Harmonization of Competition Policies in a Regional Economic Integration

Article excerpt

With the ongoing reduction of tariff end customs barriers worldwide, increasing attention is being paid to the effects of anticompetitive markets and uneven application of competition laws on international trade. Private litigation has begun to explore the links between competition law and international trade, as reflected in recent high-profile cases such as the petitions filed last year by Kodak(1) and the U.S. pipe and tube industry(2) under Section 301 of the Trade Act of 1974.(3) National governments and international organizations now openly acknowledge that vigorous application of competition law can promote international trade.(4) The international community has identified competition policy as one of the new generation of trade issues to be addressed in upcoming trade discussions.(5) There is already a lively debate in the academic community and among policy-makers over whether a comprehensive international competition code should be developed, or alternatively whether a multilateral organization should pursue a more general set of principles.(6)

This question is not a new one for regional trade arrangements. The larger and more prominent regional economic arrangements involving industrialized countries, such as the European Union (EU), the Australia-New Zealand Closer Economic Relations Trade Agreement (ANZCERTA), and the North American Free Trade Agreement (NAFTA), have all dealt, directly or indirectly, with the issue of harmonizing competition laws and practices among member countries.(7) Regulation of competition has been a less important issue in regional economic arrangements involving less industrialized countries, but even in those arrangements it has received increasing attention.(8) For example, the member countries of the Andean Pact recently adopted standards for addressing regional market distortions caused by anticompetitive practices.(9)

The degree and types of harmonization adopted by regional arrangements have varied, however, from the creation of a supranational competition law and enforcement authority--as in the EU--to the more general undertaking in NAFTA that the parties shall "adopt or maintain measures to proscribe anti-competitive business conduct and take appropriate action with respect thereto."(10) The issue continues to attract significant attention and study by these organizations. For example, NAFTA established a Working Group under Article 1504 for the specific purpose of studying issues related to the competition laws of the member states.(11) A Working Group on competition policy is expected to be created in connection with discussions involving the Free Trade Area of the Americas.(12) At the most recent forum of the Asia-Pacific Economic Cooperation (APEC), participants agreed to study ways to cooperate in the area of competition policy.(13)

The experience of these regional arrangements provides a helpful guide to the issues that arise when nations attempt to harmonize competition laws and practices and to the different approaches available. The purpose of this paper is to explore those issues and approaches. Part I examines the threshold question of what is meant by harmonizing competition law. While harmonization is most commonly thought of as addressing substantive legal standards, harmonization of procedural rules and enforcement priorities is often at least as important to achieving the objective of expanded regional trade. Part II discusses the principal types of anticompetitive practices that need to be addressed by regional harmonization efforts, whether by harmonizing substantive legal standards (for example, in the creation of a competition "code") or by harmonizing procedural rules or enforcement. Finally, Part III briefly describes the efforts of several regional arrangements to harmonize and coordinate the competition laws and policies of member states.

I. THE ELEMENTS OF COMPETITION LAW HARMONIZATION

Harmonization of competition laws and policies can occur at three distinct levels: (1) substantive law, (2) procedural requirements, such as notification of mergers and acquisitions, and (3) enforcement practices. The issues that arise and the approaches taken at each level are different, and the relative importance of the three types of harmonization varies among regional organizations.

A. Harmonizing Substantive Law

In most regional economic arrangements involving industrialized countries, economic integration has occurred only after member nations have adopted competition laws and policies that are generally consistent. This harmonization of general principles has not always been a specific element of the regional agreement; in some cases it has been part of the general economic changes considered to be a necessary condition for the formation of regional economic integration. The NAFTA experience illustrates this dynamic.

Until 1993, Mexico did not have a comprehensive antitrust or competition law regime. Existing Mexican law, which dated back to the 1800s, prohibited certain forms of monopolization and restraints of trade, but in practice the laws were generally applied to advance public objectives other than the creation of open, efficient markets.(14) Indeed, the Mexican state often managed the economy in a way that promoted concentration of market power or protected favored firms from competition.(15) In anticipation of NAFTA, Mexico adopted in December 1992 a new comprehensive competition statute that repealed earlier legislation and established a new legal regime based on economic efficiency and open market competition. Mexican President Carlos Salinas de Gortari explained that the new legislation was intended to "promot[e] competition in the manufacturing sector and . . . encourag[e] competitiveness, creativity, and participation by all Mexicans in the production and marketing of goods and services." (16)

Significant differences still exist between U.S. competition law and the new Mexican legal regime, but the thrust of the new law is substantially similar to U.S. law. For example, the new Mexican law prohibits "absolute" monopolistic practices such as price-fixing and agreements to restrict output, divide markets, or rig bids, and, like U.S. law, it treats such offenses as per se unlawful.(17) Certain "relative monopolistic practices" such as retail price maintenance, tying, exclusive dealing contracts, and refusals to deal are unlawful if they unduly impede competition.(18) While it is too early to tell how the new Mexican law will be administered or how the broad standards will be interpreted, the substantive principles are broadly consistent with the concept of competitive, efficient markets underlying U.S. (and Canadian) competition law.

The linkage between harmonization of general competition law standards and economic integration is more direct and explicit in the case of regional integration of Eastern European countries and the KU. As discussed infra, agreements reached between each Eastern European country and the EU include provisions that will create competition law regimes that are substantially the same as the EU competition law regime, at least as to conduct affecting trade between those countries and the EU.(19) The policy underlying these evolving relationships, therefore, is that trade integration, market integration, and competition law harmonization will occur on relatively parallel tracks.

While there is widespread agreement that regional economic integration needs to be based, at least in part, on common principles of competition law, there continues to be debate on the question of whether harmonization of general competition law principles is sufficient or whether a detailed, unified standard needs to be adopted throughout the regional arrangement. The issue arises because nations that have adopted generally consistent competition laws often have significantly different standards for applying those laws to particular circumstances, such as determining the existence of market power or market dominance, the specific practices that constitute an abuse of market power, or the standards for evaluating the legality of vertical restraints such as exclusive dealing arrangements.

