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Competition in context: the limitations of using competition law as a vehicle for social policy in the developing world.

I.   Introduction
II.  Competition Policy in the Developing World
     A. Trade Liberalization
     B. Competition Law as a Complement to Trade
        Liberalization
     C. Contribution of Competition to Economic Growth
        and Development
III. Examination of Competition Law Goals
     A. Evolution of Antitrust Law Goals in the United
        States
     B. Current Accepted Antitrust Goals in the United
        States
IV.  Developing Countries' Approach to Competition
     Law
     A. Distrust of Competition Policy and Law
     B. Rejection of Western Approach to Competition
        Law
     C. Emergence of Competition Laws that Respond to
        Specific Historical, Cultural, and Economic
        Conditions
     D. Characteristics of Developing Countries Leading to
        Customization of Competition Laws
     E. Inclusion of Public Interest Considerations in
        Objectives and Analysis
V.   Case Study of South Africa
     A. Apartheid in South Africa
     B. Political Background Leading to Adoption of
        South Africa's Competition Act
     C. Public Interest Factors in South Africa's
        Competition Act
     D. Competition Law in Other Southern African
        Countries
VI.  Discussion
     A. Arguments for Inclusion of Public Interest
        Considerations
     B. Arguments Against Inclusion of Public Interest
        Considerations
     C. Examination of Competition Law in Developing
        Countries
     D. Developing Countries Should Avoid Public Interest
        Considerations and Proceed Deliberately in
        Adopting Competition Laws
     E. Recommended Way Forward
VII. Conclusion


I. INTRODUCTION

The number of countries that have adopted competition laws has grown exponentially over the past two decades. Of the over 100 nations that have adopted some form of competition law, three-quarters are in the developing world. (1)

Various factors have contributed to the growing adoption of competition policies and laws, particularly in developing countries. In particular, globalization and its effects--such as cross-border mergers--have contributed significantly to the perceived need for competition laws. (2) Although some may believe that the effects of globalization are limited to the developed world, developing countries may be particularly susceptible to the market power of large international firms if not regulated. (3)

Further, a number of studies have concluded that strong competition policy and robust competition at the country level foster economic growth. (4) Economic growth refers to a rise in national or per capita income that usually accompanies an increase in the production of goods and services. (5) As such, competition policy has become part of the emerging orthodoxy in economic growth policy. (6) Competition law is a subset of competition policy. Generally, competition laws seek to guard against the creation and misuse of market power and also facilitate the functioning of the markets by curing artificial obstructions that market players create. (7) In addition, enforcement of a competition law by an empowered competition authority helps in dismantling barriers to new business development and improving the availability of goods and services to poor populations. (8) So at least in theory, a well-conceived competition law--as a part of an overall competition policy--may reduce barriers that reinforce economic disadvantage.

For these reasons, the adoption of competition laws has become one of the cornerstones of the liberalization and promarket reforms sweeping through many developing countries. In particular, the neoliberal international development policies associated with the "Washington Consensus" embraced the enactment of competition laws in developing countries as part of its overall policy agenda. (9) The Washington Consensus emerged in the 1990s and represents the set of ten policies that the U.S. government and international financial institutions believed were necessary elements of reform that all countries should adopt to increase economic growth. (10) In emphasizing the importance of macroeconomic stability and integration into the international economy, the Washington Consensus took a neoliberal view of globalization and prescribed trade liberalization, privatization, and deregulation as the key elements of its recommended development framework. (11) The International Monetary Fund ("IMF") and the World Bank (jointly "Bretton Woods institutions") implemented this framework through conditionality in developing countries; one such condition was almost always the adoption of a competition law. (12) Thus, some countries, such as Indonesia, adopted competition laws as a direct condition to receiving funds and rescue money from the IMF. (13)

Interestingly, the push for the enactment of competition laws in developing countries by Western nations and the Bretton Woods institutions may not have resulted in what these parties originally envisioned. Instead, a variety of competition laws have emerged that differ in many respects from those of Western, industrialized nations, particularly in their stated goals and objectives. Further, many developing countries have included factors to consider in analyzing mergers and conduct related to social policy objectives. By doing so, they argue that competition laws should respond to the particular historical and contemporary circumstances facing their countries. (14) The inclusion of such public interest objectives and considerations has generated controversy and debate in the global antitrust and competition law community. (15) Some even question whether developing countries should prioritize the enactment of competition laws or whether it would be preferable for these countries to focus on more urgent reforms. (16)

This Article first provides an overview of the Washington Consensus policies designed to facilitate competitive markets and explains how competition contributes to economic growth and development. After discussing why developing countries have enacted competition policies and laws--either by choice or as a condition to funding--the Article examines the objectives of competition laws that ultimately drive enforcement. This analysis begins by detailing the evolution of antitrust goals in the United States. The Article then discusses many developing countries' rejection of a Western approach to competition law in lieu of an approach that they believe better responds to their unique historical, cultural, and economic conditions. This alternative approach to competition law often encompasses the inclusion of industrial policy objectives and the promotion of the public interest.

