Can we solve the antitrust problems of globalization by extraterritoriality and cooperation? Sufficiency and legitimacy.
Antitrust law, like much other law, must face the challenge of globalization: law is national, but, increasingly, the subject of the law is global. Markets know no national boundaries. Other things being equal, we would choose a level of the law commensurate with transactions and their effects. Thus, when conduct has cross-national effects, we would choose "higher" than national law. But other things are not equal. When law transcends nations or jurisdictions, (1) we encounter other problems: the dilution of local voice in adopting, applying and enforcing the higher law; principles less well tailored to local contexts; creation of new bureaucracies far from the pulse of the people; loss of benefits of regulatory competition and laboratory experimentation; and loss of flexibility in modifying the law to adapt to new conditions. These phenomena are loosely called loss of sovereignty, accountability, and legitimacy. In addition, there are serious questions whether nations (who will be the bargainers) (2) would even be able to reach agreement on meaningful principles of higher law. This is especially the case if a hegemon with a wide view of its extraterritorial powers prefers unilateralism to the adoption of any universal principles it regards as second best for it.
Therefore, we must think from the bottom up. We must ask whether concepts fitting for global competition can be applied at the national level, in combination where necessary with sister agency cooperation. What problems remain after realistic and legitimate possibilities for national law and cooperation are exhausted? Are the remaining problems serious enough to put into motion an enterprise for world antitrust?
I approach these questions by exploring the capability of national law combined with agency cooperation to handle three phenomena: (1) inbound restraints, such as off-shore cartels targeted at the regulating nation, (2) outbound commerce: restraints in such commerce (e.g., export cartels) and restraints impairing a regulating nation's exports and foreign investment, and (3) restraints in world markets, such as anticompetitive mergers of firms operating in world markets.
II. Setting the stage
A world of American Banana (antitrust law stops at a nation's shores) (3) would hardly be tenable in a globalized world without global law. Nations without a competitive domestic-based industry in any particular good would be powerless to protect themselves from off-shore conspirators. The whole world would be cartelized. Had U.S. jurists not pioneered the effects doctrine, which is now accepted throughout the world in one form or another, (4) world antitrust would long since have emerged. (5) For more than half a century, availability of the effects doctrine, combined with the near consensus of nations to apply antitrust law nondiscriminatorily to foreign as well as domestic firms that harm the domestic market, (6) has taken the pressure off the need for international antitrust. Internationalization has crept more readily and seamlessly into other areas of law--environment, labor, intellectual property--that no less obviously must address effects that rise above national borders. (7)
In part, as applied to inbound restraints, the effects doctrine works nearly perfectly to do what we need to do in a global economy. Paradigmatically, restraints abroad that are targeted at a nation that has a mature and sufficient antitrust system, that directly raise prices in the regulating nation, and that are not the product of defendants' home state's industrial policy, may be controlled by the harmed nation, and legitimately so in the eyes of the world. (8)
Moreover, if the harmed nation needs evidence located abroad, nations' cooperation may solve the problem, as Canada and the United States did in the case of the plastic dinnerware and fax paper conspiracies. (9) Modes for cooperation are now specified in numerous bilateral agreements. (10)
Are there, nonetheless, gaps that frustrate a nation from protecting itself from anticompetitive acts launched abroad? On the other hand, do gap-filling measures intrude impermissibly into other nations' legitimate choices for their economies and their peoples? To the extent either is the case, national law plus cooperation is either insufficient or illegitimate, even in this most nearly problem-free area of inbound restraints.
As we extend our thinking to export commerce, we perceive more gaps and more questions of legitimacy. As we extend our thinking further to global-market problems, we perceive the most gaps, the most incoherence (fragmented enforcement), and the most doubts regarding legitimacy. Indeed, in the case of global markets, each nation that enjoins, conditions, or penalizes conduct with cross-border effects is effectively enforcing antitrust law for the world without being authorized to do so by affected peoples; and it is doing so under a standard that is good for the enforcing nation.
This article will try to identify the gaps and perceived illegitimacies. It will consider the extent to which the problems might yet be solved horizontally, and, conversely, the extent to which purely national law and nation-to-nation solutions are not sufficient.
I use "extraterritorial" to mean application of law to conduct and actors abroad or competitive effects that either have their most direct impacts on nations abroad or are diffused across a territory much larger than the enforcing nation.
I use "legitimacy" in an objective rather than normative sense. I call measures and enforcement "legitimate" when there appears to be an international approving consensus, and I regard them of questionable legitimacy when the enforcing nation's actions have significant spillover effects (not necessarily anticompetitive effects), and nations disagree about legitimacy. World Trade Organization (WTO) agreements reflect what nations accept and therefore may be a proxy for legitimacy. Thus, it is not legitimate for nations to discriminate on the basis of nationality; in inbound trade, national treatment is required. It is not legitimate for nations to take actions to exploit outsiders, except that certain explicit deviations from this principle are thus far allowed (antidumping), and developing countries have a large margin of appreciation in exploiting their natural resources and other commodities, presumably to help them with their urgent task of alleviating their peoples' poverty and rooting their economies.
III. Inbound restraints
We turn to the problems of inbound restraints, and explore the possible gaps and illegitimacies.
GAPS (11) Concerning inbound restraints, there are three principal gaps--that is, underenforcement or incomplete reach of law.
1. The first gap concerns less developed and developing countries. Many of these nations do not have antitrust law that is given serious regard by their polity or do not have the resources to enforce the law. Particularly, they do not have the resources and credible deterrence power to control the anticompetitive acts of multinational corporations. Thus, they are easy targets. (12)
2. The second gap concerns industrialized countries as well: when the perpetrators are abroad, the evidence lies abroad; and often it is difficult to obtain.
