Antitrust and state action in transition economies.
Policy makers and economists know well that regulations and other actions of the state can exert a profound and occasionally malodorous effect on competition and the efficiency of markets. Examples abound in U.S. trade policy and in agricultural policy. Industrial policies provide many other examples. Inefficient or counterproductive regulations have been sufficiently common as to force social scientists to devise new theories of regulation.(1) No longer do economists and political scientists regard regulation solely as a welfare-enhancing device designed to correct market failure or insure the provision of a public good. Instead, the positive theory of regulation treats many regulations and other actions of the state as the result of political and bureaucratic influence exerted by narrow interest groups. This theory focuses upon the economic incentives of politicians and regulators, and of the parties they regulate, rather than upon the broad economic and welfare effects of regulation. The positive theory of regulation rationalizes what is commonly observed--the emergence of regulations that benefit the well-organized few at the expense of the ill-organized many.
Because antitrust policy is often explained in terms of consumer welfare and other measures of economic efficiency, one might expect that the actions of state agencies and officials would have a prominent role in antitrust enforcement. Yet in most countries, quite the opposite is true. Antitrust enforcement in developed countries tends to focus upon the actions of private parties, and antitrust enforcement against the state is either absent or, more often, carefully confined. In the U.S., federal antitrust enforcement against state bodies, complementing the constitutional protection of interstate commerce,(2) has varied from near complete immunity to the present use of a two-prong test conditioning immunity on legislative authorization and state supervision.(3) In Japan, some notable constraints on antitrust enforcement are attributable to the industrial policies of the Ministry of International Trade & Industry (MITI) and the use of administrative guidance.(4)
The European Union provides a bit of a contrast; there, antitrust enforcement against state aids is authorized under articles 92-94 of the Treaty of Rome.(5) In addition, other articles constrain members states (or their local jurisdictions) from enacting laws or regulations that would conflict with the basic goals of the E.U. Broadly speaking, article 92 and other provisions of the Treaty are based on a concept that is analogous--at least intuitively--to interstate commerce in the U.S.(6) Both are designed to insure that "smaller" political jurisdictions--states in the U.S., member nations in the E.U.--do not use certain actions to inhibit cross-border trade. These provisions apply to certain-but by no means all--actions by which a member state could impede trade among states.
Antitrust in transitional economies is very different, and nowhere more so than in its treatment of state action. In certain former Soviet-bloc economies, notably Russia, Hungary, Slovakia, Kazakhstan, and Ukraine, antitrust agencies are authorized to prevent state bodies from taking actions harmful of competition. Moreover, this authority is much broader than the authority available in other Western or developing nations. Even more surprisingly, as I shall show below, this authority has been used--and for the most part, responsibly--to promote and preserve market-oriented reform, particularly in Ukraine.
This article reviews antitrust enforcement against state bodies in certain former Soviet economies, with focus on Ukraine and Kazakhstan. Section II briefly describes the standards guiding enforcement against state action in the United States and the European Union. Section III reviews some of the analytical frameworks that have been applied to the problem of state action. Section IV applies these frameworks to the transition economy in which market institutions are replacing the institutions of the command economy. Section V describes enforcement actions against state bodies in Ukraine and Kazakhstan, and section VI describes the evolution of enforcement guidelines in Ukraine. Section VII concludes.
II. State action in developed nations
As mentioned, antitrust authority in developed countries is relatively restrained with respect to actions of the state. In the U.S., antitrust enforcement complements the constitutional protection of interstate commerce, at least in principle. In practice, states and local governments are generally prohibited from regulating or otherwise taking actions to impede interstate commerce,(7) particularly in areas preempted by Congress through federal law, though this has been subject to varying interpretations over time. Conversely, regulation not explicitly reserved (by congressional action) for the federal government is left to the states.
State actions conflicting with U.S. antitrust law generally take the form of regulations encouraging or requiring conduct that, if undertaken by private parties with no state involvement, would violate the antitrust laws. The most recent U.S. Supreme Court decision, FTC v. Ticor Title Insurance Co. (Ticor),(8) dealt with regulations in seven states essentially allowing competing insurance companies to fix the prices of title insurance. Similar conduct, implemented privately, would of course be per se illegal and subject to treble damages. The principal issue in Ticor was whether the articulation and the regulations and the oversight exercised by each state--measured in terms of legislative authorization and state-sponsored regulatory oversight--was sufficient to immunize participating insurance companies from federal antitrust.(9) Broadly speaking, this standard examines whether the state has clearly stated an intention to displace competition with regulation and whether the state has conducted sufficient oversight to insure that the policy was followed by private parties. The Third Circuit Court of Appeals ruled that the regulations of each state satisfied the two-prong test and were therefore immune from federal enforcement.
The Supreme Court reversed in two states and remanded for reconsideration in two others. The decisive issue to the Court was whether the evidence was sufficient to show that the conduct of the regulated parties was caused by the state and was not left open to private discretion. The court of appeals did not undertake this issue, believing that to do so would authorize federal oversight of the adequacy of state regulatory mechanisms and thereby violate the principles of federalism.(10) The practical effect of the Ticor decision was to demonstrate that (1) state action immunity from federal antitrust does indeed involve judicial oversight of the adequacy of state regulatory mechanisms, and (2) negative-option regulatory mechanisms may be found inadequate and denied immunity.(11)
Antitrust enforcement against state bodies in the European Union is somewhat broader. Article 92 prohibits state aid,(12) with three important exceptions: (1) aid having a social character and supporting employment, (2) aid to promote the economic development of relatively underdeveloped areas, (3) aid permitting an ailing or failing company or companies to restructure. In essence, the purpose of article 92 is to prevent member states from protecting or promoting national companies in their own territory. Thus, both in the U.S. and the E.U., enforcement against state action, whether based on constitutional or antitrust principles, is aimed primarily against state actions that convey commercial advantage on a specific geographic coalition of enterprises.
III. The political economy of enforcement against the state
Antitrust enforcement against the state is generally analyzed using the tools of political economy, which in essence extends microeconomic analysis to state agents such as legislators and bureaucrats. The object of the analysis is to derive rules (of thumb) regarding the optimal delineation of authority between a federal-level government and a smaller, constituent unit of that government, such as a state or municipality. Two analytic themes seem particularly applicable. One is the work on capture theory, expressing the notion that state regulation is often explicable as a political response to lobbying by a well-organized interest group, frequently a producer cartel; this theory is consistent with the observation that regulation commonly benefits a selected group of parties at the expense of the general economy. The other is the theory of interjurisdictional competition, which emphasizes the mobility of people, capital, and enterprises as a competitive constraint on a state's tendency to issue a harmful regulation. Both apply, with limits, to the transition economy. Moreover, both of these analyses are somewhat limited, and the limitations are particularly forceful in the context of the transition economy.
