International Antitrust: From Extraterritorial Application to Harmonization

• Author: Jùrgen Basedow
• Position: Dr. IUR, Univ. of Hamburg 1979; LL.M., Harvard Univ.
• Pages: 1037-1052

Page 1037

Dr. IUR, Univ. of Hamburg 1979; LL.M., Harvard Univ.; Dr. IUR Habil., Univ. of Hamburg, 1986. Director, Max-Planck Institute for Foreign Private Law and Private International Law; Professor of Law, Univ. of Hamburg.

I The Worldwide Boom Of Competition Law And Its Harmonization

One of the conspicuous features of law and legal thinking in the recent past is the proliferation of legislation which purports to protect competition against private restrictions. Today, more than eighty countries are said to have some kind of competition law, and more than two-thirds of these statutes took effect during the past ten years.¹ While competition policy and antitrust law were concomitant with highly developed economies until ten years ago, they are spread all over the world today. Competition statutes have been enacted in Latin America,² in the former Soviet Block³ and in the Tiger States of Southeast Asia.⁴ Even in the Arab world, competition law and policy are making some progress.⁵ The worldwide trend towards competition law can, of course, easily be explained by the breakdown of the socialist economies ten years ago. Only one of the two traditionally competing models of economic order-competition and central administration-has survived, and the nations are now in a hurry to equip their legal systems with the standard outfit of successful market economies.

The increase in the number of competition statutes is also favored by the continuing liberalization of international trade, as evidenced by the Agreement establishing the World Trade Organization of 1994 and its annexes. As trade Page 1038 barriers set up by states are being removed in the course of liberalization, private companies are getting more and more exposed to foreign competition. This creates new incentives for private action designed to restrict that competition from abroad. A responsible policy for the opening of national markets must therefore go hand in hand with the enactment of statutes against private restrictions of competition. Otherwise, the former trade barriers put up by state law will be continued by private agreements.

In conjunction, the convergence of national laws and the need for antitrust statutes to supplement the liberalization of international trade give new momentum to the attempts directed at the international harmonization of competition laws. This is clearly expressed in article 9 of the Agreement on Trade Related Investment Measures (TRIMs) which forms part of annex A.1. of the WTO Agreement.⁶Under this article, the Council for Trade in Goods established by the WTO Agreement shall review the operation of the TRIMs agreement and propose to the Ministerial Conference amendments to its text if that appears appropriate. It is explicitly provided that the Council for Trade in Goods "shall consider whether the Agreement should be complemented with provisions on investment policy and competition policy."

This announcement has given rise to an abundant literature and a vivid discussion throughout the last couple of years.⁷ There are essentially three types of objections. The first advocates a consequent extraterritorial application of national laws which would reduce the need for an international harmonization considerably.⁸It is at this point that the following article meets with various comments of Professor Symeonides, to whom these lines are dedicated.⁹ A second type of argument questions the theoretical soundness of harmonization and favors a competition of competition statutes instead.¹⁰ A third type of criticism doubts the feasibility of antitrust harmonization and fears perhaps the emergence of a bloated international bureaucracy.¹¹ The following discussion will elaborate on these Page 1039 objections. After a survey of the goals of harmonization, I will outline what can be called a pragmatic approach for future international negotiations.

II Is Extraterritorial Application Sufficient?

The practical need for a harmonization of antitrust laws very much depends upon how effectively competition in transnational markets can be protected by national laws today. Only gaps in the protection of competition can justify the costly and time-consuming negotiations on harmonization. Such gaps may result from an overly lenient content of the substantive law, from restrictions to which its scope of application is subjected, and to difficulties in the international enforcement at the procedural level.

In the field of substantive law, there are of course far-reaching differences between competition laws like those of the United States of America or the European Union which essentially build upon prohibitions that are to be applied directly by the courts, and other jurisdictions which grant a wide discretion to administrative authorities that may intervene against abuses if they think fit to do so. The majority of states does not even allow for such an administrative intervention.¹² However, the competition laws of the majority of the industrialized nations today converge versus a western model consisting of prohibitions of abusive monopolistic behavior, cartels and concerted practices, while most legislation, for the practical implementation, provides for specific competition offenses.

Except for the problem of export cartels, deficits in the protection of competition can hardly be ascribed to differences in substantive law. The exception of export cartels is equally approved by all nations, but it clearly is incompatible with the idea of an effective protection of competition in international markets: if every nation tolerates anticompetitive behavior as long as it is directed at foreign markets, the overall intensity of competition in the world will not increase.¹³ Apart from the admission of export cartels, deficits in the implementation of competition law are rather the effect of rules on the application and enforcement in the international arena.

The scope of application of the law is by no means uniformly regulated. Four types of conflict rules can be discerned:¹⁴ strict territoriality, pseudo-territoriality, the effects principle, and the balancing approach. The territorial approach was traditionally followed by Great Britain, before that country adapted its legislation to European Community standards in 1999.¹⁵ Under the former legislation, some Page 1040 territorial connection between either the acting persons or their acts and the British territory was required for the application of the British statutes. While the prevailing view in Britain was that only such a territorial approach could be reconciled with public international law, the country had to accept that anticompetitive conduct of foreign companies occurring in foreign countries, although affecting competition on the British market, could not be controlled by the application of British law. In the future, Britain will probably change her attitude and advocate the more expansive conflicts rule adopted by the European Court of Justice.

That rule amounts to an extraterritorial application of competition laws although it relies on considerations of territoriality; we may therefore speak of pseudo-territoriality. Thus, the European Court of Justice has held that there is a sufficient territorial connection between an acting company established and incorporated in a non-Member State and the European Community if a subsidiary of that company, although having distinct legal personality, is established in the European Community.¹⁶ Even if that is not the case, conduct carried out outside the Community by a foreign corporation may still be subject to Community competition law if the restrictions of competition are to be implemented within the Community.¹⁷ This approach has been characterized as an "effects principle in disguise,"¹⁸ and it comes very close to the effects principle indeed, although some differences remain.¹⁹ It appears that the view of the European Court of Justice is mainly influenced by objections pertaining to public international law. In particular, the United Kingdom repeatedly expressed the view that the pure effects doctrine has no basis recognized in international law.²⁰ The far-reaching reform of the British competition law in 1999 will perhaps stimulate a reconsideration of this issue in the Community since the United Kingdom now no longer focuses on the isolated evaluation of single anticompetitive acts as it did under the former Page 1041 legislation; it will now rather depart from the restrictive effect that certain acts have on competition in Britain.

The third type of conflict rule is the effects principle. Its rationale is rooted in the substantive competition law which is concerned, not with the acts as such, but with their effect on competition. Therefore, the appropriate connecting factor for the application of a competition statute is not the territorial link of an act or of the actor, but the effect of those acts on the competition of the home market. For the first time, the effects principle has been adopted in the famous Alcoa case in the United States,²¹ and it has recently been confirmed by the United States Supreme Court. In Hartford Fire Insurance Company v. California, the Court held it to be "well established by now that the Sherman Act applies to foreign conduct that was meant to produce and did in fact produce some substantial effect in the United States;"²² such effects have to be "direct, substantial, and reasonably foreseeable" in order to trigger the application of the U.S. antitrust laws.²³ After the claim of extraterritorial application had severely been criticized for many years, it can be taken as accepted by...