To illustrate how these public interest considerations have been incorporated and enforced in developing countries' competition laws, this Article presents a case study of South Africa. The Article then briefly describes the trend of including public interest considerations in competition statutes in other Southern African countries, which frequently look to South Africa as a model.

After illustrating how public interest considerations may be developed and enforced, the Article highlights the arguments raised for and against the inclusion of public interest objectives and considerations in competition laws. Ultimately, this debate centers on the fundamental purpose of competition law. This Article acknowledges that there are persuasive arguments on both side of the debate but contends that the debate about the proper objectives of competition law has been too narrow. Developing countries have real development and social equity concerns that should not be ignored. But instead of using competition law as a vehicle to address these other policy concerns, this Article argues that the goals of a competition law should remain narrow and that other industrial policy objectives should be addressed first through separate legislation.

The creation of complicated competition laws that require a skillful balancing of various public interest factors only adds to the burden of young, inexperienced competition authorities. Moreover, the inclusion of public interest objectives may even undermine the benefits that a competition law can bring to economic growth and development. This Article instead suggests that developing countries consider waiting to adopt competition laws until they have achieved a more advanced stage of development and recommends a staged approach that they might adopt to better meet their variant development and economic goals.

II. COMPETITION POLICY IN THE DEVELOPING WORLD

The majority of new competition laws emerging over the past few decades have been adopted by developing countries. Although there has been an active debate over what constitutes a "developing country," this Article uses the term "developing country" broadly, as defined by the IMF: "emerging market and developing economies" are the 153 nations that are not classified as advanced economies. (17)

To fully understand the dynamics at play in the developing world, it is necessary to distinguish between competition law and competition policy. Competition policy refers generally to the range of government measures taken to influence the intensity of competition in national markets. These measures may include trade policies, measures directed to attract foreign investment, domestic business regulation, various privatization initiatives, and competition law. (18) Competition law, a subset of competition policy, establishes the rules of competitive rivalry and constrains certain strategies employed by firms that may harm competition in the markets.

The competition policy approach advocated by many in the developed world entails enhancing competition in domestic markets by dismantling protective trade barriers and restrictive investment rules, creating an enabling domestic environment that facilitates foreign trade and investment. (19) For some time, the dominant approach in development economics advocated generating as much wealth as possible and letting it "trickle down" to those less well off. (20) Increased trade and investment was seen as a means of generating such wealth. Over the past two decades, a number of developing countries have adopted this outward-oriented economic development strategy--either by choice or as a condition for aid. (21) These outward-oriented economic development strategies, however, have stimulated a number of discussions over whether these market reforms of recent decades have set out the right path for economic progress. (22)

A. Trade Liberalization

Trade liberalization is one of the foundational tenets of an outward-oriented economic development strategy. Trade liberalization is rooted in the belief that a reduction of tariffs and other trade barriers will promote imports that will then discipline producers' market power to raise prices, stimulating competition in national markets. (23) Trade liberalization formed a key part of the Washington Consensus policy package of reforms; (24) accordingly, it has figured prominently in World Bank and IMF proposals. (25)

Conventional wisdom suggests that free trade by itself will prevent the accumulation of market power and that antitrust enforcement may be superfluous. (26) Many have recognized, however, that trade openness and liberalization alone will not necessarily result in more competitive markets or remedy all anticompetitive conduct. (27) As such, a trade liberalization/market access approach alone has limits.

For example, in developing countries, an important share of economic activity relates to non-tradable goods and services, such as electricity, other utilities, and financial and legal services. These goods and services are only marginally exposed to international competition. (28) Beyond the lack of exposure to foreign competition, the non-tradable sector of the economy may also remain uncompetitive because of domestic firm behavior. And increased trade cannot eliminate the possibility that firms may still collude with each other to fix output and prices. (29) Consequently, trade liberalization will not stimulate or protect competition in these non-tradable sectors.

In addition to failing to protect and stimulate competition in non-tradable sectors, trade liberalization policies also have not stimulated the expected increase in competition in tradable sectors because many firms affected by tariff reductions simply turn to rent seeking strategies. (30) Rent seeking is the manipulation of the regulatory environment for personal gain. Businesses may engage in rent seeking by lobbying the government to impose nontariff barriers to protect their markets from competition, immunizing themselves from regulation, and cloaking their actions in government authority. (31)

In general, the domestic firms that employ rent seeking are those that previously benefitted from high tariffs and other government favoritism. Because these firms face low transaction costs in petitioning the government, they have little incentive to support an open, competitive market over the potential gains they may obtain by seeking rents through political action. (32) Consequently, these new public restraints raise the cost of capital and create entry and exit barriers to other businesses. (33) They also hurt consumers--consumers pay the cost of the protection given to these businesses through higher taxes and/or prices to subsidize the restraints. (34)

Finally, trade liberalization policies may disproportionately benefit a minority of the population. For example, in many developing countries, an economically dominant minority controls the sectors of the economy that are most attractive to foreign investors, such as finance, technology, industry, transport, and mining. Because an economically dominant minority may be better positioned to benefit from foreign investment, the majority of the population may experience few of the theoretical benefits of trade liberalization. (35)

