APEC

COMPETITON POLICY AND COMPETITION LAW

�� ISSUES FOR APEC

HANK SPIER
GENERAL MANAGER
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

The growth of international commerce has led to the increasing integration of our economies. The increasing interdependence Asia-Pacific economies makes cooperation between countries in the area of competition law enforcement more important now than ever. The threshold issue is, of course, that effective competition law has been embraced by the countries.

I would like to take this opportunity to outline some of my thoughts on competition law in Australia and future co-operation at international level.

The Commission believes that cooperation between competition law enforcement agencies is invaluable as a mean of achieving competition policy objectives. Given if there are different laws but basic similar principles will facilitate co-operation and unified goals.

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EMERGENCE OF THE GLOBAL MARKETPLACE

Improvements in communication, technology and transportation, as well as social and cultural changes have progressively reduced the effective economic distance between nations, leading to a growth in the economic opportunities of business all around the world. At the same time, many of the government policies that have traditionally inhibited international transactions have been relaxed and in some cases removed completely.

Trade polices such as tariffs, import restriction, and subsidized exports and limitations on international capital movements have all had the effect of erecting fences at the borders of nations. However, the gradual realization of the opportunities presented by a competitive global marketplace for the worldcs consumers, producers and service provider has progressively led governments to lower these barriers and continue the push for trade liberalization.

As a result the world is now more open to international trade �� and from Australia's point of view this means that Australian firms have access to foreign markets and Australian consumers look to foreign producers as important sources of price and quality options. The same applies to other APEC countries. This represents both a competitive opportunity and challenge for all of us.

With this developing global marketplace and interdependent economies, there is an increasing recognition that competition law can complement the advancements we are making in our trade policies towards achieving open and accessible markets. Sound and effective competition law enforcement can ensure that the benefits of trade liberalization are not defeated by the imposition of private barriers to trade.

The immediate challenge for competition law enforcement agencies is to promote and safeguard open and competitive globe markets for the benefit of the world's consumers and producers. This can be done most effectively if there is a level of cooperation between the agencies. In an interdependent world, the object of competition agencies will never be met without some form of cooperation between them. What level of cooperation is necessary? What level of cooperation is possible? What are the appropriate enforcement strategies and enforcement tools for today's global economy?

These challenges face us all, and it is my hope that the following discussion can contribute to their solution �� for international cooperation is essential for us to realize our competition policy object.

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COMMON ELEMENTS OF COMPETITION LAW

Cooperation in any field requires the identification of commonalties. Fortunately for us, there are many issues that are common to the competition law of the APEC economies. There is much to be gained from facilitating cooperation and coordination in the handling of these issues between member countries.

Despite the difference between APEC counties with respect to the scope and application of their respective competition laws, and despite the varying rationales behind the formulation of such laws, they share the necessary commitment to competition and the opening up of markets. What can be also identified is general agreement on what constitutes unacceptable anti-competitive conduct.

In terms of the competition laws in APEC member economies with competition law the key elements include:

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WHAT IS THIS IN PRACTICE?

The purpose that such conduct is prohibited is to facilitate effective and efficient markets. Most industrialized countries have long taken the view that in order to improve the efficiency of the economy is a strong role of competition policy. Improving efficiency is not an end in itself but has amongst its objectives increased national output, employment and income growth, production of goods which consumers want for the lowest possible price and best quality, the creation of industries which are dynamic, flexible and internationally competitive and the better utilization of capital stock.

The "engine" which drives efficiency is free and open competition. Effective competition is the mechanism by which the efficiency of the economy is increased. Competition policy broader defined encompasses all policy actions aimed at promoting competition in the economy. In practice this includes a range of mechanisms and actions that have the immediate aim of encouraging competition between providers of goods and services.

Competition law is one of the facts of competition policy but not the only one. Competition law seeks to allow market place to work free of private encumbrances. Many of the other competition policy instrument are based on government regulation, structural reform and other fairly blunt instruments albeit often effective.

To take some examples from Australian enforcement activity competition law actions are aimed at the following:

I can go on and on but you will see that if the conduct outlined in these examples is allowed to continue the relevant markets will not be able to operate effectively.

The Australian market has long been characterized by anticompetitive conduct. In fact collusion on prices was until 1974 an accepted part of business conduct in most Australian markets and the then model of competition law facilitated that.

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AUSTRALIAN COMPETITION LAW MODELS

Like many countries newly experimenting with competition law Australia has experimented with a number of models before it settled on what it has today.

The first attempt was in 1906 when legislation along the lines of the US Sherman Act was enacted by the then very new Australian Federal government. Unfortunately that legislation was soon to be made ineffective by a judgement of the High Court of Australia.

Very little happened for many years. World War I, the Depression and World War II intervened and in the Australian market a combination of the Depression and World War II facilitated anticompetitive conduct due to government actions in relation to price controls, rationing, orderly marketing arrangements and strict import controls.