A. Competition among jurisdictions
In a study of U.S. jurisdictional standards,(13) Easterbrook examines the effect of a jurisdictional standard on the manner in which states select special-interest regulation, in light of potential competition among jurisdictions. Easterbrook's analysis yields the following jurisdictional rule: a state-sponsored restraint would be immunized from federal enforcement if the competitive effect of the restraint were borne primarily by residents of the restraining state. Conversely, if the restraint were to "spill over" to other jurisdictions, that is, if the residents (or enterprises) of other jurisdictions were injured as a result of the restraint, then the restraint would not be immune (and would be held illegal based upon this presumably demonstrable competitive effect). Easterbrook touts this standard as one that maximizes both the autonomy of the states and the competition among states (to write the most welfare-enhancing laws, thereby attracting people, enterprises, and capital). In this analysis, exit from a jurisdiction by people, enterprises, and capital can support optimal regulation on the part of local jurisdictions if four conditions hold: (1) people and resources are mobile across jurisdictions, (2) the number of jurisdictions is large, (3) jurisdictions are unconstrained in the regulations they adopt, and (4) the economic effects of a jurisdiction's regulation are felt entirely within the jurisdiction.
B. Capture theory
The present U.S. legal standard immunizes only state actions that are clearly articulated and actively supervised by each of fifty states. To some degree this standard is consistent with capture theory. At present, a state action is immune from federal antitrust challenge only with the active involvement of the state legislature. Immunity is withheld if a regulatory action is not sufficiently articulated or if it is not sufficiently supervised by a regulatory agency that is directly accountable to the state legislature. Moreover, oversight of the regulation by the state judiciary is insufficient to gain exemption from federal antitrust enforcement. This standard places constraints upon the delegation by the state legislature of its legislative authority to a more local legislative body or to a regulatory agency. Because delegation and judicial oversight (even at the state level) offer important efficiencies, this standard is potentially very costly, reducing the efficiency of legislative and judicial institutions at the state level and perhaps encouraging the displacement of decentralized state regulation by centralized federal regulation.
If U.S. practice can be based upon capture theory, it must be because local legislative bodies, and subfederal judicial and regulatory institutions, are more susceptible to capture than a state legislature would be. This is consistent with theories of collective decisionmaking. A basic tenet of collective decisionmaking is that small groups can more easily define and maintain agreements that are advantageous to group members and perhaps disadvantageous to parties outside of the group. Note also that competing suppliers--even for markets of regional or international scope--often cluster in specific locations.(14)
One would expect the potential for capture to vary with the size (or level) of jurisdictions. For smaller jurisdictions, regulatory proposals would be easier to define and maintain and would also be more feasible--i.e., less constrained by legislative "logrolling" or "horse-trading"-because legislators would likely weigh these proposals against a smaller set of competing or conflicting interests. Thus, cities and municipalities would be more susceptible than state legislatures, and these more susceptible than federal legislatures, to capture by producer cartels. This might justify stricter scrutiny of local regulation than state regulation. Similar comments apply to oversight by local regulators--who are responsible to elected legislators--and by local courts--whose judges, in contrast to federal judges, are more often directly responsible to the local electorate.
Note that the greater potential for capture does not depend upon the effectiveness or responsiveness of institutions.(15) Quite the contrary, it is the responsiveness of local institutions to a local electorate that supports the potential for capture by local producer cartels.
Wiley, dismayed at the judicial treatment of state action in the U.S., has recommended an alternative, four-part standard for determining whether a state action is immune from antitrust attack.(16) Immunity would be withheld if a state action (1) restrains market rivalry, (2) is not otherwise immune from federal antitrust, (3) is not responsive to a significant market failure, and (4) is the result of capture originating from the "decisive political efforts of producers who stand to profit from its competitive restraint." There are numerous difficulties with this approach, including those that are inherent to capture theory itself. In particular, capture theory does not examine the trade-off between the economic value of regulatory capture and the value of certain political rights, the exercise of which make capture possible. For example, capture theory cannot be used to answer or frame even basic questions(17) and cannot therefore sustain policy prescriptions such as those promoted by Wiley.
IV. Enforcement against the state in transition economies
For the transition economy, allowing antitrust suits against the state is based in part upon the observation that regulation can greatly influence a market economy. This simple rationale naturally applies in developed economies as well. But in a transition economy, the need to constrain regulation is more powerful for a number of reasons.
First, the relative influence of state bodies is typically far greater in a transition economy than in a developed market economy. Transition economies, including those of the former Soviet bloc, have developed institutions and practices that facilitate centralized, administrative control (by state bodies and officials) and that are in many ways incompatible with the decentralization that characterizes a market economy. Indeed, much of reform consists of establishing alternative institutions and practices that permit decentralization, particularly in commercial activity. In developed countries, antitrust (and other forms of) jurisdiction over state actions is based upon the fear that national law might be undermined by constituent jurisdictions. This concern is even stronger in a transition economy.
Second, economic and political reform almost never proceeds without attracting considerable resistance from a variety of parties who benefit from centralized administrative control. These parties often have strong incentives and the means to impede or undo a variety of market-strengthening measures.(18)
Last, there are seldom alternative institutions available to defend and preserve market and political reforms, competition, and private sector development. The most plausible institution through which reforms can be implemented is the judiciary. Indeed, judicial reform--the establishment of a strong, independent judiciary as a means of building a rule of law society--is frequently a central ingredient to economic and political reform. Nevertheless, judicial systems in transition economies are usually inadequate for generating reform via litigation, and strengthening these systems is almost always a lengthy, difficult, uncertain process. To illustrate, the new constitution of Ukraine, adopted in 1996, requires that a constitutional court be established and the national judicial system be restructured. These actions are expected to take 5 years, until which the present judicial system will continue to function; historical examples suggest that the 5-year time horizon is optimistic.
The above comments suggest that an aggressive antitrust program, directed against bodies of the state, can be useful in several ways. Due to institutional structure, antitrust enforcement agencies are well-suited to implement economic reforms. Unlike other forms of regulation, antitrust policy is necessarily broad. In most countries antitrust enforcement applies to all or most sectors of an economy. Because most commercial entities are only infrequently subject to antitrust enforcement actions, there is little reason to expend resources on the "capture" of an antitrust agency.(19) Indeed, the only interest group with a significant motive to capture an antitrust agency is the antitrust bar. This relative immunity to capture also obtains in transition economies, in which the private legal profession--and certainly the antitrust bar--is far less developed than in mature market economies. In addition, due to the broad scope of its jurisdiction, an antitrust agency is likely to be well-informed about commercial activity and to have a good understanding of the benefits and limitations of competition and regulation. It is therefore well-positioned to identify those state actions most injurious of competition and most threatening to market-oriented reforms.
