SUSTAINABLE COMPETITION LAW

Transcription

1 SUSTAINABLE COMPETITION LAW A CISDL WORKING PAPER Competition Law and Sustainable Development Legal Experts Panel CISDL/TRALAC/LRCIL/IDLO Thursday, Sept 11, 2003, 4-6pm, Hotel Krystal, Cancun, Mexico Markus W. Gehring, Centre for International Sustainable Development Law M. Gehring, BCL (Hamburg), LLM (Yale), is Lead Counsel of Sustainable Trade, Investment and Competition Law, at the Centre for International Sustainable Development Law, based at the McGill University Faculty of Law, and head of the CISDL Delegation in Cancun, Mexico at the WTO 5 th Ministerial Conference. He would like to thank A. L. Chua for her invaluable advice and guidance, V. Chetty, Director at Edward, Natham and Friedland, South Africa for the initial inspiration and ideas and R. Pittman,

2 The Centre for International Sustainable Development Law (CISDL) is a legal research centre, based in the mcgill University Faculty of Law, which works in cooperation with the Université de Montreal Faculty of Law, and the Université de Québec à Montreal. Its mission is to promote sustainable societies and the protection of ecosystems by advancing the understanding, development and implementation of international sustainable development law. CISDL is led by two directors and eight lead counsel or research fellows, receives guidance from the three Montreal-based treaty secretariats (the NAFTA Commission for Environmental Cooperation, the UNEP Biodiversity Convention, and the Montreal Protocol multilateral fund), and has an international council of sustainable development legal and policy experts, and a roster of distinguished international advisors. A Sustainable Development Law International Jurists Mandate and the main CISDL Legal Research Agendas, of which climate change law is one, were officially launched at Sustainable Justice 2002: Implementing International Sustainable Development Law conference in Montreal, Canada, and CISDL s flagship publication, Weaving the Rules of Our Common Future was later launched at the World Summit for Sustainable Development in Johannesburg, South Africa. This document is printed on recycled paper. Contact Information: CISDL Lead Counsel on Trade, Investment and Competition Law Markus W. Gehring MGehring@cisdl.org Centre for International Sustainable Development Law 3661 Peel St. Montreal, Quebec H3A 1X1 Canada Tel: Tel: CISDL Directors: Marie-Claire C. Segger Director, MCSegger@iisd.ca / marieclaire@cisdl.org Ashfaq Khalfan Director, AKhalfan@cisdl.org Chair of the CISDL International Council: Prof. Peter Leuprecht, former Dean Faculty of Law, McGill University 3661 Peel Ave, Montreal Quebec, Canada Tel Fax

3 COMPETITION LAW AND SUSTAINABLE DEVELOPMENT A CISDL WORKING PAPER 1. Introduction 2. Sustainable Development and Competition 2.1 Competition Law - National - Regional (EU) 2.2 Sustainable Development - The Origins of Sustainable Development - The 1987 Brundtland Report and the 1992 Rio Earth Summit - The 2002 World Summit for Sustainable Development 2.3 Sustainable Competition Law - Social and Environmental Aspects of Competition Law - Consumer Protection - Interests of Developing Countries and Competition Law - Environmental Goals and Competition Law 3. Sustainable Competition Law and Globalization 3.1 Competition Law in The WTO Doha Development Agenda - The Doha Development Agenda Mandate 3.2 Principles and Sustainable Development - Transparency, - Exceptions - Hard-Core Cartels 3.3 Competition Law in the International Competition Network 3.4 Future Regimes for a Sustainable International Competition Law 4. A Future Research Agenda on Competition Law and Sustainable Development 5. Conclusions 6. Appendices 6.1 NAFTA Chapter on Competition Cooperation 6.2 Canada Costa Rica Free Trade Agreement Chapter on Competition Cooperation 6.3 WTO list of Exceptions, Exemptions and Exclusions 1. Introduction How could competition rules 1 foster rather than frustrate broader sustainable development goals? Sustainable development has been recognized by the world community as an overarching goal, as The author would like to thank A. L. Chua for her invaluable advice and guidance, V. Chetty, Director at Edward, Natham and Friedland, South Africa for the initial inspiration and ideas and R. Pittman, U.S. Department of Justice for his excellent comments on an earlier draft. Many thanks to A. Klevorick, J. M. Balkin, R. W. Gordon, S. V. Levinson and all participants and presenters to the Law and Globalization seminar, Spring 2003 at Yale Law School.