In 1965 the Australian government introduced the first Trade Practices Act. This was modelled on the UK law which was essentially a registration system where anticompetitive agreements (horizontals) were to be registered on a secret register and were exempt from the law until such time as the regulatory authority examined them, found them not to be in the public interest and had them declared invalid. This was a slow process and subject to many challenges and delays as those delays helped the businesses relying on that conduct. That law did not prohibit resale price maintenance nor did it prohibit anticompetitive mergers. Resale price maintenance was prohibited in 1971 but it could be exempted from the law on public benefit grounds.

In 1974 the law was dramatically changed to bring in the US model whereby anticompetitive conduct was prohibited either on a per se basis or to a competition test. The hard core offences of price fixing, (horizontal and vertical) and misuse of market power were per se prohibited. Other conduct was subject to a competition test including mergers.

However the Australian government also introduced a slight variation which brought in some of the English concept and allowed conduct to be exempted from competition law if there were countervailing public benefits. However this would only apply for future conduct and after a public process.

That model is still the Australian model. It has been slightly modified over the years but essentially the underlying basis is still there and New Zealand in 1986 adopted the same model.

That model has taken a significant step forward recently whereby the States and Territories in the Australian Federation have adopted the same law albeit to be administered by a Federal agency. This was to overcome any constitutional law gaps in the Act and is an important development in the gradual development of Australian competition law starting back in 1906.

Competition law has universal application within Australian. There is national administration, there is private action and generally the law and its administration is maturing. That is not to say that there are not other challenges but the important challenge now is external issues, global issues and global enforcement co-operation.

Many of the practices I outlined above have global dimensions and if we are to ensure effective global markets then co-operation is essential.

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WHY COOPERATE IN ENFORCEMENT OF PRO-COMPETITION LAWS

From the point of view of an enforcement agency, globalization of markets has impacted upon the ability to enforce competition and antitrust laws as more cases involve multination companies and conduct, overseas evidence and the overlapping interests of multiple jurisdiction.

There are several reasons necessitating cooperation between competition agencies.

  1. Given the globalization of the economy, there are more competition problems which transcend national boundaries, for example, international cartels, export cartels, restrictive practices in fields which are international by nature such as air or sea transport, mergers involving multination corporations, and the abuse of a dominant position on several major markets. Further, various transactions may have occurred offshore even though they have an effect on domestic markets, for example, offshore mergers, or anticompetitive agreements between exporters. Competition authorities have a prime interest in cooperating to solve these problems to enhance the effective enforcement of competition rules.
  2. Enforcement of competition rules is based on having adequate and correct information to reach a view about whether unlawful conduct took place or whether the effects of an acquisition are anticompetitive. In our global economy, often the necessary information is spread around the world, as is the conduct, transaction and economic impact. Often, the information is in the hands of another enforcement agency which has had prior dealings with the persons or firms involved.
  3. Firms which operate in several countries may be subject to differing national competition rules. Procedures, time limits and the criteria for assessing the competition impact may vary considerably. These differences can increases the costs faced by firms and increase the uncertainties, which may distort trade flows and international investment. Gillette's acquisition of Wilkinson Sword was considered by fourteen different agencies around the world, including Australia, New Zealand and the USA. Although the world-wide transaction had a different impact in the various jurisdictions (largely due to differences in the economic structures and merger laws of the various countries), the Commission found it useful to be able to discuss market issues and exchange views during the course of the investigation, subject, of course, to the restrictions on the transmission of confidential information held by each enforcement agency. With sort of cooperation, enforcement agencies can at the very least ensure that all relevant issues are being considered.
  4. In some countries actions against anticompetitive practices can be less rigorous than others and result in distortions. In addition, anticompetitive practices tolerated in one country may result in reduced access opportunities to the market, even though foreign firms could provide additional competition which would be beneficial to the consumers of that country.

Some countries have sought to remedy such problems by extending the territorial application of their competition laws. However, this has led to conflicts between competition authorities in terms of jurisdiction, as well as judicial or legislative intervention (eg. through blocking or claw-back legislation).

Developing countries in particular have an interest in ensuring effective controls on anticompetitive behaviour. In the absence of appropriate domestic rules, these countries may be at risk of being subject to extraterritorial application of other countries' competition laws, or being exposed to anticompetitive conduct by foreign firms.

To illustrate with an example, the Australian Competition and Consumer Commission frequently finds itself confronted with acquisitions involving foreign companies. Australian merger analysis focuses on whether the proposed transaction would have the likely effect of substantially lessening competition in a substantial market in Australia. The nationality of the acquiring company is not a relevant consideration in Australian merger law. However, the role of imports in providing a competitive force in Australian markets is an important consideration.

The commission's merger review processes reflect the profound changes which continue to occur in international trade and commerce, through rapid growth in international trade and increasing globalization of commerce. This exposes domestic producers to international competition in domestic markets and forces Australian firms to seek greater efficiencies in production, distribution and management so as to be able to compete in overseas markets. There is also increasing pressure on domestic firms to be innovative to keep ahead of, or just to keep up with, rapidly evolving technologies and new products.

The Commission has continually placed a very high emphasis on the role of imports in its assessment of merger cases. The Commission has not opposed any merger where there has been significant import competition. Indeed since the change in the mergers test in 1993, in some 30 or more cases the role of imports has been either critical or highly relevant in the Commission not opposing the merger.