Analyzes such as those of Easterbrook and Wiley, applied to the transition economy, would not support a national deference to the anticompetitive regulations of local and municipal governments. Easterbrook proposes a legal standard exempting certain local regulations from antitrust enforcement. His argument, based upon interjurisdictional competition, requires that the number of jurisdictions be sufficient to permit competition and that the mobility of enterprises and people across jurisdictions is sufficient to effect significant interjurisdictional competition. His legal standard would then activate the legal mechanism--i.e., trigger liability-where interjurisdictional competition was weak.
Though American society and commerce are well-known to be highly mobile, this cannot be said for most transition economies. In the former Soviet republics, the right to move freely within a country is fairly new; in Ukraine, for example, late as 1994, moving to a new city or Oblast required the approval of the city or oblast. In addition, land and commercial real estate markets continue to be impeded by Soviet-era regulations; consequently, local and municipal housing markets do not quickly adjust to mass migrations. Even privatized enterprises typically operate under a commitment to remain in place, and serving a specific market, for a minimum period of time after being privatized. Last, in transition economies financial markets tend to be developed later rather than sooner, so that capital, if available, is certainly not mobile.
The above comments suggest that interjurisdictional competition does not support a legal deference to local state bodies in the transition economy. Nor do considerations of regulatory capture. Even if the institutions of law enforcement and governance were perfectly efficient, producer capture would be more likely within smaller jurisdictions. But if anything, such institutions are more often highly imperfect in the transition economy. Corruption in particular has been a highly touted problem in Russia, Ukraine, and in many of the other former Soviet economies (and elsewhere).(20) It is problematic because it effectively links the incentives of the regulator with those of the regulated; this connection has been an important "red flag" motivating antitrust enforcement actions against state bodies in the former Soviet republics.(21)
There is another disadvantage of decentralized governance in the transition economy. In many cases, economic and political reforms have been implemented through radical regulatory and legal reform. This process, in replacing the legal and regulatory institutions of a command economy with those appropriate to a market economy, generates considerable uncertainty among market participants as to the scope and nature of commercial law and regulation. Even if competition among jurisdictions were viable, an antitrust exemption of local or municipal regulation would exacerbate legal and regulatory uncertainty. The regional and municipal governments would likely develop completely different schemes of taxation, licensing, and other schemes of commercial regulation, with widely varying competitive effects. Regulated markets would become fragmented as a result and in some cases would presumably begin to perform sufficiently poorly as to provide an economic incentive for residents and private enterprise to move across jurisdictions. Such movement would likely occur, and jurisdictions would eventually achieve a competitive equilibrium.
Easterbrook's discussion seems to assume that jurisdictions would end up with regulations that are somehow "optimal," analogous to the price-taking conduct of a competitive market. But it seems equally likely, particularly given heterogeneous jurisdictions, populations, interest groups, and enterprises, that equilibrium regulations--designed and implemented at the local level--would be activist and nonoptimal. Historical evidence suggests that the regulation resulting from interjurisdictional competition has, more often than not, been inefficient and growth-retarding. If not, then why would numerous examples of commercial integration--either through political integration or trade agreement--appear to yield significant increases in trade and economic growth?(22)
V. Enforcement in Ukraine and Kazakhstan
In certain transition economies, the antitrust prohibition against state action is broader, nowhere more so than in Ukraine. Article 6 of the Ukrainian Law On Monopolism prohibits "discrimination against entrepreneurs." The prohibition is interpreted to apply to bans on sales of products, tax exemptions, low interest loans, budgetary grants or loans, exemptions from paying certain public fees (e.g., land use), rent reductions, or preferential access to specific raw materials.(23) Moreover, article 6 has been held to apply to a variety of other actions by which a state body would convey a commercial advantage to a select group of enterprises, or a commercial disadvantage to a select group of enterprises.
Broadly speaking, article 6 is motivated by private sector development, in particular by a desire to constrain administrative and regulatory action so as to create and preserve a level playing field for enterprises in Ukraine.
Enforcement actions against the state were an important component of antitrust enforcement in Ukraine from the very beginning. In 1994, investigations under article 6 accounted for 36% of all AMC investigations.(24) Table 1 summarizes article 6 enforcement statistics for 1994 and 1995.
Table 1 Enforcement Activity, Article 6, "Discrimination Against Entrepreneurs by State Authorities," Antimonopoly Committee of Ukraine
Year 1994 9 months, 1995 Applications 68 135 Applications refused 19 -- Investigations 49 81 Completed investigations 33 62 Investigation closed, lack of Evidence -- 2 Order issued -- 32 Voluntary compliance 5 28 Investigations carried over 11 0
SOURCES: 1994 Annual Report and interim 1995 report, Antimonopoly Committee of Ukraine.
To some degree, article 6 may substitute for other legal devices--civil service codes, takings provisions, ethics codes, administrative law, private legal actions--that are viable in developed economies but are not yet viable in Ukraine. In Western economies, civil service codes and anticorruption measures generally require that governance and private commercial activity be separate. Not so in Ukraine, where state officials can legally hold financial interests or employment in private or quasi-private enterprises. Moreover, informal connections between commercial enterprises and government institutions--through bribery and similar measures--are reportedly common in Ukraine. The failure to separate commerce and governance has been the driving force behind violations of article 6; the 1994 Annual Report notes (at 18) that
Experience has shown that the main reason for discrimination against
entrepreneurs is that state administration agencies are also involved in
similar activity. Under such circumstances, it is natural that such like
to establish more privileged conditions for their economic units, vis-a-vis
other entrepreneurs engaged in similar activity.
Table 2 illustrates the variety of cases investigated by the AMC in 1994.
