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Decision Comment |
Competition and policy harmonisation in the Southern African region By Pierre E J Brooks * Introduction / Extraterritorial application of competition laws / Case law on extraterritoriality / Bilateral agreements / Regional arrangements / A multilateral approach / Harmonising competition law in the Southern African region / Today many countries have
rules on competition which are designed to forestall or minimise
anticompetitive behaviour and structures. It is not difficult to
appreciate why this is so, since robust competition is generally
accepted as contributing appreciably to (a) a more efficient use
of scarce human and capital resources, (b) better prices and
quality of goods and services and, (c) greater technological
innovation.
Because of the risk of
diminishing profits which competition creates for less
successful, unproductive firms, they frequently seek government
intervention and favours to protect them from the dynamics of
the market, or band together in collusive accord to exploit
consumers or thwart competitors. The prescriptions of the
agreement signed at Marrakesh which established the Word Trade
Organization (WTO) in certain respects diminishes the
capabilities of governments to protect domestic firms from
international competition. This may have provided an additional
incentive for firms that operate internationally to collude. A
spate of recent cases brought by the Antitrust Division of the
United States Attorney General's office, arguably, bears
testimony to this. More specifically, the Assistant Attorney
General responsible for antitrust matters, in an address to the
Senate Committee on the Judiciary on 26 February 1998, cited a
number of prominent foreign firms which had admitted to a
contravention of US antitrust laws and had paid admission of
guilt fines of between US$10 million and US$100 million. Of course, once collusive
behaviour or potentially anticompetitive mergers and
acquisitions have a multinational dimension with all the
attendant difficulties relating to access to and sufficiency of
relevant information that such a situation presents, multi-
jurisdictional involvement often becomes a sine qua non
for the effective settlement of a case. Parochial interests and
loyalties often militate against this happening. One can
accordingly appreciate why increasing attention is being given
to achieving a more co-operative and structured approach to the
problems of competition law in a transnational context. In this presentation various
approaches to the issue will briefly be outlined with a view to
forming some tentative opinions on what can be done in this area
of the law in the Southern African region to facilitate economic
development, transnational commercial activity, and the
settlement of disputes. Extraterritorial application of competition laws The extraterritorial
application of a country's competition laws is essentially a
unilateral act. It is done on the basis of what may conveniently
be termed the "effects doctrine". The United States Supreme
Court, for example, after initially holding that: "The general
and almost universal rule is that the character of an act as
lawful or unlawful must be determined wholly by the law of the
country where the act is done" (American Banana Co v United
Fruit Co 213 US 347 (1909) 356), soon afterwards
substantially altered its approach (US v Sisal Sales Corp
247 US 268 (1927)). So much so that Judge Hand in US v
Aluminum Co of America 148 F 2d 416 (1945) could say that
it was settled law that a state may impose liabilities even upon
persons not within its allegiance, for conduct outside its
borders that has consequences which the state reprehends.
Certain modifications to this view emerged in Timberlane
Lumber Co v Bank of America 549 F 2d 597 and Laker
Airways Ltd v Sabina 731 F 2d 909, and in the Foreign
Trade Antitrust Improvements Act 1982. The latter gives effect
to Congress's belief that activity whose anticompetitive effects
are felt only in foreign states should not be a concern of
United States antitrust regulation, but that those activities
carried out abroad that have "direct, substantial and reasonably
foreseeable" effect in the United States should be subject to
the Sherman and Federal Trade Commission Acts (see also the
American Law Institute's Restatement of the Law Third: The
Foreign Relations Law of the United States (1987) pars
402, 403 and 415).