The argument for creating a detailed, unified standard to be applied in these areas is that a common regime would prevent member nations from applying their competition laws in such a way as to favor domestic industries. Exclusionary conduct by monopolists or the pervasive use of vertical restraints by firms with market power can be effective ways of excluding unwanted competition from firms in other nations. If a particular nation's competition law is based on permissive or discretionary standards in these areas, its domestic industries might be able to erect trade barriers that defeat the purpose underlying the regional economic integration.

On the other hand, there are many who argue that some diversity and flexibility among competition law regimes is healthy. Indeed, U.S. antitrust law in the areas of monopolization and vertical restraints has changed dramatically over the past few decades. Practices that were once considered per se unlawful are now routinely permitted.(20) This kind of evolution might be inhibited by the creation or implementation of a static competition code. Even in the KU, where a supranational competition law has been established(21) and a single agency created to enforce it,(22) member states may continue to experiment with different competition law systems, at least as to transactions with purely domestic effects.(23)

One area where substantive law harmonization may be important, however, involves state-sanctioned export cartels. Most industrialized countries authorize export associations and provide some degree of antitrust protection for their members.(24) In the United States, the rationale behind granting the limited antitrust exemption for export arrangements was to enable smaller U.S. companies to compete in international markets where cooperation and collusion were more widespread. In regional organizations where members have agreed to dismantle such collusive arrangements, the rationale for permitting export associations no longer exists, at least with regard to trade within the regional territory.(25)

Other areas where substantive law harmonization may be appropriate even in the absence of a broader unified code are (1) jurisdictional rules governing circumstances under which private or government enforcement directed toward conduct occurring in other member states is appropriate; (2) elimination of antidumping laws and their replacement with harmonized standards for evaluating predatory or discriminatory pricing; and (3) state subsidies and the conduct of state monopolies. These issues are discussed in further detail in Part II.

An alternative to the adoption of a unified competition code is the creation of regional dispute resolution mechanisms designed to determine whether a member state's competition laws are being applied in a manner that prejudices firms in other member states. Such mechanisms would avoid the difficult and time-consuming process of creating a unified code and would allow member states to continue experimenting with different types of competition law regimes, so long as other member states were not adversely affected.

B. Harmonizing Procedural Requirements

Some regional trade organizations have also sought to harmonize procedural rules, especially in the area of state approval of mergers and acquisitions. It has long been recognized that the structural reorganization of regional markets is a major objective of regional integration and that regional arrangements usually result in increased cross-border investment.(26) Where state approval or review procedures differ among the member states, however, uncertainties, costs, and delays may discourage these cross-border transactions. Accordingly, an obvious target of harmonization efforts by regional trade organizations is in the area of merger controls, which may be harmonized either by creating parallel procedures, by establishing direct enforcement cooperation, or by creating a single merger control entity.

Harmonization efforts may also extend to procedural matters such as service of process, discovery, or reciprocal enforcement of court orders and decisions. This type of procedural harmonization may be especially important where member states have competition law regimes that emphasize private enforcement through litigation, such as in the United States. Even where primary enforcement is left to government agencies, however, coordination of procedural matters (such as enforcement of information requests) can make it easier for a government agency to pursue competition law violations that are directed toward that state.

C. Harmonizing Enforcement Practices

A critical element of any harmonization strategy within a regional arrangement is coordination of enforcement of existing competition laws by responsible agencies. Indeed, in regional organizations where the competition law of member states is based on common principles, enforcement coordination may result in far more tangible benefits than efforts to fine-tune substantive law. Enforcement coordination, however, can be difficult to achieve and to monitor, as demonstrated by the lengthy Structural Impediments Initiative discussions.(27)

Not surprisingly, the most effective, and most sensitive, mechanisms to coordinate enforcement require some sacrifice of sovereignty. The EU provides the most extreme example of enforcement coordination--and sacrifice of sovereignty--in the creation of a supranational enforcement authority.(28) Other regional arrangements have implemented rules that require member states to conduct investigations at the request of another member.(29)

In many cases, enforcement harmonization has been attempted through more limited antitrust cooperation agreements. While a detailed review of existing cooperation agreements is beyond the scope of this paper, those agreements typically address four types of cooperation: (1) exchanging information and data that might be relevant to the other country's enforcement activities;(30) (2) notifying other enforcement authorities and consulting in areas where enforcement conduct in one country is likely to create frictions with another country;(31) (3) assisting other enforcement agencies in investigations those agencies are carrying out in their own territory;(32) and (4) coordinating parallel investigations into similar conduct.(33) The recent U.S.-Canada Agreement also establishes a type of positive comity by providing that at the request of one party, the competition authorities of the other party will "carefully consider whether to initiate enforcement activities."(34)

II. FRAMEWORK FOR ANALYZING COMPETITIVE RESTRAINTS

Some types of anticompetitive conduct are more likely than others to distort regional trade and therefore merit greater attention in the context of regional competition law harmonization. Additionally, some types of conduct may require greater attention because effective challenges to such conduct can be accomplished only through international cooperation. Set out below is a basic framework for evaluating different types of anticompetitive conduct and their significance in the context of regional harmonization of competition law and practices.

A. Internal Restraints

Some anticompetitive conduct affects only the domestic market in the state where the conduct occurs. While an argument can be made that all distortions in domestic trade ultimately affect efficient resource allocation and therefore distort regional trade, strong political and practical considerations call for carving out from the scope of regional harmonization efforts conduct that has no significant regional effects.(35) Even in the most highly integrated regional organization--the EU--national competition law remains applicable to matters not appreciably affecting trade among EU members.(36)

Indeed, some of the most blatant competition law violations may actually serve to increase transnational trade. For example, bid-rigging conspiracies by domestic firms have the potential to significantly raise contract costs or reduce output, but they might also give a foreign competitor a better chance to break into the market with bids that undercut the conspirators' terms. Similarly, price-fixing by domestic competitors in a purely local market might raise the prices of domestic goods to a point that attracts foreign competitors into a market otherwise difficult to penetrate because of high labor or transportation costs. Resale price maintenance could have similar effects.

As a practical matter, however, horizontal conspiracies are usually accompanied by enforcement measures (e.g., group boycotts) that prevent outsiders from undermining the conspiracy. Accordingly, while a price-fixing conspiracy may directly affect only domestic consumers, a collateral boycott may constitute a significant entry barrier to firms from other members of a regional arrangement. Similarly, resale price maintenance schemes are often accompanied by widespread vertical distribution restraints such as exclusive dealing arrangements that prevent competitors from taking advantage of the inflated prices.

