A Review of Joseph Wilson's Book, Globalization and the Limits of National Merger Control Laws, by Bert Foer (reprinted from FTC:WATCH, Nov. 17, 2003).

Dec 03 2003
Commentaries

by Albert A. Foer

Joseph Wilson's recent book, Globalization and the Limits of National Merger Control Laws, provides a solid education on the governance of transnational mergers. Because much has happened since he went to press, the reader will need some updating. Think, Cancun, for example. But, within a text of 324 pages that is at heart an advocacy document for a particular set of reforms, there is a lot of useful information.

An attorney and a lecturer at the McGill University Faculty of Law, Wilson begins with the need for a global approach to merger control. If you're going to read this book anyway, you won't be surprised here. Next, he provides tours of the U.S. and the E.U. merger control laws, noting similarities and differences in procedures and substance that help him highlight points feeding into the reform proposal that constitutes the final chapter. He recognizes, importantly, that sovereign nations are not likely to relinquish sovereignty over mergers that affect what we now fondly call the homeland.

Moving toward multilateralism, Wilson explores bilateral and regional approaches to controlling mergers and rightly finds them ultimately inadequate. He describes the WTO and, largely on the basis of what he sees as a successful model for multilateral competition policy in the WTO's Reference Paper for the telecommunications sector, he finds that the WTO would make a good home for international merger controls. As I say, this was written prior to Cancun. Today, it is not clear that the WTO will make a good home for tariff reduction, its core function, much less competition policy. And keep in mind that at Cancun nobody was even thinking about merger controls. At most, competition policy's candidate for multilateral controls was cartel enforcement, a much easier, because less controversial, objective.

Wilson next looks at nine different proposals advanced by others for transnational merger review. A matrix helpfully summarizes the various views on twenty-one different subtopics. From his critique of these, Wilson grows the grand flower of his plant, his International Merger Control Regime. Rather than construct a new supranational decision-making agency, his Regime would feature a "Lead Jurisdiction" that would be supported by WTO staff. Conflicts would be settled within the WTO dispute settlement mechanism and, when other nations cannot agree with the Lead Jurisdiction, by arbitration. There is an abundance of detail that I won't get into, which I found quite useful for visualizing how a multilateral regime might operate.

My chief problems are two. First, even without Cancun, Wilson too easily embeds the Regime within the WTO. He does not give recognition to the drawbacks, spoken and unspoken, that have made U.S. antitrust administrations wary of the WTO.

Second, I am not convinced that Wilson's Regime really does avoid creating a new international sovereign. For all the talk about voluntary cooperation, the system he envisions won't work without (1) selecting a Lead Jurisdiction for any given case and (2) resolving antitrust disputes with finality. The first is supposed to happen automatically, with the affected nations, egged on by the WTO staff, agreeing among themselves as to which nation will play the critically important lead role in an investigation. Wilson does not say who will make the decision if there is no agreement. But the type of case Wilson worries about -- Boeing-McDonald or GE-Honeywell -- is precisely where there is least likely to be a voluntary agreement. So, it seems to me that the WTO would implicitly have to be the decision-maker of last resort, or the Regime will fail.

When the Lead Jurisdiction, after giving due consideration to the rest of the world, nevertheless reaches a decision with which others disagree, the conflict is to be settled, says Wilson, by an arbitration panel. This may sound less innocuous if we were to give it the name that its function would merit: the Supreme Competition Court.

What I take away is something different from what Wilson intended, namely a sense that although the WTO would not be an all-powerful sovereign, it would hold enough of the cards that really count to qualify as sovereign.

There may come a time when the nations of the world are in sufficient agreement about the modalities of competition policy (to use a good multilateralist phrase) that they would willingly cede some of their merger sovereignty to the WTO. But for the moment, Wilson's proposal is less a roadmap than a beacon in the distance.

The book is published by Kluwer Law International at a price of $124, which leads me to add that it isn't only international mergers that could benefit from more control.

 


A response by the author, Joseph Wilson (with his permission):

Dear Mr. Foer:

Thank you very much for taking the time to write review for my book, and getting it published in the FTC WATCH and on the website of American Antitrust Institute. The review will definitely get the book broader attention of the antitrust community, for which I am grateful to you.

Please allow to me offer some thoughts on the two problems you identified.