The approach followed in
Germany is that its Antitrust Act shall apply to all restraints
of competition which have effect within the territory even if
they are caused outside of Germany (art 98 (2)). In similar vein the European
Court of Justice has held in Re Wood Pulp Cartel: A Ahlström
OY and Others v EC Commission 1988 4 CMLR 901 that if the
applicability of prohibitions laid down under European Union
competition law were made to depend on the place where the
agreement, decision or concerted practice was formed, the result
would obviously be to give undertakings an easy means of evading
those prohibitions. According to the court, the decisive factor
is, therefore, the place where the agreement is implemented. In South Africa the
Competition Board is of the opinion that it has the right to
exercise jurisdiction in respect of matters that have a negative
impact on competition in the Republic notwithstanding the fact
that certain key events in the causal chain take place outside
the country's borders, provided that it, the Minister, or
Special Court, as the case may be, are in a position to
implement effectively the remedial or preventative measures that
are decided upon (Anglo/Goldfields case Report No 20 par
83). Case
law on extraterritoriality When Minorco SA, a company
incorporated in Luxembourg and controlled by Anglo/De Beers,
made a hostile bid to acquire the whole of the share capital of
Consolidated Gold Fields Plc, a company incorporated in the
United Kingdom and having a substantial shareholding in Gold
Fields of South Africa, the directors of Consgold, inter alia,
instituted legal proceedings in the USA to forestall the
take-over on the basis of section 7 of the Clayton Act and
sections 1 and 2 of the Sherman Act. The plaintiffs in the case
were Consgold, its wholly-owned subsidiary, Gold Fields Mining
Corporation, Nominate Mining Corporation and its 90 percent
subsidiary, Newmont Gold Company. They argued that a successful
take-over would have resulted in Anglo/De Beers gaining control
over the American corporations. A United States District
Court in New York issued a temporary injunction restraining
Minorco from effecting its tender offer since it believed that
the take-over violated American antitrust provisions. This
decision was upheld on an appeal to the United States Court of
Appeals for the second circuit. That effectively put paid to
Minorco's bid for Consgold. Matsushita Electrical
Industrial Co v Zenith Radio Corp 475 US 574 involved
claims by two American television-set manufacturers (Zenith and
National Union Corp) against competing Japanese producers. The
plaintiffs alleged that the Japanese were selling their products
at predatory levels in the United States while selling their
products at supracompetitive prices in their home market. Predatory pricing is, of
course, a contentitious matter in competition law. In America
the Supreme Court seems to have settled on a two-part test in
order to ascertain whether predatory pricing has taken place.
First, it entails an enquiry into whether there had been pricing
below some appropriate measure of costs (eg marginal costs).
Having established that this is the case, the enquiry then
focuses on whether there is a reasonable prospect of recoupment
of the losses incurred by the pricing of product below the
acceptable level. In the Matsushita
case the plaintiffs failed on two counts, namely (a) if, as
claimed, the Japanese had been pricing predatorily in America
for many years, they would have incurred losses of such
staggering proportions that they could never be recouped even if
they were eventually successful in attaining a monopoly of the
American market, and (b) because the Court refused to consider
whether the Japanese had engaged in supracompetitive pricing in
their home market since the US antitrust laws did not apply
there. The Court was, therefore, able to avoid the more complex
issue of whether the standards for predatory behaviour should be
adjusted for competitive circumstances unique to international
trade (Gifford "Predatory pricing analysis in the Supreme Court"
(1994) 39 Antitrust Bulletin 431, 455-464). The principal substantive
provisions of competition law in the European Union are articles
85 and 86 of the Treaty of Rome. Article 85 deals with
restrictive practices, article 86 with the abuse of a dominant
position. In order to fall foul of these two articles the
conduct in question must not only be restrictive or abusive, as
the case may be, but also affect trade between the member
states. The following agreements
involving foreign organisations or companies were held by the
Commission and/or the European Court of Justice to have violated
article 85: An agreement between Eastern
European foreign trade associations and European purchasers that
effectively regulated prices for sales to the European Union,
imposed quotas on imports, and prevented sales to other parties
in Western Europe (Re Aluminium Imports from Eastern Europe
1987 3 CMLR 813). An agreement between French
and Japanese ballbearing manufacturers aimed at regulating
imports from Japan into France and increasing prices (Re
Franco-Japanese Ballbearings Agreement 1975 1 CMLR D8). An agreement between a German
company and Japanese supplier in terms of which the German
company was granted exclusive distribution rights for the EU,
thereby preventing the Japanese company from exporting to the EU
(Re Siemens/Fanuc 1988 4 CMLR 948). All of these cases related to
imports into the EU and in each instance involved at least one
EU enterprise. However, as the Wood Pulp case has shown,
article 85 can be violated even if all the parties to the
agreement are based outside the EU. A number of merger cases
having an international or transnational dimension have been
considered by the Commission of the European Union in accordance
with the prescriptions of the EU's Merger Regulation 4069/89 of
21 December 1989 as amended. In Mitsubishi/UCAR
the Commission approved a concentrative joint venture in terms
of which Mitsubishi acquired 50 percent of the worldwide carbon
business of Union Carbide. This decision was reached on the
basis of the fact that (a) Mitsubishi's EU market share of 0,01
percent was negligible, (b) there would be no co-ordination
