Monday, August 16, 2010

Gal on Global Competition: Law, Markets and Globalization

Posted by Michal Gal

The development of a global legal regime, capable of effectively combating anti-competitive conduct on global markets, is not only necessary to meet the central challenges of the twenty-first century, but is also doable. This is the optimistic conclusion of Prof. David Gerber's thorough, thoughtful and thought-provoking new book. While most scholars would agree with the first part of the conclusion- that a global legal regime is necessary to effectively combat global anti-competitive conduct and overcome the significant limits of unilateral enforcement- the practicality of a global solution is still highly debatable. Indeed, many antitrust scholars, officials and lawyers emphasize the many obstacles that stand in the way of such a global solution. Accordingly, Gerber's conclusion is quite radical. But Gerber holds his ground firmly and provides a thorough and sometimes provocative analysis of both the motivations and the obstacles to such a regime, to conclude that the former may well overcome the latter. The analysis is well grounded, like all of Gerber's work, in a meticulous analysis which encompasses, inter alia, historical attempts to reach a global solution, a comparative analysis of the experience of different jurisdictions with competition law which shapes motivations and abilities to participate in such a project, and the effects of the increased interconnectedness of markets on such motivations.


To overcome some of the apparent obstacles, Gerber proposes a flexible approach- which he calls a "commitment pathway". This approach attempts to bridge differences in goals, institutional capacities and normative prohibitions among different jurisdictions by creating a long-run process that would not require harmonization as a starting point, but strives to achieve it in the long run. This pathway would require states to commit to walking together along a pathway towards commitment, but would not mark at the outset the details of the final resulting legal regime. By so doing, the agreement would use a temporal dimension to reduce the pressure of early commitment that would limit the incentives of some countries to participate.


One of the main strengths of the book is that it dispels some of the assumptions wrongly made with regard to the possibility of reaching an international agreement, and thus clears the way for a fresh discussion of the possibility of its creation. Most interestingly, it provides us with a first-rate analysis of the perceived failure of two past attempts to reach a global competition law regime (the World Economic Conference and the Havana Charter). The analysis clearly and convincingly indicates that it was not the intrinsic qualities of a global competition law regime that stood in the way of reaching a global agreement, but rather external non-competition-related events such as the beginning of the World War II and later the cold war.[1] Moreover, Gerber emphasizes that the two attempts played an important role in carving the way for current efforts, by demonstrating that such a project can generate broad international political support and by promoting competition law efforts and experiments in many countries. Accordingly, these examples should not be used to indicate failures to reach an international agreement, but rather as playing an important catalyst role in the road towards a global competition law agreement.


Yet the fact that so many jurisdictions have experimented with competition laws since the efforts to reach a global competition law agreement after WWII have taken place, has changed the scene dramatically and limit the predictive value of past efforts. No more do most countries await an international joint authority to create limits on anti-competitive conduct. Rather, the current international regime is based on parallel unilateral enforcement by different jurisdictions. The challenge is, thus, to make a case for a global competition agreement in such an environment. The book addresses this challenge by offering a comparative analysis of the experiences of different jurisdictions with competition law under the current unilateral enforcement regime. This comparative perspective serves to crystallize the differences as well the similarities among competition cultures, and to understand the challenges, as well as the motivations, to take the next step in global competition law. Indeed, Gerber provides an excellent analysis of such experiences, especially in the US and in the EU, on which he focuses.


Based on this historic and comparative background, the third and last part of the book is an analysis of two basic modes of cooperation: convergence and a global agreement. As Gerber observes, the limits of the former strengthen the need for the latter. In my view, the two might well be interconnected, as the former can serve as an important step towards reaching the latter.


The strength and contribution of this part lie in the analysis of the conditions necessary in order to reach a global agreement. The analysis is extremely thoughtful and meticulous and sets the stage the discussion. The commitment pathway method, suggested by Prof. Gerber, is an important contribution to our thinking. The downside, however, is that the focus of the discussion is mainly on the method of reaching such an agreement and conditions, rather than on its content.  What is missing is an analysis of different modes of agreements. For example, comparison of an agreement under which each jurisdiction continues to apply its own competition law unilaterally, but would be required to meet certain standards (as was proposed by the EU in the case of the WTO) and an agreement which establishes a global antitrust authority (similar to the EU model). Each of these modes of cooperation creates a different set of benefits, but also a different set of problems. Such an analysis would have further strengthened the superb analysis of the book. 


Indeed, specifying (or not specifying) the mode of cooperation would certainly affect the motivation of countries to join the commitment pathway, as the end goal affects their motivation to join in the first place. To give but one example, one of the main obstacles to creating an international competition law framework within the WTO was the strong resistance of developing countries.  Such resistance was based on the mode of agreement suggested. While developing countries undoubtedly stand to benefit from stronger anti-cartel enforcement at the global level, they feared that the suggested mode of agreement would exacerbate their problems rather than solve them. One of the main suggestions in the negotiations involved a requirement that each country enforce its own laws to prevent cartels occurring from within its jurisdiction that affect international trade and enabled the use of WTO institutions in order to punish countries not fulfilling their enforcement duties. Given their limited enforcement resources, many developing countries feared that they would not be able to meet this requirement and then be sanctioned by the WTO. Alternatively, they would have to spend their limited resources on prosecuting international cartels, rather than domestic one, in order to avoid such sanctions, even if setting such a priority is otherwise inefficient. Although discussions also involved technical assistance to developing jurisdictions in enforcing their own laws, they may have feared that such assistance would not actually materialize. Accordingly, it was the mode of the proposed agreement, rather than the motivation to reach it, that stood in the way of a WTO agreement on competition law.  


Another obstacle that might stand in the way of reaching an international competition law agreement when using the commitment pathway might result from the fear of being the first to commit, without being sure that others will follow. In some regional agreements the first mover does not necessarily gain more and might even lose from his relatively higher level of commitment. For example, the commitment of Senegal to the SADC agreement, which required it to abolish its operational competition authority and instead rely on a joint authority, which has yet to prove the right of its existence, serves as such an example. One way to mitigate this concern is by creating, where possible, an evolutionary pathway that would increase not only commitments but also benefits. That is, only countries that commit to a higher level of cooperation and coordination will be able to use the joint mechanisms and gain more from their commitments. Yet this will not solve all problems, especially if the commitment has a positive network externality- as the number and size of countries that commit increases, so does the value of the network to all and the higher the motivation to join in the first place.


Only time will tell whether Prof. Gerber's cautiously optimistic conclusion will indeed materialize and a global competition agreement could be reached. Personally, I believe that such an agreement could eventually be reached only with regard to hard-core cartels, and that coordination among dominant jurisdictions and regional agreements among the weaker ones will dominate other areas of competition law. Yet the analysis in all three parts of the book is eye opening and serves as an important and unparalleled basis for future discussions on the subject.



[1] It should be noted, however, that with regard to the Havana Charter, the question still stands why such an agreement was not reached among Western states, as it evolved in other areas of international trade.

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