3. The third gap is created by the conflict of industrial policy of the exporting country and the competition policy of the importing country where the importing country withholds enforcement against the foreign actors, and perhaps could not do otherwise without crossing the line of legitimacy. (13)
Problems one and two are subjects of discussion or proposals by the International Competition Network (ICN), the Global Competition FoAm of the Organization of Economic Cooperation and Development (OECD), the WTO Working Group on the Interaction between Trade and Competition Policy, and bilateral agreements and interactions. (14)
Problem three is hardly visible on the above agendas, except for precatory statements cautioning against use of industrial policies that thwart competition. Perhaps its low profile is a function of nations' increasing acceptance of competition policy, the increased reluctance of nations to play an industrial policy trump, (15) and nations' greater boldness in enforcing their competition laws even in the face of claims that their national enforcement will interfere with defendants' home nation's prerogatives. (16) The problem of the appropriate interface between one nation's competition law and another nation's industrial policy will surely return to the agenda when the next clash occurs.
Can each of the three problems be solved at the national level, unilaterally or with informal horizontal cooperation?
The first gap concerns developing countries. This problem is unlikely to be solved without an international agreement. An agreement in the context of the WTO could, for example, require nations to proscribe cartels without regard to place of injury; thus, where the conduct or effects occurred within its borders. (17) As a step-down position, an agreement could require nations, at least on the request of a harmed nation, to conduct discovery against accused cartelists acting within their jurisdiction and to share the fruits of discovery with the authorities of harmed nations. Multilateral agreement for discovery or enforcement could be the beginnings of a more nearly coherent world system designed to check anticompetitive restraints in international commerce and to smooth the way toward resolution of systems conflicts.
The second problem directly regards evidence beyond jurisdictional reach. To address this problem, bilateral cooperation agreements and information-sharing agreements such as the IAEAA (18) could be multilateralized. (19) These measures would, again, have special importance to developing countries, who do not have the power and standing that makes bilateral agreements attractive to pairs of major industrialized nations.
The third problem implicates the competition/industrial policy interface. Resolution of this tension is now treated as a problem to be resolved nationally by each enforcing jurisdiction (thus implying a bias in the enforcing nation's favor). It could usefully be the basis for discussions at the ICN and OECD; but currently the task of how to achieve the felicitous goal of convergence attracts more attention than the task of resolving the contentious problems of systemic divergence. This issue is not a national-only problem. Laker, (20) OPEC, (21) and the orderly marketing of aluminum (22) are cases on point. The very contemplation of these problems and their possible solutions reveals how closely linked are trade and competition questions, and government and private restraint questions, and how truly these are questions for the world rather than for nations' ad hoc diplomacy.
ILLEGITIMACY We have looked at the gaps. We now examine legitimacy of extraterritorial enforcement against inbound anticompetitive restraints. If the gaps are filled unilaterally, is the gap-filling extraterritorial enforcement legitimate? If legitimacy is in doubt, is informal cooperation a solution?
The lawsuits in the United States against the world members of the uranium cartel illustrate the complexity of the problem. Urged on by their governments after a U.S. embargo wreaked overproduction of uranium in the world, major British, Canadian, South African, Australian and French producers engaged in orderly marketing of uranium. In view of the fact that U.S. policy had caused the overproduction, the courts (in the private lawsuits) (23) could not have hoped for cooperation by the foreign uranium producers' governments. To the contrary, these governments resisted the Americans' actions, politically and judicially. U.S. judgments were finally entered against the foreign producers, based on established principles of U.S. law; but, while regarded as legitimate at home, the judgments were perceived as illegitimate abroad. (24) To whom could the foreign producers and their governments tam to contest America's unilateralism, right or wrong? In trade disputes, they would turn to the WTO and its now judicialized panels, whose resolutions are increasingly fair and legitimate and promise to be more so with efforts for greater transparency and due process. (25) In competition disputes, there is nowhere to go, beyond the untrusted regulating nation. The regulating nation is arbiter for the world.
Developing a common world rule or general principle on the competition/industrial policy interface will not be easy. Moreover, there is merit in treating such disputes as intensely fact-driven; thus favoring common-law, bottom-up resolutions of individual cases to civil-law-style prescriptive rules. But, also, there is merit to developing an international consensus on how to assess the factors that inevitably come into play. I have elsewhere proposed conversations within the ICN and a World Restatement project, both as part of an attempt to develop a consensus framework. (26) The Restatement rapporteurs and advisors could articulate the most commonly accepted approaches and perhaps recommend a favored formulation, after vetting all arguments in an open forum. If a competition agreement should mature in the WTO, and if eventually the agreement should contain a dispute settlement mechanism, the World Restatement principles could be useful as guides to resolving the clashes among nations. But resolution of clashes is at present an avoided subject.
Thus we conclude analysis regarding the least problematic restraints. The tools at our fingertips, while useful, are not entirely sufficient and they are not entirely legitimate.
IV. Outbound commerce--restraining and restrained exports and investment
Outbound, the problem is twofold: First, national law ordinarily does not prohibit nationals and residents from engaging in conduct, such as export cartels, that may hurt "only" foreigners. (27) A nation could, of course, legitimately (in the eyes of the world) ban its firms from harming outsiders; but there is no national constituency to adopt such a law. Both morality and efficiency would counsel that nations should adopt such a ban, preventing the harm at its source; but adopting a ban is perceived as altruistic and not what self-regarding nations do.
Second, foreign conduct on foreign soil and most directly affecting the foreign nation's consumers might anticompetitively limit a nation's export or foreign investment. Might the home of the exporters and investors legitimately assert subject matter jurisdiction over the conduct of the conspirators or abusers of dominance who seal off their own national market?
