Regulating Antitrust Through Trade Agreements

Antitrust law is one of the most commonly deployed instruments of economic regulation around the world. To date, over 130 countries have adopted a domestic antitrust law. These countries comprise developed and developing nations alike, and combined produce over 95 percent of the world’s GDP. Most of the countries that have adopted an antitrust law have done so since 1990. This period of significant proliferation of antitrust laws also coincides with a notable expansion of international trade agreements, including the creation of the World Trade Organization (WTO) in 1995 and the negotiation of numerous bilateral and multilateral trade agreements. These concurrent trends are consistent with the view that antitrust regulation and trade liberalization are complementary tools in governments’ efforts to create and preserve open and competitive markets.

However, the relationship between antitrust law and trade policy has been the subject of considerable academic and policy debate. In the academic debate on the topic, some scholars argue that free trade makes antitrust laws redundant because foreign entrants will destabilize cartels, constrain dominant companies, and undermine other anticompetitive practices. Other scholars argue that antitrust laws are still needed to ensure that firms in non-tradeable sectors do not engage in anticompetitive practices and to ensure that private anticompetitive practices do not compromise the gains from dismantling barriers to trade. For instance, open trade may invite more collusion as companies can extract larger rents and better avoid detection when they operate across the global marketplace. In addition, free trade is not sufficient to guarantee successful foreign entry if the market is foreclosed by exclusive distribution agreements. This was a major concern for American film and automobile companies seeking to enter the Japanese market in the 1980s. Even though trade barriers with Japan had been removed, American companies had a hard time penetrating the market as Japanese antitrust laws failed to condemn exclusive distribution agreements that tied local retailers and consumers to domestic distributors. These examples suggest that trade liberalization may need to be complemented with antitrust laws to be effective.

In policy debates on the topic, governments have advocated for, and adopted, different positions. Notably, the European Union has always perceived trade and antitrust as closely related policy instruments. Its own antitrust laws were initially enacted to complement the goal of establishing a single market. The European Union’s fear was that, without such laws, private companies could re-create trade barriers between Member States, such as by deploying vertical agreements to reserve exclusive territories for different distributors. For similar reasons, the European Union was a strong advocate for incorporating antitrust rules within the scope of the WTO in the early 2000s. In contrast, the United States has endorsed the separation of trade and antitrust law. For instance, the United States has expressed concerns that antitrust law would lose its exclusive focus on consumer welfare if it became enmeshed with trade policy considerations. This is one of the reasons that the United States systematically opposed embedding antitrust regulation in the WTO. The U.S. position ultimately prevailed in the WTO as antitrust law, as well as other proposed new areas of regulation such as government procurement and investment policy, were removed from the trade body’s negotiating agenda in 2004.

Despite the continuing debate over whether, and to what extent, antitrust law and trade policy should be directly connected, one area where they have been linked together in practice is the inclusion of antitrust provisions in Preferential Trade Agreements (PTAs). For example, even though the European Union’s efforts to tie antitrust law more closely within the multilateral trade regime failed, the European Union has been able to make antitrust provisions a common feature of its PTAs. By offering preferential access to its vast consumer market, the European Union has significant bargaining power over its trade partners and is therefore in a position to set conditions for signing a PTA. One of those conditions is typically the adoption of antitrust law. The European Union’s 1995 agreement to form a customs union with Turkey provides an illustrative example. In its Article 39, the agreement states that “Turkey shall ensure that its legislation in the field of competition rules is made compatible with that of the European Community ” To comply with this provision, Turkey adopted an EU-style antitrust law in 1994, in the midst of its trade negotiations with the European Union.

But the European Union is not alone in thinking that antitrust and trade go hand in hand. Even a cursory overview of PTAs suggests that a wide range of governments from around the world—from Australia to Uzbekistan and from Armenia to Vietnam—have chosen to include a requirement that the trading partner must adopt or maintain domestic antitrust laws. While the precise reasons for these requirements likely vary, it suggests that many governments consider antitrust law to be necessary or beneficial for realizing the gains from the trade agreement.

Various scholars have acknowledged the presence of antitrust law in trade agreements, and have pursued research to examine the implications of this trend. Oliver Solano and Andreas Sennekamp’s research was one of the first attempts to quantitatively examine antitrust provisions in a large sample of PTAs. The authors focus on a sample of 86 PTAs, which were notified to the WTO Secretariat between January 2001 and July 2005 and which contained a specific chapter on antitrust. They collect information on the type of antitrust provisions included in the PTA, provisions on cooperation and coordination between parties on antitrust matters, as well as whether any such antitrust provision is subject to enforcement though a dispute settlement system specified in the PTA. Their analysis suggests PTAs incorporate antitrust provisions primarily to support trade liberalization. The PTAs frequently include clauses such as “anti-competitive practices can undermine the trade objective” or emphasize how the goal of the PTA is “to combat anti-competitive behavior [in order to] enhance the trade objectives of the agreement.”

Several other projects have built on Solano and Sennekamp’s research by studying antitrust provisions in different samples of PTAs. For instance, Robert Anderson and Simon Evenett assessed whether antitrust provisions embedded in PTAs affect cross-border mergers and acquisitions. Their analysis is more extensive than that of Solano and Sennekamp as they also collect information on various sector-specific PTA chapters (such as chapters on financial services or telecommunications) that are not antitrust-specific but often contain additional antitrust provisions. In line with Anderson and Evenett, Robert Teh studied “all competition-related provisions” in 74 PTAs and also found that antitrust provisions often fall outside the PTAs’ antitrust chapters and are included in sector-specific chapters. D. Daniel Sokol complemented this research by focusing on the antitrust chapters in PTAs signed by Latin American countries. His sample consisted of 36 PTAs signed between 1992 and 2006 that are included in the Organization of American States’ trade database. Sokol’s primary finding is that all 24 Latin American PTAs with an antitrust chapter exclude those chapters from the PTAs’ dispute settlement mechanism, suggesting that antitrust commitments are weak due to their nonenforceability. Finally, Anu Bradford (one of the authors of this article) and Tim Büthe analyzed a random sample of 182 PTAs from a near comprehensive  list  of  post-World  War  II  PTAs  compiled  by  Andreas  Dür,  Leonardo Baccini, and Manfred Elsig, and examined governments’ main motivations for including antitrust provisions in the PTAs. Their analysis suggests that antitrust provisions reflect governments’ attempts to promote effective antitrust law and trans-governmental regulatory cooperation, and that this concern seems to dominate any concerns of discriminatory enforcement of antitrust law.

This article builds on this empirical scholarship by introducing a novel dataset of antitrust provisions in 596 international trade agreements signed between 1945 and 2010. To build this dataset, we acquired a large sample of PTAs from a research group studying international trade agreements. We then worked with a group of law students to comprehensively document the provisions included in these agreements related to antitrust law. This article first explains the construction of this new dataset and then uses the data to provide what we believe to be the first systematic overview of the presence of antitrust provisions in international trade agreements.

Continue reading the full text of this article and citations in PDF format.