A speech delivered by Chairman Competition Commission of Pakistan (CCP), Khalid Mirza, on Day Two – Session-I of ‘Competition Regime in Pakistan’, held on January 12, 2010
“It is indeed a pleasure to see all of you here on the second day of our national conference on the “Competition Regime in Pakistan”. This particular session will focus on a rather topical subject i.e. the “Multinational Reach of Competition Law: A Need for Cooperation”.
Let me begin by explaining how it is that competition law must have a multinational reach and why it is so very important for different jurisdictions to not only cooperate but also be part of the global process. I’ll state the obvious and point out that we, here in Pakistan, are a part of what is now a global economy Ã¢â€â‚¬ a global village.
Extraterritoriality of Competition Law
There is little doubt that competition issues transcend national borders. With the progressive lowering of tariff barriers and restrictions on the movement of goods, services, and capital, relevant markets for products are less and less restrained by national boundaries. And firms can operate in several countries without maintaining a physical presence in those countries. This can be accomplished, depending on circumstances, both with and without a variety of contractual devices.
It would be quite naïve, in fact foolish, to think of a competition agency that operates solely within national borders without taking account of, and effectively responding to, events and developments occurring outside the agency’s jurisdiction that could impinge upon, and seriously affect, the state of competition within the agency’s jurisdiction. There is a significant trend for groups of economically or geographically contiguous countries to set up a common competition authority as has been done by countries in the European Union, the Caribbean, and West Africa. There are also a large number of multilateral agreements reflecting a common understanding on competition law enforcement and practice.
The implementation of a competition regime naturally lends itself to be most efficacious at a supranational level or at the overall federal level of a large federation. This is why talk of competition enforcement being addressed at the provincial or municipal levels sounds so senseless and off-the-wall! And when this is espoused by educated, well-informed, worldly-wise people, I may be forgiven for suspecting that it is some limited vested interest, rather than the national interest, which is being served.
It is because of this obvious need for competition law enforcement to reach out beyond national borders in order to be effective, and also the close interface of international trade and investment with competition law enforcement, that the principle of extraterritoriality has been adopted and enshrined in the competition laws of most countries or it has been established by practice and sanctified by judicial precedent.
Our law, the Competition Ordinance, explicitly stipulates extraterritoriality by stating in section 1(4) that the law shall “apply to all undertakings and all actions or matters that take place in or outside Pakistan and prevent, restrict, reduce or distort competition within Pakistan”. The law also provides in Section 47 that “the Commission may, with the approval of the Federal Government, enter into agreements with competition agencies in any part of the world for the exchange of information and assistance in performance of its functions under this Ordinance”. Thus the external dimension of the Commission’s work stands duly embedded in the law.
The ITO Charter
I might mention that, as early as 1944, the institutional framework envisaged at the Bretton Woods Conference essentially comprised three institutions: the IMF, the World Bank and the International Trade Organization (ITO); and it is the ITO scheme (which was further developed in the Havana Charter of 1948) that called upon its member countries to take measures against “business practices affecting international trade which restrain competition, limit access to markets or foster monopolistic control whenever such practices have harmful effects on the expansion of production and trade.”
This was a most laudable objective but perhaps a little ahead of its time. The ITO never got off the ground mainly because of resistance from some countries, principally the United States, on account of two basic reasons:
Firstly, fear of loss of sovereignty; and
Secondly, it was felt that ITO’s Charter might impose limitations and curbs on national businesses.
It appears that the “global public good” lost out to narrow national egos and perhaps chauvinistic protection of national champions!
While institutionalising the means to achieve global fair trade practices, as envisaged in the ITO Charter, is still a distant dream, international efforts have been underway for a long time through multilateral and bilateral agreements to move towards a soft achievement of the ITO aims. However, as it happens, in all such international efforts – in particular, multilateral ones – both agreement and implementation are rather painstakingly slow and gradual, often in small, inconsequential, steps.
Globalisation - co-operation/convergence
As I indicated earlier, the advent of globalisation over the past few decades – in particular, its recent redoubling and picking-up of speed Ã¢â€â‚¬ presents a challenge to competition agencies which are essentially designed to function within certain jurisdictional contours. We all know that the dismantling of public barriers are fast being replaced by private restraints. On the other hand, global deals and global restructuring and re-orientation of business activity, is beyond the ken of domestic agencies which typically do not have the capacity or reach to effectively monitor transnational activities. There is a governance gap that simply cannot be filled by the exercise of the extraterritorial imperative, however generously this is defined. Thus, under present circumstances, there is no alternative to:
Firstly, close and effective cooperation between agencies; and
Secondly, convergence of laws and regulation as well as, most importantly, practices.