GAPS The export exemption, while not seen as a gap in national law, is a gap in a coherent world competition system.
Before the formation of the European Community, France and Germany could exempt from their law, and disregard, their export cartels that harmed only the other. But upon the formation of the European Community, one rightly "climbed the ladder" to a higher perspective. From the perspective of community, it is unthinkable that the French could cartelize to exploit the Germans and thereby increase the profits of the French, or vice versa. It should be similarly unthinkable in the world trading community for one nation to thus profit at the expense of the other. (28)
Is it a sufficient answer that a harmed nation need only use the principle of extraterritoriality and catch the cartel? It is not. Most nations, especially developing countries, are not sufficiently well situated to stop the cartel activity. Even well-endowed agencies will experience evidence problems and will catch too little cartel activity. Even more importantly, a cosmopolitan conception is lacking. A sufficient law would protect the whole harmed community. Business people would understand (if only because of the law and its penalties) that cartels are wrong, and not only because they may hurt their countrymen. Extraterritoriality does not close the loophole, in fact or concept.
ILLEGITIMACY While national competition law that is indifferent to harms to outsiders is insufficient, national competition law that seeks to pry open foreign markets may be seen as illegitimate. Moreover, if a single nation combines the two tacks--exempting domestic export cartels because they hurt only foreigners, but catching foreign import cartels because they hurt the nation's exporters--this may be seen as discriminatory and thus further illegitimate. (29)
The classic example (or hypothetical) of a foreign market access restraint where the market allegedly is closed by private conduct is the case of the Japanese glass market. Let us assume that the Japanese glassmakers, led by Asahi, have a domestic cartel and boycott against imports, preventing foreign glassmakers from selling into Japan. The U.S. Department of Justice (DOJ) presents evidence of the cartel and boycott to the Japan Fair Trade Commission (JFTC). The JFFC studies the matter and concludes that, although there might have been such offensive conduct in the past, it has ceased. It declines to proceed. The Americans, however, do not believe that the cartel has ended. Can the U.S. Department of Justice, or can U.S. producer and exporter Guardian Glass, sue Asahi et al. in the United States for violation of the Sherman Act? Or would such initiative (even if expressly authorized by the U.S. legislature) violate Japan's prerogatives?
Use of national antitrust law to open foreign markets for the nation's exporters and foreign investors is clouded by questionable legitimacy. (30) Local conduct on local markets with local consumer effects are paradigmatically entrusted to the regulatory choices of the locality (nation). (31) Clashes are inevitable when a second nation purports to regulate the economy of the first. The clash may come when, in a Sherman Act case against a Japanese import cartel, a U.S. court finds that an import cartel agreement existed, and punishes the Japanese firm under U.S. law, while the JFTC or Japanese courts find that no agreement was made and that the American glass firms (for example) failed to penetrate the Japanese market because they failed to tailor their product to suit Japanese preferences. A different kind of clash may come when a firm such as Guardian Glass, or the DOJ, settles the dispute with Asahi et al. by an agreement assuring that the Japanese distributors will buy, say, 20% of their glass from American producers C freezing out the Europeans and the rest of the world from this segment of business.
As these examples show, the problem is not a national (U.S.) competition law problem. It is a Japanese competition problem, a world competition, and a world trade and foreign investment problem. (32)
The restrained-foreign-market problem has been addressed in part through cooperative efforts. Under bilateral positive comity agreements (e.g., U.S./EC 1998, U.S./Japan 1999), (33) the complaining nation undertakes to supply evidence of anticompetitive restraints that hurt its exporters or investors and that are illegal under the laws of the home nation, and the home nation agrees to give serious consideration to the request and, if warranted, to enforce its law. The complaining country may then agree, meanwhile, to refrain from pursuing proceedings of its own, which normally it will do if the home nation agrees to use its best efforts to pursue the matter, to keep the complaining country advised of the progress of its proceedings, and to take the latter's views into account. (34)
The cooperation may work, but only if the two jurisdictions see eye-to-eye on the anticompetitiveness of the restraint and the importance of enforcement, given other priorities. Otherwise, the problems will remain unsolved.
In sum, national competition enforcement is not sufficient for control of export cartels, and national competition enforcement is not legitimate or sufficient to pry open closed foreign markets or otherwise prevent restraints on foreign soil directly affecting the home nations' internal market but also and competitively foreclosing another nation's exports or direct investment.
V. Global problems
Increasingly, competition problems are global. Boeing/McDonnell Douglas, Exxon/Mobil, Sandos/Ceiba-Geigy (Novartis), Gencor/Lonrho, British Oxygen/Air Liquide, WorldCom/Sprint, and GE/Honeywell were all actual or proposed mergers of firms doing business in world markets. In the 1970s and 1980s, IBM's use of its dominant market power had direct effects worldwide. In the 1990s and 2000s, Microsoft's use of its dominant market power has direct effects worldwide. Moreover, world cartels are uncovered with increasing frequency. The vitamins, lysine, and graphite electrodes cartels are notorious examples. (35)
In the area of global problems, given only national enforcement and nation-to-nation cooperation, are there gaps in the system? Or, in view of the modernist tendency of nations to assume entitlement to long-arm enforcement, (36) are them illegitimacies?
We deepen, at this point, the concept of legitimacy. What makes an enforcement initiative illegitimate? We may start with the proposition that, in a democracy, people have voice--directly or by representation and delegation--to choose governance and measures that affect their lives and well being. (37) They elect their governments. Presumably, they may choose the economic structures and processes that take place within the territorial bounds of their polity and affect their polity principally and directly. Their government may regulate the conduct of their internal actors. No foreign sovereigns may regulate their internal markets. They alone, of all nations, are the legitimate regulators of their economy. Normally, only international law--such as the law of universal human rights or agreed commitments, such as to free trade--may trump this right.