In sum, while in principle it is sensible to consider excluding purely domestic matters from the harmonization of competition laws and practices, the problem of distinguishing between practices with domestic and regional effects remains a difficult one.

B. Outbound Restraints

Some competitive restraints clearly affect regional trade and therefore are a legitimate focus of harmonization efforts. The conduct may have either outbound effects (i.e., effects in countries other than the one where the conduct occurs) or inbound effects (i.e., effects on firms in other countries attempting to enter the market of the country where the conduct occurs). Examples of outbound restraints include export price-fixing, price predation by a monopolist in one country directed at firms in another country, or price discrimination between internal and export markets. While these outbound restraints are the most obvious sources of trade distortions within regional trade arrangements, they may be subject to challenge by the affected firms under the domestic law of the country where the effects are felt. Accordingly, harmonization strategies may include measures intended to facilitate this litigation, such as coordination of jurisdictional standards.

A detailed discussion of extraterritorial jurisdiction is beyond the scope of this paper. It is sufficient to note that U.S. courts and enforcement agencies have unambiguously embraced the "effects test," which permits the exercise of jurisdiction over "foreign conduct that was meant to produce and did in fact produce some substantial effect in the United States."(37) The "implementation" doctrine applied by EU authorities, which assesses jurisdiction based on where an anticompetitive agreement was implemented, may accomplish the same results as the effects test.(38) Even the Canadian competition authorities, which have traditionally resisted extraterritorial application of competition laws, have endorsed to a limited extent assertions of jurisdiction over foreign conduct that has a "real and substantial link" to domestic interests.(39)

Under a jurisdictional standard based on the effects test, agreements to fix export prices and agreements to restrain exports can generally be prosecuted in U.S. courts even if the conduct occurred abroad.(40) Where antitrust standing and injury can be established, private parties in the United States would also be able to assert jurisdiction to challenge such outbound restraints.

Mounting a challenge to such conduct through domestic litigation, however, presents numerous practical difficulties. To begin with, differences in jurisdictional standards can create tensions that may affect the willingness of authorities in the country where the conduct occurred to make necessary evidence available. Additionally, the complexity and variety of procedural rules, such as rules governing the availability of information and witnesses, can diminish the effectiveness of litigation or other enforcement efforts. Coordination of jurisdictional and procedural standards, therefore, can facilitate private and governmental enforcement efforts.

Predatory pricing and price discrimination raise special issues. To the extent that these practices affect only domestic trade, they are generally subject to regulation under domestic competition laws. In many cases, however, domestic laws may not apply to these practices to the extent that they occur outside the country where the effects are felt. For example, the U.S. Robinson-Patman Act, which prohibits price discrimination, applies only where the "commodities are sold for use, consumption, or resale within the United States."(41) Price predation and discriminatory pricing originating outside the United States are supposed to be addressed by antidumping law.

Many commentators have urged that antidumping laws should be replaced by harmonized standards relating to price predation, especially within regional trade arrangements.(42) The basic argument is that dumping often is the result of market power created by entry barriers that protect domestic industries from external competition: monopoly profits accumulated by these industries allow them to "dump" products in other markets in order to establish market power in those other markets. If regional arrangements reduce the entry barriers that make dumping possible, dumping is less likely to occur. Furthermore, if regional arrangements facilitate the enforcement of competition laws among member states, any abuses of market power that do occur through predatory or discriminatory pricing can be challenged under general competition law standards.

The replacement of antidumping laws with a generally applicable competition law would probably cut back significantly on the number of unfair pricing cases that could be brought.(43) Pressure by industries that might face increasing imports from the other members of the regional arrangement will therefore make it difficult to eliminate antidumping laws as a practical matter. Moreover, it may be difficult in many regional organizations to create a harmonized competition law standard that is acceptable and that can be effectively enforced.

C. Inbound Practices

A key objective of regional trade arrangements is to open markets to trade by firms in other member states. Certain anticompetitive conduct leads to denial of this market access. While not in the context of a regional trade arrangement, the recent petition by Kodak under Section 301(44) illustrates the kind of anticompetitive conduct that can significantly impede market access. Kodak alleged that Fuji, Japan's film distributors, and the Japanese government block market access through a system of exclusive distribution arrangements, retail price maintenance, financial dependence by film distributors on the manufacturer, and discriminatory rebates.(45)

Unlike the outbound practices discussed above, the domestic law of the state whose firms are excluded usually offers few practical means for addressing this sort of conduct (other than through controversial means such as Section 301 relief). Indeed, for several years in the 1980s and early 1990s, U.S. antitrust authorities specifically excluded such conduct from the scope of their enforcement authority. The recent International Antitrust Guidelines attempt to develop appropriate standards for challenging conduct that affects only U.S. exports,(46) but problems remain, such as the question of how to identify those practices that target U.S. exporters, as opposed to generalized practices abroad that indirectly affect U.S. exporters but are not directed specifically at them. The practical difficulties in challenging foreign market denials are also more significant than in the case of outbound conduct because witnesses and information are more likely to be unavailable in the country where the effects are felt.

While harmonization efforts directed at inbound restraints may therefore be especially appropriate, harmonization of substantive law may be less urgent than harmonization of enforcement practices or procedural rules since there is often a basic agreement among the member states on the general competition standards that should apply in these areas. Though there clearly are differences in national laws governing the types of exclusionary practices that create market barriers, most competition laws recognize the basic principle that exclusionary conduct by firms that have market power should be prohibited. In the NAFTA countries, for example, Canadian law permits Canadian authorities to prohibit exclusive dealing arrangements that impede entry of competitors into the market;47 U.S. law prohibits exclusive dealing by firms with market power if the effect of those arrangements is to significantly restrain competition;(48) and Mexican law treats exclusive dealing arrangements as "relative monopolistic practices" that can be prohibited if used by firms with substantial market power.(49)

The main problem in dealing with inbound restraints is that the applicable standards are often difficult to apply and leave significant discretion in the hands of enforcement agencies or the courts. Accordingly, enforcement is often inconsistent and may result in a significant bias toward domestic firms. The most effective means of ensuring market access within a regional trade arrangement, therefore, may be in coordinating enforcement conduct to ensure that common principles are applied consistently.