B. Competition Law as a Complement to Trade Liberalization

Unlike trade liberalization, competition laws can reach the non-tradable sectors of a nation's economy and may better protect a majority of the population by correcting market failures and obstructions. For instance, markets on their own cannot address structural problems, but competition law can cure artificial structural obstructions that market players create. (36) Thus, many view competition law as one of the key measures needed to support the proper functioning of the markets and the primary means of addressing a major form of market failure--the harmful exercise of market power. (37)

Accordingly, trade liberalization serves as a complement to, not a substitute for, competition law. (38) Various studies have reinforced this view and shown that an effective competition law has an impact distinct from that of trade openness. (39) Because of this demonstrated impact, many strongly advocate that competition laws form a part of the central framework policies of developing countries. (40) And as discussed, the enactment of competition laws has been a key condition of many reform packages driven by the Washington Consensus.

C. Contribution of Competition to Economic Growth and Development

The emphasis on the stimulation and protection of competitive markets through competition policy derives from evidence demonstrating that competitive markets are a significant factor in the economic growth and development of a country. Competition policies typically affect developmental outcomes indirectly through effects on markets. (41) But as previously explained, the benefits from trade reform, deregulation, and privatization may not be fully realized without the active and effective enforcement of a competition law. (42) Thus, many consider the adoption of competition law as an essential component of a cluster of regulatory activities that constitute good governance, leading to economic growth and development. (43)

Several factors illustrate why competition--achieved through competition policies--contributes to economic growth and development. First, competition generally stimulates investment. Strong evidence shows that competition law and policy provide incentives for both foreign and domestic investment. (44) Investors appreciate a stable regulatory environment in which they can be assured that their assets will be protected by law in the event of a dispute. (45) Adopting a competition law may signal to investors that investing in a country is attractive and safe. (46) Further, appropriate enforcement of a competition law adds transparency to a nation's commercial landscape and contributes to the predictability and stability of government policies and rule of law. (47) Foreign direct investment not only contributes to growth through the stimulation of competition but also enhances the competitiveness of domestic enterprises through the potential transfer of managerial skills and technology. (48)

Second, greater competition increases firms' incentives to cut costs and improve productivity. When new firms may freely enter a market, the new entrants increase the pressure on incumbent firms to become more efficient to maintain their market share. (49) Thus, to remain in a competitive market, market players must constantly evaluate their product offerings and remain vigilant over their internal procedures, requiring constant streamlining of operations. (50) As a result, the less efficient firms will exit the market as the number of firms increase. Without the pressure from entrants to reduce costs and increase efficiency, productivity may be slow and fall short of its full potential. (51)

Finally, greater competition stimulates innovation in addition to process streamlining. (52) To be competitive, firms must do more than just increase their productivity. They also must constantly evaluate their product and service offerings and think of new ways to serve consumers.

III. EXAMINATION OF COMPETITION LAW GOALS

As developing countries adopt competition laws as part of an overall policy package to try to stimulate economic growth and development, they have included objectives in their competition laws that industrialized or Western nations may not view as appropriate. The objectives of a competition law inform the law's implementation, enforcement, and application and affect outcomes. (53) The objectives of a country's competition law are especially important when analyzing conduct under a rule of reason analysis. (54) In addition, these objectives shape enforcement policy and priorities as well as assist courts in applying competition legal standards to ensure alignment with the objectives of the law. (55) Accordingly, the objectives of a nation's competition law--as understood by the enforcers, the judiciary, the business community, and the general public--can have a profound impact on the competition law's effect on markets and economic growth and development.

A. Evolution of Antitrust Law Goals in the United States

To best understand competition law and its purposes, it is helpful to review the historical evolution of competition law, which necessarily entails an examination of U.S. antitrust law. Since the beginnings of U.S. antitrust law, the United States has witnessed the rise and fall of various theories and doctrines. The forces of history, politics, and economics have shaped U.S. antitrust law into what it is today. The following section provides an overview of the various predominating schools of antitrust thought in the United States and how these schools have influenced the goals of U.S. antitrust law.

1. Harvard School

The Harvard School was the predominant school of antitrust thought from the 1940s to the mid 1970s and is associated with the economists Joe Bain, Edward Mason, Carl Kaysen, and Donald Turner. (56) The Harvard School adopted a more interventionist, structural approach to antitrust, resting on the belief that firms are more likely to engage in anticompetitive conduct when markets are concentrated. (57) When the Harvard School was at its peak in the United States, the courts and enforcement agencies typically presumed the illegality of any merger, joint venture, or agreement that allowed or resulted in firms obtaining, enhancing, or exercising market power, (58) which often resulted in protecting small businesses. Because of this presumption, plaintiffs had more success during the dominance of the Harvard School because they did not have to prove a complex set of economic facts. (59)

The Harvard School has been criticized for failing to consider the effects on consumers and for lacking a limiting principle to restrain enforcement that harmed consumers. (60) On the other hand, some praised the high degree of certainty that the Harvard School approach offered to businesses. (61) For example, by examining the structure of a market, businesses could easily determine if they might be at risk of violating the antitrust laws.