4 was recently re-affirmed by over 140 countries in Johannesburg, South Africa. 2 In modern societies, anti-trust law constitutes a core aspect of economic regulation. New anti-trust or competition laws have proliferated, even just in the past decade, in response to greater vertical and horizontal market inter-penetration in developed countries. 3 In the context of further liberalization, especially in the services sector, robust competition law becomes almost indispensable. In addition, increasing globalization has led to serious international debate on the need for truly global competition rules. It has been proposed that the World Trade Organization (WTO) become an umbrella for international competition disciplines, and negotiations on this issue are scheduled to be launched in September 2003 at the Cancun 5 th WTO Ministerial Conference. 4 This CISDL Working Paper is the third in a series on these complex legal issues, later to be published as a book. It will examine how international competition rules can favor or jeopardize the international goal of sustainable development, with clear reference to substantive case studies of different national competition laws, as well as bi-lateral and regional treaties. Competition advocates would say that by improving economic governance, competition law in itself indirectly helps to achieve more sustainable development. By stimulating innovation and constant product improvement among companies, competition law and policy helps to achieve sustainable development. According to this view, monopolies and cartels are designed to illegally capture excessive profits for a small group of companies. This blocks new entrants and concentrates wealth. It provokes market failures, resulting in economic injustice, higher prices and lower quality of goods for consumers. Sound competition law and policy opens up the market. According to this view, competition law fundamentally seeks to support greater equity. A cartel sews up an industry by fixing prices and other anti-competitive behaviour, keeping out smaller enterprises and concentrating wealth. Effective competition law breaks up cartels. If liberalization gains are not lost through anti-competitive behaviour, the resulting growth can also support poverty eradication. In addition, it is then argued, more competitive conditions may lead to companies developing safer, healthier, more environmentally sound or socially just products, should consumers demand such goods. While companies protected by cartels or secure in a monopoly position have little incentive to change their practices, companies faced with competition may seek to develop new product lines, or improve the old ones, to meet the environmental and social expectations of consumers. There are other, related reasons that sound competition laws, in themselves, could be said to be good for sustainable development. Good competition policy enforcement, as with sound environmental management, requires a high degree of openness, accountability and monitoring. Such systems depend on good governance, which is a principle, and perhaps pre-condition, of sustainable development law. In addition, with regard to the more sustainable use of natural resources, enforced competition rules can provide incentives for companies to improve their efficiency, avoiding wasteful practices. Finally, and perhaps most significantly for the international trade community, in the absence of sound and enforceable competition rules, a liberalization program might result in few benefits. For countries that have opened their markets, and companies from other countries attempting to enter, such laws are crucial. Otherwise, the first company or companies to enter can block any further entrants in their sector, denying competing goods and services to consumers. There would be little reason to open a market, if the same market was then simply captured by a monopoly or international cartel. Such arguments are certainly worthy of consideration. However, they do not answer the central question, as to whether a sustainable international competition law agenda is possible, and if so, UNCTAD refer to competition law as does the new cooperative International Competition Network of national competition authorities, chose the same term, see at 2 UN World Summit for Sustainable Development, Plan of Implementation, UN Doc. A/CONF.199/L.1, para ANDREW I. GAVIL, et al., ANTITRUST LAW IN PERSPECTIVE: CASES, CONCEPTS AND PROBLEMS IN COMPETITION POLICY (West 2002) 38. See also Frédéric Jenny, Globalization, Competition and Trade Policy: Convergence, Divergence and Cooperation, in INTERNATIONAL AND COMPARATIVE COMPETITION LAW AND POLICIES 31, 33 (Yang-Ching Chao et al. eds., 2001).

5 how this can be achieved. It is not easy to establish and maintain a Competition Authority. Considerable political, human resources and financial investments are required - for legal research and drafting, capacity building and infrastructure, and to ensure that powerful interests do not ensure inappropriate exemptions for their sectors. Once functional, the Authority requires further support to ensure its independence, as well as mechanisms for monitoring and enforcement. For sustainable development advocates, the suggestion that in theory better competition law should intrinsically support social justice and environmental protection, by allowing companies easier access to markets and promoting more competitive conditions, might not persuade. To ensure that competition law is a priority, and persuade decision-makers to invest scarce political capital, it may be necessary to seek ways that competition law can directly support sustainable development. This leads to one of the thorniest issues in competition law and policy: whether other public concerns should influence competition decisions. This comparative study considers how different developing and developed countries have adopted competition laws that provide directly for these sustainable development results. The goal is to stimulate an informed, constructive debate on what kind of national, regional and international competition law regimes are needed in the future. In this paper, we will suggest that especially in developing countries, strengthened competition regimes have the potential to support sustainable development. Beyond the direct benefits mentioned above, we believe this can be done through two mechanisms. First, it can be done by explicitly including public policy considerations in competition laws, and second, by building consensus on ways to develop a basic, effective international competition law regime (preferable with regional components) which respects national diversity and supports sustainable development. The first part of the paper will discuss, based on concrete case studies of existing national laws, the first step. The second part will explore options on the international level. It must be noted that we are not arguing that these two steps are mutually exclusive, nor that sweeping changes should be immediately effected. Indeed, we believe that various degrees of both these options exist in every national and international competition law, today. 5 Thus, this paper will avoid trying to develop some kind of one-size-fits-all approach to this complex area of law. Rather, it will canvass the scope and degree of these variations, seeking optimal options for developed and developing countries interested in pursuing a sustainable development agenda through cooperation on competition. We will suggest that careful design and implementation of international competition law and policies is required, and to guard against the risks of capture by particular interests, recommend through a process of incremental, transparent and accountable changes. 2. Sustainable Development and Competition 2.1 Competition Law Competition law has several purposes, and its main goal remains a topic of debate. Some see the promotion of social welfare, though increased efficiency, as the primary goal of competition law and policy. 6 Other authors, especially with a view to legislative history, see the distributional purposes of competition law as more important. 7 A third view sees the political goals as most important, warning that accumulated economic power can potentially threaten the stability of democratic systems of governance. 8 In global debates, the second view is most often cited. Trade liberalization can only benefit the majority of people if robust distributional mechanisms are in place. Competition law and policy is 5 All competition laws exclude certain sectors of industry or exempt particular actions on the basis of public considerations. Almost all competition laws include an international dimension and analyze if an international cartel has effects within the jurisdiction of the competition authority, see below. 6 Richard A. Posner, The Chicago School of Antitrust Analysis, 127 U. PA. L REV. 925 (1979). 7 Robert H. Lande, Chicago's False Foundation: Wealth Transfers (Not Just Efficiency) Should Guide Antitrust 58

