Published in International Trade Law & Regulation, London, U.K., February, 1997.
Until very recently, economic protection in Latin America was ensured by countries in the region imposing very high tariffs, as per import substitution models devised by multilateral agencies. These models are the source of heated controversy as to their respective merits and shortcomings, but from a legal perspective they secured a substantial insulation of the local economies from predatory trade practices and from abuses of economic power. Therefore, countries in the region have not had a great tradition in curbing actions in either area. Of the two fields, however, competition law was much more inactive than trade law, as the latter had the basic framework involved within the General Agreement on Tariffs and Trade (GATT).(1)
Following the Uruguay Round, countries in the region adopted policies of unilateral trade liberalisation as pillars of the respective economic stabilisation programmes and rapidly reduced tariffs. Brazil, for instance, reduced its average tariffs from 55 percent in 1987 to an average of 6.5 percent today, having fully consolidated its 35 percent average tariff, as per its commitments at the Uruguay Round. This phenomenon of unilateral tariff liberalisation occurred generally with all developing countries, so that, nowadays, the 20 most liberal countries are the developing countries, followed by Germany in 21st position, the United States in 25th position, and then Colombia, Greece and India, with Japan in 28th position preceded by Argentina and Brazil.(2) As a result, the economies that were previously protected from external competition by high tariffs became exposed not only to legitimate trade competition, but also to its illegal manifestations: predatory trade practices and the abusive and anti-competitive practices of economic power. The former are traditionally the subject of multilateral regulation in international trade law whilst the latter are now the subject of intense international debate.
In Brazil and Argentina, the situation is greatly aggravated by the partial failure to adjust to the prevailing trade liberalisation, the institutional legal structure which, in many respects, still follows the model of closed economies. This situation adversely affects competitiveness of local companies in an environment of open trade, in the areas of tax and labour legislation. In some countries, such as Brazil and Mexico, this scenario is further complicated by interest rates and exchange policies
TRADE LAW vs. COMPETITION LAW
Of course, international trade law has generic objectives different those of competition law. International trade law, nationally applied, has as its principal objective the protection of production, labour and domestic industries from foreign competition , especially unfair or predatory.(3) In pursuit of such objective, the authorities do not always apply the trade laws taking into consideration consumer rights, and the eventual policy of opening the economy is not always formulated to secure a competitive process.
On the other hand, competition law aims at ensuring the opening of markets and free competition, taking into account consumer rights. Therefore, competition law intends generically to protect the process of free competition and consumers’ rights, whilst international trade law has the objective of protecting internal procures against unfair or predatory foreign competition. In addition, competition law does not distinguish between the nationalities of the agents in the competitive process.
However, there is an area of unequivocal convergence between international trade law and competition law, as unfair or predatory trade practices affect free competition. This occurs in many sectors, specially in the area of government subsidies. Free competition has no greater enemy than government subsidies. The Treaty of Rome (4) foresees both matters simultaneously, stabilising the objectives of:
(a) eliminating and preventing barriers to trade;
(b) controlling the excessive concentration of market power;
(c) disciplining practices abusive to competition; and (5)
(d) avoiding distortions in the internal market caused by subsidies.
It should be noted that there is a mixture of themes of a pure trade nature (items (a) and (d)), with others rigorously relating to competition law (items (b) e (c)), which is quite logical. The matter of subsidies, for instance, is one that has direct bearing with respect to anti-competitive practices, as subsidies obviously disrupt markets and competition. In spite of this, only after the Uruguay Round were agricultural subsidies inserted within the framework of GATT.
On the other hand, not even GATT was successful in avoiding the utilisation of the anti-dumping dispositions as an abuse of economic rights (including against Brazil in the case of steel, shoes, orange juice and others and against Argentina in the case of grains), a normal practice traditionally used by the government of the United States , which has been, since 1948, the greatest violator of international trade law. Coherently, the United States refused to accept the decision of a GATT panel stabilising that the North-American anti-dumping practices violated the multilateral dispositions of international trade law.(6)
The inescapable fact is that, with the great pressure for the increase of the rule of law in international trade relations, the inter-connection of competition law and international trade law shall result in a joint treatment of themes, in the area of international law, which certainly will lead to the harmonisation of themes on an international level. In addition, as a result of the globalisation of economies, a substantial part of the problems related to competition law are in a transnational perspective, as for example mergers on a world scale, such as those between AKZO and PPG and CIBA GEIGY and SANDOZ.
Moreover, there has been an increase in the number of international cartels of all types, as well as cartels for the export of goods, specially agricultural products. Other restrictive practices affect competition, such as the formation of the so called “cartel of shame” , by the developed countries, in the creation of horizontal barriers for the access of service providers of developing countries. A great number of anti-competitive practices could be listed, specially in the area of transportation.
From a generic cross-border perspective, we could also detail some situations of restrictive practices to competition in international law. These are collective practices of companies in a given country that affect the competitiveness of other countries or impede the access for third parties to their domestic market. Lastly, there are collective practices in a country that affect the competitiveness for companies in a second country in their access to the markets of a third.
The absence of international harmonisation of the rules concerning competition law, and of an international authority related to this matter causes problems to companies acting on the world stage. A transaction must be submitted, simultaneously, to several national authorities, according to various criteria and, sometimes with opposing results, such as in the sale of the Brazilian company Metal Leve to the German company MAHLE GmbH, where the Brazilian and the U.S. competitive law authorities had disparate attitudes. Such differences maximise the difficulties for trade in general and discourage the market by the uncertainties and by the magnitude of the cost involved.