D. State-Created Market Distortions

Intervention by state actors in the market can also significantly distort competition and regional trade. Because harmonization efforts are generally carried out by the same national government that is responsible for the state-sponsored market intervention, harmonization discussions offer an important forum for addressing the anticompetitive effects of state action.

State subsidies and other forms of state assistance to domestic industries are an obvious source of market distortions. Subsidies can have outbound effects (e.g., by allowing exporters to suppress prices in export markets) and inbound effects (e.g., by depressing domestic prices to a level that effectively bars entry by foreign producers). In addition, state-mandated price controls or export restraints may artificially depress domestic prices and thereby create market barriers.(50) Other forms of government regulation, such as in the area of standards setting, may promote or authorize anticompetitive conduct or exclude competitors from other countries. Government procurement practices may favor domestic entities.

State monopolies and state-owned entities also require special attention because of their potential to distort competition. NAFTA addresses these issues in some detail. Article 1503 of NAFTA allows each NAFTA party to designate state enterprises, but requires that those enterprises accord non-discriminatory treatment to the domestic investments of investors from other NAFTA countries.(51) NAFTA Article 1502 also permits the NAFTA parties to designate specific monopolies, including privately owned monopolies, but those monopolies are obligated to act "in accordance with commercial considerations"(52) with respect to trade in the goods or services subject to the monopoly designation, and are required not to "use [their] monopoly position to engage . . . in anticompetitive practices in a non-monopolized market in [their] territory."(53) The scope of these restrictions is unclear and will undoubtedly be addressed further by the NAFTA Article 1504 Working Group.

III. REGIONAL MODELS FOR HARMONIZATION

This part of the paper briefly describes the approaches taken by several regional trade arrangements involving industrialized countries to harmonize competition policy and practices.

A. The European Union

The high degree of economic integration within the EU is matched by highly coordinated competition law and policy among member states. With regard to substantive law, the founding Treaty of Rome created a new competition law that applies to all EU members.(54) The basic standards are set out in Article 85 (regulations on restrictive agreements)(55) and Article 86 (restrictions on the abuse of a dominant position).(56) Also relevant is Article 90, which requires (subject to limited exceptions) that the competition rules of the EU apply to public undertakings and to undertakings that enjoy "special or exclusive rights."(57) Article 92 prohibits "any aid granted by a Member State or through State resources in any form whatsoever that distorts or threatens to distort competition ...."(58) Exceptions are provided under Article 92 for some types of state aid based on public policy and public interests.(59)

The relationship between the competition law of the EU and its member states is a complex and evolving one. The competition law set out in the Treaty of Rome does not completely displace national competition law. As a general matter, however, EU law applies to all activities that have an appreciable effect on commerce within the EU.(60) Accordingly, if EU law prohibits a practice that appreciably affects commerce among EU members, but national law in the state where that conduct occurs permits the conduct, EU law would generally be applied by the national court. On the other hand, if EU law permitted a practice, but national law prohibited it, the more restrictive national law could apply, although the national court might decide to rely instead on EU standards out of fairness to the parties.(61)

Additionally, to promote the uniform application of EU competition law, a supranational court was established under the Treaty of Rome.(62) Under Article 177, national courts may (and in some cases must) request an advisory opinion from the European Court of Justice (ECJ) on the application of EU competition law provisions arising under either the Treaty (e.g., Articles 85 and 86), directives by the Council of Ministers, or decisions by the European Commission.(63) The ECJ also has jurisdiction over cases brought against the Commission and the Council of Ministers for failure to carry out their responsibilities under EU law, as well as appellate jurisdiction over cases decided in the Court of First Instance, including cases involving competition claims.(64)

Harmonization of competition law and practices in the EU also extends to procedural matters. In 1989, the EU Council of Ministers adopted the Merger Regulation, which requires that the European Commission be notified of certain mergers, acquisitions, and joint ventures (meeting the definition of a "concentration") that have a "community dimension."(65) National competition law generally does not apply to these transactions.(66)

Enforcement practices are harmonized through the creation of the European Commission, which is responsible for enforcing European competition law throughout the EU. The Directorate General for Competition, the branch of the Commission in charge of competition law enforcement,(67) has the authority to conduct investigations anywhere in the EU.(68) A private party with a legitimate interest in a particular matter may apply to the Commission to initiate an investigation.(69) In addition, national competition authorities may enforce EU competition law, so long as the Commission has not already initiated an investigation with respect to the same matter.(70)

B. The European Free Trade Association

A much different approach to harmonizing competition law and policy was taken by the European Free Trade Association (EFTA). EFTA was created in 1960 by Austria, Denmark, Norway, Portugal, Sweden, Switzerland, and the United Kingdom(71) as an alternative to the European Economic Community. (Finland, Liechtenstein, and Iceland subsequently joined EFTA.(72)) Since 1960, a number of EFTA members have joined the EU, and the future viability of EFTA is questionable. EFTA is relevant here largely for comparative purposes, since its approach to harmonizing competition policy is consistent with the lower degree of economic integration contemplated by that arrangement.

In terms of substantive law, the EFTA Convention created a general competition framework similar to that created by the Sherman Act.(73) Article 15 of the EFTA Convention addressed (1) "agreements which have, as their object or result, the prevention, restriction, or distortion of competition within the Area of the Association"(74) and (2) "actions to take unfair advantage of a dominant position within the Area of the Association."(75) These types of anticompetitive conduct were declared to be incompatible with the EFTA Convention to the extent that they frustrated the benefits expected under the Convention.(76) Unlike the Treaty of Rome, however, the EFTA Convention did not prohibit the practices covered by Article 15, nor are Article 15 standards automatically incorporated into the national law of member states. Accordingly, private firms could not seek recovery for violations of Article 15, nor could enforcement agencies prosecute persons within their territory for specific violations of Article 15.(77) The EFTA Convention thus created a framework for competition law and policy within which individual member states maintained more significant discretion than in the EU.