between the respective parent companies or between them and the
new venture because there was no significant likelihood that
Mitsubishi would be in a position to compete with the joint
venture in the joint venture's EU markets, and (c) no dominant
position in the EU would be created or strengthened. Tetra Pak, a Swiss
corporation that manufactures packaging machines for liquids,
intended making a bid for Alfa Laval, a Swedish corporation
producing food and other processing equipment. Because the new
company would be able to offer a complete product range
consisting of processing and packaging machinery necessary for
the operation of a food processing plant, the Commission was
initially concerned that the transaction would create or
strengthen a dominant position in the EU, either in the food
processing machine sector or the packaging sector. It
consequently withheld its approval which prevented Tetra Pak
form making a public bid. Subsequently the Commission decided
not to oppose the transaction on the grounds that the
acquisition of Alfa Laval would not have a substantial effect in
the EU. One of the mergers that the
Commission did prohibit was that involving Aérospatiale, Alenia
and Haviland. In this case the company to be acquired was the de
Haviland division of Boeing of Canada and Boeing Canada
Technology, which are both wholly-owned subsidiaries of the US
Boeing Company. The Commission rejected the acquisition because
it apparently would have given Arérospatiale/Alenia at least 50
per- cent of the worldwide market and at least 67 percent of the
EU market for commuter aircraft in the
twenty-to-seventy-passenger range. The proposed transaction had
previously been approved by the Canadian authorities who,
needless to say, were angered by the Commission's decision. In order to obviate the
contentious issues of the type encountered in the Haviland
case, it has been suggested that the exercise of jurisdiction by
the Commission should also depend upon an additional enquiry,
one which is known as the "jurisdictional rule of reason" in US
antitrust parlance. Under this approach the question is not only
whether a transaction may be subject to jurisdiction,
but also whether jurisdiction should be exercised. The
latter step would entail a comity analysis which balances the
legitimate interest in regulating anticompetitive conduct with
the interests and policies of the relevant foreign states (Venit
"European merger control: The first twelve months" (1992) 60 Antitrust
Law
Journal 981, 984). This would, to a large degree, avoid
the need of diplomatic protests and the passing of "blocking
statutes" that followed America's extraterritorial assumption of
jurisdiction in the Aluminum case (see Whish Competition
Law 2ed (1989) 392 and the other authorities cited there). Another potential merger
which the Commission prohibited was that involving the platinum
interests of Implats and Lonrho. The South African Competition
Board had indicated that it would not oppose the transaction
since, from a South African perspective, on the production
level, it would have beneficial effects that outweighed
competition - related concerns. The Commission, on the other
hand, focussed on the negative effect the merger would have on
downstream European markets and consumers. The fact that
platinum producers were price takers and not price makers
apparently did not carry much weight with the Commission. One mechanism that is used to
diffuse potential jurisdictional conflicts is for countries to
enter into bilateral agreements that address the issue. The
United States, for example, has concluded competition agreements
with the competition authorities of Germany, Australia, Canada
and the European Union. The latter contains provisions on
notifications, exchanges of information, consultations,
confidentiality and a review clause. Other less common
provisions relate to co-operation and comity. America has relied
on these arrangements, inter alia, to address and resolve
contentious issues with the EU relating to the
Boeing/MacDonnell-Douglas merger, and alleged anticompetitive
conduct by several European airlines. The EU for its part has
concluded agreements which contain competition rules with a wide
range of countries including Switzerland, Canada, Brazil, the
Czech and Slovak Republics, Hungary, Romania, and even some
countries, such as Cyprus and Israel, not noted for having an
active competition policy. The various EU agreements
differ in degree of comprehensiveness from a "best efforts"
clause in the EU - Canada agreement to an almost carbon copy of
the Community's own competition rules, including all of the
implementing rules and case law, in the Agreement on the
European Economic Area (EEA). One of the principal objectives
common to all these agreements is the EU's desire to ensure that
trade between the Community and the other contracting states is
not distorted by anticompetitive practices. Competition policy
has, therefore, become a part of trade strategy. In the case of
the EEA agreement this extends to measures aimed at eliminating
or minimising the competition distorting effects of state aid to
enterprises. In regard to the latter
matter, mention may be made of a case that arose under similar
provisions in the EU's 1972 Free Trade Agreement with the
European Free Trade Association (EFTA). The case involved
Eurostar, a joint venture in Austria between Steyr-Daimler-Punch
and Chrysler, which manufactured Chrysler Voyager minivans. The
Austrian government had awarded a grant of ECU 100 Million for
an ECU 300 million investment. The extent of the 33,3 percent
state aid was substantially higher than would have been allowed
under EU state aid rules. The Commission accordingly raised the
issue with the Austrian government, arguing that the state aid
provisions of the Free Trade Agreement had been violated. When
by the autumn of 1992 there was still no satisfactory solution,
the Commission proposed taking appropriate action to remedy the
situation and the Council decided to impose a punitive 10
percent import duty. After further discussions the matter was
resolved and the need to levy the import duty fell away. South Africa is not a party
to any agreement containing competition rules with any other
state. However, the Republic is currently in the process of