6 seen as a way to prevent the capture of liberalization gains by monopolists or companies with market dominance. 9 In this light, it makes sense to argue for international competition disciplines. Competition law is also slightly paradoxical. It advocates regulation of the market, while general economic theory usually speaks against governmental intervention. There are good reasons given to reduce and limit the role of competition law to economic purposes only. It is argued that while the market must be helped to function smoothly, other socio-economic objectives like health and safety should actually be achieved through specific government statutes to that end. 10 However, as mentioned above, many believe that the purpose of competition law and policy does include other related objectives, like consumer welfare and general public welfare. Indeed, some countries have gone further and included non-economic public policy goals in their competition laws. 11 As the ultima ratio solution, this is usually only done for problems deeply embedded in the national economies themselves. It appears now generally accepted that the free market does not exist as a natural state. Rather, an efficient, effective regulatory framework needs to be in place. Modern competition laws try to outlaw certain types of economic behavior. They prohibit direct or indirect selling arrangements (vertical agreements) and broad cooperation in cartels (horizontal agreements). 12 Not all restrictions to trade or other agreements lead to inefficiency, market dominance or less distribution of economic gains. But those players overstepping the bounds of good behaviour need to be controlled or fined, and governmental measures must be applied to ensure this happens fairly. 13 National competition laws National competition laws are a relatively recent phenomenon. The first competition law in the world was the Sherman Act of 1890 which, together with the Clayton and the Federal Trade Commission Act of 1914, constitute the backbone of US competition law. Other countries followed in the 1920s. The second most influential competition law was created in 1958 in the Rome Treaty of the European Economic Community. 14 It was the first international treaty containing competition rules that were directly applicable to Community companies. But it is only in the last ten years that competition laws have really proliferated on the international level. 15 Today more than 100 countries have competition laws. 16 While more and more countries open their markets to foreign investors and foreign trade, the question of competition law appears more on domestic agendas. In the WTO, 47 members have submitted information about their competition laws to the Secretariat. 17 The number is lower than countries in the WTO which actually apply competition policy, but it shows the growing awareness 9 Frédéric Jenny, Globalization, Competition and Trade Policy: Convergence, Divergence and Cooperation, in INTERNATIONAL AND COMPARATIVE COMPETITION LAW AND POLICIES 31, 33 (Yang-Ching Chao et al. eds., 2001). 10 ANDREW I. GAVIL, et al., ANTITRUST LAW IN PERSPECTIVE: CASES, CONCEPTS AND PROBLEMS IN COMPETITION POLICY (West 2002) WTO Working Group on the Interaction between Trade and Competition Policy, Overview of Members' National Competition Legislation - Note by The Secretariat, WT/WGTCP/W/128/Rev.2, 4 July 2001(counting the EU and its members separate since all EU member states have competition laws), Appendix Ibid. 13 ANDREW I. GAVIL, et al., ANTITRUST LAW IN PERSPECTIVE: CASES, CONCEPTS AND PROBLEMS IN COMPETITION POLICY (West 2002) Treaty Establishing the European Economic Community, Mar. 25, 1957, arts , 298 U.N.T.S. 11 [hereinafter EEC Treaty]. 15 SIMON EVENETT, ALEXANDER LEHMANN & BENN STEIL (eds.), ANTITRUST GOES GLOBAL WHAT FUTURE FOR TRANSATLANTIC COOPERATION? (2000). 16 Andrew I. Gavil, et al., ANTITRUST LAW IN PERSPECITVE: CASES, CONCEPTS AND PROBLEMS IN COMPETITION POLICY 4 (West 2002). 17 WTO Working Group on the Interaction between Trade and Competition Policy, Overview of Members' National Competition Legislation - Note by The Secretariat, WT/WGTCP/W/128/Rev.2, 4 July 2001(counting the EU and its