[TABULAR DATA 2 NOT REPRODUCIBLE IN ASCII]
Some of the cases listed in table 2 involve legal theories that are easily understood in terms of mainstream antitrust. But some do not, for the simple reason that early case selection by the AMC sometimes reached state action violating a number of new laws that did not directly involve competition and for which the AMC had no specific statutory authority.(25)
A. Pharmacia Production Association of Odessa
One notable example, Odessa Pharmacia Association, was not entirely successful but was highly instructive and beneficial (on the premise that institutions learn from their mistakes). In December 1994, the Executive Committee of Odessa Oblast Council passed a regulation converting the state-owned Pharmacia Production Association into a closed joint stock company. The Odessa regional AMC opened an investigation and in February 1995 issued a complaint alleging that the Executive Committee's action violated the laws On Enterprises and On Leasing Property of State-Owned Enterprises and Agencies. An attached order required that the action of the Executive Committee be rescinded. Under the planned reorganization, the joint stock company would be owned by the Executive Committee and by three other government agencies. The complaint was based upon the manner in which property rights were assigned, in particular upon the exclusion of the association's employees from participating in the reorganization of the association; this was allegedly a violation of articles 5 and 6 (regarding abuse of a monopoly position) of the law On Monopolism.(26)
The Executive Committee successfully counter-sued in the oblast Court of Arbitration to have the AMC's order stayed pending a full hearing and ultimately to have the order vacated. The Committee's defense was based upon procedural violations by the Odessa AMC and upon the fact that the AMC was authorized to enforce only the antitrust laws of Ukraine--this excludes the laws On Enterprises and On Leasing Property of State-Owned Enterprises and Agencies. In its letter to the Court of Arbitration, the Odessa AMC alleged (rightfully so) that the reorganization of the Odessa Pharmacia Association had not been submitted for review to the AMC and therefore violated article 20 of the law On Monopolism.(28) Unfortunately for the AMC, this claim--which appears to have been valid--was not part of the original complaint and order issued to the Executive Committee. The AMC also alleged, without explanation, that the reorganization would erect barriers to entry into the regional market and therefore would harm competition.
This enforcement action, fraught with errors, was ultimately regarded within the AMC as an example of how not to conduct law enforcement. Odessa Pharmacia emphasized the need for the AMC to devise an internal quality control mechanism, and in May 1995, an internal review procedure was enacted requiring that certain enforcement actions by regional offices, including those involving discrimination against entrepreneurs, be reviewed by a national commissioner of the AMC. Commissioner Vasil Struk was granted authority to review enforcement actions involving article 6.
The good news about Odessa Pharmacia was in showing that institutional processes were actually functioning. Frequently, embryonic and immature antitrust agencies labor in the dark, ineffectual and removed from public view. Prior to Odessa Pharmacia, the AMC had instituted some procedural changes designed to enhance internal quality control, transparency, and public access to agency decision making. These procedures functioned as intended and of equal importance were cited by respondents--both signs of institutional maturity--in Odessa Pharmacia.
B. Yasinovataya Town Council
The matter involving Yasinovataya Town Council is a good example of a sounder and more successful approach to enforcement under article 6. Yasinovataya is a small city (pop. 100,000) in the Donetsk region. In January 1995, the Town Council passed a regulation granting exclusivity for the collection of metal scrap for industrial purposes in Yasinovataya to the Donetskvtortsvetmet Production Association, a loosely affiliated group of metal scrap processors.(29) The Town Council justified the regulation by referring to another government order, Order 173 of the local representative of the President of Ukraine.
The resultant investigation examined issues regarding jurisdiction and competitive effect. As to competitive effect, the regional AMC established that ten enterprises were previously engaged in the collection and processing of metal scrap in Yasinovataya. Members of the Donetskvtortsvetmet Production Association accounted for 40.5% (by volume) of 1994 metal scrap collections in Yasinovataya.(30) In Ukraine, a 35% market share is sufficient for a single enterprise to be classified as a "monopolist"(31) and therefore subject to potential price controls and to statutory provisions regarding abuse of monopoly position. The regional AMC therefore concluded that the regulation of the Town Council granted exclusivity to a commercial entity that already held a monopoly position and, of greater importance, excluded a significant number of competing enterprises accounting for 59.5% of the relevant municipal market in metal scrap collection.(32)
The AMC believed that other statutes did not immunize the regulation. Previous statutes had established that a Ukrainian enterprise has a right to participate in any line of business established in the original charter of the enterprise. Thus, the AMC alleged that the regulation violated articles 1 and 8 of the law On Enterprises and article 3 of the law On Entrepreneurship. Other statutes (article 4 of the law On Entrepreneurship and a Cabinet of Minister decree entitled "Regulations on the Procedure for the Issuance of Special Permissions (Licenses) to Subjects of Entrepreneurial Activity") contained provisions limiting the rights of state bodies to issue or require licenses but did not authorize town councils to require or issue licenses. Finally, Presidential Commissioner Order 173, on which the regulation supposedly was based, pertained to procurement of metal scrap by the state. This order was a purchase contract, not a grant of exclusivity.
As to antitrust liability, the AMC concluded that the Town Council's regulation violated article 6 by discriminating (in a municipal market for scrap collection) against a specific class of enterprises, namely metal scrap processors that were not members of Donetskvtortsvetmet Production Association. Moreover, a previous statute(33) and implementing regulation(34) required antitrust review of a broad variety of state actions, including the issuance of business licenses. The AMC concluded that the Town Council, by not submitting the regulation to prior review, further violated the antitrust laws. This case was settled informally by an AMC recommendation, accepted by the Town Council, that the regulation be revoked.
C. A contrast: Pharmacia in Kazakhstan and in Ukraine
In transition economies other than Ukraine, enforcement against state bodies, even if authorized by statute, has for the most part been inactive.(35) Though Kazakh law provides a legal framework for conducting an antitrust policy similar to that of Ukraine, economic reform has advanced with little attention paid to antitrust issues. The principal symptom has been the unchecked and widespread "holdinization" of the Kazakh economy--that is, the monopolization of numerous basic economic sectors through the formation of large, vertically and horizontally integrated holding companies.(36)
There is one notable exception--the breakup of Pharmacia (a.k.a. Farmatsiya), the large, state-owned holding company in retail and wholesale pharmaceuticals. In 1994, a joint American-Kazakh team of investigators conducted a monopolization investigation of Pharmacia. In Kazakhstan, holding companies had been touted as a means of establishing property rights over assets and as an intermediate step toward full privatization. This was not borne out in practice, as holding companies often resisted privatization and reorganized themselves so as to function as monopolists.
Kazakhstan is almost entirely dependent upon imported pharmaceuticals; local production accounts for 6% of consumption.(37) Pharmacia, established from assets of the Ministry of Health, united twenty-one territorial pharmacy companies. As such, Pharmacia controlled 1850 (95% of) retail pharmacies and accounted for 89% of all retail sales of pharmaceuticals. It also controlled wholesaling operations and the only licensed importer of pharmaceuticals. The only potential competitors at the retail level were specialized pharmacies serving specific state bodies (Cabinet of Ministers, Parliament, national railroad system), and these were not available to the general public.
In its corporate charter, Pharmacia's retail pharmacies did not have status as legal persons and therefore could not maintain a checking account or implement even basic commercial decisions. All commercial decisions of the retail pharmacies, including pricing, product selection, and advertising, were centralized. Pharmacia also exercised regulatory functions, not the least of which was the quality certification of drugs and the licensing of retail and wholesale pharmaceutical suppliers.