negotiating a trade agreement with the EU. One of the difficulties with
which the parties are confronted is that the EU's rules
governing competition, which the EU apparently wishes to apply
to the trade agreement, are in certain material respects at
variance with the current competition law dispensation in South
Africa. Even after the envisaged new Competition Act comes into
force next year, some differences will remain. In principle it is not a good
idea for one party, in effect, summarily to impose its
competition laws on another against the latter's will. A less
contentious approach would, perhaps, be for the parties to
formalise appropriate interaction between the respective
competition authorities. Thus, where the Commission or the South
African competition authority has reason to believe that certain
anticompetitive activities are taking place within the territory
of the other authority which are substantially negatively
affecting important interests of one of the parties, it may
request the other party's competition authority to take
appropriate remedial action in terms of that authority's rules
governing competition. Such a request would not prejudice any
action under the requesting authority's competition laws that
may be deemed necessary and would not in any way encumber the
addressed authority's decision-making powers. This process would
obviously entail an exchange of relevant information and
documentation. Regional economic integration
on a meaningful scale will invariably require some arrangements
regarding competition. The more intimate the integration, the
more important rules governing competition become. The European Union is by far
the most sophisticated and successful example of regional
integration. From the outset it was recognised that a
comprehensive set of principles, laws and procedures was
essential for the proper functioning of the economic community.
Mindful of the disparate ambit and content of competition laws
in the constituent member states, it was accepted that the
Union's (initially the Community's) rules on competition would
override those of the member states in the event of a conflict
between them. Over the years a formidable body of jurisprudence
on competition law has developed, while member states have
themselves amended national laws to bring them in line with
those of the Union. A number of other integration
agreements such as NAFTA (United States, Canada and Mexico), the
Group of Three (Mexico, Colombia and Venezuela), MERCOSUR
(Argentina, Brazil, Paraguay and Uruguay), and the Andean Group
(Venezuela, Colombia, Ecuador, Peru and Bolivia) also include
provisions on competition. For example, the 1995 draft
Protocol for the Defense of Competition approved by MERCOSUR
explicitly refers to anticompetitive behaviour that ought to be
prohibited at national level. It also contains provisions
regarding various forms of concentration activity that would
result in control of more than twenty percent of a relevant
market. The draft Protocol ostensibly
builds on Decision 21/94 of the MERCOSUR Council entitled Basic
Elements of the Defense of Competition in MERCOSUR, which was
intended to harmonise national legislation across the region.
However, there appears to be some doubt whether the draft
Protocol aims at harmonising legislation in member states by
prohibiting various types of conduct, or if the idea was to
prohibit certain forms of conduct when they affect all or part
of MERCOSUR. The situation is further complicated by the fact
that Paraguay and Uruguay have no competition legislation, while
legislation in the other countries is partially incompatible
(see World Bank/OECD publication Competition in a Global
Economy: A Latin American Perspective (1996) for a
discussion on MERCOSUR and other regional groupings' provisions
on competition;and De Araujo & Tineo "Harmonization of
competition policies among Mercosur countries" (1998) 43 Antitrust
Bulletin 45). There seems to be a good deal
of consensus on the desirability of having uniformity on
international competition laws which could, possibly, be
initiated and overseen by the WTO. However, the debate on the
scope, content and application of such rules has resulted in a
wide divergence of opinion. Some commentators have
divided the proposals in this regard into two categories, namely
minimum or detailed substantive rules for the world, and
unilateral action including positive comity. An example of the former is the Draft International Antitrust Code which was prepared by a group of experts in the field. The proposed code is built upon five principles - * the application of
substantive national law for the solution of international
cases; * national treatment under
national law of nationals and foreigners; * minimum standards for the
national laws, agreed upon in an international agreement; * procedural initiatives to
be taken if necessary for the effectiveness of international
antitrust law by an international body or agency, as well as by
parties to the agreement that are adversely affected; and * restriction of these four
principles to cross-border situations. The OECD advocates a somewhat
different approach. Giving notice to another country of
investigations or proceedings which may affect important
interests of that country; the coordination of concurrent
investigations by two or more countries; and a meaningful
response to requests for assistance by a country relating to
investigations being conducted in that country, lie at the heart
of the OECD's Recommendation of the Council Concerning
Cooperation Between Member Countries on Anticompetitive
Practices Affecting International Trade (1995) (see outline of
the 1995 OECD Council Recommendation in attached annexure). A third option is postulated
by Professor Eleanor Fox ("International antitrust: against
minimum rules; for cosmopolitan principles" (1998) 43 Antitrust
Bulletin 5), which encompasses overarching framework
principles that provide a discipline against nationalistic
measures, that keep enforcement at the national level, that
require procedural vehicles and safeguards to assure access to
national courts, and that provide choice of law rules where the
significant antitrust effects are localised within one nation.
