Options for the Internationalization of Competition Policy

could apply to a review of decisions taken by the competition authority in individual cases is more complex. A number of concerns have been raised in this regard:

• there is the question of the standard of review to be applied in dispute settlement proceedings. Would a review cover just one case, or would it look at a pattern of decisions. The standard of review would have to be crafted specifically with competition policy in mind.
  
  
• competition law enforcement is fact and data intensive, and requires detailed investigation and frequently the development of innovative economic theoretical approaches that are case specific. The WTO has yet to be used, and is not well adapted, for this type of decision -making. In most WTO cases, the narrow issue is the extent to which a state's laws are inconsistent with the member's WTO obligations.
  
  
• information and data gathering in competition law enforcement must be comprehensive if the underlying economic and statistical analyses are to be thorough, and trusted by all parties to a dispute. Questions have been raised as to the adequacy of WTO rules and practices in protecting confidential information. It is often unclear who is entitled to disclosure of confidential information and who is not.¹²
  
  
• another issue is the ability of the WTO to summon the expertise required to address complex competition law cases, including expertise in the areas of competition law, economic theory, statistical analytical techniques as well as a detailed knowledge of the sector. ¹³
  
  
• there is the issue of the suitability of WTO remedies for resolving competition disputes. Remedies available under competition law are limited to fines to the public treasury or payment to the winner in a private suit, or to changes in behaviour in the market(s) in which the offence occurred. In contrast, remedies under the WTO allow for counter-retaliation and may, in general, be applied to any product traded between the parties to the dispute.

Question #10 Do you agree that applying the WTO dispute settlement procedures to decisions in individual cases would be inappropriate?

(b) A Competition Policy Review Mechanism

Market efficiency requires that all players have the information needed to make informed investment and trade decisions. Repeated decisions by a competition authority to not take cases can raise suspicions on the parts of investors and traders. The Competition Policy Review Mechanism (CPRM) could offer a forum where these matters could be discussed. The objective would be to make known to the private sector and other members those antitrust jurisdictions that repeatedly fail to undertake enforcement procedures against anti- competitive conduct that forecloses market opportunities.

The effectiveness of the TRAMS would be enhanced by the establishment of a Competition Policy Review Mechanism (CPRM) similar to the existing Trade Policy Review Mechanism (TPRM). The TRAMS Council (see below) would be tasked with the responsibility of preparing a report on the competition law of the country under review. The report would critically review both the substantive provisions of the law to determine whether they are in compliance with the TRAMS provisions and the competition agency's enforcement record. The country would then come under a peer review. A peer review report would offer comments on the country's competition law, including enforcement efforts, with non-binding recommendations on where and how improvements can be made. Both the CPRM report and the peer review report would be made public.

(c) A TRAMS Council

An oversight body along the lines of the TRIPS Council might offer members a forum to consult and seek mutually satisfactory resolutions of problems related to market access If the aggrieved member felt that the offending member had not acted in good faith in cooperating to resolve a matter of important interest to it, then a panel of experts could be formed under the direction of the TRAMS Council. The group of experts would undertake its own analysis and assessment of the case, and would issue a report indicating whether the complaint was valid. The report would only address whether the conduct in question constituted a barrier to entry and whether the competition law in the offending member could be used to address the problem. The panel's decision and any recommendations would not be binding.

VI. Conclusion

Discussions in the WTO Working Group on the Interaction between Trade and Competition Policy (the "Working Group") have reflected a high degree of interest in exploring the option of negotiating a framework agreement on competition policy in the next round of multilateral negotiations. The European Union has been at the forefront in advocating the inclusion of competition policy on the negotiating agenda. Several developing countries and economies in transition, have expressed support for including competition policy as a topic for negotiations in the 1999 Ministerial. The U.S., however, has expressed concerns about the effect such an agreement would have on its national sovereignty, preferring instead broader and deeper cooperation amongst competition policy agencies as the most effective way of attacking anti-competitive conduct with an international dimension. While Canada has yet to signal formally its position on this matter, it supported the establishment of the Working Group with the goal of determining the potential use and effectiveness of the WTO framework for competition policy matters.

In the short term, reaching a broad agreement on a competition policy code in the WTO has limited possibilities. However, regardless of the short-term difficulties, the issues raised are too important to dismiss and advantage should be taken of the momentum created through the establishment and work of the WTO Working Group. While the objective of reaching an agreement is still desirable, it might be necessary to take a long- term perspective of achieving the goal of designing a TRAMS that is both realistic in terms of expectations and measured in respect of the eventual outcome.

A multi-staged approach might be employed to achieve consensus on a fully elaborated TRAMS that could address sequentially the issues of shared principles, common substantive approaches, cooperation mechanisms and adequate instruments to resolve disputes. Each stage would be conditional upon progress in the previous stage.