2. Chicago School

During the late 1960s and 1970s, the Chicago School of antitrust thought started to gain traction. (62) The Chicago School originated with a 1966 law review article by Judge Richard Bork, who argued that Congress's one concern when it debated and passed the Sherman Act was economic efficiency and that there was no evidence of congressional intent to protect individual competitors against large firms' exercise of market power. (63) He then defined economic efficiency as wealth maximization, which he equated with "consumer welfare." (64)

Judge Bork emphasized that the maximization of consumer welfare was the only legitimate goal of antitrust. But when Bork used the term "consumer welfare," he actually meant "total welfare." (65) To illustrate, Bork's approach to maximizing "total welfare" involved a utilitarian calculus that accounted for both producer and consumer surplus. (66) In other words, under a total welfare approach, courts only ban those restraints that reduce society's overall welfare, and the law will not be invoked unless a challenged practice decreases aggregate consumer and producer welfare. (67) Bork's article was a significant driver of the economic revolution in antitrust that influenced the U.S. courts in the late 1970s and 1980s. (68)

The Chicago School urged a more cautious approach to enforcement and retreated from the interventionist orientation of the Harvard School. (69) The Chicago School adopted a rule of non-intervention unless the market conduct was inefficient-- that is, the alleged anticompetitive conduct conferred market power that was used to limit output and was not justifiable as an attempt to serve the market. (70) The Chicago School relies on the assumption that market forces over time will correct and punish monopoly conduct. (71) In believing that markets will self-correct, the Chicago School presumes the rationality of market participants and views the likelihood and extent of market failures with skepticism. (72)

The Chicago School also generally doubts the institutional capabilities of government. As such, the Chicago School advocates little prosecution other than "plain vanilla cartels and mergers to monopolies." (73) It generally disregards vertical contractual restraints, vertical and conglomerate mergers, and most claims of monopolization. (74) In addition, the Chicago School tends to view the abuse of a dominant position as transitory and holds that monopolists should not be liable for engaging in conduct that is a natural consequence of their market power. (75) Defendants have thus prevailed more under the Chicago School because plaintiffs must prove adverse economic effects. (76) The Chicago School's focus on efficiency and total welfare has led the U.S. Supreme Court to reject per se prohibitions of certain conduct once thought anticompetitive but now understood to be efficient. (77) Accordingly, many have criticized the Chicago School for making the outcome of cases more difficult to predict. (78)

3. Post-Chicago Schools

Following the Chicago School, several other schools of antitrust thought have emerged that reflect the Chicago School's doctrinal view of antitrust and that embrace economics as the mode of analysis. (79) The Neo-Harvard School is one example. Some say the Neo-Harvard School emerged when the previous Harvard School contingent underwent an "unacknowledged conversion experience" and abandoned their earlier interventionism. (80) This Neo-Harvard--or Modern Harvard School--has benefitted from the contributions of Phillip Areeda, Donald Turner, current Supreme Court Justice Stephen Breyer, and Herbert Hovenkamp.

The Neo-Harvard and Chicago Schools share some similarities. Although the Neo-Harvard School takes a more interventionist approach than the Chicago School, both schools believe that consumer welfare and efficiency concerns should be the only goals of competition law. (82) The two schools, however, do not necessarily define efficiency identically. (83) But both schools discourage consideration of non-efficiency objectives, such as the dispersion of political power and the preservation of opportunities for small enterprises to compete. (84) They also share the view that the social costs of enforcing antitrust rules involving dominant firm conduct too aggressively exceed the costs of enforcing them too weakly; consequently, both schools have advocated backing away from intervention where dominant firms are concerned. (85)

Other schools of antitrust thought and variations on the Chicago School have also emerged, including the "Behavioral School." (86) Most of these schools strive to correct some of the Chicago School's overreaching and tend to prefer more expansive antitrust intervention. (87) In general, they regard the Chicago School's reliance on the perfection of the markets as overly simplistic and emphasize that markets in reality do not always function as perfectly as assumed. (88)

B. Current Accepted Antitrust Goals in the United States

Although there is little consensus as to the goals of antitrust law in the United States, two goals in particular have emerged over the years that dominate modern academic and policy discourse: that of total welfare and consumer welfare. (89) Most antitrust scholars and practitioners in the United States endorse a consumer welfare standard, (90) but there has been substantial disagreement over what consumer welfare means. As explained, this ambiguity first arose when Judge Bork used the term "consumer welfare" to mean total welfare. (91) The Supreme Court then quoted Bork in stating that the Sherman Act is a "consumer welfare prescription." (92) But on various occasions, the Supreme Court has alternatively suggested either total welfare or consumer welfare as the correct standard. (93) Whereas total welfare weighs the overall surplus gained from an alleged anticompetitive act or merger, taking into account both producers and consumers, consumer welfare only considers the surplus consumers gain. (94) Thus, most scholars, judges, and enforcement officials endorse some variant of the consumer welfare standard.

