Challenge of global antitrust

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The recent GE-Honeywell debacle should be a wake-up call about the potential for antitrust enforcement by foreign governments to affect U.S. companies and, eventually, U.S. consumers.

Global antitrust is not new. What is new is its importance, and that, in turn, reflects three trends. First is the rising importance of international commerce. Approximately one-seventh of U.S. consumption comes from abroad. More than one-quarter of all Hart-Scott-Rodino merger and acquisition filings before the federal authorities (the Federal Trade Commission and the Department of Justice) involve foreign firms.

Second, some 60 foreign governments have antitrust authorities able to block mergers, investigate pricing behavior and so forth. Most of these were brought into being during the last decade. An additional 20 countries are in the process of establishing antitrust authorities.

Third, these antitrust authorities, which a few decades ago were fairly docile and tended to defer to the United States in matters involving joint jurisdiction, have shown a sudden aggressiveness – the European Union’s competition commission being the prime example.

With some justification, the presumption in debating the wisdom of extra-U.S. antitrust enforcement is that U.S. antitrust is correct and anything that deviates is incorrect. There is general agreement in the United States that the major goals of antitrust are maintaining a competitive environment and facilitating, rather than constraining, emerging technologies and new markets.

Antitrust authorities in other countries often have different goals. Fairness is frequently the standard, where in the United States economic efficiency is the overriding objective. Indeed, in many countries (such as Japan), the antitrust authority’s name is the Fair Trade Commission. While in the United States the watchword is protecting consumers, in many foreign countries antitrust authorities strive to protect competitors – which means that efficient firms, serving consumer interests, will be constrained if their activities threaten less efficient firms. Until fairly recently, price-fixing agreements were permitted in Britain, whereas in the United States they have long constituted a violation of criminal law.

Also, some foreign antitrust authorities are not particularly sophisticated in their approach to competition policy. While serving as chairman of the Federal Trade Commission (1981-1985), I attended a meeting of the Restrictive Business Practices Committee of the Organization of Economic Cooperation and Development, where I heard a presentation by the delegate from Ireland on his country’s efforts to deregulate the economy. What was Ireland’s deregulation program? To rid the cities of bands of Gypsy peddlers. In another instance, my associates and I were visited by officials of South Korea, seeking advice on how to put together their own antitrust authority. Despite all we said about the weaknesses of the U.S. model and the need for reforms, we found two years later that the Korean government had codified into their system all the U.S. antitrust laws, plus the rules, regulations and interpretations that went along with them.

So, what to do? Some have advocated the establishment of a supranational antitrust authority. That would be a great mistake. Who would run it? Unelected world officials with a lot of authority and little responsibility? If you think EU antitrust chief Mario Monti is an autocrat, just imagine if someone ran the whole show. Moreover, one could bet that the charter for such an organization, together with bureaucratic behavior, would lead antitrust policy to the lowest common denominator – one that protected all participants from real competition. This brings to mind the recent OECD effort to keep member countries from having taxes too low and thus attracting capital from the rest, a matter brought to our attention by Dan Mitchell and others.

The other extreme is to ignore the differences in policy and just tough it out. Actually, there is something to say for this approach. Competition among countries will tend to penalize those that erect barriers to competition, since they will thereby constrain their own economic development and standard of living. But it would be better to nurture and expand the current discussions between U.S. antitrust authorities and those abroad – to reduce frictions, to share data and ideas, and to grope toward consensus on so-called best practices.

One thing is clear. In the future U.S. companies with extra-U.S. reach will need to account for, and seek to influence, foreign antitrust authorities. Just as the information technology industry was slow to understand and react to policymaking in Washington, U.S. companies that contemplate mergers, acquisitions, and other ventures without being prepared to make their cases abroad as well as here at home will be making a grave mistake. It may not be fair, but it’s a fact of life.

James Miller III is counselor to Citizens for a Sound Economy.