Pharmacia's principal competitive leverage originated in its regulatory functions. This, combined with its corporate structure, allowed Pharmacia to monopolize pharmaceutical supply at the retail and wholesale levels. Pharmacia was unwilling to grant licenses to independent retail pharmacies.(38) Thus, without access to independent pharmacies, other wholesale suppliers had no choice but to supply Pharmacia. Moreover, through an affiliate, Kazmedimport, Pharmacia held the right to import pharmaceuticals into Kazakhstan. Other wholesalers also held import rights but were able to market only through the retail arm of Pharmacia.
Due to Pharmacia's corporate structure and its control over retail pharmacy markets, one might expect Pharmacia to act as a monopsonist in purchasing pharmaceuticals from wholesalers and as a monopolist in selling pharmaceuticals in retail markets. At the very least, the economic evidence suggested that the market had been performing poorly. Shortages of pharmaceuticals were common, and annual per capita consumption was relatively low: $5 as opposed to $300 for a composite average of developed countries. Pharmaceutical price had outraced general inflation even in a hyperinflationary environment.(39) In addition, there was evidence that Pharmacia had at times used full-line forcing in negotiations with municipal health departments and other large buyers of pharmaceuticals.
This investigation was not handled as law enforcement investigations normally are, with ultimate presentation to a court of law. Instead, it was handled as competition advocacy. In the summer of 1994, investigators circulated a report (similar to a legal brief) throughout the national government, beginning with the Ministry of Health. Subsequently, the AMC prepared an order implementing remedial measures, and this was issued by the executive branch of the national government in January 1995. The remedies were as follows:
1. Corporatize the regional stock companies of the national holding company. This change in effect transferred corporate control from the national to the regional level and allowed the regional companies to act independently of each other.
2. Privatize, by October 1, 1995, 36% of the retail pharmacies formerly held by the national holding company.
3. Permit the national holding company to continue the quality certification of retail pharmacies and pharmaceutical suppliers.
4. Privatize wholesale depots and other assets held by the national holding company.
5. Transfer hospital-based pharmacies to the Ministry of Health.
6. Encourage less restrictive import licensing in pharmaceuticals.
In essence, the order was designed to allow the national holding company to exercise only select regulatory functions: namely, quality certification. Commercial operations were divested to the regional stock companies. Local retail markets were left highly concentrated--but well short of monopoly. A substantial number of pharmacies were sold to independent parties, and hospital pharmacies, which are generally centrally located and most accessible to the public, were transferred to the Ministry of Health. The order quickly had an effect, a 26% decline in average nominal pharmaceutical prices.(40)
Similar enforcement actions have been undertaken in Ukraine, where regional pharmaceutical production associations have attempted to coordinate the product purchasing and drug selection practices of retail pharmacies within the association. Whereas these actions proceeded through the normal administrative and judicial channels, in Kazakhstan enforcement has made little use of the judicial process. Because judicial review is ineffective in Kazakhstan, significant enforcement actions must proceed through the political process. That is, enforcement in Kazakhstan must rely upon the initiative of legislators and executive branch officials rather than upon the actions of administrators to which authority has been delegated. Considering the efficiencies of delegation, one would not expect this enforcement process to be effective, and it appears not to have been.
D. Enforcement in Ukraine in 1996
Article 6 enforcement continued to be a high priority in 1996, the AMC's third year of operation. Enforcement actions under article 6 accounted for 8% of all investigations in 1996, down from 15% in 1995.(41) The AMC has stated that the decline was caused by improved understanding of the law among state officials, by better compliance with prior approval requirements affecting prospective regulations, and by tighter enforcement standards focusing upon state actions that demonstrably harm commerce or that otherwise impede "inter-oblast" commerce.
Violations fell into a simple pattern. Most enforcement actions--eighty-four of ninety cases--involved regulations passed by oblasts, municipalities, and smaller jurisdictions and affecting regional or local markets. Several national agencies ran afoul of the antitrust law over regulations affecting the national market; this would include the Ministries of Agriculture and Food Products, Transport, Labor, and Communications, the State Committee on Housing and Communal Economy, and the State Committee on Urban Construction.(42) In most cases, a regulation or regulatory action would violate article 6 by (1) discriminating against a specific group of enterprises (by imposing a specific cost upon each of them), (2) providing a commercial advantage to a specific group of enterprises, (3) preventing a group of enterprises from entering a specific market, or (4) preventing an enterprise from participating in inter-oblast commerce.(43) As in earlier years, most article 6 violations were remedied by a simple cease-and-desist order.
VI. Enforcement guidelines in Ukraine
As one would expect, the AMC's authority to undertake enforcement actions against state bodies has been a source of great power and controversy. The former results from the wide variety of regulatory actions that are subject to antitrust review;(44) the latter, from the enmity of other state agencies to such review. To maintain this authority, in 1995, its second year of operation, the AMC developed an enforcement process designed to be transparent and objective, thus immune to criticism. This required guidelines setting priorities for enforcement actions and establishing norms that such actions must follow.
Over time article 6 enforcement has come to be motivated by a central theme: the preservation and promotion of a market environment. Enforcement guidelines were developed to focus the AMC's efforts according to legal jurisdiction and economic evidence.(45) The guidelines distinguish among three classes involving states actions that:
1. violate laws other than the antitrust laws,
2. violate article 6 but with little or no competitive effect, and
3. violate article 6 with significant harm to competition or to a specific class of enterprises.
For actions that violate article 6 only indirectly, that is, by violating nonantitrust statutes, the AMC attempts to reach an informal settlement or, failing that, refers the matter to another agency, most often the Public Procurator or the Ministry of Justice. In these cases, the AMC opens an investigation and issues an order only if these other agencies do not take action. Similarly, the AMC uses informal settlement for matters involving direct violations of article 6 with no significant competitive effect.
The formal orders of the AMC are to focus upon matters in which a regulatory action has caused a significant competitive effect. This effect can be measured in terms of a demonstrated change in a market equilibrium or in market structure. If a regulation excludes a class of enterprises from a market, particularly if those enterprises can be shown to be viable and to command a significant share of the market, then the regulation is very likely to attract a lawsuit by the AMC. Beyond this, any regulation resulting in significant commercial advantage or disadvantage among any group of enterprises is subject to antitrust attack.