Globalization complicates the lines of legitimacy. A single merger's effects may radiate directly throughout the world. We say that a jurisdiction that is the situs of significant impacts might legitimately regulate the transaction, but even so, if its enforcement has externalities unacceptable to neighbors, it may be prudentially required to restrain its enforcement or tailor its remedies to what is proportionate to the violation and not unduly intrusive into the neighbors' interests. (38)
But this seemingly fair principle presents Solomonic problems. The best solution for the world may be, by one criterion, to approve and facilitate a merger (e.g., Boeing/McDonnell Douglas), and by another test or even a different application of the same one, to enjoin it.
Allowing the merger to close, but under stringent conditions, may be far from optimal. In such a case, the extraterritorial enforcement of one jurisdiction may be either insufficient (if it restrains itself in the interests of comity and fails to enjoin a merger that should be enjoined), (39) or illegitimate (if it orders a prohibition contrary to the analysis of, e.g., the home jurisdiction of the merger partners). Where the market effects are the same in all jurisdictions, and all affected nations agree on the criteria and their application, no problem arises. There will be both sufficiency and legitimacy. (40) Convergence of the laws of nations increases the likelihood of such consensus, and convergence is increasingly and helpfully widening in the wake of deep cooperation and intense cross-fertilization, such as that facilitated by the U.S./EU merger working group, the OECD Global Forum, and the ICN. But it would be naive to anticipate no future GE/Honeywells or Boeing/McDonnell Douglas's.
GAPS Global mergers may have harmful effects in particular nations that may constitute separate markets and may have no power to protect themselves. This was probably the situation in the cases of Kimberly-Clark/Scott (41) and Union Pacific/Southern Pacific Railroad. (42) Both mergers differentially impacted Mexico. KimberlyClark-Scott may have had differential impacts elsewhere as well.
In Italimpiante/Mannesmann (43) China was the market for specialized pipes for oil drilling operations made only by Italian and German producers. The merger created a monopoly supplier to the Chinese market. Unusually, Italy conditioned merger clearance on the merging firms' acceptance of licensing obligations that would ease China's monopoly problem (although the potential beneficiaries of such licenses were only firms in the European Union and the licensing solution was not a complete one). A mature and well resourced powerful agency in such a consuming market would have enjoined the merger. But the victims had no ability to protect themselves.
Otherwise, given the extensive and often too extensive vetting of international mergers, gaps are not the problem. Overlaps are the problem. The inefficient overlap of merger regimes is being addressed, but almost wholly in the area of procedure and process. This is being done particularly, and helpfully, in the U.S./EU merger working group and in the ICN. (44)
The case of cartels is an especially successful one. Word cartels are being uncovered with frequency and skill. Agency coordination is at a high level. Problems of information exchange remain to be worked out, but are subjects of active attention. The principal gap concerns cartels targeted at developing countries, as noted above. A second gap may exist if the cartel is international but no one nation is sufficiently impacted to take action or accept jurisdiction, as may have been the case in the Thai rubber thread cartel. (45) Where no industrial policy at the source is concerned, cartel enforcement at the national level with deep cooperation of sister agencies is the success story (in progress) of international antitrust. (46) Where industrial policy intervenes, however, the gap is great, as in the case of OPEC, marketing boards and commodity cartels. (47)
ILLEGITIMACY There are serious problems of perceived illegitimacy, and more will occur. U.S. politicians found it illegitimate for the European Union to enjoin GE/Honeywell. (48) Charles James, Assistant Attorney General in Charge of Antitrust, has "warned" Europe not to reprehend Microsoft for conduct allowed under U.S. law. (49) William Baxter, when Assistant Attorney General, having withdrawn the U.S. case against IBM, told the European Commission that their plan to order IBM to disclose interface changes was illegitimate. (50) If, in the matter of Boeing/McDonnell Douglas, the airlines (the customers) had sued in a U.S. court and the court had enjoined the merger, (51) that result would have been accepted as legitimate despite the decision of the FTC to close the investigation; (52) but there was no U.S. court case, and in the course of the European intervention the Americans treated the merger as not Europe's business. (53)
The legitimacy problem will not evaporate. Its persistence is to be expected. No one has elected the United States or the EU to be enforcer for the world; to decide what is the right balance between intellectual property protection and competition (IBM, Microsoft); (54) the right balance between incentives for firms without power and incentives for firms with power (IBM, Microsoft); or the right balance between freedom from leverage and freedom to merge (GE/Honeywell, Boeing/McDonnell Douglas). Moreover, when one country would advance its economic interest by either a merger clearance or prohibition and its agency's action coincides with that interest, observers do not lightly shake the suspicion that industrial policy lurks in the antitrust shadows. (55)
National control over world mergers may be likened to (U.S.) state control over country-wide (or wider) mergers. In 1980, Mobil Oil Company sought to acquire Marathon Oil Company. Marathon was based in Ohio and was one of the biggest employers in the state. Mobil had substantial assets in Wisconsin and Michigan, among other states, and its oil reserves were depleting. The Ohio attorney general mobilized to stop the takeover if Marathon was unable to do so under the federal antitrust laws. (56)
Let us assume, for the moment, that there were no federal U.S. antitrust laws. Would we have been content to let the State of Michigan and the State of Ohio vet the merger and collaborate on antitrust analysis to the extent they could, and ultimately let each decide whether to clear the merger or prohibit it? Would Michigan (and the nation and the world) trust the Ohio decision-makers to clear the merger if it was procompetitive, and would Ohioans (and the nation and the world) trust Michigan to prohibit the merger if it was anticompetitive? If left with a Michigan clearance and an Ohio injunction, would we be content to honor the Ohio prohibition?