7 of these issues. Many competition laws were adopted in the 1990s, and these all contain provisions on mergers, horizontal and vertical restraints, as well as on the abuse of dominant positions. The WTO is not the only place where international cooperation on competition is taking place. Substantial programmes of work have proceeded in the Organisation of Economic Cooperation and Development (OECD), and in the United Nations Conference on Trade and Development (UNCTAD). 18 In addition, 64 national (and three international) competition authorities have recently signed a Memorandum of Understanding as members of a new International Competition Network (ICN). 19 This international network, founded in 2001, seeks to provide anti-trust authorities with a specialized yet informal venue for maintaining regular contacts and addressing practical competition issues, especially with regard to enforcement. It tries to improve world-wide cooperation and to enhance convergence through focused dialogue. This initiative will be discussed in greater detail below. Regional and Bi-lateral Competition Laws The EU has one of the oldest regional competition regimes. Its approach to competition law is somewhat different in substance and procedure from the US. The EU model, which traditionally has given effect to a wider range of policy goals and the use of exceptions, is very attractive to transition economies. This is mainly due to several reasons. First, most Central and Eastern European countries aspire to EU membership and therefore their competition laws need to be adjusted to EU rules. Second, the EU law approach is mainly based on the civil law, and many transition countries have civil law systems. Finally, most countries feel that the EU approach offers a flexible framework for achieving political and social goals that go beyond achieving greater efficiency. 20 This third reason is of particular interest to our analysis, and will also be touched on in greater detail below. Also on a regional level, the North American Free Trade Agreement (NAFTA), at Chapter 15, contains very basic competition principles, such as the existence of competition law and the duty to cooperate in the enforcement of competition policy. 21 One example of a recent international competition law agreement between a developed and a developing country is the Canada-Costa Rica Free Trade Agreement. 22 This Agreement includes a commitment to the principles of transparency (adopted or modified measures to proscribe anticompetitive activities should be published or publicly available); non-discrimination (the measures taken to proscribe anti-competitive activities should be applied on a non-discriminatory basis); and procedural fairness (judicial and quasi-judicial proceedings should be fair and equitable and there should be an appeal or review process to any final decision) with regard to competition law. The agreement applies to anticompetitive agreements, anticompetitive concerted practices or anticompetitive arrangements by competitors to fix prices, make rigged bids (collusive tenders), establish output restrictions or quotas, or share or divide markets by allocating customers, suppliers, territories or lines of commerce. This is an almost exhaustive list of all basic antitrust prohibitions. 18 For international organizations undertaking cooperation in the area of competition law and policy, see APEC Competition & Law Database < the Free Trade Area of the Americas (FTAA) < the OECD Competition Policy and Law Division < the UNCTAD Competition and Consumer Policies < the European Free Trade Association (EFTA) available at: < 19 See at 20 ANDREW I. GAVIL, ET AL., ANTITRUST LAW IN PERSPECITVE: CASES, CONCEPTS AND PROBLEMS IN COMPETITION POLICY 60 (West 2002). 21 NAFTA Part Five: Investment, Services and Related Matters, Chapter Fifteen: Competition Policy, Monopolies and State Enterprises, Art. 1501, see Appendix Canada-Costa Rica Free Trade Agreement, 23 April 2001, entered into force 1 November 2002 (Ley No del 10 de setiembre del 2002, publicada en el Alcance No. 73 de la Gaceta No. 198 del 15 de octubre del 2002, vigente a partir

8 The agreement also applies to anticompetitive practices of firms, if the firm has market power and mergers or acquisition with substantial anticompetitive effects. The framers of this agreement wanted to apply the cooperation obligation and discrimination prohibition as widely as possible. It is not very likely that the multilateral level will be able to agree on such a broad approach. The agreement contains a path making provision on exceptions which is one of the key features of sustainable competition law. It applies to all practices mentioned unless such activities are excluded, directly or indirectly, from the coverage of a Party's own laws or authorized in accordance with those laws. All such exclusions and authorizations shall be transparent and should be periodically assessed by each Party to determine whether they are necessary to achieve their overriding policy objectives. (Article XI.2.3) This provision ensures that both parties can maintain their own exceptions and can set their own exceptions. This regulatory method has the advantage vis-à-vis the NAFTA provisions that there is no need to amend an annex if the country decided to exclude a new sector or industry from the application of competition laws. There is a strong emphasis in the Agreement on cooperation. Each Party informs and is informed by the other about anti-competitive activities that may affect the other Party. Additionally, there is a possibility that the Parties may enter into further cooperation and mutual legal assistance agreements, arrangements, or both. The Agreement establishes no binding dispute settlement mechanism for this chapter, but does contain consultation provisions which permit recourse to the Ministerial meeting. It also provides for technical assistance to develop understanding, analysis and implementation of more effective competition policy. In the context of this paper, it is very interesting to note that the Parties stressed that both Parties [are] free to pursue as they see fit their respective policy priorities with respect to competition or other matters within the framework set by the Chapter and applicable legislation. Article XI.2.3, for example, recognizes the exclusions to competition disciplines which a Party may have established in its laws. Such exclusions should be transparent and should be periodically assessed by each Party to determine if they are necessary. 23 Canada and Costa Rica submitted their Agreement to the WTO Working Group on the Interaction between Trade and Competition Policy in the hope that it will serve as a useful example, based on the obvious effort of both to forge a closer relationship between their countries Sustainable Development The goal of sustainable development is broadly recognized; entering into some national Constitutions, and many domestic laws and international agreements, including the WTO. 25 Origins of sustainable development The need for integration of social development, economic progress and environmental protection has been recognized since ancient times and across civilizations. 26 The last twenty-five years has nevertheless witnessed the emergence of sustainable development as an important theme in global discussions of economic, social and environmental policy. While the term itself first appeared internationally in 1980, with the publication of the World Conservation Strategy of the International Union for the Conservation of Nature (IUCN), many of the central ideas of sustainable development were crystallized earlier in the 1972 United Nations Conference on the Human Environment (UNCHE) and the Stockholm Declaration on the Human Environment. The event focused primarily on the environment but only in so far as it was needed, used and abused by humanity. The 1992 UNCED (or Earth Summit ) recognized a global need for both environmental protection and economic development. The Rio Declaration is contains guiding principles for this 23 WTO Working Group on the Interaction between Trade and Competition Policy, Joint Communication from Canada and Costa Rica, WT/WGTCP/W/173, 2 July 2001, see Appendix WTO Working Group on the Interaction between Trade and Competition Policy, Joint Communication from Canada and Costa Rica, WT/WGTCP/W/173, 2 July 2001, see Appendix For a more detailed overview see MARIE-CLAIRE CORDONIER SEGGER ET AL., WEAVING THE RULES FOR OUR COMMON FUTURE: PRINCIPLES, PRACTICES AND PROSPECTS OF INTERNATIONAL SUSTAINABLE DEVELOPMENT LAW (Montreal: CISDL, 2002).