The Chicago School and many economists favor the total welfare standard that considers the surplus of both producers and consumers. (95) This standard seeks to maximize society's aggregate welfare and ban only those practices that result in a less efficient allocation of society's resources and a reduction of society's overall wealth, ignoring distributional effects. (96) The total welfare standard relies on the presumption that practices that create market power and higher prices can nonetheless increase overall welfare by producing efficiencies that counteract the deadweight allocative losses resulting from enhanced market power. (97) Thus, those who argue that total welfare is the goal of antitrust generally do not advocate antitrust intervention unless the transaction is likely to diminish aggregate wealth. (98) The current enforcement of Section 2 of the U.S. Sherman Act largely falls within a total welfare approach. (99)

Advocates of a consumer welfare standard, on the other hand, argue that the fundamental goal of antitrust is to protect consumers, not to increase the total wealth of society. (100) The consumer welfare standard seeks to ban those practices that reduce the consumer surplus and is agnostic about the efficient allocation of resources. (101) Those advocating a consumer welfare approach note that competition law has a strong tradition of protecting the interests of consumers. (102) Moreover, the goal of consumer welfare is the standard on which there is increasing international convergence. (103)

Although the two goals overlap and are often indistinguishable, situations do arise when firm behavior may only violate one of the goals. And in these more complicated cases, it is critical to know which standard to apply when undertaking a rule of reason type analysis. (104)

IV. DEVELOPING COUNTRIES' APPROACH TO COMPETITION LAW

A. Distrust of Competition Policy and Law

Despite the importance industrialized nations, nongovernmental organizations ("NGOs"), and Bretton Woods institutions have placed on the adoption of competition policies in developing countries, the governments of developing countries have been hesitant to institute these competition policies for various reasons. One of the primary obstacles developing countries face is attracting and sustaining political support for the implementation of competition policies and law. (105) For example, if trade liberalization affects domestic economic performance, government officials may withdraw their support because any claims of duress caused by liberalization will be pinned on them. Even more, government officials of developing countries may seek to undermine any efforts that threaten to reduce their economic and political power. (106)

Although competition is beneficial for all economic participants in the long run, it may create displacement in the short run. Competition laws in developing countries, at least in the short term, may threaten to preserve or widen inequality rather than promote mobility. Consequently, many governments of developing countries view competition policies and law as not adequately addressing distributional issues and, in fact, exacerbating them. (107) In addition, legislators in developing countries do not usually think about efficiency, so claims of enhancing efficiency may fall flat. (108) As such, developing countries often see free-market rhetoric and aggregate welfare goals as inappropriate to their context. Similarly, many in developing countries fear that competition policy will encroach the pursuit of development objectives and constrain government officials' ability to achieve these other policy objectives. (109) Developing countries also worry that such competition policies--particularly the liberalization of markets--may expose their small- and medium-sized enterprises to foreign competition. (110)

Initial government support for competition policy is just one aspect of whether a competition policy, and competition law specifically, may succeed in a developing country. The process of introducing and implementing a competition law itself also faces significant obstacles. (111) For example, drafting a competition law bill and ushering it through the legislative process may face strong opposition by powerful businesses that gain rents by engaging in anticompetitive conduct. These businesses may seek to undermine the effectiveness of the legislation by advocating that provisions that are perceived to be against their interests be removed and lobbying for the inclusion of exceptions and exemptions to protect their interests. (112) Even if the legislative body ultimately adopts the competition law, there may still be a lack of political will in enforcing the law after its passage. (113)

B. Rejection of Western Approach to Competition Law

The developing countries that have adopted competition laws have mostly drawn from the competition laws of the United States, Canada, and the European Union. (114) Janet Steiger, the former chairwoman of the U.S. Federal Trade Commission, acknowledged this trend, describing antitrust law as "largely an American-made product" and one of her country's most successful exports. (115) Some, however, believe that the antitrust initiatives proposed by antitrust experts in developed economies are inadequate, if not inappropriate, for most developing economies. (116)

Although the experience of mature market economies in designing and applying competition law can be instructive for developing countries, that experience may not be wholly transferable. Given the economic realities, many have argued that there are a number of limits to the Western antitrust framework when applied to developing countries. (117) First, Western antitrust systems benefit from substantial financial resources, wide availability of expertise in economics and law, broad acceptance of administrative safeguards, and well-established market processes. (118) Second, antitrust laws typically function well in economies with supportive infrastructure composed of non-corrupt and well-funded institutions. (119) Third, the laws in developed countries typically address situations with complex and technologically advanced business structures and an array of formal market institutions, which is not the case in most developing countries. (120) And finally, some believe that a U.S.-style competition policy may favor well-organized interest groups and large corporations--in effect, exacerbating the preexisting wealth disparity. (121) As a result, if developing countries adopt the laws of Western and industrialized nations, there may be a disconnect between the legal provisions adopted and the economic realities of the developing countries. (122)