In the United States we have a federal system, and a federal system, with its built-in institutions, can cope with this problem to its liking. (57) Do we not need an avenue to escape the parallel dilemma in the globalized world? (58)
In sum, for inbound problems, the combination of extraterritoriality and cooperation works well for nations with well-resourced agencies of large countries addressing matters not encumbered by conflicting national policies. In that set of cases, gaps and illegitimacies are relatively few. For outbound problems, gaps and illegitimacies are significant. For world problems, we are doing remarkably well working with the tools we have, but the tools, alas, are preglobalization. In important ways they are not legitimate, and they are not sufficient.
AUTHOR'S NOTE: I wish to thank Elizabeth Murray for her research assistance.
(1) By "jurisdictions," I refer to the European Union in addition to nations. For simplicity I frequently use "nations" to include the EU.
(2) It is not clear that nations alone are the optimal bargainers. Ideally, we would want to obtain from competition policy what is good for all people as consumers and as energetic participants in economic enterprise. We would not want to sanction nations' parochial industrial policies. Even the United States, which presents itself as a "free market" jurisdiction, adopts policies that are good for it (or its heaviest lobbyists) at the expense of the rest of the world, as in steel and agriculture. See Elizabeth Becker, A New Villain in Free Trade: The Farmer on the Dole, N.Y. TIMES, Aug. 25, 2002, at 4-10.
(3) American Banana Co. v. United Fruit Co., 213 U.S. 347 (1909).
(4) See, e.g., Case 89/85, Ahlstrom Osakeyhtio v. Commission (Wood Pulp), 1988 E.C.R. 5193; Hartford Fire Ins. Co. v. California, 509 U.S. 764 (1993). See generally Eleanor M. Fox, Competition Law, in ANDREAS LOWENFELD, INTERNATIONAL ECONOMIC LAW ch. 12 at 345, 345-50 (2002).
(5) See, e.g., The Havana Charter for an International Trade Organization, ch. 3, [section] 3.2, Mar. 24, 1948 (E-Conf. 2/78), which included world antitrust principles.
(6) See for an example of a U.S. case, Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574 (1986) (upholding summary judgment against plaintiffs, members of the devastated U.S. electronics industry, on grounds that they did not have sufficient evidence to reach the jury that the low-pricing Japanese competitors conspired to charge the prices that destroyed the U.S. industry).
(7) See LOWENFELD, supra note 4, at ch. 5, pp. 98-108 (intellectual property), ch. 11 at 297 (environment); Philippe Sands, Turtles and Torturers: The Transformation of International Law, 33 N.Y.U. J. IN'T'L L. & POLITICS 527 (2001); Katherine Van Wezel Stone, To the Yukon and Beyond: Local Laborers in a Global Market, 3 J. SMALL & EMERGING BUS. L. 93 (1999).
(8) See LOWENFELD, supra note 4.
(9) See Anne K. Bingaman, International Antitrust: A Report From the Department of Justice, in INTERNATIONAL ANTITRUST LAW & POLICY, 1994 ch. 1 (Fordham Corp. L. Inst., B. Hawk, ed., 1995).
(10) See Fox, supra note 4, at 375-78.
(11) A harmed or targeted nation can close certain gaps, theoretically, feasibly, and legitimately, and cannot close others. The first category is a national matter and not of further concern in this article. The nation's legislature can simply legislate; its enforcers can simply enforce.
Thus, the dispute within the United States as to whether the Sherman Act, modified by the Foreign Trade Antitrust Improvements Act of 1982 (FTAIA), 15 U.S.C.A. [section] 6a (1997), allows relief to a person abroad injured by reason of effects abroad, where the conspiracy also directly affects the U.S. market, is not a subject of this article. In a suit by the Justice Department, the U.S. courts have subject matter jurisdiction in such a case. The United States Congress can change or clarify its statute with regard to jurisdiction and standing in private cases.
The circuits are split on the issue of subject matter jurisdiction. See Den Norske Stats Oljeselskap AS v. Heeremac, 241 F.3d 420 (5th Cir. 2001), cert. denied, 534 U.S. 1127 (2001); Kruman v. Christie's Int'l plc, 284 F.3d 384 (2d Cir. 2002).
(12) See Frederic Jenny, Globalization, Competition and Trade Policy: Convergence, Divergence and Cooperation, in COMPETITION POLICY IN THE GLOBAL TRADING SYSTEM" PERSPECTIVES FROM THE EU, JAPAN AND THE USA 295 (Clifford A. Jones & Mitsuo Matsushita eds., 2002).
(13) See, e.g., Trugman-Nash, Inc. v. New Zealand Dairy Board, 954 F. Supp. 733 (S.D.N.Y. 1997); Laker Airways Ltd. v. Sabena, Belgian World Airlines, 731 F.2d 909 (D.C. Cir. 1984). A lesser gap could exist in the event of divergent competition laws. e.g., country A prohibits an agreement of major reinsurers not to reinsure pollution damage. Country B does not proscribe the agreement; it treats the agreement as not anticompetitive because other existing or potential insurance providers are free to provide the coverage, country A refrains from suit against B's nationals out of deference.
(14) See generally Diane P. Wood, Soft Harmonization Among Competition Laws: Track Record and Prospects, in this issue of THE ANTITRUST BULLETIN. See also Harry First, Evolving Toward What? The Development of International Antitrust, 21 n.42 (2002), Paper Presented at Frauenchiemsee. Germany, June 3, 2002, auspices of Max Planck Institute (unpublished manuscript, on file with author); INT'L COMPETITION POLICY ADVISORY COMM. TO THE ATTORNEY GENERAL AND ASSISTANT ATTORNEY GENERAL FOR ANTITRUST, FINAL REPORT [hereinafter ICPAC REPORT] ch. 4 (2002), available at http://www.internationalcompetitionnetwork.org.