After its first year of operations, the national AMC began to turn down article 6 actions on a variety of grounds, including failure to follow strictly procedural rules for conducting investigations and enforcement actions, and failure to state clearly the statutory provisions, the parties, and the specific actions involved in an alleged violation of law. Odessa Pharmacia Association matter also revealed a potential weakness to article 6 enforcement: frequently, when a regional or local state body appeals an order involving regulatory discrimination, the court that first hears the case is a local or regional court or arbitration that is dependent upon the defendant for office space and other resources. Under the circumstances, it is surprising that regional courts have been willing to rule in the AMC's favor and that defendants have not litigated more often. Rather than litigate, defendants to antitrust lawsuits have appealed to the cabinet of ministers, to the legislature, or (less often) to the presidency for official sanction of agreements subject to antitrust attack. In some cases, these appeals have been successful, showing one way in which the political process constrains antitrust enforcement in Ukraine. However, as in Kazakhstan, attempts to use the legislative process in this way cannot take advantage of the efficiencies of administrative delegation. If legislative and executive sponsorship of antitrust enforcement has been rare in Kazakhstan, then legislative and executive rejection of enforcement has been equally rare in Ukraine. The two countries have used appeal to higher levels of government in completely different ways, and that may account in part for their success (or lack thereof) in using antitrust policy to support market reforms.
VII Summary and conclusion
The jurisdictions briefly surveyed here place some value on local governance. This obtains in the E.U., to a lesser degree in the U.S., and to an even lesser degree in a number of the former Soviet economies. In both the E.U. and the U.S., legal standards have evolved to allocate regulatory authority between a supranational, national or federal government and its smaller constituent governments. In the U.S., one would think that the constitutional protection of interstate commerce would play an important role in immunizing state action against federal enforcement, but this is not so, as the scope of interstate commerce has been steadily expanded since the 1930s. Broadly speaking, U.S. court decisions have not made an economic distinction between intrastate and interstate commerce; nor have they given much weight to determining whether a state action exerts a significant effect on a market extending beyond the regulating state.
In contrast, the E.U. standard relies greatly upon drawing a distinction between trade among member states as opposed to trade within a member state; state regulations conveying some advantage to national producers and harming competing producers in other member states are subject to antitrust attack under article 92. State actions (particularly those of municipalities and local governments) affecting only trade within a single member state are immune. In this sense, the E.U. standard is virtually the reverse of that used in the U.S.(46) The legal standard used in Ukraine (and in the other former Soviet republics) is similar to that of the E.U.--state action may violate the antitrust law where it effects some form of discrimination among entrepreneurs; that is, where it somehow conveys a significant commercial advantage to certain firms and a corresponding commercial disadvantage to other firms. In other words, the law prohibits any regulation that significantly "tilts the playing field" in any direction. Moreover, in Ukraine, as in the U.S. but not in the E.U., no deference is granted to municipal and local governments with respect to commercial regulation, including antitrust. The Ukrainian standard is based upon regulatory discrimination, not upon geography or upon concerns for the sovereignty of subnational governments. This standard applies to any producer cartel, not just those residing within a specific jurisdiction.(47)
This comparison highlights differences in the manner in which "interstate commerce" can be defined. In the E.U. and in the former Soviet republics, interstate commerce is defined primarily in economic terms; that is, whether a good or service lies within interstate commerce depends strongly upon the geographic scope of the economic market in which transactions occur. In the U.S., interstate commerce is defined--due to the interaction between the commerce clause and the supremacy clause(48)--in political terms; it does not rely on an economic definition.(49) Consequently, many forms of commerce that appear, at least from an economic perspective, to be interstate in nature are in fact treated as intrastate commerce and are regulated by local bodies (local telephone service and local electric power distribution are notable examples).
As a means of allocating legal authority between a national government and its constituent local and municipal governments, regulatory discrimination has some advantages, particularly in comparison to the U.S. standard. First, it is quite broad and can be further confined in a variety of ways, the most obvious being to focus enforcement upon regulations causing a significant effect on a market equilibrium, as the AMC of Ukraine has done. Second, the concept of economic discrimination is well developed in antitrust. Third, regulatory discrimination goes directly to the concern motivating the delineation between federal and state authority--the fear that state action can be used to undermine federal law to the benefit of a local electorate (or enterprises) and to the harm of others. Fourth, enforcement based upon regulatory discrimination allows some role for local sovereignty and local regulation, but only to the degree that local regulations are applied uniformly across all regulated parties.
Last, and most important, the concept of regulatory discrimination appears applicable to the challenges facing antitrust in the future. To take one important example, economies throughout the world have been moving toward greater interdependence, with greater emphasis on trade, more frequent and broader regional trading agreements, and the development of international legal standards in a variety of areas such as intellectual property, environmental law, contract law, and commercial dispute resolution. Many scholars believe that antitrust should move toward international legal standards and international enforcement, just as other areas of commercial law have done.
Notwithstanding numerous agreements on cooperation among national antitrust agencies, there has been little progress on this front. Judging from the experience of the E.U., the challenges facing even limited expansion of international antitrust enforcement are substantial. One obvious difficulty facing any international agreement, particularly one involving antitrust enforcement, would be a concern that subnational jurisdictions could abrogate an international agreement to the advantage of local producers and to the disadvantage of others, including international producers. Unless this difficulty is resolved with clarity and commitment, international agreements will not be written or implemented. A legal standard involving regulatory discrimination would directly address this concern with far greater clarity--thus with greater commitment--than the current U.S. standard can do.
(1) Basic references include: George Stigler, The Theory of Economic Regulation, 2 BELL J. ECON. MAN. Sci. 3 (197 1); Sam Peltzman, Toward a More General Theory of Regulation, 19 J. L & ECON. 211 (1976); and MANCUR OLSON, THE RISE AND DECLINE OF NATIONS: ECONOMIC GROWTH, STAGFLATION, AND SOCIAL RIGIDITIES (1982).
(2) The U.S. Constitution grants Congress the right to regulate interstate commerce and does not prevent the states from regulating interstate commerce absent an explicit statement from Congress. Where Congress has been silent, the judiciary has compromised between federal and state's rights. See R.D. ROTUNDA, J.E. NOWAK & J.N. YOUNG, TREATISE ON CONSTITUTIONAL LAW: SUBSTANCE AND PROCEDURE 579 (1986) ("... the judicial branch has generally been cognizant of the concerns expressed by the framers of the Constitution. That is, the rationale of the commerce clause was to create and foster the development of a common market among the states, eradicating trade barriers, and prohibiting the economic balkanization of the Union").
