and embed it into political and social instituions in countries everywhere. 

Laws perform two basic functions in relation to markets.

One is to provide 'background' rights and obligations. In this sense, they 'construct' markets and enhance their productive capacity.  (Law's constructive function). 

A second function is to provide conduct norms for markets and thereby relate markets to both those who participate in them and those who are affected by them. These norms represent a community's claims on the conduct that affects its members. (Law's embedding function).

Both functions must be performed effectively in order for competition to develop its potential. Law's role in enforcing contracts, securing property rights and anchoring competitive freedoms provides the incentives and the stability necessary for economic development. Its role in embedding competition in society generates acceptance of market principles and develops political support for the rights and obligations that support the competitive process.

In domestic context, the relationship between law and markets is direct. Market actors are generally aware of the legal norms applicable to their conduct, and they can generally assess the consequences of violating them. When we turn to global markets, however, the relationship between law and the market looks very different. Global markets are not clothed, as local and national markets are, in a fabric of political institutions, laws and cultural understandings of what is permissible economic conduct. The laws that are applied to global markets are not themselves global -- or even transnational. Instead, the laws of individual states govern global markets. In this legal regime, law does not perform an integrative or embedding function. It often has the opposite effect -- it creates borders and concomitant tensions and conflicts. Moreover, those who are affected by global markets typically have little opportunity to influence the conduct that affects them. The influence of a state's conduct norms on global competition depends on the political and economic influence of the state itself, which means that there are great disparities in the capacity of states to influence conduct on global markets.

Decision-makers in many parts of the world recognize the potential value of economic competition and increasingly seek to protect it from private restraints. There is growing awareness that transborder competition can generate economic growth and the jobs, income and public and private resources that are important everywhere, but that are desperately needed by so many. The need to provide an effective legal framework for global competition has also become increasingly obvious, especially since the financial crisis 2008. The disturbing part is that those efforts often appear to have weak foundations. Political leaders and competition law officials often know little about prior competition law experience in other parts of the world or even in their own countries, and often they are not aware of the range of their policy options and the likely consequences of their decision. 

The emergence of new form of globalization since the early 1990s has made this situation increasingly precarious. Interest in and proclaimed support for competition law have surged, but there are questions about the basis for such support and about its dept. This creates a pressing need for scholars and decision makers to acquire firmer and deeper knowledge of relevant competition law experience on both the national and international levels. 

In the course of studying competition law experience, five challenges have crystalized as central to global competition law development.

1. Competition law targets forms of economic conduct that interfere with the effective operation of competitive markets. Strategies must be designed not only to eliminate the harm, but also to avoid damaging the "healthy" components of the system. Devising effective strategies for doing this is difficult enough on the national level, but the difficulties increase significantly on global markets, where they are compounded by national interests- both public and private -- and often tethered by modes of governance that have been developed for national contexts and that are not designed to function in a global context.

2. The role of the US in global competition law development. US antitrust law has long been at the center of the competition law world. It is often proposed as a model for other countries to follow, and many assume that it should be the basis for thinking about competition law on the global level. Yet, US antitrust experience is unique. It has developed under legal and economic circumstances that rarely have much in common with those face by others. This raises questions about the role it should play in the global context. 

3. Decision makers were often unaware of the potential value and importance of European competition law experience. European competition law experience remains undervalued in much thinking about global competition law development. The experience of European countries since the second world war in developing national competition law can be of exceptional value to states who now face similar issues in developing their own competition laws. Moreover, European experience in coordinating national and transnational competition law efforts is the most extensive laboratory we have for studying the dynamics of transnational competition law development.

4. To understand more clearly the dynamics of global competition as a process and the public and private institutions and relationship that will influence global competition law development in the 21st century. The scale and dimensions of global competition are not only unprecedented, but often beyond our capacity to understand them adequately, and the relationships between national states, transnational institutions, and global governance networks of various kinds are evolving rapidly. Some advocate convergence of national laws as a response to the limitations of the current regime, but they frequently fail to identify how that process can be expected to work and fail to note that increasing similarity among some or even many systems in some substantive and procedural areas may do little to overcome the limitations of the jurisdiction-based system. Others focus on including competition law in a supranational institution -- usually the WTO, but they sometimes fail to appreciate the continuing centrality of national borders in any view of global markets and their governance. 

5. To reconcile the enormous potential of global competition with the need to harness that potential to the needs of all participants. Even before the crisis of 2008, critics of "globalization" decried the wealth distribution patterns that they associated with it. They claim that globalization primarily benefits "the West" and that much of the rest of the world seems to suffer more than it benefits from global competition. For these critics, it has widened the gap between rich and poor and allowed the rich to exploit the poor. Such criticisms have increase in the wake of the financial crisis, and there is little doubt that global competition has led to some of the harms of which it has been accused. Yet it is also clear that economic competition is usually the surest mechanism for supporting economic development thus addressing the economic needs of both poor and rich. To obstruct the process appears, therefore, to be a misguided response to the problem.