Now, when we talk about “convergence”, what exactly do we mean? We are not really talking about agency structure, or the modus operandi of enforcement, or whether the agency implements an administrative regime as opposed to pursuing criminal penalties, or whether or not the agency is simply a prosecutor without adjudicatory powers, or what is the system of law within which the agency operates etc. Albeit all these matters, in the final analysis, certainly have an impact on outcomes and overall agency effectiveness.
What we are really talking about is actually three basic areas regarding which there needs to be a commonality of views and approach so that notwithstanding the structural and legal differences between agencies, business enterprises are confronted, at a certain vital level, with essentially the same stance across the board. These areas are: firstly, pre-merger clearance which ordinarily constitutes about 55-60% of the work of a mature agency in a developed country; secondly, anti-cartel measures which constitute about 20-25% of the work of a developed country competition agency; and thirdly, addressing market access issues which cover about 10-20% of the work of a mature competition agency.
Commonality in basic areas - challenges
The pre-merger control aspect of anti-trust work done by an agency – the only ex-ante, regulatory aspect of its work – is potentially the most contentious, for instance, when two multinationals operating in several countries decide to merge. This is where both coordination and convergence are most elusive. Obviously, the size of the economy and levels of concentration would differ from jurisdiction to jurisdiction and hence the stance taken by the respective competition agencies. Also, in this area, the whole philosophical underpinning of what constitutes anticompetitive harm may be nuanced differently e.g. the European Union appears to focus on concentrations whereas the US looks more deeply on the probable harm to competition that is likely to arise from the merger.
As regards the area of market access, competition agencies differ much more as to whether or not competition is adversely affected whenever a barrier to market entry is erected by economic agents. The analysis carried out by a competition agency can be significantly different from that done by another agency. The entry of foreign competitors could make the domestic market more contestable but may be opposed on account of political economy considerations. In concentrated markets, existing firms can lock up distribution channels through exclusive distribution agreements effectively shutting out or foreclosing the market at that level to competitors.
Such vertical market access restraints are the subject of considerable debate and disagreement amongst competition agencies. Some believe that such restraints are presumptively pro-competitive since they create potential efficiencies that outweigh their costs while others talk in terms of their symbiotic inverse relationship with allocative efficiency. And then, of course, there are also non-economic concerns that could override efficiency aspects of vertical restraints, if any.
Now insofar as cartels are concerned – particularly “hard core” cartel agreements – the fact that these are per se violations and no reasoning or rationale is needed to justify the harm done means that there is no disagreement on philosophical grounds. The challenge, in the case of an international cartel, is one of logistics an how to organise the investigation in order to collect the evidence. Coordinating the timing of the search and seizure operations in different countries and the manner in which these operations are to be carried out due to differences in laws could be a logistical nightmare. The differences in leniency programs and how to deal with leniency requests in a coordinated manner also calls for careful expert handling.
In order to effectively deal with anti-competitive behaviour that arises in the space provided by evolving globalisation the mere exercise of extraterritorial powers is really inadequate. A spate of bilateral agreements executed between competition agencies to share information, educate, help each other as appropriate, and seek convergence in law and practice have also been found to be quite limited in what was actually achieved.
If say 90 out of 110 existing competition agencies were to execute bilaterals with each other, this would mean over 4000 agreements to wade through and make sense of Ã¢â€â‚¬ to achieve something practical at the overall global level would be a daunting task. It is neither realistic or efficient to rely on bilaterals to realise global antitrust goals.
Multilateral understandings and agreements make a lot more sense. Apart from the Treaty of Rome which is essentially a rather well-structured pact, the three main multilateral arrangements that seek common approaches on all antitrust matters are UNCTAD, the Competition Committee of the OECD, and above all, ICN i.e. the International Competition Network which has emerged as the front runner in this respect and has covered a lot of ground.
We in CCP are fully conscious of the need to participate effectively in these efforts to achieve global convergence and set standards. To give this important work focus and attention, we have recently set up a Department of International Affairs, and I hope this department makes an important contribution at the global level. Already, the work done by CCP, domestically as well as its positive contributions at the global level, have been fully appreciated. As a consequence we have been offered “observer status” on OECD’s Competition Committee, and also, I have been invited to chair a session in OECD’s annual Global Forum on Competition to be held in Paris next month – this is a rare honor!
I might also mention that I am in contact with competition authorities in the SAARC region, notably the Competition Commission of India, to set up a South Asia Competition Network – the aim of which would be, among other matters, to highlight the peculiar issues and sensibilities of this region so that these aspects are duly taken into consideration in determining global standards for enforcement of competition norms.
I will now close by emphasising that apart from embracing a sound competition law for economic betterment, it is crucial that Pakistan actively participates in global forums at both international and regional levels to benefit from global antitrust experience, secure fair representation for our region and contribute towards convergence and the setting of realistic international standards at the global level. Thank you.”