Canada will therefore need to design a strategy to build support for a staged approach for the inclusion of competition policy on the WTO agenda. This strategy would include a clear explanation of both the benefits of including competition policy on the WTO agenda for Canada and other WTO members, and the need to adopt a long-term, measured approach to achieving this objective.

Appendix A

a. Bilateral Experience

On the enforcement side, the Bureau has been increasingly involved in formal and informal cooperative efforts with foreign competition agencies in investigating restrictive business practices with trans-national dimensions.

To date, Canada's strongest relationship is with its largest trading partner, the U. S. The 1995 Canada-U.S. Agreement Regarding the Application of Their Competition and Deceptive Marketing Practices Laws and the 1985 Canada- US Treaty on Mutual Legal Assistance in Criminal Matters¹⁴ allow the competition agencies of Canada and the U.S. to better address, cooperate and consult with regard to anti-competitive activities with an impact on the economies of both Parties. Requests for assistance are an increasingly frequent element in Canada-U.S. competition enforcement cooperation, which has resulted in significant success in prosecuting foreign-directed conspiracies. Joint or parallel investigations and other examples of co-operation and co-ordination such as discussion on remedies sought have occurred to deter and punish several significant anti-competitive cross-border practices, specifically related to cross-border or foreign directed horizontal price fixing. Informal cooperation and contact between the competition authorities occurs regularly.

b. Regional Experience¹⁵

Both the Canada-US Free Trade Agreement ("the FTA") and the North America Free Trade

Agreement ("the NAFTA") include competition law and enforcement commitments. Chapter 15 of the NAFTA contains obligations requiring the Parties to maintain competition laws and cooperate in their enforcement . These obligations are not subject to dispute settlement. The NAFTA also contains obligations subject to dispute settlement regarding the notification of, and non-discrimination with regard to, state enterprises and monopolies.

NAFTA Chapter 15 also provides for a Working Group of competition and trade officials from the three countries to report and make recommendations regarding the relationship between competition policy and trade in NAFTA.

Competition principles have also been incorporated in the Canada-Chile and Canada-Israel Free Trade Agreements ¹⁶.

Canada is currently involved in regional negotiations in competition policy within the Free Trade Area of the Americas (FTAA), and the four country European Free Trade Area (EFTA), and supports the competition policy work program within APEC.

c. Multilateral Experience

At the international level, discussions on competition policy have focussed on one main forum: the Organization for Economic Cooperation and Development (OECD). Discussions at the OECD have the advantage of bringing together major developed countries with well-established competition law regimes. The Competition Bureau has provided leadership in leading discussions at the OECD focussing on the consideration of international problems common to trade and competition. Studies have included the scope and coverage of competition laws, exceptions and exemptions from such laws and the core principles that may be included in a multilateral agreement on competition policy. The Commissioner of Competition currently serves as the chairman of Working Party Three of the Competition Law and Policy Committee.

A positive outcome of these discussions is an agreement concerning cooperation amongst the OECD member countries. The most recent example is the 1998 Recommendation on Hard Core Cartels. Additionally, the cooperation is based on successive Recommendations of 1967, 1973, 1979, 1986 and most recently the 1995 Revised Recommendation Concerning Co-Operation Between Member Countries on Anticompetitive Practices Affecting International Trade. While compliance with the Recommendation is voluntary, notifications occur on a regular basis. Resort has not been made to the provision allowing to use the "CLP" for consultation and conciliation.¹⁷

Canada has also participated in several rounds of multilateral negotiations under the auspices of the GATT. The results of the Uruguay Round, and subsequent service negotiations, highlight the importance of competition in trade liberalization agreements. Some examples are the Antidumping Agreement , the Agreement on Trade-Related Aspects of Intellectual Property (TRIPS), the General Agreement on Trade in Services (the GATS), the Agreement on Technical Barriers to Trade (the TBT Agreement) the Agreement on Trade -related Aspects of Investment Measures (the TRIMS) and the Safeguard Agreement. All these agreements contain provisions related to competition policy.¹⁸

Finally, Canada has been an active participant in the WTO Working Group on the Interaction between Trade and Competition Policy. The Working Group was established at the 1996 Singapore Ministerial to "study issues raised by members relating to the interaction between trade and competition policy, including anti-competitive practices, in order to identify any areas that may merit further consideration in the WTO framework."

While it has only been only recently that the WTO has expressed interest in the international implications of competition policy enforcement, developing countries have pursued the question of the impact of multinational enterprises on their economies and, by extension, the role of competition policy in fostering economic growth.¹⁹ The Bureau has participated actively in UNCTAD deliberations on competition policy. The International Group of Experts of UNCTAD reached an agreement in 1980 on a Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices²⁰. The Setprovides rules and principles regarding the conduct of governments and private enterprises for the control of restrictive business practices and also provides for international consultation and cooperation. The Set is non-binding; compliance is voluntary.