Because of this potential disconnect, many developing countries have expressed a need for an antitrust paradigm different from that of the developed world. (123) As such, developing countries have adopted competition policies and laws that they believe better fit their country-specific circumstances. They also have resisted international convergence of competition laws efforts. For instance, the World Trade Organization ("WTO") placed the idea of a global competition law on its agenda as one of the Singapore issues. (124) But in 2003, negotiations broke down at the Ministerial Conference in Cancun, and the WTO's General Council abandoned the idea in August 2004. (125)

Many attribute the breakdown of the WTO convergence talks to the opposition voiced by developing countries. (126) Developing countries expressed concern about the model of competition that the agreement would impose on them and questioned how institutional models of competition law enacted over long periods in globalized and developed economies would translate to their markets. (127) African countries, in particular, were vocal. At the Southern and Eastern African Trade, Information and Negotiations Institute Workshop ("SEATINI"), African nations questioned whether the WTO was the right venue for a competition agreement. (128) Specifically, the nondiscrimination policy caused concern because it could have prevented these African countries from imposing duties on essential utilities to achieve distributional outcomes, and they wanted the autonomy to apply a more contextual, flexible approach to competition law. (129) These countries publicly espoused their understanding of the purpose of competition policy:
   Our understanding of competition policy, from the development
   perspective, is that there is a need for government to assist and
   promote local firms so that they can survive, be viable and develop
   despite their present relative weakness, so that they can
   successfully compete with foreign firms and their products. (130)


It is not just developing countries, however, that question the appropriateness of adopting a competition framework from a mature market economy. Many scholars and other NGO actors also encourage developing countries to consider establishing competition laws and frameworks better suited to their developmental needs and the realities of their specific markets. (131) Instead of wholly importing Western laws, they instead argue that competition laws should respond to a particular country's historical and contemporary circumstances, as well as the specific contextual problems that need resolution. (132) They discourage "rote application of Western legal models in ways that fail to account for crucial differences in local circumstances" and instead advocate for an internal approach to lawmaking that originates from within the country. (133) A "bottom-up" approach such as this entails identifying and understanding customs and norms that promote market processes. (134) By engaging in lawmaking from within, the resulting law may have the strongest prospects for adoption and implementation, particularly if based on the recommendations of indigenous experts and commands their support. (135)

C. Emergence of Competition Laws that Respond to Specific Historical, Cultural, and Economic Conditions

Because of this distrust of Western competition policy and law, many developing countries have chosen to incorporate nontraditional objectives in their competition laws based on their unique history, culture, social, and market conditions. (136) Thus, the objectives of a developing country's competition law may reflect the historical context in which the legislation was developed and the political processes in which economic welfare values were balanced against populist impulses to protect small businesses. (137)

The emergence of competition laws based on the historical, economic, and cultural conditions of a country is not a new phenomenon. Competition laws in the United States, Canada, and the EU have been shaped and re-shaped to address changing economic realities over time. (138) The historical jurisprudence of U.S. antitrust law reflects a more interventionist posture in cases involving large versus small competitors. (139) The U.S. Congress passed the Robinson-Patman Act in 1936 (140)--a time in which chain stores, such as grocery and drug stores, were emerging. Many in the United States saw the growth of chain stores as a threat to smaller retailers. Consequently, Congress sought to address and eliminate the competitive advantage these larger stores wielded. (141) In the 1970s, however, the United States began retreating from these intervention-oriented policies, largely because of the influence of the Chicago School. (142) The U.S. Supreme Court and lower court decisions then began to reflect this new approach to antitrust law by focusing on efficiency and the generation of aggregate wealth, rather than fairness or rivalry. (143)

Because of the dominance of the Chicago School in the United States in the late 1970s and 1980s--and its continued influence today--even advanced, industrialized nations diverge on the proper goals of competition law. (144) The EU, for instance, focuses more on preserving rivalry and safeguarding the competitive process by preventing foreclosure. (145) The EU historically has not focused on promoting efficient outcomes and total welfare. (146) Accordingly, EU competition law reflects a more distributive bent and emphasizes the preservation of choice for consumers. (147) The EU also utilizes a more regulatory approach and includes excessive pricing as an abuse of dominance law theory. (148)

Moreover, the United States and EU apply different thresholds in their competition analyses. For instance, U.S. jurisprudence focuses on the "substantial lessening of competition" while the EU system focuses on "significant impediments] to competition." (149) Accordingly, the United States seemingly applies a higher threshold for finding harm to competition. But even within the United States itself, various jurisdictions apply different standards and interpret the goals of antitrust slightly differently. (150)

D. Characteristics of Developing Countries Leading to Customization of Competition Laws

To better understand why many developing countries have rejected a Western approach to competition law, it is necessary to briefly examine the historical and economic conditions in developing countries that have led them to tailor their laws to their country specific circumstances. To begin, the markets in developing countries are often much less dynamic and open than markets in developed countries. (151) To illustrate, even if a developing country has undertaken some trade liberalization, it may still have other trade barriers in place, such as tariffs, quotas, or infant industry protection. These trade barriers ensure that markets remain small and insulated. (152)