9 concept. In 2002, at the World Summit for Sustainable Development in Johannesburg, South Africa, governments have called for the integration of the three components of sustainable development economic development, social development and environmental protection as interdependent and mutually reinforcing pillars. 27 The 1987 Brundtland Report and the 1992 Rio Earth Summit The WCED, chaired by Gro Harlem Brundtland, popularized the notion of sustainable development in the 1987 report Our Common Future, also known as the Brundtland Report. 28 Our Common Future called for a world political transformation based on the concept of sustainable development, and explained that parallel problems of environmental degradation and development concerns be addressed together. As stated earlier, sustainable development was defined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. 29 The WCED formally recognized the interrelationships among crises facing citizens throughout the world: An environmental crisis, a development crisis, an energy crisis. They are all one. Ecology and economy are becoming ever more interwoven locally, regionally, nationally, and globally - into a seamless net of causes and effects. The WCED further articulated the pursuit of sustainable development as an important goal for the nations of the world, explaining that the key element of sustainable development is the recognition that economic and environmental goals are inextricably linked. 30 As such, the Brundtland Report condemned existing disconnection between environmental and development law, and emphasized the increasing interdependence of ecosystems and resource availability with the social and economic components of development. Noting that international law often lagged behind advancements in economy and industry, the World Commission called for gap-filling measures, to catch up with the accelerating pace and expanding scale of impacts on the ecological basis of development. 31 It went on to explain how some forms of development erode the environmental resources upon which they must be based, and how environmental degradation can undermine economic development and prevent the enjoyment of its benefits. 32 In calling for a realignment of humanity s relationship with the environment, countries were urged to reorient their development strategies towards to more sustainable paths by taking environmental considerations into account. As a result, the adoption of the Brundtland Report into Agenda 21 and other treaties in the United Nations Conference on Environment and Development at Rio de Janiero, Brazil, in 1992 is widely viewed as the moment at which sustainable development became a broad global policy objective. The 2002 World Summit on Sustainable Development This global policy objective was significantly reinforced and confirmed at the 2002 World Summit on Sustainable Development. In the Johannesburg Declaration on Sustainable Development, and the Johannesburg Plan of Implementation, countries assumed a collective responsibility to advance and strengthen the interdependent and mutually reinforcing pillars of sustainable development - economic development, social development and environmental protection - at the local, national, regional and global levels. 33 Central to the global consensus was the understanding that globalisation needed to be sustainable. The 2002 Johannesburg Declaration recognizes that globalization has added a new dimension to these challenges. For globalization to be sustainable, it must become equitable. The rapid integration of markets, mobility of capital and significant increases in investment flows around the world open new challenges and opportunities for the pursuit of sustainable development. But the benefits and costs of 27 UN World Summit for Sustainable Development, Plan of Implementation, UN Doc. A/CONF.199/L.1, para Brundtland Report 29 Ibid. 30 Ibid. 31 Ibid. 32 Ibid. 33 See the United Nations World Summit on Sustainable Development, Johannesburg Declaration on Sustainable Development and Johannesburg Plan of Implementation [hereinafter JPOI], in Report of the World Summit on Sustainable Development,

