The political economy of international antitrust harmonization.

• Author: McGinnis, John O.

INTRODUCTION

International harmonization of competition laws is in the air. A large number of academics have called for harmonization of the substantive content of antitrust laws. (1) They have noted the potentially large costs of divergent national antitrust laws applied globally. These costs include the transactions costs for companies complying with multiple regimes (2) and the costs of being governed by the most restrictive antitrust regime, even if that regime is suboptimal. (3) More importantly, as a practical matter, the recent Doha meeting of the World Trade Organization (WTO) has called for the next round of world trade talks to take steps toward harmonization, including harmonization of certain core substantive standards. (4) Thus, the intellectual impetus for harmonization now may enjoy a plausible forum for its realization.

In my view, substantive harmonization, even if limited to core competition standards, would be a major mistake. It is undoubtedly true that multiple regimes impose some costs, but substantive harmonization--by which I mean a single international regime binding on all nation states in at least some areas of antitrust--also has potential costs. An international lawmaking regime creates high agency costs because it is less subject to democratic control than national regimes. (5) It also imposes costs by discouraging beneficial change, as the regime once in place will be difficult to alter. (6) Moreover, the appropriate scope of antitrust law in different nations may differ, depending on such factors as the size of their markets, their openness to trade, and their administrative competence in enforcing regulatory laws. (7) Thus, an international regime might well lead to an overall worse world competition policy.

The long-run costs of a substantive antitrust regime are particularly problematic in a world that is not static. As information costs, transportation costs, and trade restrictions decline, it may well be that the appropriate scope of optimal antitrust rules will tend to narrow as market processes become better correctives to market imperfections than government intervention. The lock-in costs of an international regime thus are particularly high in a world in which the pace of change is ever increasing.

In contrast to substantive harmonization, I offer an argument for a limited and modest antidiscrimination international antitrust regime located within the WTO. The rationale for this regime, however, comes principally from international trade law rather than antitrust law. Foreign bias in competition laws is likely to become a greater problem as the WTO eliminates tariff and other barriers to trade in goods and services. The WTO should block substitution of discriminatory antitrust law for barriers that it has removed in order to sustain progress in world trade. This effort would be a modest extension of its existing mission: it already attempts to prohibit many other forums of regulatory discrimination that interfere with exporters' market access.

The antidiscrimination model also has advantages over substantive harmonization, because formulating and applying antidiscrimination rules have fewer agency costs than formulating and applying substantive rules. (8) Moreover, the antidiscrimination model permits continued innovation and change in substantive rules, thus facilitating continued debate regarding the optimal content of regulation. (9)

Part I of this Article will critique the arguments for substantive harmonization of antitrust laws. It will suggest that these arguments are unpersuasive because they fall to show that the costs of our decentralized system of competition law are greater than the agency costs and associated pathologies of more centralized rule making and enforcement. In particular, arguments for substantive harmonization fail to recognize that a decentralized system has a certain dynamism over the long-run: the conflicts between different systems may become a focus of public attention and lead to better laws. (10) In contrast, a harmonized international regime faces a greater danger of stasis. (11)

Part II of this Article will address a new argument that international cooperation on substantive antitrust is necessary because domestic antitrust regimes neglect foreign consumer and producer interests, thus departing from an optimal antitrust standard. First, this Part will use the U.S. antitrust regime as an example to suggest that some institutional structures, such as an independent judiciary, tend to constrain this bias in some circumstances. (12) In other cases, this bias, even if unrestrained, may compensate for public choice flaws in a domestic antitrust system and actually may result in a more efficient competition policy. (13)

Part III of this Article will provide a sketch for a limited antidiscrimination model of international competition law. It will first show that the neglected rationale for some policing of domestic antitrust law is that antidiscrimination requirements are necessary to protect the efficacy of both the WTO's tariff reductions and its elimination of other trade restrictions.

I then discuss briefly the limited and incremental nature of antidiscrimination principles that the WTO should embrace. WTO enforcement of antidiscrimination rules should be limited to discrimination that creates nontariff barrier substitutes for tariff barriers such as antitrust rules that discriminate in market access. Only that kind of discrimination undermines the WTO regime. Until more evidence develops that foreign bias is a serious problem in the administration Of antitrust laws, I might well apply the antidiscrimination regime only to expressly discriminatory laws. Third, even if the WTO were to broaden its antidiscrimination regime to include discriminatory application of antitrust laws, it should consider ways of assuring nondiscrimination through the use of domestic institutions rather than increasing the power of WTO tribunals.

I also describe the concrete advantages of an antidiscrimination regime over substantive harmonization. First, it will preserve substantive diversity and therefore experimentation, preventing lock-in problems. (14) Second, it will avoid many public choice problems that would make suboptimal substantive harmonization likely. (15) Third, an antidiscrimination model will comport with the rest of WTO jurisprudence and, if the model is located there, will benefit from the WTO's already established institutional structure, which includes a sophisticated jurisprudence for ferreting out discriminatory laws. (16) Unlike substantive rules, an antidiscrimination model will not require substantial transformation of WTO institutions, change that would be counterproductive to the rest of the WTO regime.

1. A CRITIQUE OF THE TRADITIONAL ARGUMENT FOR SUBSTANTIVE ANTITRUST HARMONIZATION

   A variety of arguments have been made to support the international harmonization of substantive competition law. Two of the oldest are also the simplest. First, in a world of multinational corporations, multiple antitrust regimes raise transactions costs. (17) Second, in a world with extraterritorial application of antitrust laws, the most restrictive antitrust laws will always govern business behavior even if those antitrust laws prove suboptimal. (18)

   These traditional arguments do not seem very persuasive by themselves because they do not attempt to compare the substantial costs of diverse antitrust laws with the costs of harmonization. These omissions place us in danger of committing the internationalist version of the nirvana fallacy: even if uncoordinated national regimes are inefficient, it does not follow that an international regime will be more efficient. (19) The transactions costs of complying with different laws can be substantial in terms of the costs of professional services, (20) but these costs seem to be dwarfed by the question of whether the international rule will prove substantively better. Moreover, some of the transactions costs of compliance with multiple laws can be reduced by nonsubstantive harmonization--i.e., harmonization of the forms of requests for information. (21) Steps for such procedural harmonization are already being taken bilaterally and unilaterally. (22)

   The debate over substantive harmonization, thus, should center on whether the decisions under a harmonized legal system are likely to be better than the sum of the legal applications of diverse systems. This comparison requires an evaluation of both the benefits and costs of an international harmonized regime as well as the benefits and costs of diversified national regimes. As the standard of comparison, this Article will first utilize the consumer welfare model of the Chicago School as an economic efficiency standard. (23)

   1. The Political Economy of Domestic Antitrust

      We can best understand whether an international standard would tend to depart from a consumer welfare model of antitrust if we understand why national standards, at least within developed nations, tend to depart from this model in the first place. In developed nations, several factors tend to make their competition law depart from the consumer welfare ideal. (24)

      The first distorting factor is the interest government antitrust officials have in more than optimally interventionist antitrust rules. This distortion reflects two kinds of bias. First, such an interventionist set of rules allows antitrust officials to gain more rents. (25) In return for enforcing the antitrust law against a company, officials can gain rents from competitors. (26) It is true that in refusing to exercise official discretion to enforce laws against a company, antitrust officials can obtain rents from that company; however, to make this threat of enforcement credible, they occasionally have to enjoy the discretion to intervene and occasionally exercise it. Second, the Antitrust officials charged with intervention...