(15) In Wood Pulp, supra note 4, the European Commission alleged price fixing into the EU by Americans and others. The United States did not come to the support of the Webb-Pomerene defendants. Id. [paragraph] 21. The Department of Justice asserted merely that, as far as the United States was concerned, outbound cartels with no U.S. effects did not violate U.S. law.
(16) See Hartford Fire Ins. Co., 509 U.S. at 798-99. The Court was deferential in language to the U.K. intervention. In fact, there was no U.K. law and not even U.K. policy to promote reinsurer boycotts of Americans; therefore there was not even an indirect conflict with the U.S. antitrust law except in the most attenuated way by delegation of the privilege of regulation to the industry.
(17) Such an agreement would flank the existing WTO mandate not to adopt or encourage export cartels. Agreement on Safeguards, Apr. 15, 1994, Marrakesh Agreement Establishing the World Trade Organization, Annex 1A, 31 LEGAL INSTRUMENTS--RESULTS OF THE URUGUAY ROUND (1994).
(18) International Antitrust Enforcement Assistance Act of 1994, 15 U.S.C.A. [subsection] 6201-12 (1997).
(19) Questions of confidentiality would need to be addressed. See ICPAC REPORT, supra note 14, at 191-96.
(20) Laker Airways Ltd. v. Sabena, Belgian World Airlines, 731 F.2d 909, 955 (D.C. Cir. 1984), upholding Laker's antitrust suit injunction against certain airlines joining a UK lawsuit to require Laker to dismiss its U.S. antitrust case. The court held that, even though "[n]o conceivable judicial disposition of this appeal would remove [the] underlying conflict [between nations' public policies]," the U.S. antitrust case should be allowed to proceed in view of the allegations of harmful effects within the United States. Laker was the upstart that shook up competition on the New York-London route by its no-frills, low-priced service. The incumbent airlines met Laker "on the nose" and forced it out of business, harming transatlantic competition.
(21) International Association of Machinists and Aerospace Workers (IAM) v. Organization of the Petroleum Exporting Countries (OPEC), 649 F.2d 1354, 1361 (9th Cir. 1981) (dismissing action against members of OPEC and OPEC on grounds of Act of State), cert. denied, 454 U.S. 1163 (1981); see Prewitt Enterprises, Inc. v. Organization of the Petroleum Exporting Countries, 2001-1 Trade Cas. (CCH) [paragraph] 73,246 (N.D. Ala. 2001) (holding that OPEC, an unincorporated association, could be sued in an action that did not also join the member nations, and that OPEC's output agreements were illegal); vacated pending issues of proper service.
(22) After the fall of the Soviet Union, Russia developed a huge aluminum surplus, which it put on the market, flooding the world market. In response, the United States and several other countries reached a 2-year understanding whereby each undertook a target cut of production for its country, after "[bringing] together executives from more than a dozen global producers and government officials representing" six nations. See Erle Norton & Martin du Bois, Foiled Competition: Don't Call It a Cartel, But World Aluminum Has Forged New Order, WALL ST. J., June 9, 1994, at A1. Subsequently, a small California business, presumably a buyer of aluminum, sued Alcan Aluminum Corporation and four other American aluminum companies for their part in forming an international aluminum cartel in violation of California's Cartwright Act. The court granted summary judgment to defendants on grounds of separation of powers, foreign sovereign immunity, the privilege to secure favorable government action, and the absence of evidence of conspiracy; there was only evidence of each producer's reduction of production. Hammons v. Alcan Aluminum Corp., 1997-1 Trade Cas. (CCH) [paragraph] 71,714 (C.D. Cal. 1996).
(23) The U.S. Government did not bring suit.
(24) See In re Uranium Antitrust Litig., 617 F.2d 1248 (7th Cir. 1980) (affirming default judgments against nine foreign defendants who chose not to appear before the district court below); United Nuclear Corp. v. General Atomic Co., 1980-81 Trade Cas. (CCH) [paragraph] 63,639 (N. Mex. 1980), cert. denied, 451 U.S. 901 (1981) (affirming default judgment and damage and injunctive remedies under New Mexico law against General Atomic Corporation, which had frustrated discovery of documents that would have revealed whether and how much of GAC's cartel activity was compelled by Canada). See generally D. Rosenthal & W. Knighton, National Laws and International Commerce--The Problem of Extraterritoriality (Chatham House Papers No. 17, 1982). See also Tamar Lewin, Business and the Law: Imposing Rule of U.S. Abroad, N.Y. TIMES, NOV. 16, 1982, at D2.
(25) See Merit E. Janow, The Benefits of WTO Competition Principles for Developing Countries, 14-17 (Apr. 22, 2002), WTO SYMPOSIUM ON COMPETITION POLICY, available at http://www.ciaonet.org/conf/jam02/.
(26) See Eleanor M. Fox, Competition Law and the Millennium Round, 2 J. INT'L ECON. L. 665, 678 (1999).
(27) Moreover, it is not true that outbound restraints hurt only foreigners. The misallocation impairs resource allocation in the world. See Eleanor M. Fox & Janusz A. Ordover, The Harmonization of Competition and Trade Law: The Case for Modest Linkages of Law and Limits to Parochial State Action, 19 WORLD COMP. L. & ECON. REV. 5 (1995). But in the case of restraints in export commerce, foreign consumers lose more severely and directly than do American consumers, and American exporters gain, Americans may see themselves relatively better off even if they are absolutely worse off.
