Are the Goals and Objectives of International Trade and Competition Law Complementary or in Conflict?

• Author: Bruno Manzanares Bastida
• Position: TradeLex Abogados

I Introduction

Over the last decades, the liberalisation of international trade and foreign direct investment has opened the markets of many countries worldwide. Due to this, the flow of goods and services has notoriously increased across the borders, to an extent that the conduct of firms in its own market could affect foreign markets and consumers located thousands miles away¹. As Weber Waller notes, in this economic integration and interdependence scenario, the realities of companies' behaviour have escape to any single state's jurisdictional control to enforce its competition laws². Almost every state have a form of domestic competition laws specifically designed to control the domestic market behaviour. However, due to the current economic globalisation process, these policies are proving inadequate to regulate corporate behaviour beyond the nation-state borders ³ . Therefore, although national authorities have the power and the tools to detect and restrain such anticompetitive behaviours, multinational firms are still able to evade such control due to the spread of their economic and corporate activities in many different countries⁴. Indeed, many undertakings in today's globalised economy are truly "multinational" having a presence worldwide⁵.

Hence, the claims for the creation of an international competition regime are increasing. For many, the more successful international organisations are in their objective of lowering down the barriers to trade, the more important could protecting the playing field of the domestic markets to safeguard the benefits from opening the border to foreign goods and services be ⁶.

At this point a question arises, could trade and competition laws work together or are they parallel universes with different goals and objectives?

In Epstein's view, competition laws are traditionally focused in the behaviour of the private undertakings that can potentially damage the competition of a certain market and the welfare of its consumers⁷. If two or more undertakings conspire to fix prices, reduce output or try to boycott other competitors, competition laws provide the remedies to fix such behaviours establishing economic and criminal penalties and promoting a vigorous competition (Jones 2000). Many policy makers in this regard such as Anderson, are of the opinion that competition policy and the international trade liberalisation share common goals and objectives, relating to the promotion of economic efficiency and consumer welfare and that the lack of an efficient competition policy could erode the benefits pursued by the liberalisation of trade ⁸ . However, competition laws are based in domestic political and economic believes intended to promote economic efficiency and are enforced by domestic authorities that rarely have contact with the ever evolving issues, standards and diplomacy of international trade ⁹. On the other hand, we have trade laws which have international origin and are intended to regulate public behaviour regarding the establishment or not of tariff and non tariff barriers to protect domestic industry from foreign competitors¹⁰. Trade laws, unlike competition laws, are enforced by international bodies composed by officials from diplomatic branches of national governments more inclined to the diplomacy and negotiation, and have as a primary goal to open foreign markets to exporters rather than protecting consumer welfare and economic efficiency¹¹. Overall, and as Julian Epstein notes;

In short, the two bodies of law involve fundamentally different actors with fundamentally different institutional perspectives, cultures, methods of dispute resolution, and legal principles¹².

As Holmes observes, the trade and competition debate has been a concern for more than 50 years in the multilateral trading system¹³. Studies demonstrate that although the case for some form of multilateral rules on competition is in principle clear, there is a broad debate regarding how to do it effectively in practice and which should be the institutional principles and enforcement mechanisms for such a rule-making effort (Holmes 2002). In this sense, it is important to analyse if the goals and objectives of both laws are compatible.

In addition to these considerations, there are also discrepancies regarding the goals and objectives of the different competition laws that exist worldwide. Competition laws may differ greatly from one state to another. While most states agree that certain crimes and behaviours are punishable, like rape or murder, what could constitute an anti-competitive behaviour is actually defined by the competition laws of each estate established on behalf of certain political and economic beliefs, and these may vary on detail and scope in an specific country or situation¹⁴.

II The Interface between trade and competition Laws

Concerns regarding the relationship between trade and competition have had a long tradition. In his The Wealth of the nations (1776) Adam Smith already denounced the monopolistic practices of one of the British jewels at that time, the East India Company, arguing that it hurt the interests of both India and United Kingdom¹⁵. After the World War II in 1947, in the Havana Charter of the lately frustrated International Trade Organisation (ITO) the relationship between trade and anticompetitive behaviour was addressed providing in article 46.1 the need for the members to control international anticompetitive behaviour¹⁶;

Each member shall take appropriate measures and shall co-operate with the organisation to prevent, on the part of private or public commercial enterprises, business practices affecting international trade which restrain competition, limit access to markets, or foster monopolistic control, whenever such practices have harmful effects on the expansion of production or trade and interfere with the achievement of any of the other objectives set forth in article 1¹⁷

An example of the harm that international anticompetitive practices can cause in international trade and market access is evident in many cases such as the Egyptian Cement cartel¹⁸.

The Egyptian cement industry, formerly in the hands of the government, was privatised in 1999, and thus the market was freed from the public bureaucratic burdens and distribution middlemen that were in place¹⁹. Consequently, prices were free from controls and foreign investment started to flow in the sector by foreign companies that eventually bought state owned cement companies and modernised the infrastructure of the cement industry²⁰. As a consequence of the investments and mergers (in Egypt and outside) that took place, a new picture appeared in the industry now dominated by three powerful companies, which together shared the 70 per cent of the Egyptian cement industry. However, due to the boost that the industry had, a few domestic firms decided to enter the market. When the demand of cement started to decrease, one of these domestic firms, the Egyptian Cement Company, started exporting to Canary Islands at very competitive prices. As a consequence of the "intrusion" of the Egyptian Cement Company in "their domestic market" the foreign suppliers of the Egyptian market reacted by lowering down their product prices at the minimum level as a strategy to create loses to the domestic companies and thus preventing them from exporting to Canary islands. As a result, the Egyptian Cement Company lowered its exports in a 75 per cent due to the local price war. After the price war ended, the prices were agreed between almost all the companies in the sector trough collusion and establishing a market share for each company in case the price fixing was not possible for whatever reasons. In this particular case, there are some circumstances to take into account. As Frederick Jenny²¹ notes, firstly, Egyptian cement producers were prevented from exporting to the EU (Canary Islands) by big companies that reacted defending their interests in the market. Secondly, although European competition law prohibits price fixing and market sharing agreements, it proved useless due to the enforcement problem of the European competition law in foreign countries. Thirdly, the absence of a competition regime in Egypt and therefore an enforcement co-operation between EU and Egypt damaged the interests of the Egyptian consumers as well as the consumers from the Canary Islands (Jenny 2003).

Hence, nowadays the anticompetitive behaviour can have cross border consequences, affecting trade liberalisation efforts and preventing companies from exporting. As Trebilcock and Howse claim, it is widely argued that nowadays, due to the liberalisation of the markets, firms are often engaged in protecting their domestic markets from the increasing competing imports and foreign investments ²² . International agencies like the United Nations Conference on Trade and Development (UNCTAD) have noticed the increasing practices of many firms to protect their domestic markets in some cases provoking more harm than the tariff barriers; Competition policy comes into this picture because some major players, fearful of the consequences of trade liberalisation and stronger competition may be inclined to protect their interests and market shares by introducing cross-border anticompetitive practices, such as international cartels, abuse of dominance, and abuse of intellectual property rights (IPRs). In some circumstances, such practices can limit international trade even more severely than the former high tariffs and just as severely as the nontariff barriers. Domestic suppliers may enter into exclusive arrangements with their local distributors, which effectively deny importers access to some markets. Large retail chains may refuse to...