Not only are developing countries' markets typically small, but they also suffer from high levels of concentration. A small number of firms often dominate the various sectors of the economy. (153) These concentrated markets allow dominant firms to create high entry barriers and achieve and maintain a monopoly position. (154) Further contributing to the difficulty of entry, potential competitors face limited access to capital as well as restrictive controls on the formation of new businesses and the introduction of new ideas in the marketplace. (155) In addition, developing countries may adopt tax policies that set extremely high tax rates on business earnings. (156) Labor laws also burden new businesses by severely restricting the ability of an employer to adjust the size of the work force, which may discourage companies from expanding capacity and pursuing new business development. (157)

The state also typically plays a large role in the markets of developing countries, with many countries exhibiting a strong past of state ownership of key enterprises. The state may either act directly as the owner of state monopolies or indirectly through the close links it has developed with national champions that it seeks to promote. In particular, the state typically dominates public services and utilities, such as telecommunications, public transportation, electricity, and water supply. (158) The state's presence in infrastructure utilities allows it to negotiate favorable contracts for the provision of services, or to not even pay for these services at all in some circumstances. (159) In instances where the state no longer owns key enterprises, the state continues to have a strong presence in, or at least a lingering influence over, the enterprises. (160) This "[g]overnment intervention in the marketplace [often results in distorted] prices and resource flows from socially efficient levels." (161)

Although many formerly state-owned enterprises may have undergone privatization, the state monopolies may now simply be private monopolies. (162) Further, the privatization process itself is often corrupt, with transfers of wealth typically going to those who are wealthy enough to bid and bribe. (163) And when essential facilities, such as transport and financial services, are privatized, the incumbent firms may refuse to allow competitors to use the essential facilities or impose excessive fares for such services. (164)

Even with the privatization of enterprises, developing countries will likely still experience top-down planning and control by a single-party. (165) This top-down planning by a single party frequently results in systemic political corruption, often in the form of rigged elections and bribery. (166) As such, the economic and government elites may be intertwined. (167)

On a macro level, globalization also has had a profound impact on developing countries. Although globalization has arguably lowered trade barriers and paved the way for many nations to derive efficiency benefits from markets, some argue that globalization ignores the need for protections and guarantees against deterioration in standards of living, healthcare, labor, and social security. (168) Because globalization and the growth of capitalism emphasize unrestricted market forces, globalization has the potential to increase the disparity of wealth and opportunity. (169) This may be particularly problematic for developing countries that are characterized by widespread poverty and lack strong, accountable institutions capable of administering a regulatory welfare state. (170) Moreover, developing countries may be particularly susceptible to the effects of international cartels because they tend to be "price takers" on world markets and have little buyer power. (171) These international cartels also likely know that developing countries have fewer resources to dedicate to competition law enforcement. (172)

E. Inclusion of Public Interest Considerations in Objectives and Analysis

Instead of shying away from adopting competition laws out of a fear that other policy options may be restricted, many developing countries attempt to strike a balance between the potentially conflicting objectives of the government and competition law. (173) In doing so, most developing countries gravitate more towards the EU model of competition law as their starting reference because they see it as better suited to their economies. (174) As discussed, the EU model protects the openness and access of markets and the right of market actors to not be fenced out by dominant firm strategies. (175)

Although many developing countries gravitate towards the EU model, they tend to go even further than the EU in protecting market actors and ensuring a level playing field. As such, a competition law framework has emerged in numerous developing countries that incorporates various non-economic factors. (176) By incorporating these non-economic factors, these countries seek to use competition law as a tool to meet both its competition law and industrial policy objectives. (177) Industrial policy objectives often include selective economic and social policy goals, such as distributive justice or employment concerns. (178) The incorporation of industrial policy objectives into a competition law might be seen as a convenient mechanism for the correction of historical imbalances. (179)

The inclusion of industrial policy objectives--or public interest considerations--in a competition law may take a variety of forms. For example, the law may contain provisions to "help bring discriminated-against or left-out majorities into the economic mainstream." (180) Or, the laws may seek to protect small and medium enterprises and ensure equal business opportunities. (181) The inclusion of these public interest factors in competition laws typically appears in the objectives of the statute itself or in the provisions pertaining to analysis of mergers, exemptions, or certain business practices.