(28) It is already violative of the GATT/WTO Safeguards Agreement (11.1) for a state to sponsor or encourage an export or import cartel. See note 17 supra. The next task requires only a small step--to close the private-firm loophole. This can be done in the context of the round launched at Doha, Qatar. The ministerial declaration provides that the member states undertake negotiations on core principles including an anticartel principle, subject to agreement on modalities of negotiation. WTO Ministerial Declaration, Nov. 14, 2001, [paragraphs] 23-25, WT/MIN (01)/DEC/1 (20 Nov. 2001).
(29) The United States is such a jurisdiction. The FTAIA exempts export cartels. Under the 1995 U.S. Agency International Guidelines and numerous officials' speeches, the Sherman Act may be invoked to open foreign markets closed by anticompetitive restraints such as an import cartel or monopolistic exclusive dealing. Department of Justice and Federal Trade Commission Antitrust Enforcement Guidelines for International Operations, at point 3.122, printed at 4 Trade Reg. Rep. (CCH) [paragraph] 13,107 (1995). As a matter of comity, the guidelines state, the agencies are likely to use this power only if the law of the home country of the excluding firms also prohibits the restraints but the home agency fails to enforce the law. See id. at point 3.2.
(30) Suppose that the Japanese producers and distributors admitted that they were party to agreements to deal only with one another, and that the market was highly concentrated and difficult to enter; and they defended their agreements on grounds that they were members of a keiretsu and that it was part of their culture and public policy to deal within the keiretsu family. The interference of U.S. free-market policies with Japanese cooperative policies would then be starker; cooperative and market policies would clash.
(31) The legitimacy problem arises not principally because (U.S.) antitrust is about consumer welfare and the United States has no interest in protecting its competitors or Japan's consumers. Antitrust is used in many nations to protect competitors' opportunities as well as to protect consumers. Where, however, the basis of the regulating nation's law is solely consumer welfare, the scenario suggests a use of the law to pry open foreign markets for ends unauthorized by the law itself, and thus illegitimate on this basis alone.
(32) The foreign investment problem surfaced in the case of Kodak's claim that it was anticompetively foreclosed from the Japanese film market by a combination of Japanese laws that had exclusionary effects and monopolistic actions by Fuji-Film. Kodak produced film in Japan for Japan. See LOWENFELD, supra note 4, at 181-83. The United States Trade Representative brought proceedings in the WTO challenging only the Japanese laws, and lost. Id. There is currently no procedure in place to challenge anticompetitive private action as such in the WTO.
(33) Agreement Between the Government of the United States and the European Commission on the Application of Positive Comity Principles in the Enforcement of Their Competition Laws, printed at 4 Trade Reg. Rep. (CCH) [paragraph] 13,504A (June 4, 1998); Agreement Between the Government of the United States and the Government of Japan Concerning Cooperation on Anticompetitive Activities, 4 Trade Reg. Rep. (CCH) [paragraph] 13,507 (Oct. 7, 1999).
(34) The United States has made one referral to the European Commission (the complaint regarding SABRE, a U.S.-based airline computer reservation system claiming discriminatory treatment in French, German and Spanish markets). It did so in anticipation of the 1998 positive comity agreement. See ICPAC REPORT, supra note 14, at 232-34.
(35) See First, supra note 14.
(36) Not long before 1990, it was unthinkable for one nation to reprehend "another's" merger. It was commonly believed that nations had no power to affect the structure of firms located abroad; this was a matter for the competition or industrial policy of the home nation. The regulating nation could at most enjoin local subsidiaries from consolidating, if the merger hurt its citizens. See United States v. CIBA Corp., 1970 Trade Cas. (CCH) [paragraph] 73,269 (S.D.N.Y.) (consent decree 1970) (separating only the U.S. subsidiaries); Philip Morris/Rothman's, Kammergericht [West Berlin Ct. of Appeal], decision of June 16, 1983, Case No. 16/82, modifying Cartel Office order and prohibiting only the combination of the German subsidiaries. Cf. KINGMAN BREWSTER, ANTITRUST AND AMERICAN BUSINESS ABROAD (1958) (original edition), chaps. 3-4, 8-9, not even contemplating U.S. jurisdiction over an off-shore merger. But beginning with the U.S. action and decree against the Canadian and French firms, Connaught and Institut Merrieux, United States pioneered extraterritoriality in merger enforcement. In re Institut Merrieux S.A., 113 F.T.C. 742 (Consent Order 1990). Not long thereafter, the European Union followed suit. Case No. T-102/96, Gencor Ltd. v. Commission (Gencor/Lonrho), 5 C.M.L.R.1076 (1999) (prohibiting the merger of South African platinum mining firms; sales affiliate was in Belgium).
(37) See generally ALBERT O. HIRSCHMAN, EXIT, VOICE, AND LOYALTY: RESPONSES TO DECLINE IN FIRMS, ORGANIZATIONS, AND STATES (1970).
(38) See RESTATEMENT (THIRD) OF FOREIGN RELATIONS LAW, [subsection] 415, 431 (1986).
(39) Given the European Commission's concerns in Boeing/McDonnell Douglas, 1997 O.J. (L 336/16) (Dec. 8, 1997), prohibition might have been a more fitting remedy. France took the position that only a prohibition could prevent the increase in Boeing's dominance, but it lost its battle. See Boeing-McDonnell Douglas Merger Receives Formal Blessing From E.C., 73 Antitrust & Trade Reg. Rep. (BNA) No. 1823 at 155 (Aug. 7, 1997).
(40) See Daniel J. Gifford & E. Thomas Sullivan, Can International Antitrust Be Saved for the post-Boeing Merger World? A Proposal to Minimize International Conflict and to Rescue Antitrust From Misuse, 45 ANTITRUST BULL. 55 (2000) (suggesting an efficiency principle as a universal principle and assuming that there is one correct application).
