The Political Economy of International Antitrust Harmonization

By McGinnis, John O. | William and Mary Law Review, December 2003 | Go to article overview
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The Political Economy of International Antitrust Harmonization


McGinnis, John O., William and Mary Law Review


INTRODUCTION

International harmonization of competition laws is in the air. A large number of academics have called for harmonization of the substantive content of antitrust laws. (1) They have noted the potentially large costs of divergent national antitrust laws applied globally. These costs include the transactions costs for companies complying with multiple regimes (2) and the costs of being governed by the most restrictive antitrust regime, even if that regime is suboptimal. (3) More importantly, as a practical matter, the recent Doha meeting of the World Trade Organization (WTO) has called for the next round of world trade talks to take steps toward harmonization, including harmonization of certain core substantive standards. (4) Thus, the intellectual impetus for harmonization now may enjoy a plausible forum for its realization.

In my view, substantive harmonization, even if limited to core competition standards, would be a major mistake. It is undoubtedly true that multiple regimes impose some costs, but substantive harmonization--by which I mean a single international regime binding on all nation states in at least some areas of antitrust--also has potential costs. An international lawmaking regime creates high agency costs because it is less subject to democratic control than national regimes. (5) It also imposes costs by discouraging beneficial change, as the regime once in place will be difficult to alter. (6) Moreover, the appropriate scope of antitrust law in different nations may differ, depending on such factors as the size of their markets, their openness to trade, and their administrative competence in enforcing regulatory laws. (7) Thus, an international regime might well lead to an overall worse world competition policy.

The long-run costs of a substantive antitrust regime are particularly problematic in a world that is not static. As information costs, transportation costs, and trade restrictions decline, it may well be that the appropriate scope of optimal antitrust rules will tend to narrow as market processes become better correctives to market imperfections than government intervention. The lock-in costs of an international regime thus are particularly high in a world in which the pace of change is ever increasing.

In contrast to substantive harmonization, I offer an argument for a limited and modest antidiscrimination international antitrust regime located within the WTO. The rationale for this regime, however, comes principally from international trade law rather than antitrust law. Foreign bias in competition laws is likely to become a greater problem as the WTO eliminates tariff and other barriers to trade in goods and services. The WTO should block substitution of discriminatory antitrust law for barriers that it has removed in order to sustain progress in world trade. This effort would be a modest extension of its existing mission: it already attempts to prohibit many other forums of regulatory discrimination that interfere with exporters' market access.

The antidiscrimination model also has advantages over substantive harmonization, because formulating and applying antidiscrimination rules have fewer agency costs than formulating and applying substantive rules. (8) Moreover, the antidiscrimination model permits continued innovation and change in substantive rules, thus facilitating continued debate regarding the optimal content of regulation. (9)

Part I of this Article will critique the arguments for substantive harmonization of antitrust laws. It will suggest that these arguments are unpersuasive because they fall to show that the costs of our decentralized system of competition law are greater than the agency costs and associated pathologies of more centralized rule making and enforcement. In particular, arguments for substantive harmonization fail to recognize that a decentralized system has a certain dynamism over the long-run: the conflicts between different systems may become a focus of public attention and lead to better laws.

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