Coordination of enforcement practices was also more limited in EFTA than in the EU. The EFTA Convention did not create a single institution responsible for enforcing competition law affecting EFTA states; instead, principal enforcement authority was left to individual members.(78) Nevertheless, EFTA did create a system of consultations and discussions whereby members could encourage other members to undertake investigations and to use administrative and legal means to challenge practices within their territory that significantly affected other EFTA members.(79) Where bilateral discussions were unsuccessful in addressing the perceived anticompetitive conduct, member states could bring particular matters to the EFTA Council, which could issue recommendations by majority vote.(80)

C. The European Economic Area

The European Economic Area (EEA) Agreement, which entered into force January 1, 1994, created economic integration between the EU and EFTA.(81) The EEA includes seventeen European countries and in many ways represents the extension of the EU to EFTA countries.

The EEA Agreement created a substantive competition law applicable throughout the EEA that is basically consistent with the competition law standards established under the Treaty of Rome. Article 53 of the EEA Agreement prohibits concerted practices and Article 54 prohibits abuse of a dominant position;(82) both prohibitions apply to conduct affecting trade between the EU and one or more EFTA states or conduct between EFTA states.(83) In addition, the EEA treats public undertakings (Article 59) and state aid (Articles 61 and 62) in the same manner as corresponding provisions of EU law.(84) Finally, the EEA Agreement incorporates most of the EU directives and regulations (Article 7 and Annex XIV).(85)

The EEA Agreement also created a Surveillance Authority (ESA) with powers and functions similar to the EC Commission.(86) More specifically, the ESA can request information from the governments of member states and from private firms; it can conduct industry-wide investigations or carry out investigations of particular undertakings; it can impose fines; and it can grant clearances and exemptions.(87)

The EEA Agreement contemplates a detailed mechanism for coordinating enforcement by the ESA and the Commission. Article 58 broadly states that the competition law authorities "shall co-operate" in order to "develop[] and maintain[] a uniform surveillance throughout the [EEA] in the field of competition and to promot[e] a homogeneous implementation, application, and interpretation of the provisions of this Agreement."(88) Such cooperation applies to general policy issues as well as particular cases.(89) In addition, the ESA and the Commission are required to undertake investigations at each other's request. In such an investigation, both enforcement agencies are entitled to be represented and may take an active role.(90)

The EEA Agreement also established a unified approach to merger review. Under the EEA Agreement, there is no joint jurisdiction over mergers having effects throughout the region: if a concentration has a "Community dimension" (as defined in the Merger Regulation) its review will be carried out exclusively by the Commission.(91) Concentrations with an EFTA dimension, as defined in the EEA Agreement, are reviewed by EFTA authorities.(92) If a concentration has both a Community and an EFTA dimension, the Commission has jurisdiction.(93)

D. Europe Agreements

From 1991 to 1993, the EU signed agreements with Bulgaria, the Czech Republic, Hungary, Poland, Romania, and the Slovak Republic (the so-called Europe Agreements) aimed at liberalizing trade between each party and the EU.(94) These agreements are considered to be a preliminary step toward full integration of the Eastern European countries into the KU.

Each of the Europe Agreements creates a substantive competition standard applicable to trade between the Eastern European country and the EU that parallels the EEC Treaty's Article 85 (prohibition on concerted practices), Article 86 (abuse of dominant position), Article 90 (applying basic competition law standards to public entities), and Article 92 (prohibitions on public aid that distorts competition).(95) The agreements establish separate Association Councils that are responsible for developing plans for implementing the new competition law standards.(96) Implementation of the basic standards is scheduled to occur within three years from the date of entry into force of the agreements.(97) Implementation of prohibitions on trade-distorting state aid may occur over a longer time period,(97) in recognition of historical market conditions in the Eastern European countries.

The Europe Agreements do not contain any provisions for coordinating procedures governing merger notifications and reviews. Nor do the agreements contain specific provisions governing the type or degree of cooperation between competition law authorities or other enforcement-related provisions. It is assumed that the Association Council will address these matters in the plans developed for implementing the new competition law standards. In the meantime, the agreements permit the parties to take "safeguard" measures to address "practice[s] that [are] incompatible with the terms of" the basic competition law standards set out in the agreements.(99)

E. The North American Free Trade Agreement

Some harmonization of substantive competition law occurred among the three NAFTA countries as a preliminary phase in the creation of the agreement.(100) Mexico changed its competition laws in 1993--indeed, Mexico fundamentally reorganized its entire economic system in the early 1990s--in anticipation of NAFTA.(101) Canada similarly revised its competition law system in 1986, increasing its emphasis on civil enforcement,(102) prior to entering into the Canada-U.S. Free Trade Agreement. While significant differences remain in the substantive provisions of each party's laws, the three legal regimes are nevertheless based on the same broad principles and are largely consistent in scope. NAFTA does not go much beyond this general harmonization. Article 1501 broadly provides that the NAFTA parties shall "adopt or maintain measures to proscribe anticompetitive business conduct and take appropriate actions with respect thereto."(103) No effort is made, however, to establish specific standards applicable to conduct affecting regional trade. Instead, a Working Group was created under Article 1504 to make recommendations within five years of NAFTA's effective date on "relevant issues concerning the relationship between competition law and policies and trade in the free trade area."(104)

In one area, however, NAFTA does attempt to establish specific competition standards. As discussed above, NAFTA permits the parties to designate state enterprises--i.e., enterprises that exercise state functions--but it requires that those functions not be carried out in a way that impairs the right to open investment.(105) Additionally, Article 1502 permits a NAFTA party to designate monopolies but imposes limitations on the ability of those monopolies to engage in discriminatory or predatory conduct.(106)

NAFTA makes no attempt to harmonize procedural rules, such as those pertaining to mergers or acquisitions. The Article 1504 Working Group will most likely address procedural issues in its forthcoming recommendations.

As to enforcement coordination, NAFTA provides that the parties will "cooperate on issues of competition law enforcement policy, including mutual legal assistance, notification, consultation, and exchange of information relating to the enforcement of competition laws and policies in the free trade area."(107) Additionally, the "Parties shall consult from time to time about the effectiveness of measures undertaken by each Party."(108) The United States and Canada have gone beyond these general statements of intent to coordinate enforcement. Earlier this year, the two countries signed an antitrust cooperation agreement that creates a more detailed framework for antitrust cooperation including an undertaking that each party will "carefully consider" enforcement requests by the other party.(109)

In addition, NAFTA created a dispute resolution procedure that contemplates consultations, review by the Free Trade Commission (consisting of cabinet-level representatives), and referral to an arbitral panel.(110) Disputes arising under the general competition provisions contained in Article 1501 (i.e., the parties' general agreement to proscribe anticompetitive conduct) are specifically excluded from these dispute resolution procedures.(111) By contrast, it appears that disputes over designated state entities and monopolies are subject to these formal procedures. The NAFTA Article 1504 Working Group will undoubtedly consider additional institutional coordination.