10 globalization are unevenly distributed, with developing countries facing special difficulties. External factors have become critical in determining the success or failure of developing countries in their national efforts. One of these factors is the development of international competition law. The 2002 Johannesburg Plan of Implementation, at Chapter V on Sustainable Development in a Globalizing World recognizes the challenges faced by developing countries, in particular, in implementing international economic reforms, and calls for, at Chapter XI as a means of implementing sustainable development, enhancing the mutual supportiveness of trade, environment and development, and enhancing benefits for developing countries and countries with economies in transition from trade liberalization, including through public-private partnerships. 2.3 Sustainable Competition Law Various legal scholars have explored the concept of sustainable development. 34 Considering the strong inter-linkages between economy, ecology and social development, sustainable development law is best described as area of law at the intersection of environmental, social and economic law. 35 Thus, we suggest that more sustainable competition law will take social and environmental priorities into account, rather than focusing purely on the economic priorities and imperatives. On the domestic level, these problems are not as pressing, because there are generally strong institutions in place to balance these interests, either through heads of state or independent judiciaries, to ensure that environmental and social considerations are not fully overruled by economic decisions. This said, the problem is not completed divorced from the domestic level, either, particularly for developing countries. For example, the structure and authority of these institutions, as well as level of knowledge or capacity, varies from country to country, and especially in the environmental field, new instruments are being designed to complement traditional command and control measures, which might require further attention being paid to competition law and the authorities which enforce it, and a search for adequate balancing measures. But the discussion becomes particularly relevant should the international community decide to have international competition rules. On the international level, given the lack of central institutions with the mandate and effective authority to balance competing social, economic and environmental priorities, the balancing mechanisms to ensure that environmental and social objectives are properly taken into account must be built into the international competition treaties themselves. We believe that in this instance, there will a strong need to ensure that countries have the possibility to use competition law to support their sustainable development objectives. To do this requires that the appropriate environment and development objectives be clarified, their links to international competition rules be identified, and the appropriate mechanisms be identified with attention to the views and needs of countries affected. Three forms of sustainable competition law 1. Substantive competition rules fostering social or ecological purposes 2. Exceptions, exemptions, exclusions 3. Enhanced application of competition laws strong regulator y impact light 34 See RICHARD L. REVESZ ET AL., ENVIRONMENTAL LAW, THE ECONOMY, AND SUSTAINABLE regulator DEVELOPMENT (Cambridge University Press 2000). y 35 This becomes clearer at the international level, where we have international regimes regulating specific aspects and intersecting with other regimes. Thus for example the WTO and certain Mulitlateral Environmental Accords (MEAs) intersect and a mutually supportive solution needs to be found. For further analysis see MARIE-CLAIRE CORDONIER to

11 Building on substantive work that has been done on these issues in the area of trade and investment negotiations, 36 three ways can be identified to integrate the concept of sustainable development into competition law and policy: The first one is through the substantive international competition rules with sustainable development goals. This mechanism should only be used for very important policy goals, as it is not necessarily a very efficient way to accomplish the desired end. (As one commentator put it, with reference to international trade law, economic laws and disciplines provide a very blunt instrument to achieve important social or environmental goals). They might even reduce the other intended socio-economic benefits of the international rules. The second, more common method is through the provision of express exceptions or exemptions from competition rules, where these rules might limit the abilities of countries to use social and environmental measures. The third way is to negotiate enhanced application of competition rules, where fair competition favors small and medium size companies and especially with respect to the energy sector, ecologically favorable effects. The second and third categories of methods are used in almost all domestic and regional jurisdictions and are often perceived as the legitimate expression of broader public policy goals. Indeed, many regional and developing country competition laws are particularly prone to take environmental or social considerations into account. Among exemptions and exclusions under national competition law, a basic distinction can be drawn. This distinction is between, on the one hand, exceptions, exemptions or exclusions of a sectoral nature and, on the other hand, those of a non-sectoral nature. 37 Sectoral exceptions, exemptions and exclusions often reflect historical decisions, based on political and economic rationales that are quite specific to the country, climate and culture in question. As such, in most countries the agricultural sector is only partly subject to competition rules, where certain types of pricing and other decisions are made by industry-wide commissions or boards. A general exclusion also exists in most countries for insurance companies, since an insurance company needs to effectively spread the financial risk, and is required to ensure consumer confidence in a particular product. 38 Sectors may be entirely or partially excluded from competition disciplines. 39 Explicit exceptions, exemptions and exclusions are also different from implicit ones. The former are typically contained in legislation or regulations, while the latter arise when the application of competition law is displaced by industry-specific regulatory regimes or other manifestations of state ownership or direction. The later category includes, in many countries, the entire energy sector. 40 Sometimes, the relevant industry-specific regulation expressly states that competition law does not apply. In other cases, legal principles or doctrines exist to ensure that laws of general application, such as the domestic competition law, must defer to more specific legislation. 41 Regarding nonsectoral exceptions, exemptions and exclusions, these often relate to specific business arrangements or practices which, though prima facie anti-competitive or potentially so, are deemed in particular 36 See DANIEL ESTY, GREENING THE GATT (1994). 37 WTO Working Group on the Interaction between Trade and Competition Policy, Exceptions, Exemptions and Exclusions Contained in Members' National Competition Legislation - Note by the Secretariat, WT/WGTCP/W/172, 6 July Allison Overbay & Mark Hall, Insurance Regulation of Providers That Bear Risk, 22 (1996) American Journal of Law and Medicine OECD, Trade and Competition: Frictions after the Uruguay Round, Working Paper No. 165 (Paris, 1996), W/21, Annex, III.c, para See US Federal Power Act, 16 U.S.C. 791a-828c or German Energiewirtschaftsgesetz (Law concerning the

