This paper – which can be found here – focuses on the difficulties that transnational supply chains pose for competition law enforcement. ‘Transnational supply chain’ is a concept used to describe the process through which multiple firms located in multiple jurisdictions provide components for and/or assemble and manufacture end-use products. As a result of this process, anticompetitive conduct in one jurisdiction may have anticompetitive effects in other jurisdictions. However, few legal tools are available for deterring such harms. The article reviews current responses to the problem, and identifies the potential value of transnational coordination as a response.
The article is structured as follows:
A first section outlines the challenge posed by global supply chains. It describes their development with the deepening of globalisation, and the form that supply chains usually take. Global supply chains have major consequences for many countries, so we might expect them to have generated legal developments on the transnational level. Yet, little attention has been paid to developing transnational legal tools for responding to these new threats.
The next sections are devoted to discussing how traditional, national-based legal tools can be used to address the challenges posed by global supply chains.
Public enforcement is a tool that can be used in this area. Two questions arise as regards public enforcement, though: jurisdiction and incentives to start a case.
As regards jurisdiction, the question usually turns on the interpretation of the effects principle, a public international law principle according to which a state is generally entitled to apply its laws to conduct outside its territory where the conduct has a significant effect within its territory. This may allow for the extraterritorial application of competition law.
However, the exercise of jurisdiction requires that public authorities have incentives to pursue a case. In practice, national authorities have been reluctant to prosecute international cartels, even though intervention levels have been increasing. This reluctance can be ascribed to the difficulty of prosecuting such cases. Public officials may be unlikely to learn about foreign conduct: competition officials in a source country have little incentive to pursue cartels that only have effects abroad, or to provide information about domestic conduct to competition officials from the affected country. Even if a competition agency in an affected country becomes aware of anticompetitive conduct, there are significant obstacles to acquiring sufficient evidence to support legal procedures against those engaged in it in the source country. Lastly, even if an affected country condemns practices taking place in a source country, there may be difficulties in implementing condemnation decisions which must take effect in foreign jurisdictions.
Private litigation may often be more useful than public enforcement for deterring competitive harm in global supply chains, primarily because firms injured by such conduct often have strong incentives to seek compensation for their losses. Despite its potential value, the obstacles to pursuing private litigation are high in most jurisdictions. First, in many jurisdictions private enforcement of competition law claims is unavailable. Second, even where private enforcement is available, there are often major procedural obstacles to using it. For example, procedures in civil courts often provide very limited means and opportunities to acquire evidence, and competition legislation typically requires claimants to provide complex economic evidence. Third, the cost of private enforcement tends to discourage plaintiffs from pursuing such litigation, and the costs of bringing actions against foreign anticompetitive activity is likely to be higher still. Finally, even where a plaintiff wins a domestic judgment against a foreign defendant, enforcing the judgment is likely to be difficult and costly in many source country jurisdictions.
The author considers that these obstacles to private enforcement are significantly lower in the United States than in other countries. In addition to all the ways in which private enforcement is promoted in the US, the United States has both the political and economic leverage to induce compliance with its laws. However, US antitrust law has not realized its potential in this area, mainly because the statute applicable to foreign anticompetitive conduct (FTAIA) is extraordinarily opaque and the case law interpreting is further contributes to its opaqueness [NOTE: see discussion in my email of 2 December 2017]. Another obstacle is a: “tendency among US judges, officials, and legal scholars to use domestic doctrines and rules in the transnational context without asking whether the policy basis for the domestic doctrine is served by applying it in the transnational context’’.
A last section looks at possible responses to the challenges posed by global supply chains.
As regards the US, the author recommends amending or replacing FTAIA by either: (i) allowing indirect purchasers to sue in the US in the context of global supply chains, or (ii) by inserting a provision to the effect that a wholly owned or controlled foreign subsidiary of a US parent would be considered part of the parent rather than an independent entity for purposes of standing under FTAIA. The author would also like the case law to recognise the specificities of global supply chains.
At the transnational level, the author advocates increased cooperation. The potential for success in coordination rests on identifying congruent incentives between states. Destination states would benefit from cooperation from source states on the following matters: (i) information about the existence of anticompetitive conducts; (ii) support in obtaining evidence necessary for enforcement; and (iii) local enforcement against exporting industries. Source states would, in turn, benefit from: (i) safe harbours in destination states e.g. for cartels of small and medium enterprises; (ii) information from enforcement actions taking place in the destination state that may affect its industries; (iii) being granted control and supervision over investigations carried out in their territory. Coordination efforts could be pursued at the global, regional and even bilateral levels.
Comment: This piece provides a clear (if US-centric) description of the main challenges with the extraterritorial application of competition law. While the existence of global supply chains enhances the intensity of the challenges faced by competition law enforcement, these challenges are not new: they are inherent to the globalisation of the economy, and to how economic globalisation was not accompanied by a concomitant globalisation of regulatory frameworks. Personally, I do not perceive any great advantage in focusing on global supply chains when discussing these issues.
I would also add that I am not particularly convinced by the argument for transnational cooperation set out in this article. For example, if I was a source country (i.e. a low- to medium income economy lower in the global supply chain), I don’t see why I should participate in such cooperation efforts absent other inducements to political or economic cooperation from richer countries. Of course I am not saying there is no case for cooperation – I would have to quit my job at the OECD tomorrow if I thought that. I am merely saying that I think that the case for cooperation in competition enforcement made in this piece would benefit from greater development, and from taking into account the trade literature on incentives to cooperate at the international level.