1. Views of U.S. Antitrust Officials

With respect to your objection of not giving recognition to the views of the U.S. antitrust administration concerning the embedding of competition regime within the WTO, I would like to draw your attention to pages 236-239 of the book. There I discuss the concerns raised by Joel Klein – Assistant Attorney General for Antitrust Division in the Clinton administration, and a vocal opponent of placing competition principles with the WTO. As a political matter, I do not deny that it will be very difficult to secure U.S. support for any proposal that involves an antitrust role for the WTO. My book is inevitably something of a “blue sky” exercise, placing greater emphasis upon what desirable regime that might be envisaged rather than upon the realpolitik of what is likely to be achieved through the Doha Round. Having said this, I would hope that American antitrust officials and practitioners would see the benefit of coordinating domestic regimes so as to minimize transaction costs and to diminish opportunities for strategic behaviour.

2. Creating a New International Sovereign

Before addressing the creation of a new international sovereign, let me explain how I imagine that the Lead Jurisdiction would be selected – particularly in the cases like Boeing-McDonnell Douglas or GE-Honeywell. First of all, the Regime I proffered is not of a voluntary character. Once a nation state becomes party to the “Agreement on Competition Law” (p. 308) and to the “Annex on Transnational Merger Review” (p. 310) the principles enshrined therein become mandatory for the WTO Member State.

a. Selection of the Lead Jurisdiction

Section 14 of the Draft Annex on Transnational Merger Review (p. 315) provides the criteria and Section 11.2 (p. 314) provides the mechanism for the selection of a Lead Jurisdiction. For cases like Boeing-McDonnell Douglas or GE-Honeywell, there would have been no ambiguity as to which jurisdiction would become the Lead Jurisdiction. Given that all factors identified in section 14 are equal weight, paragraph 14.1.3 would have preempted the E.U. in favour of the U.S. to be the Lead Jurisdiction because of the “principal place of business” criterion. I elaborate upon this point at the third paragraph on page 319.

There is, however, one scenario which is not squarely addressed by Section 14 of the Annex. That is when: (i) one merging party has a principal place of business in one jurisdiction and the other merging party has a principal of place of business in another jurisdiction, and (ii) both the jurisdictions did not clear the merger in their first review, and; (iii) both the jurisdictions wish to be the Lead Jurisdiction. While the “principal place of business” criterion may not be helpful in this scenario, the other criteria (adverse affect, ability to commit resources, expertise in industry involved in the merger at hand, and the ability to coordinate) should help rank one jurisdiction over another. Furthermore, it is reasonable to expect that one competing jurisdiction will defer to another as long as the former has absolute rights to participate in the review process and influence the outcome of the review. Finally absent agreement among the parties, I envisage arbitration.

b. Resolving Antitrust Dispute with Finality

Section 13 of the Annex (p. 315) stipulates that the Lead Jurisdiction at all times during the merger review, will coordinate with and inform all other competition authorities of the steps it is taking. Section 13.2.2. obliges the Lead Jurisdiction to inform and consult the competition authorities of the affected Member States with respect to the actions it will take in response to the concerns filed by those authorities. If the mechanism works as envisaged, it would lessen chances of disagreement among the affected jurisdictions and the Lead Jurisdiction. Arbitration is provided by Section 18 (p. 317) to ensure that the Lead Jurisdiction will not abuse its authority, and the review by the arbitration panel is primarily to determine whether the Lead Jurisdiction applied the standards of review as enunciated in Section 12 of the Annex (p. 314). With the continuous consultation among the affected jurisdictions and the Lead Jurisdiction, it is difficult to imagine that the affected jurisdictions will allow the Lead Jurisdiction to act contrary to the standards of review of Section 12. Indeed, failure to signal disagreement with the Lead Jurisdiction during the review process would vitiate a Section 12 claim. Thus, the parties would be brought to signal their disagreement during the common review process, rather than through ex post holdout behaviour as is currently the case. A Lead Jurisdiction that could show bona fides in addressing the concerns raised by other authorities should be immunized from arbitral review. The comment to Section 18 (p. 317) states that the “Arbitration Panels cannot simply be courts of appeal or there will be no incentive to take the role of the Lead Jurisdiction seriously.”

In the light of the above, one cannot conclude that the regime I propose would in effect create a new international sovereign in the form of WTO unless one wants to argue that any arbitral role for the WTO constitutes it as a sovereign. If so, the WTO is already a sovereign, but only in the most attenuated form. It is, after all, in the nature of trade agreements that countries agree to mutual constraints upon their individual exercise of sovereignty. The WTO is just a referee enforcing the rules which the Member States have devised. In other words, I agree that my proposal involves constraining sovereignty in the name of global competition regime, but this contractual arrangement among sovereigns does not create a new zone of independent authority for a global law-maker or executive actor.

I look forward to hearing from you, and once again thank you for writing a review of my book.

Best regards, Joseph Wilson