Summary of AAI Proposal for International Academy of Competition Policy

Mar 18 2001
Commentaries

The AAI's proposal for an International Academy for Competition Policy will be explored at a World Bank seminar on April 12.More information on the International Academy of Competition Policy is available here.

Request for Funding

To Complete A Preliminary Study for the Establishment of An International Academy of Competition Policy

Submitted byThe American Antitrust Institute,a non-profit, non-partisan research and advocacy organization focusing on issues of competition policy

Executive Summary:

Countries all over the world have now adopted antitrust laws (or "competition laws," as they are often called), yet few of these countries have substantial experience enforcing them. The American Antitrust Institute proposes to address this and related problems by establishing an International Academy of Competition Policy in the United States. Students at the academy would be antitrust enforcement officials from all over the world, including many countries with developing or recently liberalized economies.

The AAI has already confirmed the need for this academy through an international survey and it has drafted a business plan that gives further shape and detail to the project. AAI is now seeking $60,000 to fund a two-day conference of its international advisory group and additional planning that will answer important unresolved questions about the academy. As part of this effort, the AAI would build a detailed curriculum plan for the academy, finalize a budget for its first several years of operation, and initiate fundraising. According to the current draft of the plan, the academy will need to raise approximately $4.8 million to cover its start-up and first three full years of operation. Organizations interested in funding this project are likely to include governments, multinational organizations, foundations and corporations that seek to promote international economic development, economic or legal education, international trade, international business, or the building of stable market institutions worldwide.

SUMMARY OF PROJECT

Creating Better Competition-Policy Enforcement By Creating Better-Trained Competition-Policy Enforcement Officials

In this era of market liberalization and globalization, interest in antitrust law is expanding dramatically. In the past decade, many national economies that were once highly regulated or state-run have moved to free-market models. And as they have done so, their governments have quickly realized that free markets work best within a structure of institutions and ground rules-including fiscal and monetary policy and, as the United States discovered more than 110 years ago, antitrust law.

Often called "competition law" or "competition policy" outside the United States, antitrust is perhaps best described as a collection of rules against abusive behavior in the marketplace. The most infamous behavior that violates competition policy everywhere is price-fixing, that is, collusion among many or all of the producers in an industry to keep prices high, guaranteeing high profits for the colluders. Other examples include mergers to a high level of industry concentration, "predatory strategies" used by large companies to drive smaller rivals out of business, and the "tying" or "bundling" of a possibly inferior product with a different product that dominates its market-forcing consumers to buy both. Anticompetitive activity leads to higher prices and fewer choices for all consumers, with the largest impact likely to be on the poor.

Ultimately, competition policy helps align the private goals of market participants with the broader public good by insuring that businesses can succeed only by providing superior products and services or by finding ways to produce the same products at a lower price. Thus, competition policy helps create the link between the selfish aims of capitalism and the broader social aims that nations have for their citizens: more wealth, more leisure, and their combination, labor efficiency-that is, more wealth created per hour worked. Moreover, competition policy helps insure that all entrepreneurs are free to compete on an even playing field, and will not have their efforts squelched by powerful companies looking to sidestep competition.

National governments are rapidly committing to competition laws, but have not yet acquired the skills needed to enforce them effectively.

Recognizing the importance of competition policy, governments have raced to establish their own competition laws. As of 1989, only about 30 countries in the world had enacted such laws. But by early 1999 the figure was up to approximately 80, and about 20 more governments had draft laws on their way to adoption. Countries with competition laws accounted for nearly 80 percent of world output and 86 percent of world trade. Competition laws now exist in all the countries of Central and Eastern Europe, about 10 Latin American nations, many countries in Asia that used to be members of the Soviet Union, and several more countries in Africa and South Asia. In the industrialized world, where competition laws have existed for many years, they are now being enforced with greater rigor.

Unfortunately, the recent upwelling of competition policy has outstripped the capacities of many countries to enforce it effectively. The American Antitrust Institute has learned this from its own formal group of advisors on the issue, as well as its informal information sources-a combined group that includes many of the world's leading experts in the international training of competition-policy enforcement officials. In interviews with these advisors, the AAI has discovered that most countries' competition laws are still enforced by officials who have little theoretical background in law, economics, or business strategies, and little experience in the techniques of gathering evidence, ferreting out, and prosecuting violations in competition cases. Many of these officials are career civil servants who have not been well trained for their current assignments. Indeed, some of them (especially in formerly communist countries) have basic misunderstandings about how competition works and what sorts of behavior are likely to threaten it.

Enforcing competition laws is considerably different from enforcing many other types of law. Although a few bright lines exist, most questions of competition law require careful and sophisticated analysis. To assess whether a competition law has been violated, investigators must often school themselves in the workings of an entire industry. Their activities often have as much in common with the work of an investigative journalist, or an academic teacher of marketing or microeconomics, as they do with the everyday work of a criminal prosecutor. Information sources routinely include informal interviews, articles in the popular and trade press, analysts' reports, and rough econometric calculations, in addition to more traditional sources such as deposition testimony, affidavits, "hot documents," and the like. Competition-law educators who have spent years working with less-experienced countries say that most of those countries' enforcement officials are under-equipped to carry out all these unfamiliar tasks.