1. Objectives of the Competition Statute

Generally, public interest considerations most frequently appear in the purpose or objectives of the competition statute. Although the United States has taken a narrow view of the goal of antitrust law, other countries and scholars view the potential goals of antitrust as numerous and contend that the goals of any antitrust system may change over time. (182) Developing countries in particular have cited the operation of competition law throughout the history of the United States and of other developed countries in support of their right to formulate goals more conducive to their state of development. (183) In doing so, developing countries argue that the goals that prevail in one jurisdiction may not necessarily be as important in others and have thus tried to avoid a "one size fits all" approach to competition law. (184)

The International Competition Network ("ICN") has conducted surveys of jurisdictions around the world to identify the various goals that have been included in competition laws. The surveys reveal that many countries' competition laws include both traditional economic competition goals as well as non-competition public interest goals. (185) Interestingly, ICN respondents generally disagree over what constitutes a competition goal and what constitutes a non-competition goal. (186)

Even beyond distinguishing among the types of goals, many countries hold differing views as to whether competition goals should encompass other non-traditional competition goals, such as protecting small businesses. (187) When surveyed about their goals in the unilateral conduct context, thirteen competition agencies responded that their unilateral conduct provisions were not intended to pursue non-competition goals. (188) Eight agencies, however, responded that certain non-competition goals may be taken into account in deciding unilateral conduct cases, but that such cases are generally the exception. (189)

The cited objectives of unilateral conduct laws were numerous and included: (1) ensuring an effective competitive process; (2) promoting consumer welfare; (3) maximizing efficiency; (4) ensuring economic freedom; (5) ensuring a level playing field for small- and mid-sized enterprises; (6) promoting fairness and equality; (7) promoting consumer choice; (8) achieving market integration; (9) facilitating privatization and market liberalization; and (10) promoting competition in international markets. (190) Of these goals, almost all of the responding competition agencies cited ensuring an effective competitive process as an objective in its own right and/or as a means to achieve other goals. (191) The vast majority of respondents also cited two other goals: the promotion of consumer welfare and the maximization of efficiency. (192) Most respondents, however, did not specifically define consumer welfare and not surprisingly appear to hold different understandings of the term. (193) The U.S. agencies responded that the promotion of consumer welfare and the organization of the free market economy are the only goals of the U.S. antitrust laws, arguing that social objectives are better pursued by other instruments. (194)

Many Western competition scholars and practitioners support the position of the U.S. agencies, and regard other noneconomic objectives as falling outside the proper purview of competition law. (195) Yet, as previously discussed, the evolution of U.S. antitrust law reflects other goals beyond total or consumer welfare. The legislative history of the Sherman Act and other antitrust laws suggest such "populist" goals may have been considered and that there were a number of social and political reasons for limiting business size and preserving large numbers of small businesses. (196) For example, the enactment of the Sherman Act and the amendment of Section 7 of the Clayton Act in 1950 reflected Congress's concern with the disappearance of small independent entrepreneurs and their displacement by massive corporations. (197) These concerns were reflected in the approach of the early Harvard School, which advocated protecting firms without market power. (198)

2. Merger Regulation and Exemptions

Merger regulation serves as another area in which developing countries have included public interest, or industrial policy, considerations in their competition laws. For example, in merger review, the competition law may instruct the competition authority to consider certain public interest factors in deciding whether to approve a merger or acquisition. (199) Moreover, some developing countries may use public interest grounds in merger review to justify the creation and promotion of "national champions." These countries believe that certain firms should be allowed to grow large enough so that they may better compete with foreign firms in domestic markets or internationally as "national champions." (200) In fact, some countries have tried to promote national champions by excluding merger control regulation altogether in their laws. (201)

To justify the permissive scrutiny given to national champions, developing countries argue that their domestic firms cannot achieve international competitiveness without achieving economies of scale, which they claim means allowing a firm to gain and maintain a dominant position in the market. (202) It is not self evident, however, that economies of scale in small or developing nations will always require highly concentrated markets. (203) Further, a fair portion of economic activity in developing countries relates to the non-tradable sector--such as electricity, water, telephone, and financial services--where foreign trade has not disciplined the markets. As a result, applying permissive scrutiny to mergers or allowing concessions under the law with the goal of promoting "national champions" may very well lead to the protection of inefficient monopolies. (204)

In addition to merger review, developing countries have created broad exemptions under their competition laws that frequently allow the consideration of public interest factors. In India, for example, the central government may exempt classes of enterprises from the application of the Competition Act if the government deems it necessary in the public interest or interest of national security. (205) Similarly, Morocco allows exemptions at the discretion of the competition authority when the purpose is to improve small to mid-sized enterprises management or marketing by farmers of their products, assuming such practices produce a "net public benefit." (206) Some developing countries may use exemptions as another way to promote national champions by allowing firms to exercise market power under the law. (207)

The use of exemptions based on public interest considerations has raised concerns in the global competition law community. Many believe that these exemptions reflect public policy objectives that cannot be reconciled with the promotion of competition. (208) They fear that the application of exemptions and immunities may render the competition law ineffective and that the benefits that a competition law may bring to a country will be lost. (209) In addition, exemptions may be the direct result of regulatory capture and rent seeking, whereby a weak competition authority adopts policies or allows exceptions for various interests, which can impede the development of fully competitive markets. (210) Not only has the broad use of exemptions stimulated a debate about whether competition laws should include such other "populist" or public interest goals, but it also raises the broader question of what model of competition law, if any, is appropriate in developing countries. (211)
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Title Annotation:I. Introduction through IV. Developing Countries' Approach to Competition Law, p. 275-312
Author:Hazel, Diane R.
Publication:Houston Journal of International Law
Date:Mar 22, 2015
Words:7970
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