SOME COMMENTS ON THE MEANING OF THE CORE WTO PRINCIPLES WHEN INCLUDED IN A NATIONAL COMPETITION LAW

While there is much that can be said about the wider issues being debated in the WTO

Working Group on Trade and Competition Policy (WTO WGTCP) this paper focuses specifically on the interpretation of the application of the core principles of non-discrimination (national treatment and most favoured nation), transparency and due process to a proposed WTO Competition Framework. The paper is written as background information to assist developing countries’ delegates to prepare for the September 2002 meeting of the WTO WGTCP. The title specifically refers to inclusion of the principles in each country’s national competition law, since this is where they would reside. There is no attempt in the WTO to create a supra national competition law. Rather, the obligation being proposed is that each member develops a national competition law, in which the minimum scope of the law would be prohibition of hardcore cartels, and that the principles of non-discrimination, transparency and due process be included in the law.

In the debate in the WTO WGTCP, as well as in some written papers, there is a view that the inclusion of the principle of non-discrimination in a national competition law would lead to unbridled market access for foreign goods and services in that country. It is felt that it would limit a country’s ability to use industrial policy and other governmental support of domestic industries to protect them from foreign competition. There is even the view that national treatment means harmonization of all competition laws. It is my view that this interpretation of the implications of including non-discrimination in the national law is flawed.

Competition law increases market access only after market entry has been achieved. All governmental barriers to entry of goods, services and investment remain intact when a competition law is introduced. Let us not forget that the law proscribes anti-competitive conduct by businesses, and the details of what such conduct constitutes is up to the national government and community to decide. The debate in the WTO has not gone beyond proscribing hard-core cartels. And even that can be tempered by having exclusions and exceptions to the law. Industrial policy can and should quite legitimately live side by side with competition law. If the application of non-discrimination means unbridled market access, then developing countries should not have a problem accessing Europe’s agricultural market. But they do, because the common agricultural policy is unaffected by the non-discrimination provision in the competition law, and in any case, is exempt from the application of the competition law. All OECD countries have included in their competition laws the principle of non-discrimination. Yet, developing countries have serious problems of market access. We must ponder why. Clearly the barriers to entry into these markets are successfully keeping out goods and services from developing countries despite the inclusion of the principle of non-discrimination in their law.

Non-discrimination in a competition regime means very specifically how the law is enforced within the national jurisdiction. For example, under some competition regimes, the law states that access to essential facilities must be granted at market value (i.e., infrastructure, access to which is essential for the provision of a good or service, for example, telephone lines and home phones, gas pipes, docks, all of which are too expensive and impractical to replicate). Let us take the example of a case in which the Competition Authority determines that a firm with market power is guilty of abuse of its dominant position, denying access to its essential facility. In this instance, the Authority cannot enforce the law in such a way that local firms are granted access to the facility, but foreign firms which are already operating in the domestic economy are not granted access.

Another example which looks at the converse is that a Competition Authority cannot pursue cartels consisting of local firms, but ignore foreign firms operating in the economy which are part of a cartel. Foreign firms must feel the strong arm of the law equally as domestic firms

Non-discrimination in allowing access to the Competition Authority means that a foreign firm can have equal access as a local firm to lodge complaints with the Authority, and have the case examined with the same impartiality, as if it were a local firm lodging the complaint. The idea is that the Competition Authority should not favour local firms above foreign ones when responding to complaints. For instance, the Authority may proceed with vigorous investigation of a complaint lodged by a local firm against a foreign firm, but may ignore a complaint brought against a local firm by a foreign firm which is operating in the economy, or may even not give foreign firms a hearing.

Foreign firms must be granted equal access to the courts as local firms, so long as they are operating in the market. In most developing countries’ jurisdictions, that is already part of the legal tradition. What developing countries have to be concerned about is their ability to handle complaints and court cases, given the dire lack of human resources and institutional capacity. That has to be addressed under technical assistance and capacity building.

The Draft Chapter on Competition Policy in the FTAA speaks directly to the issue of non-discrimination, and makes clear its meaning:

[1.2 Each party undertakes to permit access, on a non-discriminatory basis to natural or legal persons resident in the territory of any party to the mechanisms and procedures of its national competition law.] (emphasis mine).

Interestingly, most favoured nation is not directly addressed in the FTAA agreement, and there are problems with interpretation of MFN when applied to a competition regime which needs to be explored further. Countries have bilateral agreements on cooperation which result in providing more favourable access to information, legal assistance and other considerations which would not be accessible to non-parties to the agreement. Much more work is needed to understand how this principle would apply in a competition regime.