In considering the role of actual and potential import competition, the Australian Competition and Consumer Commission will have regard to the following types of information which may often be obtained from foreign sources:

To have such information supplied or verified by the local enforcement agency would no doubt greatly assist the ACCC's access to accurate and timely information.

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ACHIEVING SUCH COOPERATION

There are a variety of aspects of international cooperation between competition agencies which have been developed over the years, including the exchange of confidential information, exchange of views on case of the same or similar issues, notification between agencies of cases which are of concern to other agencies and machinery whereby two authorities can agree on the allocation of a case.

There are many different approaches to dealing with competition problems arising from multinational anticompetitive activity (particularly mergers but also anticompetitive strategic alliances and international cartels). In this respect, the Commission has found discussion in multinational fora, from APEC to the OECO, helpful in laying down, not only what are the most mutually beneficial forms of cooperation, but also for providing a framework for the "rules of the game" for international cooperation.

It is useful to outline what the Australian Competition and Consumer Commission considers to be a practical and sensible way to cooperating in competition law enforcement.

The Commission has been involved in numerous technical assistance programmes under which it makes available its resources and expertise in competition law to countries with less developed competition and consumer protection regimes. These programmes may consist of hosting visiting competition policy officials, or providing workshops and seminars on relevant issues.

For example, the Commission recently hosted an eight week training programme for six officials from competition and consumer protection authorities in Thailand, Malaysia, Indonesia, China and Vietnam. The programme involved participation in the Commission's Investigation Course, which all Commission officers attend for instruction in investigation techniques and information management, as well as visits to the Commission's regional offices, industry bodies and related consumer protection authorities.

There are now preparations afoot for a competition policy training program to be conducted in conjunction with the Philippines Tariff Commission. It is envisaged that this program will involve a training course for government officials, academics and members of the private sector from both nations, and a familiarization visit to Australia by Tariff Commission officials.

The maintaining of informal links with competition agencies is a very important way of keeping informed of developments in competition policy and law in other jurisdictions, and exchanging views. Recently, the Commission has developed an arrangement with the European Commission for the exchange of non-confidential information on competition and consumer protection issues. We have similar informal arrangements with many other agencies all over the world, including in the UK, the U.S.A., Canada and Japan.

There is of course a limit to the usefulness of such arrangements, particularly when an agency requires enforcement assistance in a particular matter, or confidential information held by another agency.

Initiatives to improve the legal ability of agencies to carry out such tasks have been taken by some jurisdictions, and some countries, including Australia, are beginning to formalize bilateral cooperation in competition law enforcement.

What is interesting about the approach currently being taken in the creation of bilateral agreements (eg. U.S./European Community, Australia/ New Zealand) is the tendency to include not only the traditional comity provision, by which each party are required to consider the important interests of the other in certain circumstances, but also provision for positive comity, by which one party can request that the other initiate an investigation or enforcement proceedings for anticompetitive behaviour in the latter's territory that adversely affects the former's interests. Such a provision is particularly concerned with avoiding any disputes over the propriety under international law of assertions of extraterritorial jurisdiction.

By way of example, the Commission and the New Zealand Commerce Commission have signed a cooperation and coordination agreement in recognition that the sound and effective administration of the competition and consumer laws of the two countries would be enhanced by cooperation and coordination between the agencies.

As part of agreement the two agencies will, on a regular basis, exchange and provide information in relation to:

The assistance available under the agreement includes:

This cooperation and coordination agreement operates concurrently with the existence of the Mutual Assistance in Business Regulation and Mutual Assistance in Criminal Matters legislation in Australia and New Zealand. It also operates concurrently with the OECD recommendation on cooperation between member countries on restrictive business practices affecting international trade.

The agreement also extends the Memorandum of Understanding between the Government of Australia and the Government of New Zealand on Harmonization of Business Law. This protocol includes competition law and is aimed at avoiding conflict between business laws of the two countries.

Using the Australia-New Zealand agreement as basis, the Commission is discussing a similar arrangement with other countries.

In addition to these arrangements, Australia is hoping to soon establish a framework with the European Commission that will allow the ACCC and the European Commission to formalize their cooperation arrangements in the context of a bilateral agreement.

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CHALLENGE FOR THE FUTURE

Given the common interest in preventing anticompetitive activity, countries, and particularly regional groupings, should be encouraged to ensure that they have in place an adequate set of competition rules and that these are effectively enforced.

I believe that bilateral agreements have an important role to play in increasing cooperation between enforcement agencies, particularly to facilitate information exchange, to address jurisdiction conflicts and assist in enforcement.

However, regional agreements, such as one between the APEC nations, should also be pursued. Such agreement should secure a more effective enforcement of competition laws which could create conditions favourable to gradual alignment of different laws (which would enhance the legal security for firms and reduce their costs); and the promotion of equal conditions of competition in all countries. I believe it would also help build a sense of regional community through enhanced practical co-operation. These factors can only serve to further open up markets and expand international trade.

The fact that there is a set of key elements to the competition laws of the APEC countries provides a possible basis for facilitating cooperation between agencies. Enhancing the level competition policy objectives.