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What is the current role of competition law in globalisation?

International economic integration has been increasing since the sixteenth century in line with improvements in worldwide communication and transportation. Although the hangover from the 2008 global financial crisis and the heavy loss of manufacturing jobs in the West to both automation and countries with lower labour costs have fed support for greater protectionism, globalisation continues apace.

April 2017

The essence of competition is that it is a discovery process, rewarding companies that are efficient, innovative or that excel at building relationships with customers. Globalisation has increased the number of participants and the potential size of many markets, while enhancing the potential for economies of scale. However, genuine competition requires a level playing field where the state is prevented from weighing in to an unacceptable degree. This has resulted in a constant polemic about the appropriate level of state intervention, particularly in areas such as healthcare or pharmaceuticals where natural monopolies may arise.

Competition law rules are a form of state intervention that are designed to prevent participants from 'gaming' the basis of competition itself, either collectively (e.g. by agreeing not to compete with each other) or unilaterally because they dominate the market/s to such an extent that effective competition is no longer possible (e.g. a supplier has a monopoly over a particular product). There has been an explosion in the adoption of competition laws, and nearly 140 countries now have some form of competition law regime in place. Problems have subsequently arisen at a global level as countries vary significantly in their interpretation of perfect competition and apply the rules in a diverse manner. The risk of the national interest overriding established concepts of competition is always present.

Global companies face significant costs if they are to navigate the competition rules successfully. A merger between two global players is likely to require a mandatory merger filing in a number of different countries, regardless of whether the transaction is found to raise substantive concerns. Countries such as Ukraine, Germany and Austria are notorious for the number of mandatory notifications that are required before completion as a result of what may be, for large global entities, fairly insignificant thresholds. Other countries, such as China, have been subject to criticism due to some idiosyncratic competition law assessments.

Merger control filing fees and the associated legal costs can be high. However, the complexity of competition law assessments has also increased the burden on merging parties. The adoption of Chicago School economics by competition law regulators in the US and EU, has resulted in the involvement of economists in the notification process, who are required to carry out complicated competition assessments of the possible effects of transactions. The benefit of this reliance on economists has been questioned, given that economics is not an exact science, and many economic models face significant problems when it comes to predicting the future due to the number of variables that exist in the real world. Nevertheless, this move towards greater complexity has led to a steady increase in costs and has increased the evidential burden on merging parties and the regulators. These additional costs are, inevitably, passed onto consumers.

Even with the use of more sophisticated and expensive economic assessments and greater co-operation between competition law regulators, it is inevitable that they will often reach conflicting investigatory outcomes. A useful example is the contradictory merger control decisions reached by the UK Competition and Markets Authority and the French Competition Authority in relation to Eurotunnel's purchase of some ferries belonging to Sea France. The same acquisition was approved in France, yet blocked in the UK.

On a more general level, while there is a degree of convergence in relation to competition rules globally, many businesses are forced to play it safe by promoting compliance in accordance with the most restrictive regime. This ensures that there will be compliance across the board, albeit at a stricter level than would otherwise be required in more 'lenient' jurisdictions. Currently, the standard compliance benchmark is regarded as the EU; however, this could change in the future as there is a great deal of pressure on the EU to move towards a softer, 'effects-based' approach to competition law.

In conclusion, while one would expect the international convergence of competition law rules to continue, the introduction of protectionism or the politicisation of the competition rules, where they are interpreted in the national interest, could pose a serious threat both to convergence and to globalisation itself.

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What is the current role of competition law in globalisation?
Robert Vidal

Robert looks at the issues around convergence of competition law and the impact on globalisation.

"While one would expect the international convergence of competition rules to continue, the introduction of protectionism…could pose a serious threat both to convergence and to globalisation itself."