Session II: Review of the experience gained in the implementation of the UN Set, including voluntary peer reviews

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1 Sixth United Nations Conference to Review All Aspects of the Set of Multilaterally Agreed Equitable Principles and Rules for the Control of Restrictive Business Practices Geneva 8 12 November 2010 Session II: Review of the experience gained in the implementation of the UN Set, including voluntary peer reviews Dr. Ioannis Lianos Faculty of Laws University College London Centre for Law, Economics & Society The views expressed are those of the author and do not necessarily reflect the views of UNCTAD

2 International collaboration against restrictive business practices Dr. Ioannis Lianos Faculty of Laws University College London Centre for Law, Economics & Society

3 Structure 1. Restrictive Business Practices are harmful to economic growth 2. Collaboration at the international level is lacking 3. Forms of collaboration: trust and distrust 4. The need to develop an international consultation mechanism 2

4 Competition, Innovation and Growth I Competition is important for innovation-based growth Importance of multiplication of markets for growth The process of development is characterized by specialization and productivity increase associated with the division of labor that is only possible with market expansion and multiplication See Y. Yang and J. Borland, A microeconomic mechanism for economic growth, Journal of Political Economy, 99 (1991) (3): Competition creates a larger number of opportunities for benchmarking, so the market can monitor firm management E. Lazear and S. Rosen, Rank-order tournaments as optimal labor contracts, Journal of Political Economy, 89 (1981): ; and, B. Nalebuff and J. Stiglitz, Information, competition and markets, American Economic Review, 73 (1983), May:

5 Competition, Innovation and Growth II Higher levels of competition increase the probability of failure which is an incentive for management to be more efficient P. Aghion, M. Dewatripoint and P. Rey, Corporate governance, competition policy and industrial policy, European Economic Review, 41 (1997) Competition creates mobility effects (skilled workers become more adaptable and will switch to more productive industries faster) R. E. Lucas, On the mechanics of economic development, Journal of Monetary Economics, 22 (1988)

6 Competition, Innovation and Growth III Evidence that competition increases productivity levels and the rate of growth of productivity R. Disney, J. Haskel and Y. Heden, Restructuring and productivity growth in UK manufacturing, Economic Journal, 113 (2003): Good management practices are strongly associated with productivity and those are better when product market competition is higher N Bloom and J. van Reenen, Measuring and explaining management practices across firms and across countries, CEP Discussion Paper 716,

7 Collaboration at the international level is lacking Cooperation agreements mostly between developed countries or countries with equivalent institutional experience in the enforcement of competition law Low incentives for large jurisdictions to conclude cooperation agreements with smaller jurisdictions: extraterritorial application of competition laws as a limit to cooperation Confidential information, due process and leniency policy as an impediment to cooperation Regional networks with strong cooperation: ECN in the EU 6

8 Forms of collaboration: trust and distrust I Trust/distrust and international cooperation Aim: building increased levels of institutional-based trust (or system trust ) between States in the area of competition law trust is a belief that the other side prefers mutual cooperation to exploiting one s own cooperation, while mistrust is a belief that the other side prefers exploiting one s cooperation to returning it. In other words, to be trustworthy, with respect to a certain person in a certain context, is to prefer to return their cooperation rather than exploit them. [ ] Cooperation between two actors will be possible if the level of trust each has for the other exceeds some threshold specific to the situation and the actors Andrew H. Kydd, Trust and Mistrust in International Relations (Princeton University Press, 2005), at 6 7

9 Forms of collaboration: trust and distrust II The function of trust is to reduce uncertainty and complexity as it allows for specific (rather than arbitrary) assumptions about other actors future behaviour But trust produces also risk, in particular if there is limited available information about the future behaviour of the trustee. Risk is an unavoidable feature of trust because trust can be disappointed. For example, an offer of cooperation may be exploited by free riding, or not be reciprocated In order to minimize the risk of defect, actors may develop various strategies Power: not an option! Institutions: (binding agreements) UNCTAD Set does not have any binding legal effect: see Ioannis Lianos, The Contribution of the United Nations to Global Antitrust, 15 Tulane Journal of International and Comparative Law (2007), available at 8

10 Forms of collaboration: trust and distrust III The function of trust is to reduce uncertainty and thus to induce welfare-enhancing cooperation between actors. When States interact, they have incomplete information about the preferences and objectives of their counterparts, as well as their payoffs and domestic pressures (due process rules, legal procedure) that are not evident to a counter-party Mutual dependence: a prerequisite for cooperation? The social network provide a source of information but at the same time constitute a mechanism that grants importance to reputational sanctions Credible commitments as a mechanism generating trust (trustbuilding tool) Rule cuts off options Hostage taking Reciprocal/decentralised or centralised monitoring 9

11 The need to develop an international consultation mechanism between competition authorities I Section F.4.: International measures Optional procedure Consultation operates only under specific circumstances: externalities ( affects another State ) and causation between the investigation/rbps and the requesting State Possible limiting principles? 10

12 The need to develop an international consultation mechanism between competition authorities II Which State authorities? Competition authorities, courts? Comp. with Convention on the Service Abroad of Judicial and Extra-judicial Documents in Civil or Commercial Matters, 20 U.S.T. 361, T.I.A.S. No (1965), Art Comp. with Convention on the taking of evidence abroad in civil or commercial matters, 25 U.S.T. 2555, T.I.A.S. No. 744 (1970) Art Filing requirements/scope of the obligation for the requested State to respond: art. 6(c) UNCTAD s role in the process: Art. 7(c) Participation of private enterprises: some thoughts with regard to the distinction between administrative and judicial enforcement systems for competition law 11

13 Thank you for your attention! Ioannis Lianos, The Contribution of the United Nations to Global Antitrust, 15 Tulane Journal of International and Comparative Law (2007), available at