More particularly, she suggests parties should work towards a
multilateral agreement incorporating the following points: 1. Nations should have and
enforce antitrust laws. 2. Nations should enforce
their laws without discrimination as to nationality. 3. National law enforcement
should account for global impacts, not just national impacts. 4. For transparency, the
law's scope and treatment for application of any noncompetition
criteria (eg environment, national security) should be clearly
stated, and conduct or transactions challenged as
anticompetitive should first be analysed separately under
competition criteria. 5. Nations should refrain
from ordering relief that is unreasonably extraterritorial. 6. As in TRIPs, and as in
positive comity agreements being crafted by the United States,
the European Union, and others, there should be opportunity for
harmed nations to complain to domestic authorities, and
protocols should be established for cooperation in discovery and
enforcement. 7. Nations should recognize
that all nations have subject matter jurisdiction over
transactions and conduct that directly threaten their citizens
with antitrust harm. 8. Where the harm is to a
nation's exports and the challenged conduct and the directly
harmed consumers are in the importing nation ("internal market
harm"), the law of the importing nation should apply - no matter
where suit is brought - as long as the importing nation has an
antitrust law and that law is nonparochial. 9. The importing nation
should be obliged to provide an accessible litigation system
accompanied by the safeguards of due processes, as recourse for
harmed nations or persons (as in TRIPs). If this rule is
violated, the harmed nation or person should be free to sue in
its own country; while recognising in internal market situations
that the applicable law is the law of the importing country. 10. Dispute resolution should
be limited to provable breaches of these obligations (again, as
in TRIPs). This limitation would be fair and appropriate in view
of the fact that the system has built-in self-help mechanisms at
national level. Harmonising
competition
law in the Southern African region A critical assessment of
developments and precedents in other parts of the world leads
one to recognise that closer economic cooperation or
integration, and increased transborder commercial activity in
the Southern African region will inevitably require that
attention be given to the drafting, implementation and
enforcement of appropriate rules governing competition in the
region. This paper has drawn attention to a number of ways in
which the issue could be addressed. Do we seek a solution that
is based on an internationally accepted approach, or will a
region-specific arrangement best suit our particular needs? It is obvious that any
discussion on the matter must be premised on the conviction that
such rules are necessary. It is also clear that most countries
in the region have given no, or very little, attention to the
public law dimension of competition. This is not necessarily a
bad thing, for it affords the opportunity to start with a clear
slate and draw on a wealth of experience and precedents from
other jurisdictions. Of course, one of the
unfortunate consequences of Country A not having competition
legislation in place is that if Enterprise Y, which has its
principal place of business in Country B, causes harm through
anticompetitive conduct to companies incorporated in and doing
business in Country A, there is little Country A can do about
it. Referring the matter to the competition authority of Country
B, as a general rule, would be to no avail, unless it can be
shown the Enterprise Y's actions in Country A would also
restrict or distort competition in Country B. It would accordingly appear
that if countries in the region are serious about the
competition law implications of enhanced intra-regional
commercial activity, they should each enact appropriate
competition legislation. One should not harbour any illusions
that this will be a trouble-free exercise. Moreover, enacting
legislation is one thing, ensuring that it works is another (see
eg Kovacic & Slay "Perilous beginnings: the establishment of
antimonopoly and consumer protection programs in the Republic of
Georgia (1998)43 Antitrust Bulletin 15; Kovacic
"Competition policy, economic development, and the transition to
free markets in the Third World: the case of Zimbabwe" (1992)61
Antitrust
Law Journal 253). After such enactments, adherence by the
countries in the region to mutually agreed procedures of
referral, cooperation, exchange of information, and dispute
resolution should not be too complicated. At this stage of our development the setting up of a separate regional structure to oversee a supranational competition law applicable throughout the region appears to be a less easily attainable goal. With our compliments. Nationwide Poles & Jim Foot
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