F. Australia-New Zealand Closer Economic Relations Trade Agreement

Australia and New Zealand signed ANZCERTA (or the "CER Agreement") in 1983 to eliminate barriers to trade between the two countries and to strengthen their economic and political relations.(112) ANZCERTA contemplated the progressive elimination of tariffs, quotas, export subsidies, and government preferences for domestic producers, as well as the harmonization of a wide range of domestic laws, including laws governing competition.(113)

When the agreement entered into force in 1983, the two countries had significantly different antitrust regimes. Australian law was modeled after U.S. law (including its emphasis on private enforcement),(114) and New Zealand law was based on U.K law, with its emphasis on administrative remedies.(115) Rather than create a single overarching substantive law, New Zealand in 1986 adopted in large measure the Australian competition law provisions. Subsequently, the two countries adopted specific provisions designed to ensure that the harmonized competition laws of both countries could be fully applied to transactions affecting trade within the region.(116)

For example, the New Zealand competition law specifically covers exclusionary conduct by firms with a dominant position in Australia, even if the exclusion occurs only with respect to the Australian market.(117) Australian law has a similar provision covering conduct outside of Australia.(118) Courts of one country are even permitted to sit in the territory of the other country and have power to punish for contempt in the other territory.(119) Because of the extensive harmonization of the competition law regimes, the countries also determined that antidumping legislation was no longer necessary as to trade within the region.(120)

The two countries have also agreed to close coordination of enforcement. The authorities have agreed (where resources permit) to undertake factual investigations on market power issues at the request of the other country. In addition, changes in the domestic law of both countries give the competition law authorities new investigatory powers, including powers to obtain information and documents from parties in the other country.(121)

IV. CONCLUSION

Harmonization of competition laws and policy is an integral part of effective economic integration in regional trade arrangements. Nations committed to trade liberalization will not allow inconsistent or discriminatory application of competition laws to nullify the benefits gained from dismantling formal trade barriers. Competition law harmonization, however, does not follow a single model.

The EU has chosen to harmonize competition law through the creation of a unified body of legal standards and a central enforcement mechanism. This high degree of harmonization reflects a correspondingly high level of economic integration, but it is not the only approach available. The trade arrangement between Australia and New Zealand, for example, is intended to closely integrate the economies of those two countries, but the harmonization of competition laws did not involve the creation of a central authority. Instead, the two countries adopted parallel substantive laws and modified jurisdictional standards so as to permit challenges to anticompetitive practices regardless of where the conduct occurs or who the victim is.

In all harmonization efforts, coordination of enforcement practices and priorities is a key factor. As with substantive law, the EU has sought to coordinate enforcement practices through the creation of a central enforcement agency. Other trade arrangements have sought to coordinate enforcement through varying degrees and types of positive comity, information exchanges, and coordination of procedural rules that facilitate private and governmental enforcement. Future experience with enforcement coordination of this type will determine whether a transnational review panel or dispute resolution mechanism will also be necessary.

An issue of increasing importance to regional associations is the harmonization of competition laws among countries with significantly different levels of economic development. The Europe Agreements involving the EU and various Eastern European countries contemplate the expansion of a unified EU competition law to cover commercial relations between those countries and the KU. Negotiations are ongoing over the implementation of a common competition law, as well as coordination of competition law enforcement in these new economic relationships. Similarly, a NAFTA Working Group is currently addressing competition law issues that result from the integration of the significantly different economies of Canada, the United States, and Mexico. The solutions and approaches developed by these regional trade arrangements will provide further guidance as trade liberalization expands to include a broader range of countries at different levels of development.

(1.) See Eastman Kodak Files 301 Petition Seeking Access for U.S. Film in Japan, 12 Int'l Trade Rep. (BNA) 881, 891-92 (May 24, 1995) [hereinafter Kodak Petition].

(2.) See Section 301 Petition Alleges Unfair Korean Steel Practices, 12 Int'l Trade Rep. (BNA) 967, 978 (June 7, 1995) [hereinafter Pipe Petition].

(3.) 19 U.S.C. [sections] 2411 (1988).

(4.) See, e.g., U.S. Trade Representative, 1995 National Trade Estimate Report on Foreign Trade barriers 2 (1995). A forthcoming report by the Organization for Economic Cooperation and Development (OECD) is expected to review the trade barriers caused by anticompetitive business practices. See OECD Report Touts Antitrust Enforcement as Method of Enhancing Access to Markets, 70 Antitrust & Trade Reg. Rep. (BNA) 17, 21 (Jan. 11, 1996).

(5.) See., e.g, Eleanor M. Fox, Competition Law and the Agenda for the WTO: Forging the Links of Competition and Trade, 4 Pac. Rim L.. & Pol'y J.1 (1995); Claus-Dieter Ehlermann, The International Dimension of Competition Policy, 17 Fordham Int'l L.J. 833 (1994).

(6.) See generally Fox, supra note 5, at 10-12.

(7.) The term "harmonization" has sometimes been used to refer to the creation of a uniform competition law regime. We use the term "harmonization" in this paper in a broader sense comparable to "coordination."

(8.) See, e.g., Commission Decision 285 of Mar. 21, 1991, on Norms to Prevent or Correct Competitive Distortions Caused by Practices that Restrict Free Competition,Gaceta Oficial del Acuerdo de Cartagena, Apr. 4, 1991, translated and reprinted in 32 I.L.M. 162 (1993) [hereinafter Cartagena Commission Decision 285]. The Cartagena Agreement (establishing the Andean Pact) is the common name for the Agreement on Andean Subregional Integration, May 26, 1969, Bol.-Colom.-Chile-Ecuador-Peru, 8 I.L.M. 910.

(9.) Cartagena Commission Decision 285, supra note 8.