From the point of view of the developing countries, it is extraordinarily important to analyse the matter in light of the bizarre, grotesque and illegal attempts of some countries, notably the United States, to try to apply its laws beyond its territory. This attempt occurs in several areas, but also in competition law. Only recently, the United States tried to apply across the border its right of competition at least five times.(7) Within the North American Free Trade Area (NAFTA), the United States attempted (and succeeded) to make Mexico swallow its competition rules, calling such indigestible exercise a convergence of values.(8) In the negotiations foreseeing the creation of a Free Trade Area for the Amercias (FTAA), the ideal model for the United States is the expansion of NAFTA, with the exportation , among others, of the North-American system of competition law.
Indeed, in the United States v. Alcoa, the U.S. Supreme Court recognised that federal law, particularly federal anti-trust law, may be given extra-territorial application in situations in which conduct beyond the territorial boundaries of the United States adversely affects the domestic U. S. economy. The United Kingdom, Canada and Australia, among others, have vigorously opposed these developments.(9)
In fact, certain developed countries in general, and the United States in particular, try to resolve the problems of internationalisation of competitive law unilaterally, trying to apply its laws and judicial systems beyond its territory. However, when these countries have the opportunity to ratify a decision taken by a developing country, they refuse to do so, with various excuses, such as for example, the lack of legislative sophistication. If a contrary situation happens , the matter becomes a diplomatic incident. The attempts for bilateral agreements, such as the one between the United States and the E.U., were not successful , because they did not overcome the tests of hegemony and ethnocentricism.(10)
Thus, as occurs in the international trade of goods and services , developing countries are the ones which have more to lose because of the lack of major international juridicity in the area of competiton law, today more than ever intimately connected to the traditional issues of international trade. This greater jurisdicity involves not only a body of rules at multilateral level but also their application through an international body.
THE TREATMENT OF COMPETITION LAW IN THE URUGUAY ROUND AGREEMENTS
During the long negotiations of the Round, the negotiators of the developing countries sought the strengthening of the rule of law, and this can be confirmed by an examination of the Uruguay Round Agreements which includes matters of agriculture and textiles, intellectual property, the treatment of agricultural subsidies, amongst others. The main conquest was the dispute resolution mechanism which was long awaited. Among the new items included were the Trade Related Investment Measures (TRIMs).
It is known that the principal TRIM is the subsidy. As this is mainly supported by developed nations, the matter was not included in the TRIMs Agreement and the measures therein inserted were only the ones utilised by developing nations in accordance with the import substitution models of the past. However, in its Article 9, the TRIMs Agreement determines that, within five years of the commencement of the World Trade Organisation (WTO), on January , 1st of 1995, the Council for Trade in Goods will propose reforms, taking into consideration areas of investment and competition law.
The Services Agreement of the Uruguay Round represented another of the new and areas to be included in the multilateral system.Its a refers to monopolistic practices and exclusive service providers, determining that such practices, when existent, should be consistent with the principles of the most favoured nation clause. Article 8 (2) rules on the creation of monopolies outside the area of monopolistic rights. Article 8 (3) regulates the mechanism of requesting information in case of suspicion of violation of Article 8 (1). In general, Article 9 (1) of Services Agreement recognises that certain practices of services providers may restrict trade in that area. Article 9 (2) regulates the system of consultations between the Member States.
Similarly, the Agreement on Intellectual Property, of the Uruguay Round, the so called TRIPs Agreement (11), is another new area in the multilateral system (12) in relation to competition law. For example, is Article 8 regulates the practice of abuse of power to make difficult the international transfer of technology. In its turn, Article 39 regulates the aspects of abuse of economic power derived from obtaining trade secrets reported to a given government, for regulatory purposes. Article 40 rules on the abuse of economic power arising from the excessive burdening of agreements for the licensing of intellectual property rights.
The above mentioned provisions show, on one hand, the weak and incipient treatment of the matter in the ambit of the WTO and a determination to deepen it in the medium term, until January, 2000. In reality, the multilateral trade system has become so wide that a broader treatment of the rights of competition in the WTO is absolutely inescapable.
CONCLUSION: ALTERNATIVE WAYS
Competition law presently requires a global treatment to secure the prevalence of the law in this area of fundamental importance for economic relations in general and, in particular, for developing nations which are the traditional victims of arbitrary behaviour. In this respect, the group of European Union experts (13) in the aforesaid report has considered three basic alternatives as follows:
(a) the group has considered premature the establishment of an international authority;
(b) the group has considered ineffective a series of bilateral agreements, and
(c) the group has considered appropriate what it called ” the plurilateral alternative”, a cartel side of the developed nations which would establish the rules they judge appropriate, in their favour naturally, and subsequently, when they are ready, the developing nations would be called one by one, in an infamous accession, to become the helpless victims of opportunism.
This position will be presented by the European Union in a WTO ministerial meeting to take place in Singapore, in December (14), and will probably be supported by the United States. It is expected that the developing countries will oppose this measure.
The more apposite alternative should be the inclusion of the topic within the WTO. The existing WTO resolution mechanism could deal with the controversies to occur in the field of competiton law in the future. In 1993, the International Antitrust code work group elaborated a draft characterising it as an agreement in the ambit of GATT, noting that GATT is in the centre of the international trade system and, as a result, where the rules on anti-monopoly and competition law should be concentrated. (15) This development could certainly be considered in a moment in the future when the many pending issues affecting multilateral trade have been addressed.
Should this multilarisation of competition law occur, naturally a certain derogation of sovereignty will follow. However, this derogation will be undeniably worthwhile, if the legality and reliability of the system could be maintained on a high level.