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Extraterritoriality, Institutions, and Convergence in International Competition Policy William E. Kovacic1 Introduction Competition law is an increasingly common element of public economic policy. A halfcentury ago, one country (the United States) had antitrust statutes and active enforcement. Today over 90 jurisdictions have competition laws, and the number will exceed 100 by the decade’s end.2 Many antitrust laws lack effective implementation, yet a growing number of jurisdictions have enforcement mechanisms that business operators must take seriously. The global expansion of competition law influences cross-border commerce. National or regional antitrust systems frequently endorse the comparatively broad view of extraterritoriality pioneered by the United States and the European Union (EU).3 This development ensures that individual transactions or practices involving major suppliers of goods and services often will be subject to scrutiny under the competition laws of more than one (often many) jurisdictions. Despite important similarities, the world’s competition systems do not conform to a single 1 General Counsel, U.S. Federal Trade Commission. This paper is based upon a presentation given at the Annual Meeting of the American Society of International Law in Washington, D.C. on April 5, 2003. A revised version of the paper is published at 97 ASIL Proc. 309 (2003). The views expressed here are the author’s alone and not necessarily those of the Federal Trade Commission or any of its individual Commissioners. 2 These developments are examined in William E. Kovacic, Institutional Foundations for Economic Legal Reform in Transition Economies: The Case of Competition Policy and Antitrust Enforcement, 77 Chi-Kent L. Rev. 265 (2001) (hereinafter Institutional Foundations). 3 On the evolution of the “effects” doctrine and its acceptance by various competition policy regimes, see Edward T. Swaine, The Local Law of Global Antitrust, 43 William & Mary L. Rev. 627, 641-46 (2001). 1 model. The multiplication of antitrust laws raises concerns that enforcement by jurisdictions with dissimilar substantive standards, procedures, and capabilities will discourage legitimate business transactions and needlessly increase the cost of controlling anticompetitive conduct. Recognition of the problems associated with competition system multiplicity has inspired measures to promote convergence toward international norms. My presentation focuses on the development of institutions to promote consensus about the appropriate design of competition policy. I summarize trends in creating competition law regimes, identify issues involving multiplicity and extraterritoriality, and discuss one initiative, the International Competition Network (ICN), to create international institutions to promote the development and acceptance of common norms. The Modern Development of Competition Laws As recently as 1970, a practitioner seeking to master international competition law would have needed to study only the antitrust regimes of the United States, the European Union (EU), and several EU member states. Enforcement in other jurisdictions with competition statutes was so weak that business managers safely could ignore the laws. The past three decades have featured a remarkable transformation. Older market economies such as Australia and Canada have rejuvenated dormant antitrust systems. Competition law is a frequent component of law reform in nations moving from planning to markets. Over 50 transition economies have adopted antitrust laws since 1970.4 The effectiveness of transition economy competition systems varies dramatically, but a number of jurisdictions – including South Africa, 4 See William E. Kovacic, Getting Started: Creating New Competition Policy Institutions in Transition Economies, 23 Brook. J. Int’l L. 403, 403-08 (1997) (describing creation of competition policy systems as element of law reform in transition economies). 2 Brazil, Hungary, Mexico, Poland, South Korea, and Taiwan – have credible programs. Most new regimes imitate the EU and the United States and reach offshore conduct that has significant effects in the domestic market. Consequences of Extraterritoriality and Multiplicity The growth in the number of competition laws and the broad acceptance of EU and U.S. concepts of extraterritoriality have major implications for cross-border commerce. One consequence is an increase in the cost of complying with requirements for report mergers. Firms active in global commerce may be required to notify dozens of jurisdictions. This phenomenon has raised the question of whether valid competition policy goals might be achieved at lower cost through acceptance of common notification procedures. A second consequence of multiplicity and extraterritorial application of competition laws is that the same behavior might be evaluated under divergent substantive standards. This possibility became apparent in the different outcomes achieved in the EU and the United States, respectively, in the Boeing/McDonnell Douglas and General Electric/Honeywell mergers.5 Disputes between EU and U.S. antitrust agencies are rare, but they indicate the complications that companies face in determining whether a transaction will withstand antitrust scrutiny. A third consequence involves procedural differences. Private rights of action offer an 5 On the Boeing/McDonnell Douglas merger, see William E. Kovacic, Transatlantic Turbulence: The Boeing-McDonnell Douglas Merger and International Competition Policy, 68 Antitrust L.J. 805 (2001). On General Electric/Honeywell, see Timothy J. Muris, Merger Enforcement in a World of Multiple Arbiters (Dec. 21, 2001) (prepared remarks before the Brookings Institution Roundtable on Trade & Investment, Washington, D.C.), available at . 3 illustration. The United States gives private parties unique power to enforce antitrust laws.6 Successful private claimants are entitled to treble damages and attorneys fees. Compared to other jurisdictions, U.S. civil procedure more readily entertains the certification of classes of injured parties. Recognizing the attractions of the U.S. system, foreign claimants increasingly have filed suits in the United States to challenge cartel behavior that has effects inside and outside the United States.7 These cases have raised the issue of whether the United States should serve as a treble damage forum for the world – a venue for compensating foreign claimants when the cartel that inflicts offshore harm also injures parties in the United States. Recent decisions of the U.S. courts of appeals have disagreed about whether the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA)8 permits such claims to be brought in the U.S. courts.9 On one level, the disagreement in the courts hinges on varied interpretations of the FTAIA’s difficult provisions. Perhaps more interesting, the courts of appeals have debated the deterrence effects of entertaining foreign claims. On the one hand, granting foreign claimants broad recourse 6 The private right of action in U.S. antitrust law is described in Andrew I. Gavil et al., Antitrust Law in Perspective: Cases, Concepts and Problems in Competition Policy 923-26 (2002). 