Due process applies to law enforcement procedures as they relate to individuals and firms. It requires that enforcement be governed by ethical standards, such as providing those subject to the application of the law a fair hearing of their case. It is also instructive to look at the definition of due process in the FTAA Draft Chapter on Competition Policy. (Square brackets indicate provisions still to be negotiated, but the text reflects the results of long and in-depth discussions and debate in the negotiating group).

[The principle of due process means to ensure fair, independent and equitable procedures, before the competent and pre-established authorities, observing the formalities and guarantees established in the national and sub-regional laws and legislation.

This principle includes the [natural or] legal persons subject to the application of the law right

· to be informed of the reasons, nature and characteristics of the trial and proceedings;

· [that decisions issued by the competition authority are duly founded and motivated]]]

It is clear that due process, in this definition, is firmly anchored in “the formalities and guarantees established in the national and sub-regional laws and legislation.” It is therefore respecting the traditions of the legal system of the country.

Transparency means that there should be readily accessible written guidelines, regulations, other public guidance and that there should be ongoing updates of changes in the law or regulations. There is also the view that transparency should include the requirement that the Competition Authority should set a good example by following the guidelines and regulations which it issues. It should explain to the public what are its priorities, how it investigates and makes decisions, and the reasoning behind its enforcement and policy decisions. This would generate confidence in the private sector because it introduces predictability into the system. It is instructive to look at the text of the FTAA draft chapter in this regard:

The principle of transparency means [inter alia] that each party shall publish [and] [or] otherwise make available laws, regulations, procedures and administrative rulings of general application respecting any matter covered by this chapter.

The challenge which developing countries face in dealing with the inclusion of the core principles into a possible WTO Framework Agreement is to ensure that there is inclusion of a very clear definition of what is the meaning of these principles in the context of the enforcement of national competition laws. The wording is crucial to future interpretations. One may find that, indeed, most, if not all, jurisdictions in developing countries practice non-discrimination in access to the legal machinery of the land.

It is not useful to divert energies into arguing a case of excessive market entry linked to national treatment, without recognizing that governmental barriers to entry remains intact, and that that market entry is increased only after the firm is already operating in the national economy, and only if barriers erected by firms are removed, such as taking action against a cartel that engages in predatory behaviour to exclude competitors from a product or service market. In fact, all that has to be done is study the application of national treatment in competition regimes in OECD countries, and observe the extent to which there are barriers to entry of developing countries goods and services, to recognize that our problems of access to those markets would be solved if non-discrimination in a competition regime meant unbridled market access, since all OECD countries have provision in their competition law for non-discrimination.

With regard to due process, developing countries need to make it absolutely clear that they retain their sovereign right to choose the type of sanction, the standard of review and the judicial and administrative process which, in their view, are best adapted to their circumstances (hence the wording in the FTAA text respecting the national systems and procedures in enforcing the law).

The practice of transparency makes the competition regime more acceptable to stakeholders, generates more cooperation, and wins respect for the Competition Authority. It is therefore in the interest of developing countries to develop a culture of transparency in the execution of their competition regime. However, this requires resources and expertise to provide all the necessary elements itemized above that lends transparency to the regime. This is a point that should also be tackled in the discussions on technical assistance and capacity building, because most developing countries which have competition authorities are stretched beyond limits, have very limited skilled human resources, and even less financial resources to set up systems to ensure transparency. Those that are yet to set up regimes have even less capacity.

Comments on the Paper

Comments by P.M.Holmes

This paper is obviously right to say that non-discrimination does not mean harmonisation. Though it is worth recalling that within the EU the mere existence of regulatory differences may be treated as an obstacle to trade and the EU has sought to get competition laws like those of the EU in its regional partners. This approximation approach is not appropriate on the wider
stage, as the paper argues.

I would link the transparency and the non-discrimination issues: any exceptions to NT should surely be transparent. But we need to be careful to avoid this itself becoming a matter for litigation.

The paper also mentions the issue of MFN: we should perhaps look at the parallel issue of mutual recognition of standards agreements. It seems to me there is not a fundamental problem. In this kind of case we would not expect that for example confidential information be shared
equally with everyone but that everyone who meets certain criteria should be treated alike.
I think we would also with to avoid a situation in which individual cases of the sort referred to in the paper would lead to action at the WTO.

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