Does one competition law fit all?

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Competition laws have spread around the world in the past 15 years. These laws are seen as a ‘badge of honour’ by developing and newly industrialized nations. The new laws are often modelled on US and EU competition laws.

A recent article by Thomas Cheng discusses the problems and limitations of this international convergence of competition laws (thanks to the Antitrust and Competition Policy Blog for the lead). For example, Cheng notes concerns that China may use its competition laws to limit competition and protect domestic businesses. However, I think Cheng does not go far enough.

It strikes me that there are three key issues here:

  1. US or European competition laws may not be work to protect competition when simply transferred to other countries;
  2. ‘Off the shelf’ competition laws, if applied without regard to local context, may impinge on important political and cultural issues; and
  3. US and EU-style competition laws may be reinterpreted in ways that limit competition rather than enhance it, allowing governments to hide anti-competitive policies.

Competition laws will necessarily have a different role in different countries. This reflects differences in stages of development, differences in industrial history and differences in how business is done. In some countries business is a ‘family affair’, and simply applying western rules of cartels and mergers may be ineffective in promoting competition. In other countries, business works hand-in-hand with government, and competition rules may need to focus on breaking this cosy link. In smaller countries, free trade may be the best protection of competition, because market size limits the number of domestic competitors.

In each of these situations, simply using statues designed for Europe or the US may not result in effective local competition laws.

Indeed, advocates of ‘convergence’ in competition laws appear to ignore history. The original US antitrust law, the Sherman Act, was a product of its time. The name refers to a way business was carried out in the US in the 1880s and 1890s – when companies would use a ‘trust structure’ to avoid competition. These laws have been interpreted very differently at different times over the past century. Even today, US and EU competition authorities may draw very different conclusions on the same matter. The GE- Honeywell merger – approved by US competition authorities but blocked by the EU – provides the best recent example of this conflict.

In brief, importing US or EU competition laws, without taking account of local context and without recognising the chequered history of these laws, may be less effective than designing country-specific competition laws based in the local legal system.

On the second point, an illustration of how competition laws may interact with broader cultural and political issues is provided by India. Language (and the multiplicity of local languages) is a major issue in India. But ‘protection’ of language has been used as a tool to limit competition. The Competition Commission of India (CCI) has stepped in to stop state-based associations from limiting distribution of Hindi films. See here.  This is clearly a victory for competition. But I am not sure that this is a role for the CCI. Language is a political issue and a political solution needs to be found. While I favour competition, I am not sure that language is a competition issue rather than a cultural issue.

Third, some countries appear to be using  ‘competition laws’ to promote activities that seem to be, well, anti-competitive. Consider this piece by a member of the Korean Fair Trade Commission. Balanced growth doesn’t sound like a notion of vigorous competition working to protect consumers to me. Rather, it sounds like a way to protect inefficient SMEs from the ‘gale of creative destruction’. It seems all to easy to hide anti-competitive regulations while ticking the international ‘pro competition’ box by building local competition statutes around an imported set of laws.

Effective competition rules are hard to design and enforce. The rules need political support and need to recognise local idiosyncrasies. Importing competition rules from the EU or US may appear to be a simple answer. It isn’t.

One Response to "Does one competition law fit all?"
  1. There is a sizable chunk of EU competition law which some would argue does not benefit the EU either.  Putting the general issue of poor decision to one side, of which there are too many in the EU, there are a number of areas where EU competition law has taken an approach which is not consistent with what we know about economics and competition – more so I believe than other leading jurisdictions. Some of the main ones are: Dominant firms have a duty of care toward their competitors, aspects of the EU’s approach to fidelity discounts is not supported by economics, and predation does not require that a reasonable probability of recoupment is demonstrated. Even the procedure for defining markets is different in the EU than in the US although the end the result is pretty similar. There are institutional problems that may help explain some of the problem; the Competition Authorities are just another directorate within the European Commission (and in my experience is rather politicised), and professional economists have only recently been appointed within the Competition law directorate.

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