(3) A 1943 Supreme Court decision, Parker v. Brown, 317 U.S. 341 (1943), immunized a price-fixing scheme, sponsored by the state of California and affecting 95% of the raisins consumed in the U.S. More recently, in a 1992 matter, FTC v. Ticor Title Insurance Co., 112 S. Ct. 2179 (1992), the Supreme Court withheld immunity from regulatory schemes affecting title searches within a number of states. See Stephen Calkins, Supreme Court Antitrust 1992-1992: The Revenge of the Amici, 61 ANTITRUST L.J. 269, 360-63 (1993).
(4) See S. Yoshikawa, Fair Trade v. MITI. History of the Conflicts Between the Antimonopoly Policy and the Industrial Policy in the Post War Period of Japan, 15 CASE W. RES. J. INT'L L. 489 (1983).
(5) Several other articles constrain the actions of member states but are not considered part of antitrust enforcement. Trade distortions caused by state monopolies are controlled under article 37; discriminatory taxation, under article 95. The most powerful provisions may be article 3(f), providing, for "the institution of a system ensuring that competition in the common market is not distorted" and article 5, providing that "member states must not render the competition rules ineffective." See VALENTINE KORAH, AN INTRODUCTORY GUIDE TO EEC COMPETITION LAW AND PRACTICE 45 (1991).
(6) Economic intuition might suggest that interstate commerce encompasses goods and services that are exchanged in antitrust markets extending across political jurisdictions (states in the U.S. and member states in the E.U.). In practice, it is this simple in neither the U.S. nor the E.U.
(7) Congress can, however, legislatively approve discriminatory commercial regulation by the states. See ROTUNDA ET AL., supra note 2, at 579.
(8) Calkins, supra note 3, at 271-74.
(9) Under the 1984 Local Government Antitrust Act, local governments and officials, even if liable for an antitrust violation, are exempt from either compensatory or punitive damages. See AMERICAN BAR ASSOCIATION, ANTITRUST LAW DEVELOPMENTS 987 (3d ed., 1994).
(10) Calkins, supra note 3, at 271. One interesting aspect of Ticor is that 33 states filed statements with the Court opposing antitrust immunity of the regulations used in the seven respondent states. Many of the 33 were placing greater reliance on competition by partially deregulating certain regulated industries. The states feared that under light-handed regulations, suppliers would be immune from federal antitrust, leaving the oversight of competition to far less capable state enforcers. In this event, light-handed regulation would be much riskier and in this sense the states' discretion to choose between competition and regulation would be reduced.
(11) In a 1985 decision, Southern Motor Carriers Rate Conference, Inc. v. U.S., 471 U.S. 48 (1985), the Court had granted immunity to a negative-option regulatory mechanism. Calkins, supra note 3, at 272. In so doing, the Court appears to have stated a preference for what Lawrence White has referred to as "old-style" regulatory mechanisms. Broadly speaking, these consist of sector-specific mechanisms similar to those used to regulate public utilities. For example, water, local electric power, and local telephone service are regulated by "old-style" mechanisms; environmental pollution, workplace safety, and other multisector forms of regulation are implemented through very different ("new style") mechanisms. See REFORMING REGULATION: PROCESSES AND PROBLEMS 32-37 (Lawrence J. White ed., 1981).
(12) The prohibition of state aid applies only to forms of aid available only to a select group of companies. General measures of monetary, fiscal, or social policy are not covered by article 92. See Hanfried Wendland, EU Policy on State Aid, in KIEV CONFERENCE ON ANTIMONOPOLY POLICY (Kiev, Oct. 1995).
(13) See Frank Easterbrook, Antitrust and the Economics of Federalism, 26 J. L. & ECON. 23 (1983).
(14) Of course, capture theory does not explain why state judicial oversight is sufficient to immunize state regulation; nor does it explain why a state could not enforce its own competition rules regarding local regulations the commercial effects of which occur entirely within the state.
(15) One might think that political rights could be insured through procedural limitations on the exercise of regulatory authority. However, for a discussion of how administrative procedures can be designed to the advantage of specific interest groups, and can therefore facilitate capture rather than prevent it, see Matthew D. McCubbins, Roger G. Noll & Barry R. Weingast, Administrative Procedures as Elements of Political Control, 3 J. L. ECON. & ORG. 243 (1987).
(16) See John S. Wiley, Jr., A Capture Theory of Federal Regulation, 99 HARV. L. REV. 743 (1986).
(17) For example, of interest to the transition economy: to what degree (if any) are regulatory distortions the price of democracy (vis-a-vis a command economy)? Or, from a more American perspective, to what degree (if any) should local regulatory distortions be treated as the price of federalism?
(18) Jan Wienicki, in a study of unsuccessful economic reform in Soviet economies, believes the repeated failure of reforms was due to capture of the reform process by state managers who benefited from the status quo. See Jan Wienicki, Why Economic Reforms Fail in the Soviet System: A Property Rights-Based Approach, in EMPIRICAL STUDIES IN INSTITUTIONAL CHANGE (L.J. Alston, T. Eggertson & D.C. North eds., 1996).
(19) See Louis L. Jaffe, JUDICIAL CONTROL OF ADMINISTRATIVE ACTION 13 (1965) ("I suspect that the FTC's enforcement of the Robinson-Patman Act reflects the fact that the FTC's chief political, specifically congressional, support is from the small business interest represented by midwestern, southern, and western congressmen. These last two instances are obviously marginal to the argument. The balance of forces--the alliances involved are not stable-are not so fixed a segment of the general social and economic structure. The type of regulation is narrow in its impact and spasmodic in its application. It does not, therefore, give rise to such relationships as exist in transportation regulation.").
(20) The Russian State Committee on Antimonopoly Policy has been criticized for, among other things, replacing regional chairmen in response to complaints from local businessmen. Moreover, in 1995 the Committee submitted proposed antitrust law amendments to the executive branch. One of the amendments would have permitted employees of the Antimonopoly Committee to hold jobs in the private sector. See Georgiy Melikyants, The Antimonopoly Committee Encourages Monopolies, MOSCOW IZVESTIA, March 17, 1995, at 4; reprinted in FBIS-SOV-061-S, March 30, 1995.
(21) A concern with good governance has not provided much support for enforcement against state action in the U.S. See City of Columbia v. Omni Outdoor Advertising, 111 S. Ct. 1344 (1991) (granting immunity to state action notwithstanding a conspiracy between private parties and state officials).
(22) See OLSON, supra note 1, at ch. 5 (discussing a variety of evidence showing how political integration of local jurisdictions (or its absence)--in Germany, France, Great Britain, and elsewhere--influenced the economic growth rate of local jurisdictions).
(23) See Alexander Andrusenko, On the Procedure of Enforcing Article 6 of the Ukrainian Law On Monopolism by Territorial Branches of the AMC (mimeo, Antimonopoly Committee of Ukraine, Nov. 1995).