(41) Kimberly-Clark/Scott Paper, Case IV/M623, 1996 O.J. (L 183/53).
(42) Union Pac. Corp. et al., Finance Docket No. 32760, Decision No. 44, 1996 WL 467636 (S.T.B. Aug. 12, 1996), aff'd sub nom., W. Coal Traffic League v. Surface Transp. Bd., 169 F.3d 775 (D.C. Cir. 1999). See Eleanor M. Fox, Global Markets, National Law, and the Regulation of Business: A View from the Top, 75 ST. JOHN'S L. REV. 383 (2001).
(43) Fiatimpresit-Mannesmann Demagtechint/Italimpiante, Case No. 3622 (C2227), Antitrust Authority, Italy, Feb. 15, 1996.
(44) See http://www.internationalcompetitionnetwork.org; memoranda on guiding principles and recommended practices.
(45) Dee-K Enterprises, Inc. v. Heveafil Sendirian Berhad, 2002-2 Trade Cas. (CCH) [paragraph] 73,756 (4th Cir. 2002), petition for cert. pending. Den Norske Stats Oljeselskap, supra note 11, is not in this category because the DOJ obtained relief against the bid rig conspiracy. The question in the case was the scope of jurisdiction and standing in a suit by a private party.
(46) See First, supra note 14.
(47) See notes 13 & 21, supra.
(48) See U.S. Steps in Over EU Opposition to G.E. Deal, FINANCIAL TIMES, June 16/17, 2001, at 1; Editorial, Europe Go Home, WALL ST. J., June 15, 2001, at A14.
(49) Noting the possibility that the Commission might take a different tack in the European Microsoft case, Charles James, U.S. Assistant Attorney General for Antitrust, "issued a veiled warning to the European Commission" against use of legal arguments that U.S. courts have rejected. Global Competition Review Briefing, May 20, 2002, available at http://www.global-competition.com/headnes/archive/ 2002/apr_may/ hdln_mnu.htm.
(50) See Recent Actions of the Department of Justice in United States v. American Tel. & Tel. Co. and United States v. International Business Machines Corp., Before the Senate Comm. on the Judiciary, 97th Cong., 1st Sess. (1982) (statement of William F. Baxter); Baxter Urges EC Competition Officials Not to Force Interface Disclosures by IBM, 42 Antitrust Trade Reg. Rep. (BNA) No. 1050, at 278 (Feb. 4, 1982). See also Eleanor Fox, Monopolization and Dominance in the United States and the European Community: Efficiency, Opportunity, and Fairness, 61 NOTRE DAME L. REV. 981, 1014-15 (1986).
(51) Recall that the economic consulting firm, Lexecon, had studied the merger and concluded that it was price raising. See Boeing/McDonnell Douglas, supra note 39, Commission decision [paragraph] 58 (McDonnell Douglass' competition kept a 7% lid on price).
(52) See State of California v. American Stores Co., 495 U.S. 271 (1990) (holding that a state may obtain further divestiture even after entry of an FTC consent decree). See also Consolidated Gold Fields Plc v. Minorco, S.A., 871 F.2d 252 (2d Cir. 1989), cert. dismissed, 492 U.S. 939 (1989) (enjoining a world merger that EC, British and U.S. agencies had cleared).
(53) See Laura D'Andrea Tyson, "McBoeing" Should Be Cleared for Takeoff, WALL ST. J. July 22, 1997, at A14; Editorial, Who Asked Europe?, WASH. POST, July 24, 1997, at A20.
(54) See United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001); Transamerica Computer Corp. v. International Business Machines Corp., 698 F.2d 1377 (9th Cir. 1983); California Computer Products, Inc. v. International Business Machines Corp., 613 F.2d 727 (9th Cir. 1979).
(55) In the aftermath of Boeing/McDonnell Douglas, it appeared that Europeans overwhelmingly believed that industrial policy drove the FTC's clearance, and Americans overwhelmingly believed that the European Commission's conditions and near prohibition were driven by Europe's effort to boost its champion, Airbus. See Eleanor M. Fox, The United States of Boeing versus the European Union of Airbus, 16 BROOKINGS REV. 30 (1998).
(56) The federal court granted a preliminary injunction against the takeover. Marathon Oil Co. v. Mobil Corp., 530 F. Supp. 315 (N.D. Ohio), aff'd, 669 F.2d 378, reaff'd, 699 F.2d 384 (6th Cir. 1981), cert. denied, 455 U.S. 982 (1982).
(57) While U.S. courts have not yet held federal merger law to be preemptive of state merger law, in a Mobil/Marathon (hypothetical) situation in which a federal court held the merger to be procompetitive and a state court (e.g., Ohio) held it to be anticompetitive on the same facts and in the absense of a separate Ohio market, compelling arguments would support federal preemption.
(58) See Eleanor M. Fox, United States and European Merger Policy-Fault Lines and Bridges for Mergers That Create Incentives for Exclusionary Practices, 10 GEO. MASON L. REV. 485 (2002); Eleanor M. Fox, Mergers in Global Markets: GE/Honeywell and the Future of Merger Control, 23 U. PA. J. INT'L ECON. L. 457 (2002), for proposals on how to cure the problems of incomplete vision and lack of trust when international mergers are vetted by national authorities who reach different conclusions as to whether the merger is anticompetitive.
Eleanor M. Fox, Walter J. Derenberg Professor of Trade Regulation at New York University School of Law.
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|Title Annotation:||Policies, Procedures and the Roles of the United States and the European Union, part 1|
|Author:||Fox, Eleanor M.|
|Date:||Jun 22, 2003|
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