(10.) North American Free Trade Agreement, Dec. 17, 1992, U.S.-Can.-Mex., art. 1501(1), 32 I.L.M. 663 (entered into force Jan. 1, 1994) [hereinafter NAFTA].

(11.) Id. art. 1504. Several meetings of the Working Group have been held but the member states have agreed not to make their deliberations public.

(12.) Ministerial Meeting Adopts Hemispheric Trade Declaration, 12 Int'l Trade Rep. (BNA) 1125, 1137-38 (July 5, 1995).

(13.) See APEC Osaka Action Agenda on Implementation of the Bogor Declaration, Nov. 19, 1995, 35 I.L.M. 1111.

(14). See generally Kathleen Murtaugh Collins, Harmonizing the Antitrust Laws of NAFTA Signatories, 17 Loy. L.A. Int'l & Comp. L.J. 157, 172-74 (1994).

(15.) Id.

(16.) See President Carlos Salinas de Gortari, Address at Congress of Mexico (Dec. 17, 1992), quoted in Gabrielle Marceu, Anti-Dumping and Anti-Trust Issues in Free-Trade Areas 257 (1994).

(17.) Allan Van Fleet, Mexico's Federal Economic Competition Law: The Dawn of a New Antitrust era, 64 Antitrust L.J. 183, 192-93 (1995).

(18.) Id. at 193-94.

(19.) See infra Part III.D.

(20.) For example, the U.S. Supreme Court ruled in 1965 that territorial distribution restraints were per se illegal whether or not imposed by manufacturers with market power. United States v. Arnold, Schwinn & Co., 388 U.S. 365, 382 (1967). Ten years later, the Court reversed course and ruled that such vertical non-price restraints should be evaluated under the more lenient rule of reason. Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 38-39 (1977). Since then, most courts have found non-price vertical restraints to be valid under the rule of reason. See generally ABA Antitrust Section, Antitrust Law Developments 125-27 (3d ed. 1992) [hereinafter Antitrust Law Developments].

(21.) See Treaty Establishing the European Economic Community, Mar. 25, 1957, arts. 85-94, 298 U.N.T.S. 11, 47-52 [hereinafter EEC Treaty].

(22.) Council Regulation 17/62 Implementing Articles 85 and 86 of the EEC Treaty, 19591962 O.J. Spec. Ed. 87.

(23.) See EEC Treaty art. 85 (1).

(24.) In the United States, the exemptions are contained in the Webb-Pomerene Act, 15 U.S.C. [subsections] 61-66 (1988); the Export Trading Act of 1982, 15 U.S.C. [subsections] 4001-4021 (1988); and the Foreign Trade Improvements Act of 1982, 15 U.S.C. [sections] 6a (1988). For a review of the laws of several other countries relating to state-sanctioned export cartels, see ABA Antitrust Section, Report of the Special Committee on International Antitrust, ch. 3 & app. I (draft of Sept. 1, 1991) [hereinafter ABA Report on International Antitrust].

(25.) Consensus on a harmonized standard may nevertheless be difficult to achieve in many cases. Members of regional arrangements that are relatively small or less developed may consider it beneficial to allow cooperation among domestic firms in order to compete more effectively with larger and more established firms in the other member nations. In most cases, however, a specific competition law exemption may be unnecessary to allow cooperation among the exporting firms, since a traditional joint venture analysis and the use of appropriate standards for defining the relative markets would often demonstrate that the proposed export arrangement is perfectly legal.

(26.) See, e.g., Bela Balassa, The Theory of Economic Integration 96-98 (1961).

(27.) For a review of those discussions, see generally Harry First, Antitrust Enforcement in Japan, 64 Antitrust L.J. 137, 163-73 (1995).

(28.) A detailed discussion of the Eu enforcement authority is set out infra Part III.A.

(29.) See infra Part III.

(30.) See, e.g, Agreement Regarding the Application of competition Laws, Sept. 23, 1991, U.S.-Comm. of Eur. Commun., art. 3(2), 30 I.L.M. 1491, 1496 [hereinafter U.S.-EU Agreement].

(31.) See, e.g., Agreement Regarding the Application of Their competition and Deceptive Marketing Practices Laws, Aug. 1, 1995, U.S.-Can., art. II(1), 35 I.L.M. 309, 313 [hereinafter U.S. Canada Agreement].

(32.) See, e.g., U.S.-EU Agreement, supra note 30, art. 4(1).

(33.) See, e.g, U.S.-Canada Agreement, supra note 31, art. IV(1).

(34.) Id. art. V(3).

(35.) Under U.S. federal antitrust law, this issue is reflected in cases addressing the "interstate commerce" requirement, although U.S. Courts rarely find that challenged conduct does not sufficiently affect interstate commerce. See, e.g., Summit Health, Ltd. v. Pinhas, 500 U.S. 320 (1991).

(36.) See generally Bernard van de Walle de Ghelcke & Gerwin van Gerven, Competition Law of the European Community [subsections] 1.04-.05 (Julian O. von Kalinowski ed., 1995).

(37.) Hartford Fire Ins. Co.v. California, 113 S. Ct. 2891, 2909 (1993).

(38.) See ABA Report on International Antitrust, supra note 24, ch.6, art. IV.

(39.) See ABA Antitrust Section, Report of the Task Force on the Competition Dimension of NAFTA 91-92 (July 20, 1994) [hereinafter ABA Report on the Competition Dimension of NAFTA].

(40.) The 1995 Antitrust Enforcement Guidelines for International Operations, issued jointly by the Federal Trade Commission and the Us. Department of Justice, describe a paradigm case of export price-6xing that would clearly be the target of enforcement by U.S. antitrust agencies. See Antitrust Enforcement Guidelines for International Operations[sections] 3.11 illustrative example A (U.S. Department of Justice & Federal Trade Commission, 1995), reprinted in 4 Trade Reg. Rep. (CCH) [paragraph] 13,107 [hereinafter International Antitrust Guidelines].

(41.) 15 U.S.C. [sections] 13(a) (1988 & Supp. 1993).

(42.) See, e.g., Presley L Warner, Canada-United States Free Trade: The Case for Replacing Antidumping with Antitrust, 23 Law & Pol'y Int'l Bus. 791 (1992); Rex J. Ahdar, The Role of Antitrust Policy in the Development of Australian-New Zealand Free Trade, 12 Nw. J. Int'l. L & Bus. 317 (1991).