(24) See ANTIMONOPOLY COMMITTEE OF UKRAINE, ANNUAL REPORT 16 (1994).
(25) Most often, these actions involved the laws On Entrepreneurial Activity, On Enterprises, On Property, On Prices, and On Price Formation, all of which explicitly establish rights on behalf of private entrepreneurs and other business entities. See Anatoli Medvedev, Competition and Discrimination Against Entrepreneurs in Ukraine, in KIEV CONFERENCE ON ANTIMONOPOLY POLICY (Kiev, Oct. 1995).
(26) See letter from Odessa regional AMC to Odessa Oblast Court of Arbitration, June 1, 1995, at 1-3.
(28) AMC regulations (of April 30, 1994, registered with Ministry of Justice on April 30, 1994, implementing the Program on Demonopolization of December 21, 1993) describe the AMC's broad authority to review a variety of state actions involving reorganization of state-owned enterprises.
(29) See N.V. Voloshina, Discrimination Against Entrepreneurs by the Executive Committee of the Yasinovataya Town Council of People's Deputies, in KIEV CONFERENCE ON ANTIMONOPOLY POLICY (Kiev, Oct. 1995).
(30) Id. at 2.
(31) This is not the pure monopolist (whose market share is 100%) of economic theory but rather a legal designation that the enterprise likely possesses significant short-run market power.
(32) The mistakes made, under monopoly registration, in treating political jurisdictions as antitrust markets have been well documented. See Vladimir Capelik & Ben Slay, Antimonopoly Policy and Monopoly Regulation in Russia, in VOPROSY EKONOMIKI (1995).
(33) Article 20 of the law On the Antimonopoly Committee of Ukraine.
(34) On the Procedure for Coordinating Demonopolization, Competition Promotion, and Antimonopoly-Related Regulations, and Bodies of Local and Regional Self-Government, approved by the Antimonopoly Committee of Ukraine.
(35) The Antimonopoly Committee of Kazakhstan has not accumulated sufficient political power to be effective. Kazakh law requires that proposed corporatizations, privatizations, and other commercial reorganizations be approved by either the national or a regional AMC. Beginning in 1994, numerous basic sectors in the Kazakh economy were monopolized--via reorganization into vertically and horizontally integrated holding companies--with no notice to or review by the AMC. See FINAL REPORT: ANTIMONOPOLY COMMITTEE OF KAZAKHSTAN, by Booz Allen & Hamilton, Steptoe & Johnson, and Nathan Associates, contract #CCN-0005-C-00-3014-00, task order #6-0041-BOOZ, June 22, 1994.
(36) See Nikolai Radostovetz, Demonopolization: Pharmacia, in KIEV CONFERENCE ON ANTIMONOPOLY POLICY (Kiev, Oct. 1995).
(37) Id. at 1. Note also that prescription pharmaceuticals include many drugs available in Western countries-e.g., aspirin-without a prescription.
(38) Absent foreclosure under licensing, de novo entry into retail pharmacy markets would have been unimpeded. Yet the ease of entry would rely upon the creation of functioning markets in commercial real estate, and in a transition economy this cannot generally be taken for granted. Nevertheless, throughout 1994, small-scale privatization in Kazakhstan, and the creation of new private retail enterprises, were relatively rapid.
(39) Radostovetz, supra note 36, at 2. Between January 1992 and January 1995, average prices in Kazakhstan increased by a factor of 8854. Pharmaceutical prices increased by a factor of 11,876.
(40) Id. at 4.
(41) There were 90 article 6 investigations in 1996, down from 139 investigations in 1995. Simply counting enforcement actions may understate the effect of article 6 enforcement, as most article 6 matters are disposed of informally. See ANNUAL REPORT 18-19 (1996).
In 1996, 37% of all AMC investigations involved abuse of monopoly position; 21% involved unfair competition, and 18% involved unfair (i.e., deceptive) advertising. It is interesting to note that unlawful agreements-including horizontal agreements similar to price fixing--accounted for only 2% of all enforcement actions. The AMC believes that frequent shocks to the commercial environment-typical of a transition economy--make it difficult for enterprises to conclude and implement unlawful agreements. Id. at 5 & 13.
(42) id. at 19.
(43) Id. at 17 & 18.
(44) Under the law On the Antimonopoly Committee of Ukraine, the AMC has jurisdiction over all governmental bodies except for the president, the legislature (Verhovna Rada), and the cabinet of ministers.
(45) See Medvedev, supra note 27, at 2 and On the Procedure of Enforcing Article 6 of the Ukrainian law On Monopolism at 2.
(46) In the E.U., state action at the local level, but not the national level, may well be exempt. The opposite is true of the U.S., which recognizes only the states as sovereign.
(47) A U.S. prohibition against discriminatory regulation does arise in constitutional litigation; for a state to enact a regulation effecting discrimination in interstate commerce, the explicit approval of Congress is required. See ROTUNDA ET AL., supra note 3, at 579 ("Approval of discriminatory legislation enacted by one state would merely serve to invite retaliatory legislation by the burdened jurisdictions. Recognition of the predominant goal of establishing a unified, national economy has permeated judicial interpretations of state power to regulate commerce.").
(48) See broadly, Frank Spinella, Antitrust's "State Action" Doctrine and the Policy of the Commerce Clause, 39 ANTITRUST BULL. 653-87 (1994).
(49) Consider just one of many fine yet puzzling examples: in Newell Bridge & Railway Co. v. Dailey, cert. denied, 451 U.S. 942 (1981) (J. White, dissenting) the operator (Newell) of a railroad bridge between the states of West Virginia and Ohio sued West Virginia over a tax assessment that was valid only if the bridge services were considered to be intrastate commerce. The Supreme Court denied certiorari, letting stand a state court ruling against Newell and arguing that bridge services were not in interstate commerce. Instead, the Court found that the bridge was merely a conveyance for other parties engaged in interstate commerce. In his dissent, Justice White questions the legal distinction between the bridge and other facilities acknowledged to be within interstate commerce, such as petroleum and natural gas pipelines. Moreover, that the bridge does not pass an economic definition as interstate commerce because supracompetitive pricing by the bridge would not fall within any single state. See Frank Easterbrook, The Constitution of Business, 11 GEO. MASON U. L. REV. 53, 70 (1988).
AUTHOR'S NOTE: Opinions expressed herein are those of the author and do not necessarily reflect the views of the Federal Trade Commission or of any Commissioner.
ROGER ALAN BONER, Bureau of Economics, U.S. Federal Trade Commission, Washington, D.C.
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|Title Annotation:||International Competition Policy|
|Author:||Boner, Roger Alan|
|Date:||Mar 22, 1998|
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