The Legality of Extraterritorial Application of Competition Law and the Need to Adopt a Unified Approach

• Author: Thanh Phan
• Position: Transnational merger investigator at the Vietnam Competition Authority, Ph.D. candidate at the University of Victoria, Law Faculty, Research Fellow at Centre for Global Studies, University of Victoria, Canada, Sessional Instructor in Politics of International Law at the University of Victoria.
• Pages: 425-477

The Legality of Extraterritorial Application of

Competition Law and the Need to Adopt a Unified

Approach

Thanh Phan

INTRODUCTION

In 2014, three of the world’s largest shipping companies, Maersk Line,

Mediterranean Shipping Company, and CMA CGM, planned to create a

joint venture to operate a network named “P3 Network.”1The proposed

network would operate on three trade lanes: Asia-Europe, Trans-Pacific,

and Trans-Atlantic.2 Although the headquarters of each company and the

proposed joint venture were located outside Vietnamese territory, the three

companies submitted a merger notification to the Vietnam Competition

Authority (“VCA”), pursuant to article 20 of the Competition Lawof

Vietnam.3The discussion surrounding this joint venture contributed to a

long-standing debate in the VCA regarding the extraterritorial application

of the Competition Law of Vietnam.4 The debate honed in on one primary

issue: although the P3 Network was run by foreign-based companies

located outside Vietnam, the companies still sought approval from the

VCA.

The extraterritorial application of competition law is a controversial

issue not only in Vietnam, but also in other jurisdictions5—especially now,

Copyright 2016, by THANH PHAN.

Transnational merger investigator at the Vietnam Competition Authority,

Ph.D. candidate at the University of Victoria, Law Faculty, Research Fellow at

Centre for Global Studies, University of Victoria, Canada, Sessional Instructor in

Politics of International Law at the University of Victoria. The au thor would like

to send his sincere thanks to Professor Mark Gillen and Professor Victor V.

Ramraj (Law Faculty, University of Victoria), Professor Fujio Kawashima

(Graduate School of Law, Kobe University), Timothy T. Hughes (U.S. Federal

Trade Commission), and Tran Phuong Lan (Vietnam C ompetition Authority) for

their helpful comments on this Article. The author would also like to thank the

Centre for Global Studies at the University of Victoria for the great support.

1. CMA CGM, Maersk Line and MSC to Establish an Operational Alliance,

CMA CGM (June 18, 2013), https://www.cma-cgm.com/news/1/cma-cgm-maersk-

line-and-msc-to-establish-an-operational-alliance [https://perma.cc/9GES-LS6P].

2. Id.

3. Lut Cnh Tranh [Competition Law], No. 27/2004/QH11 of Dec. 3, 2004

(Viet.).

4. See discussion infra Part II.D.

5. See discussion infra Part II.

426LOUISIANA LAW REVIEW[Vol. 77

as multinational corporations (“MNCs”) have increasingly expanded their

power across countries under the shadow of globalization.6 As MNCs

transcend countries’ geographical borders, they face a problem in

determiningwhich country’s law will apply to their cross-border

transactions. Generally, the national law of a country is applicable only

within that country’s territory.7The application of a country’s law, however,

becomes more problematic when considering MNCs and cross-border

transactions, which potentially affect multiple countries. When international

cooperation surrounding these transactions is not available or too costly,

some countries respond by simply applying their own competition law.8

This extraterritorial application, however, can potentially harm cross-border

business transactions.9

The extraterritorial application of a country’s law is the unilateral effort

of a country to extend its jurisdiction to acts conducted in other countries.10

Although the exercise of extraterritorial jurisdiction of competition law11 is

criticized12for seemingly undermining the territorial principle of

international law, the exercise of this jurisdiction is necessary when

countries are unable to reach an agreement regarding cross-border

transactions.

6. For example, Google bought Nokia in 2012.Microsoft to Acquire Nokia’s

Devices & Services Business, Licen se Nokia’s Patents and Mapping Services,

MICROSOFT NEWS CTR.(Sept . 3, 2013), https://news.microsoft.com/2013/09/03

/microsoft-to-acquire-nokias-devices-services-business-license-nokias-patents-and-

mapping-services/#sm.000wamleu1dzpd51pdc1m3ai3r4ao [https://perma.cc/WBG5

-QBXB]. Walmart acquired Jet.com in 2016. Walmart Agrees to Acquire Jet.com,

One of the Fastest Growing e-Commerce Companies in the U.S.,WALMART (Aug. 8,

2016), http://news.walmart.com/2016/08/08/walmart-agrees-to-acquire-jetcom-one-

of-the-fastest-growing-e-commerce-companies-in-the-us [https://perma.cc/7DFX-

V7NR].

7. See discussion infra Part I.B.1.

8. See discussion infra Part II.

9. See discussion infra Part II.B, C.

10. See discussion infra Part I.A.

11. Rita Yi Man Li & Yi Lut Li, The Role of Competition Law: An Asian

Perspective, 9 ASIAN SOC.SCI. 47, 47 (2013).

12. See, e.g., discussion infra Part II.A.1 (discussing the arguments posed by

the Canadian government in the amicus brief submitted) and Part II.C (discussing

the arguments posed by the Japanese government in the amicus briefs submitted).

2016] EXTRATERRITORIAL APPLICATION OF COMPETITION LAW427

Although many countries oppose the EACL, asserting that it violates

international law,13others utilize the EACL but often in different ways.14

The international approach to the EACL is not unified and fails to recognize

that some countries still adopt a “double standard” for the EACL, which

occurs when one country opposes the application of another country’s law

within its territory but seeks to apply its own law to other countries

extraterritorially.15 This Article explains that the extraterritorial application

of competition law by a country16 to acts that occur outside its territory is

not contrary to international law if that application is properly limited. The

EACL should be the unilateral action of one country only when the affected

countries fail to find a common solution for a cross-border competition

issue. Ultimately, this Article further proposes a model that should be

applied to limit the extraterritorial jurisdiction of competition law. This

model would require a country to scrutinize the link between the alleged act

and its country and consider the interstate interests involved before deciding

to exercise its jurisdiction.

Part I of this Article discusses international law and the foundation of

the extraterritorial application of law. Part II surveys the EACL

approaches of four countries—Canada, the U.S., Japan, and Vietnam—

and illustrates that because the limit of international law on EACL is

unclear, countries impose their own limits. Finally, Part III proposes a

unified approach for all countries to use when considering the

extraterritorial application of competition law.

I.THE INTERNATIONAL LAWFOUNDATION OF THE

EXTRATERRITORIAL APPLICATION OF LAW

Before surveying the EACL approaches of multiple countries, it is

important to understand the foundation of the EACL. This Part first discusses

the definition of “exterritorial” and the characteristics of completion law.

Then, this Part discusses the relationship between jurisdiction and territory, as

established by international law. Finally, this Part explains the landmarkLotus

13. For example, Canada and Japan made this assertion in amicus briefs

submitted to U.S. courts. See discussion infraPart II.A.1, II.C.; Brief for

Government of Japan as Amicus Curiae Supporting Respondents at 1–2, United

States v. Nippon Paper Indus. Co., 109 F.3d 1(1st Cir. 1997) (No. 96-2001), 1996

U.S. 1st Cir. Briefs LEXIS 11.

14. See discussion infra Part II.

15. For an example of a country that employs a “double standard” see

discussion infra Part II.C.

16. This country is normally referred to as the “country of forum.”