(43.) For example, under U.S. antitrust law, a plaintiff must show injury to competition; injury to individual competitors or to an industry in general--the standard under antidumping laws--is usually not sufficient. The more rigorous injury requirement under competition law makes it much more difficult for an antitrust plaintiff to prevail. Moreover, a plaintiff challenging predatory pricing under antitrust law may be required to show that prices are below average variable costs, while a "dumping" violation requires only that prices be below fully allocated costs.

(44.) See Kodak Petition, supra note 1, at 892.

(45.) Id.

(46.) See generally International Antitrust Guidelines, supra note 40, [sections] 3.121.

(47.) See ABA Report on The Competition Dimension of NAFTA, supra note 39, at 44.

(48.) See generally Antitrust Law Developments, supra note 20, at 176-79

(49.) See Aba Report on The Competition Dimension of NAFTA, supra note 39, at 52-53.

(50.) The allegations of the U.S. Committee on Pipe and Tube Imports against Korea addressed this latter type of conduct. See Pipe Petition, supra note 2, at 978.

(51.) See NAFTA, supra note 10, art. 1503(3).

(52.) Id. art. 1502 (b).

(53.) Id. art. 1502(d).

(54.) See EEC TREATY arts.

(55.) Id. art. 85.

(56). Id. art. 86.

(57.) Id. art. 90.

(58.) Id. art. 92(1).

(59.) Id. art. 92(2)-(3).

(60.) See id. art. 85(1); Hans Smit & Peter E. Herzog, The Law of The European Community [sections] 85.03[1] (1995).

(61.) Rupert M. Bondy, United Kingdom, in World Antitrust Law and Practice [sections] 25.1 (James J. Garrett ed., 1995).

(62.) EEC Treaty art. 177.

(63.) See id.

(64.) See generally Thomas C. Vinje & Peter I.B. Goldschmidt, Enforcement Agencies, in World Antitrust Law And Practice, supra note 61, [sections] 22.4.2.

(65.) See Council Regulation (EEC) 4064/89 of 21 December 1989 on the Control of Concentrations Between Undertakings, art. 4, 1990 O.J. (L 395) 1 (as amended).

(66.) Id. art. 21 (2).

(67.) Council Regulation 17/62, supra note 22, art. 14.

(68.) Id.

(69.) Id. art. 3(2).

(70.) Id. art. 9(3).

(71.) EFTA Countries Fear Removal of Internal EC Trade Barriers Will Force Membership Issue, 4 Int'l Trade Rep. (BNA) 1599 (Dec. 23, 1987).

(72.) Id; see also Barry E. Hawk & Henry L. Huser, "Controlling" the Shifting Sands: Minority Shareholdings Under EEC Competition Law, 17 Fordham Int'l L.J. 294, 325 n.128 (1994).

(73.) See Sherman Act, 15 U.S.C. [subsections] 1-7 (1994).

(74.) See Marceau, supra note 16, at 195 n.3.

(75.) Id.

(76.) Id. at 195.

(77.) See id. at 195-96.

(78.) See id.

(79.) Id.

(80.) Id. at 196.

(81.) Agreement on the European Economic Area, Jan. 1, 1994, 1994 O. J. L 1/3 [hereinafter EEA Agreement].

(82.) Id. arts. 53-54.

(83.) See Joos Stragier, The Competition Rules of the EEA Agreement and Their implementation, 14 Eur. Competition L. Rev. 30, 31 (1993).

(84.) See supra Part III.A.

(85.) Stragier, supra note 83, at 32.

(86.) See Morten Broberg, The Delimitation of Jurisdiction with Regard to Concentration Control Under the EEA Agreement, 16 Eur. Competition L. Rev. 30, 31 (1995).

(87.) Stragier, supra note 83, at 32.

(88.) EEA Agreement, supra note 81, art. 58. Richard O. Cunningham, Steptoe & Johnson, LLP, Washington, D.C.

(89.) Broberg, supra note 86, at 32. The type of cooperation contemplated by the Agreement is described in detail in Stragier, supra note 83, at 34-36.

(90.) Stragier, supra note 83, at 35.

(91.) Id. at 34.

(92.) Id.

(93.) Id. at 34-35.

(94.) See, e.g., Europe Agreement Establishing an Association Between the European Communities and Their Member States and the Republic of Poland, Dec. 16, 1991, 1993 O.J. (L 348) 2.

(95.) See, e.g., id. arts. 63, 65.

(96.) See, e.g., id. art. 102.

(97.) See, e.g., id. art. 63.

(98.) See, e.g., id.

(99.) See, e.g., id. art. 63(6).

(100.) See supra Part I.A.

(101.) See, e.g., Carlos Creel C. et al., Mexico, in World Antitrust Law and Practice, supra note 61, [sections] 33.1.

(102.) See, e.g., Glen G. MacArthur & Joan E. Neal, Canada, in World Antitrust Law and Practice, supra note 61, [sections] 32.2.

(103.) NAFTA, supra note 10, art. 1501.

(104.) Id. art. 1504.

(105.) Id. art. 1503.

(106.) Id. art. 1502.

(107.) Id. art. 1501(2).

(108.) Id. art. 1501(1).

(109.) U.S.-Canada Agreement, supra note 31, art. V(3).

(110.) NAFTA, supra note 10, arts. 2006-2008.

(111.) Id. art. 1501(3).

(112.) Australia-New Zealand Closer Economic Relations Trade Agreement, Mar. 28, 1983, 1983 N.Z.T.S. No. 1, 22 I.L.M. 945 [hereinafter ANZCERTA].

(113.) See id.

(114.) See Ahdar, supra note 42.

(115.) Id.

(116.) Id. at 322-25.

(117.) Id. at 323.

(118.) Id. at 322-23.

(119.) Id. at 324.

(120.) See Marceau, supra note 16, at 210.

(121.) Id. at 214.

Richard O. Cunningham, Steptoe & Johnson, LLP, Washington, D.C.

Anthony J. Larocca, Steptoe & Johnson, LLP, Washington, D.C. The authors wish to thank their colleague Kazumochi Kometani for his valued assistance in preparing this paper.

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