12 circumstances to enhance efficiency and/or strengthen competition. Such arrangements or practices may, alternatively, be considered to have ambiguous effects with respect to competition and, therefore, could be subjected to analysis on a case-by-case basis to determine whether or not they are prohibited. In this category, we usually find certain retail arrangements. 42 For example, the EU has a regulation on vertical restraints that excludes certain practices in the car sector. 43 Exceptions, exemptions or exclusions may also exist in relation to state-owned enterprises 44 or governmentencouraged or sanctioned business practices. 45 Of course, the most analysed social sectoral exemption in the US is the former exclusion of professional baseball from competition rules. 46 In Europe, most aspects of professional soccer is also exempted. 47 But we will see exemptions that are more clearly aimed at achieving sustainable development goals, too. Competition rules can also, in general, support sustainable development goals. In particular, small producers of energy or agricultural products have usually problems entering the market but their survival is important from a social and environmental point of view, especially in terms of encouraging innovation in these sectors. Below, we will explore how these competition laws can be interpreted in order to create favourable conditions for these entrepreneurs. This implies a proactive competition policy. Not all countries have proactive, as opposed to reactive, competition policies. As we have seen, exceptions to the application of competition law vary immensely from country to country. The general goal of sustainable development, meaning the achievement of integrated social, economic and ecological development that meets the needs of current generations while protecting the ability of future generations to meet their needs, could inform the determination of certain exceptions. While such goals and priorities for integrated development might appear hard to define, especially in diverse domestic legal systems, cultures, levels of development and environmental conditions, there are sustainable development tools, such as indicators and assessment methods, designed to make this task realizable. We would propose, for example, that countries undertake general sustainability impact assessments 48 which can help to determine priorities for sustainable development exceptions on national and regional levels. This could also identify the economic, social and environmental impacts of enhanced competition in different sectors, allowing for enhancement or mitigation measures. Social and Environmental Aspects of Competition Law Social and environmental aspects of competition law have been considered in different countries, and several case studies provide illuminating examples of legal innovations. South Africa The most explicit use of competition law to achieve a social goal has been by the Republic of South Africa. 49 In their first democratic competition law, the lawmakers included provisions to protect historically disadvantaged people and workers. 50 The Competition Act s preamble spells this objective out clearly: The people of South Africa recognize: That apartheid and other discriminatory laws and practices of the past resulted in excessive concentrations of ownership and control within the national economy, inadequate restraints against anti-competitive trade practices, and unjust restrictions on full and free participation in the economy by all South Africans. That the 42 WTO, Exceptions, Exemptions and Exclusions Contained in Members' National Competition Legislation, Note by the Secretariat, Working Group on the Interaction between Trade and Competition Policy, WTO Document WT/WGTCP/W/172, 6 July Commission Regulation (EC) No 1400/2002 of 31 July 2002 on the application of Article 81(3) of the Treaty to categories of vertical agreements and concerted practices in the motor vehicle sector. 44 OECD, W/21, Annex, III.c, para OECD, W/21, Annex, III.c, para Federal Baseball Club of Baltimore, Inc. v. National League of Prof. Baseball Clubs, 259 U.S. 200 (1922). 47 ECJ, Bosman, E. C. R I, 5040, 5071 para. 106, See on the legal structure of EU sustainablility impact assessment for trade rules, MARKUS GEHRING, NACHHALTIGKEIT DURCH VERFAHREN IM WELTHANDEL, (2003) Hamburg. 49 See Eleanor M. Fox, Equality, Discrimination, and Competition Law: Lessons from and for South Africa and