The OECD also established a set of Guidelines for Multinational Enterprises (MNEs). The Guidelines are incorporated in the Declaration on International Investment and Multinational Enterprises. The Declaration was originally adopted in 1976 and has been reviewed three times (1979, 1984, 1991) since its adoption; the Guidelines are currently under review. The Guidelines contain a chapter on competition which sets a framework (code of conduct) on how MNEs should operate regarding the effects of their practices on competition include how enterprises should behave in respect to the competition rules in foreign jurisdictions. The Guidelines cover practices such as predatory behaviour, unreasonable refusal to deal and the participation in, or strengthening the restrictive effects of, international or domestic cartels or restrictive agreements which would limit or eliminate competition.

Appendix B

Question #1

In light of the preceding discussion, what elements are necessary and sufficient to meet the objective that countries adopt a sound competition policy?

Question #2

Some countries may not be in a position to incorporate all the elements of a sound competition policy at once. What are the most important elements that should have to be established at the outset?

Question #3

Are the WTO principles of transparency, national treatment and non-discrimination compatible with the enforcement of competition law and policy? Would they be desirable attributes in a TRAMS?

Question #4

To what degree should issues of procedural fairness be addressed in a TRAMS?

Question #5

Do you agree that there ought to be a common approach in a TRAMS relating to cartels ? Please elaborate.

Question #6

Do you believe that a TRAMS ought to permit an exemption for export cartels? Other exemptions (please specify and provide your rationale)?

Question #7

What prohibited practices in respect of abuse of dominant position ought to be included in a TRAMS? What are the prospects that agreement can be achieved on this subject?

Question #8

Do you believe that a TRAMS should provide for a common pre-merger notification form (or forms)? Ought negotiations towards a TRAMS attempt to seek to establish common (or converging) pre-merger notification thresholds and waiting periods?

Question #9

Do you believe that the subject of enforcement cooperation ought to be included in a TRAMS, assuming adequate confidentiality safeguards are established?

Question #10

Do you agree that applying the WTO dispute settlement procedures to decisions in individual cases would be inappropriate?

¹ Draft International Antitrust Code (July 19, 1993) reprinted in 65 Antitrust and Trade Reg. Rep. (BNA) No. 1628 (Special Supp.) (Aug. 19, 1993).

² American Bar Association, Report of ABA Special Committee on International Anti-Trust (1991).

³ Competition Policy in the New Trade Order: Strengthening International Cooperation and Rules, European Commission, 1995.

⁴ Eleanor Fox and Cooperation Ordover, "The Harmonization of Competition and Trade Law", in Competition Policy in the Global Economy, Eds: Leonard Waverman, William S. Comanor and Akira Goto, Routledge Studies in the Modern World Economy, 1997; F.M. Scherer, Competition Policies for an Integrated World Economy, The Brookings Institution, Washington, D.C.1996; Mitsuo Matsushita, "Reflections on Competition Policy/Law in the Framework of the WTO", in the 1997 Annual Proceedings of the Fordham Corporate Law Institute, Ed Barry Hawk; Competition Policies for the Global Economy, Eds: Edward Graham and J. David Richardson, Institute for International Economics, Washington, D.C., 1997; Michael J. Trebilcock, "Reconciling Competition Laws and Trade Policies: A New Challenge to International Cooperation", in Comparative Competition Policy, National Institutions in a Global Market, Eds: G. Bruce Doern and Stephen Wilks, Clarendon Press, Oxford, 1996; Milos Barutciski, "The Two Solitudes: Trade and Competition Policy", Canadian Bar Association, 1998 Annual Competition Law Conference.

⁵ Brian Hindley, "Competition Law and the WTO: Alternative Structures for Agreement", in Fair Trade and Harmonization: Prerequisites for Free Trade" Vol.2. Legal Analysis. Edited by Jagdish Bhagwati and Robert E. Hudec. Cambridge and London: MIT Press, 1996. P. 339.

⁶ Efficiency is the overarching objective in Canadian and U.S. competition laws. In the case of the EU and Japan, while efficiency is not the only purpose of their laws, it does constitute one important objective. Moreover, efficient trade is the norm in the WTO, while the UNCTAD set of principles on restrictive business practices is intended to foster global efficiency.

⁷ The compatibility of s. 9 of the Competition Act with WTO principles of national treatment will have to be reviewed. Section 9 provides that any six persons resident in Canada who are not less than eighteen years of age may apply to the Commissioner for an inquiry.

⁸ The term "anti-competitive" is to be interpreted by each country in light of their own laws. This means that we will be free to import undueness or substantial lessening requirements in the competition analysis for matters falling under this definition

⁹ The term "anti-competitive" is to be interpreted by each country in light of their own laws. This means that we will be free to import undueness or substantial lessening requirements in the competition analysis for matters falling under this definition

¹⁰ If national exporters can collectively exercise market power in foreign markets, they can appropriate economic rents from foreigners to the benefit of domestic residents.

