Global antitrust and the evolution of an international standard.

• Author: Sugden, William

ABSTRACT

This Note explores recommendations for developing a global antitrust regime and ultimately rejects those suggestions in favor of more traditional nationally-based applications of antitrust rules. Part II introduces an economic model of global antitrust to show the systemic difficulties inherent in creating a global regime. Part III contrasts the difficulties in creating a global regime with the greater historical success of developing regional antitrust authorities. Part IV tracks the history of the extraterritorial application of antitrust laws by the United States and the European Union. Part V argues that the path to effective global antitrust lies not in the creation of a single global regime, but in the continued extraterritorial application of national antitrust laws and the further creation of regional antitrust regimes.

1. INTRODUCTION

   At a conference to celebrate the tenth anniversary of European Union merger regulation, then-U.S. Assistant Attorney General in charge of the Antitrust Division of the Justice Department, Joel Klein, opened a new round in the long push towards coordination of international antitrust efforts by calling for the creation of a global organization similar to the Organisation for Economic Cooperation and Development (OECD) to help coordinate international competition law convergence and enforcement. (1) This declaration signaled a new opening to develop effective international competition law enforcement in an increasingly global business environment, particularly between the European Union and the United States. (2) The plan Klein envisions is a body separate from existing global organizations, though similar in structure to many. (3) His recommendation for a separate body is in direct opposition to proposals made by EU officials to place such an international organization under the auspices of the WTO. (4)

   These new attempts mark the sixth major effort to achieve a truly international antitrust regime. (5) Each prior attempt failed to one degree or another. (6) Persuasive commentators have suggested that the primary cause of the past failures has been a difference of expectations on the part of the relevant state actors. (7) Other measures of the failure to achieve effective international antitrust can be seen by contrasting the highly-developed national antitrust schemes with the near-total lack of an effective international antitrust regime. (8)

   These failed attempts to standardize international antitrust regimes have taken on multiple hues. Some proposals, like ones that presently exist between the United States and the European Union, call for cooperation between existing national and regional antitrust enforcement authorities. (9) Such agreements call for antitrust authorities to respect the antitrust jurisdictions of competing authorities and, where possible, share information and theories on antitrust liability and enforcement. (10) Other proposals call for coordination of antitrust enforcement among different authorities. (11) For example, the international coordination agency proposed by Klein would aid multiple antitrust authorities in bringing joint antitrust actions against defendants. (12) The most radical solutions call for harmonization of the antitrust laws of different countries. (13) These proposals would require countries to standardize their antitrust laws to a single global norm. (14)

   There is a major impetus to develop effective global international antitrust regimes. Primarily, global business organizations have a need for effective global antitrust. (15) The present system, in which global business entities must seek antitrust approval from a variety of enforcement authorities to merge, imposes enormous deadweight costs on these organizations (16) that could be alleviated if there were a global standard for antitrust compliance. (17) Furthermore, these failures in the antitrust arena stand in sharp contrast to more successful efforts to standardize international business law in other areas. (18)

   This Note explores past failures to achieve effective global antitrust standards and proposes a method to develop, over the long run, an effective global antitrust regime. Part II employs an economic analysis to explain why there are systemic difficulties in adopting global antitrust norms and why regional efforts to coordinate antitrust policy are, all else being equal, more likely to succeed than global efforts. Assuming that each national antitrust authority is a rational utility-maximizer of its country's interests, it will seek the mix of antitrust enforcement that maximizes its constituents' total welfare. From this premise, the economic model of antitrust draws numerous conclusions. First, a workable global antitrust system like the one proposed by Klein is not a feasible solution to global antitrust issues because it is unlikely that the parties could ever agree on such a system. Second, the model suggests that regional antitrust agreements between authorities in competing jurisdictions provide a more workable scenario for international antitrust agreement. Finally, the model shows that in the absence of a single global antitrust authority, the most likely scenario for exercising an efficient level of antitrust is through the extraterritorial application of antitrust laws to companies in foreign jurisdictions.

   Part III contrasts past failures to develop a global antitrust regime with the more successful, albeit more modest, success achieved in brokering regional antitrust agreements. Efforts to develop a single global system under the auspices of both the WTO and OECD, along with an entirely separate body to consider only global antitrust matters, are analyzed, criticized, and ultimately rejected. These systems are then contrasted with regional agreements, both within the larger context of NAFTA and separately, as is the case with U.S.-EU agreements on antitrust. The section concludes that the economic model of antitrust is a powerful tool to analyze global versus regional antitrust agreements.

   Part IV explores the extraterritorial application of U.S. and EU antitrust law. Over the last half-century the United States has taken a strong stand in applying its antitrust laws to both domestic and foreign corporations. (19) The European Union, more recently, has followed suit. (20) This section considers the possibility that other countries and regional antitrust alliances will adopt the U.S. and EU standards of extraterritoriality within the framework of the economic model developed in Part II.

   Part V argues that, over the short-term, the path to effective international antitrust lies in developing and enhancing stronger regional antitrust regimes that adopt the U.S. standard of rigorous extraterritorial enforcement. It then argues for forbearance by national and regional antitrust enforcers when a competing antitrust authority seeks to apply its antitrust laws extraterritorially to a domestic defendant. Over time, developing strong regional antitrust regimes and prosecuting alleged antitrust offenders wherever they may be found will lead to a world convergence of antitrust standards. Once global antitrust standards distill to a few strong regional policies applied extraterritorially, a world consensus may develop over what antitrust policy should be. At that point, and only at that point, will it be possible to develop an effective global organization for prosecution of antitrust laws.

2. THE ECONOMIC ANALYSIS OF GLOBAL ANTITRUST

   Seen through the eyes of an economist, there is a globally-efficient level of antitrust. (21) The globally-efficient level is that "amount" of antitrust enforcement that maximizes overall world welfare by balancing (1) the efficiency gains from economies of scale that are created by larger firms against (2) the output reduction associated with allowing larger firms to exercise market power. (22) As a prescriptive ideal, the economist seeks to achieve that level of global antitrust where the marginal costs of additional size are just equal to the marginal benefits. (23)

   The obstacle to achieving effective international antitrust, according to the economist, is political. (24) World antitrust is played out largely along national lines, where national officials pursue national antitrust policies that maximize the welfare of their national constituents. (25) In pursuing a national antitrust policy on a worldwide scale, the global "amount" of antitrust policy is skewed from its efficient level-some nations will pursue too much antitrust policy; others will pursue too little. (26)

   The simplified economic model of international antitrust assumes a world of two countries, one that only produces a particular good and the other that only consumes that good. (27) Each country will pursue an antitrust policy that maximizes the welfare of its constituents. (28) Thus, the producer country will adopt an antitrust policy that maximizes the welfare of producers--it will seek to maximize producer profit. (29) The consumer country, on the other hand, will seek to maximize the welfare of consumers by adopting antitrust policies designed to keep the price of the good as low as possible--it will try to minimize producer profits and transfer the surplus to consumers. (30)

   International antitrust problems arise when two firms in the producer country seek to merge. (31) Imagine a merger between the two firms that would lead to both an increase in productive efficiency and an increase in the market power of the combined firm. If the increase in efficiency leads to reduced costs of one hundred and fifty dollars, but also to increased market power that will reduce production by fifty dollars, world surplus from the proposed merger would increase by one hundred dollars. (32) Therefore, from a global perspective, the merger is desirable. However, because antitrust policy is conducted on a national level, the worldwide efficient...