13 economy must be open to greater ownership by a greater number of South Africans. That credible competition law, and effective structures to administer that law, are necessary for an efficient functioning economy. That an efficient, competitive economic environment, balancing the interests of workers, owners and consumers and focused on development, will benefit all South Africans. The protection of historically disadvantaged persons has two sides. On one hand, there is a general exemption from competition disciplines in Section 10 and Section 12A(3) requires the Competition Commission 51 to examine a transaction s impact on public interest, in particular on the ability of small business, or firms controlled or owned by historically disadvantaged persons, to become competitive. Section 10 contains a general rule of exemption from the application of competition disciplines. Companies can apply for an exemption for specific agreements or groups of agreements. These may be granted conditionally or unconditionally. It may restrict the exemption time wise and revoke the exemption if the cause for the exemption no longer exists or false information constituted the basis for it. 52 The exemption may be granted according to subsection III only if - (a) any restriction imposed on the firms concerned by the agreement or practice concerned, or category of agreements or practices concerned, is required to attain an objective mentioned in paragraph (b); and (b) the agreement or practice concerned, or category of agreements or practices concerned, contributes to any of the following objectives: (i) maintenance or promotion of exports; (ii) promotion of the ability of small businesses, or firms controlled or owned by historically disadvantaged persons, to become competitive; (iii) change in productive capacity necessary to stop decline in an industry; or (iv) the economic stability of any industry designated by the Minister, after consulting the Minister responsible for that industry. In particular, the exemption for the promotion of firms controlled or owned by historically disadvantaged persons has a clear social goal. The effective participation of the black majority population is to be enhanced by competition laws. This fundamental objective is very important for the economic structure of South Africa and can be found in other laws, such as the national Mining Act, as well. Section 10 (3) (b) (ii) has been applied especially in the case of small businesses. It was first applied when a group of individually owned pharmacies (retailers) who had formed an association, applied for an extension of their exemption. These pharmacies (applicants) were not businesses owned or controlled by historically disadvantaged persons (Black persons or individuals previously discriminated against on the ground of race, according to Art. 9 para.2 SA Constitution). 53 But Section 10 (3) (b) (ii) can be applied to both small businesses in general and also to Black-owned or controlled businesses. The pharmacies had previously been granted an exemption under the 'old' dispensation (now revised with the new Competition Act, 1998) and the time period for the exemption was coming to an end. Through their association, they applied for an exemption to, inter alia, engage in joint marketing, advertising and purchasing arrangements, so that they could compete with bigger competing chains. The Commission requested them to show that the arrangement contributed to their ability as small businesses to become competitive. It was shown that prior to original exemption; there were fewer than 10 Ring Pharmacies. For the period of exemption, they had grown to about 33. It could not be shown however that the growth was solely attributable to the exemption, but there was strong evidence that the exemption clearly contributed to the individual pharmacists to become competitive, through the Association. For example, through their association, they could negotiate bigger discounts for pharmaceutical products and which they could not get individually. The Commission granted them an exemption for 5 years, though they had asked for 10 years. A more pro-active approach is taken in Section 12A(3), which requires the Competition Commission or after a petition the Competition Tribunal to examine a transaction s impact on public interest. It states as follows: 51 See online at:

14 When determining whether a merger can or cannot be justified on public interest grounds, the Competition Commission or the Competition Tribunal must consider the effect that the merger will have on a) a particular industrial sector or region; b) employment; c) the ability of small business, or firms controlled or owned by historically disadvantaged persons, to become competitive; and d) the ability of national industries to compete in international markets. The public interest evaluation can strike in two ways. A merger that would be otherwise contrary to competition rules can be justified under the public interest evaluation. However and in addition, a competitive merger that would be positive for competition reasons can nonetheless be prohibited on public interest grounds. The social priorities canvassed by the employment consideration (b), in particular, have led to considerable jurisprudence of the Competition Tribunal. But the leading case for merger control and historically disadvantaged persons is the Shell / Tepco case. 54 In 2001, the Commission recommended prohibition of a merger wherein Shell proposed to buy the service/gas stations of Tepco, a subsidiary of Thebe Investment Corporation. The latter is a Black owned investment holding company. It was a large merger. (Depending on the size of the merger, levels of authority change. The Commission makes the final decision for intermediate mergers, but makes recommendations to the Competition Tribunal in large mergers). The basis for the Commission's recommendation was that the merger would result in the removal from the market of a firm owned/controlled by historically disadvantaged persons - section 12A (3) (c). That is to say, that the merger would have a negative impact on the ability of such firms to become competitive. The Tribunal did not accept the Commission s recommendation because Tepco was failing, and might soon be removed from the market anyway (a ground later relied upon by the Tribunal determination). The case is very interesting because the Competition Tribunal for the first time expressed its reading of the public policy evaluation in the SA Competition law: It is important to emphasize that in terms of the Act our assessment of the public interest impact of the transaction may lead to the prohibition of (or the imposition of conditions on) a pro-competitive merger. Or it may result in us approving an anti-competitive merger. Hence, in balancing public interest and competition we are obliged to consider whether a merger that passes muster on the competition evaluation nevertheless falls to be prohibited because of its negative impact on any of the specified public interest factors including, in terms of Section 12A(3)(c), the effect that the merger will have on the ability of small businesses,or firms controlled or owned by historically disadvantaged persons, to become competitive. Conversely we are obliged to consider whether a bad merger, that is a merger that will lead to a substantial lessening of competition, should nevertheless be approved because of its positive impact on the public interest, including the competitive potential of firms owned or controlled by historically disadvantaged persons. Note that the Act does not otherwise guide us in balancing the competition and public interest assessments except insofar as Section 12A(1)(b) requires that the public interest grounds should be substantial. 55 These lines show clearly that it is not an easy task for the Competition Tribunal to balance the different interests. It reaffirms the thesis that this upfront approach should be used only for very important values. The Tribunal concluded that as a result, Tepco would be more of a burden on such a firm if it was forced to keep a "bleeding" subsidiary. This was acceptable to the Commission, so that the case was not filed with the Appeal Competition Court. But there has been considerable debate as to whether the Tribunal would make the same decision in a case where the target firm is not failing. The question remains as to whether a strong sustainable competition law can be justified. The president of the South African Competition Tribunal sees little difference from other competition regimes where the public interest test is build into the analysis.