¹¹ Article 86 of the EC Treaty is aimed at individual enterprises and the special problems raised by market power. The article prohibits any undertaking with a dominant position within the common market from abusing its position is so far as that abuse affects trade between member states. Article 86 does not contain any exemption to the principle of prohibition. The article contains several cases of abuse, including limiting production, markets or technical development to the prejudice of consumers. For Article 86 to apply, the undertaking must have a dominant position within the common market. This is interpreted to mean that the undertaking has a capacity to act in a market independently from its competitors. Such a capacity is often, but not always, signalled by a large market share.

¹² The merging parties must demonstrate that the gains in efficiency which will likely arise from the merger will be greater than, and will offset, the effects of any likely substantial prevention or lessening of competition, and that these gains would not likely be attained if a prohibition order were obtained. In this context, the Competition Bureau requires the provision of meaningful and verifiable information by parties to back up their claims of efficiency gains, expanded exports and import substitution predicted to result from a merger. For an elaboration, see Margaret Sanderson, Efficiency Analysis in Canadian Merger Cases (Competition Bureau, 1996).

¹³ See Mavroidis and Van Siclen, The Application of the GATT/WTO Dispute Settlement Resolution System to Competition (1997), 31 Journal of World Trade p.5 at 40.

¹⁴Supra,note 26, at 41. Mavroidis and Van Siclen observe that under WTO rules, recourse to expertise is at the discretion of the adjudicating panel. In their view, "limits to this discretion may be desirable."

¹⁵ The Mutual Legal Assistance in Criminal Matters Act was enacted to implement the Canada-U.S. MLAT as well as similar treaties in the future. It has been in force since 1990. Among other things, it provides for specific mechanisms, such as search warrants and orders for oral examination, to be used by Canada in assisting U.S. and other foreign investigations.

¹⁶ It is expected that the Agreement between the Government of Canada and the European Communities Regarding the Application of their Competition Laws will be signed and come into effect later this year (1999).

¹⁷ The Competition Bureau is currently exploring with the Chilean competition authority ways of deepening cooperation on competition policy issues.

¹⁸ For a fuller elaboration of the guiding principles governing the Recommendation, please see the Appendix to the Recommendation, Guiding Principles for Notifications, Exchange of Information, Cooperation in Investigations and Proceedings, Consultations and Conciliation of Anti-Competitive Practices Affecting International Trade. Paris: OECD/C(95) 130 Final.

In the TBT Code, Article 3.4 requires that members shall not encourage private organizations to discriminate against foreign products with regard to testing and certification contrary to the national treatment principle. If a member engages in such behaviour, it constitutes a violation of the agreement

In the Anti-dumping Agreement, Article 3.5 states that the administering authority must take into consideration restrictive business practices when determining injury to a domestic industry if there are such practices. Article 9.1 of the GATS requires that members take measures to ensure that a monopoly supplier of services within their territories not abuse its market power in such a manner as to be inconsistent with the most- favoured-nation (MFN) principle. Such abusive conduct would include, for example, refusal on the part of a telecommunications company with a bottleneck monopoly over local telephone networks in the territory of a Member to allow connection to international telephone companies that belong to another Member thereby discriminating against them in comparison to other companies in other Members.

Article 40 of the TRIPS agreement states that Members are authorized to enact domestic laws to combat restrictive provisions involved in technology licensing agreements.

Article 11.1 of the Safeguard Agreement prohibits Members from encouraging or supporting the adoption or maintenance by private enterprises of measures equivalent to voluntary export restraint exercised by the government. For example, if the government of a Member encourages the creation of an export cartel, thereby restricting the exportation of products, this would constitute a violation of Article 11.1 and open to challenge by the competition authority of the exporting or importing country.

The above are illustrative of current WTO approaches to competition policy issues. One of the criticisms of this approach is that it is a patchwork plan, leaving wide gaps in interpretation and enforcement of the competition provisions. It is felt that bringing competition policy under the WTO in an integrated and more comprehensive fashion will help to overcome this haphazard and ineffective application of competition principles .

¹⁹ The harmful effects of restrictive business practices is not new to the international trade policy community. The Havana Charter of the still-born International Trade Organization contained provisions requiring member states to precent, and to cooperate in deterring practices which restrain competition, limit market access or foster monopolistic control. This was rejected by the U.S. Congress as an unacceptable intrusion on national sovereignty.

²⁰ UNCTAD, UN Doc. TD/RBP/Conf/10 (May 2, 1980), adopted by the UN General Assembly on November 12, 1980, UN Doc. A/C.2/35/L.75.