7 Notable examples include United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942 (7 Cir. 2003) (en banc); Empagran S.A. v. F. Hoffman-Laroche, Ltd., 315 F.3d 338 (D.C. Cir. 2002); Kruman v. Christie’s International PLC, 284 F.3d 384 (2d Cir. 2002); Den Norske Stats Oljeselskap As v. HeereMac Vof, 241 F.3d 420 (5th Cir. 2001), cert denied, 122 S. Ct. 1059 (2002). th 8 15 U.S.C. § 6a. 9 In the cases cited supra in footnote 7, defendants have succeeded in invoking the FTAIA to bar the plaintiff’s claims in HeereMac and United Phosphorus. Plaintiffs have withstood such challenges in Empagran and Kruman. 4 to the U.S. courts might deter cartels by increasing their exposure for misconduct. On the other hand, inviting foreign claims might undermine the operation of U.S. and foreign leniency programs that reduce the punishment for a cartel member that is the first to inform the government about the cartel’s activities.10 A fourth area of concern involves institutional capability. Many emerging market economies that recently have enacted competition laws face daunting challenges in building the institutional foundations for successful implementation. Correcting weaknesses in the relevant institutions – the competition authority and collateral bodies such as the courts – is essential if enforcement is to improve economic performance.11 Networks, Norms, and Convergence: The New Institutions of Competition Policy The global development of competition law supplies a dramatic example of the “bottom up” development of norms. Progress toward widely-accepted norms of competition policy substantive standards, procedures, and levels of institutional capability might occur in three stages.12 The first consists of decentralized experimentation within individual jurisdictions. The second stage involves 10 In deciding whether to use leniency measures to reduce the punishment imposed by any single competition authority, a cartel member assesses the exposure it will incur from other government authorities and other litigants (e.g., private claimants in the United States). Estimating damages potentially owed to foreign claimants suing in U.S. courts might be so uncertain that the firm declines to seek leniency, and the cartel’s detection is delayed. On the use of leniency to detect cartels, see Gary R. Spratling, Detection and Deterrence: Rewarding Informants for Reporting Violations, 69 Geo. Wash. L. Rev. 798 (2001). 11 See Kovacic, Institutional Foundations, supra note 1, at 301-10 (describing common weaknesses in transition economies in institutions necessary to implement competition laws). 12 This discussion uses the model of convergence presented in Timothy J. Muris, Competition Agencies in a Market-Based Global Economy (Brussels, Belgium, July 23, 2002) (Prepared remarks at the Annual Lecture of the European Foreign Affairs Review), available at . 5 the identification of best practices or techniques. In the third stage, individual jurisdictions voluntarily opt in to superior norms. Many international institutions are facilitating the process of convergence sketched above. One is the ICN. Created in the Fall of 2001, the ICN is a virtual network of competition authorities representing nearly 80 jurisdictions. The ICN operates through working groups consisting of government officials and representatives from academia, consumer groups, legal societies, and trade associations. One noteworthy initiative has focused on merger control and, among other measures, has prepared a widely-praised body of guiding principles and best practices for notification practices and procedures. Two other working groups are addressing competition advocacy and capacity building in emerging markets. ICN’s main contribution is likely to consist of helping form an intellectual consensus about competition policy norms. The effort to accomplish this objective seems certain to alter the way competition agencies define their role and set priorities. Success in developing widely accepted international competition policy norms will require agencies to devote more resources to institution building, perhaps by taking some resources that would have been devoted to prosecuting cases. The requirements of institution-building pose difficult choices for competition authorities. Academics and practitioners tend to grade competition agencies by the cases they prosecute. Generating support to commit resources to construct an effective global competition policy infrastructure requires convincing external constituencies that investments in institution building are vital to the enforcement activities that historically have been taken as the measure of competition agencies. The internationally-driven transformation of how competition agencies will operate in the 6 future has another important dimension. Leadership in developing competition policy norms will come to agencies that generate the best ideas. Achieving intellectual leadership demands substantial investments in “competition policy research and development.”13 Research will provide necessary means for any jurisdiction to identify superior norms and persuade others to opt in. Because progress toward widely accepted norms is likely to be gradual, only a commitment to long-run engagement will suffice. The ICN is not the only instrument for developing global competition policy norms. The World Trade Organization and the Organization for Economic Cooperation and Development are but two of the global and regional networks that are devoting significant effort to competition policy convergence issues. In these and other initiatives, the U.S. antitrust agencies and their foreign counterparts are making ever greater investments in building institutions to create international competition policy norms. Contributions to the intellectual foundations and institutions of competition policy, not simply the prosecution of cases, promise to become increasingly important to what antitrust agencies must do. 13 The concept of competition policy “R&D” is introduced in Timothy J. Muris, Looking Forward: The Federal Trade Commission and the Future Development of U.S. Competition Policy (New York, N.Y., Dec. 10, 2002) (Prepared remarks for the Milton Handler Annual Antitrust Review), available at . 7