Current international efforts to build better enforcement skills are inadequate and unfocused, considering the scope of the problem.

To help enforcement officials overcome some of these difficulties, several governments and international organizations offer "technical assistance" on competition law enforcement, including international conferences and internships with the more-experienced enforcement agencies. By all accounts the most useful kind of assistance consists of long-term visits to a less-experienced country by a more-experienced enforcement official. The main organizations providing such assistance have included the World Bank, the European Commission, the United States Agency for International Development, and the Organization for Economic Cooperation and Development. In an environment of increasingly global commerce, when one country fails to enforce (or erroneously enforces) its competition laws, the harm may be felt by the citizens of other countries as well as the local citizenry. For instance, if a company in Country A is allowed to stifle competition and ends up raising its prices, the consumers of all other countries that import Country A's products suffer as a result.

Competition policy enforcement, then, should really be an international concern-much like monetary policy, trade policy, and environmental policy. In all four areas, the "spillover effects" are large and growing. Unfortunately, experts in the area agree that the technical assistance directed toward competition-law enforcement has been grossly insufficient to deal with the enormous harms wrought by diminished competition. What's worse, the technical assistance that does exist has been inconsistent, uncoordinated, and ad-hoc. Indeed, the exact dollar amount spent on technical assistance is hard to compute, because the aid comes in many administrative guises representing several organizations. In late 1999, the American Antitrust Institute conducted a survey of competition-policy officials in 22 countries, most of whose competition laws are relatively new.1 Based on the responses, we believe there are many countries whose officials feel that they acutely need better training. In recent years, this sentiment has prompted some discussion within the World Bank and the OECD concerning the establishment of an international competition-policy training center, or some other program to address the problem in a more coordinated way. But as yet no one has undertaken such a project.

The American Antitrust Institute proposes a new, centralized academy for the training of enforcement officials from all countries

The AAI plans to establish an International Academy of Competition Policy (IACP), where enforcement officials from many different nations could gather to learn-and to teach one another-investigative techniques suitable to competition law, and to study substantive topics that underlie that field of law, such as the basic legal doctrine, microeconomics and business strategy. The IACP would teach the basics of antitrust enforcement to officials from many countries at once, thus avoiding the duplication of effort that currently exists in country-by-country training programs. Students would attend the academy for an extended period of time, so that they could learn the kinds of investigative and prosecutorial skills that come only with long-term, hands-on training.

Based on the responses to the recent AAI survey of competition authorities, we plan to enroll roughly 75 students per year in the academy: 25 students per term, for three terms each year. Before coming to the IACP, each cohort of students would spend roughly 16 weeks in their home countries taking distance-learning courses that cover the more theoretical parts of the curriculum: basic antitrust doctrine, micro-economics, and business strategy. All 25 students would then travel to the IACP, where they would attend courses full-time for roughly 6 weeks. These courses would likely emphasize case studies, group projects, and other skills-based exercises. The primary location of the IACP would likely be Washington, DC. The academy would be a not-for-profit educational institution, governed by a board that includes representatives from students' home countries, funding sources, international organizations with competition-law expertise, and the AAI itself. It would be truly international: students would learn as much from each other as from the instructors, and their home countries would have considerable influence on the curriculum. The IACP would be governed by an independent international board.

At the IACP students would forge personal and professional relationships, helping to build a much-needed global competition-policy community. We hope that this might lead to the dissemination of "best practices" and the informal harmonization of competition policies among many market economies. The IACP would likely be affiliated with an existing U.S. institution of higher learning, and students would receive some sort of academic degree. As a condition for receipt of the degree, each student would have to (i) remain with his or her home country's competition authority for at least two years after graduating, (ii) run training sessions within that country's competition agency to teach the other officials some of what the student learned at the IACP, and (iii) contribute one publishable article to the IACP's journal of international competition policy. These degree requirements would, respectively, help to (i) solve the serious problem of staff turnover at competition policy agencies, (ii) disseminate the IACP's training to more than 75 people each year, and (iii) encourage scholarly dialog concerning international issues in competition policy. Of the countries that responded to the AAI survey, all but one said they would be interested in sending professional-level staff members to attend such an academy.

Before going ahead with the project, we need a more precise, expert-created curriculum, and a detailed accounting of the costs that it implies.

Although it appears that many countries would be willing to continue paying the salaries of enforcement officials while they were studying at the IACP, we believe that few countries will be able to cover the cost of transportation to the academy, let alone the substantial costs for food, housing and tuition. For the moment, then, we are assuming that all IACP-related expenses will need to be underwritten.

The AAI has prepared a draft business plan for the IACP, which includes a detailed itemization of costs and the description of a model curriculum. We estimate that costs will be roughly $1.5 million per year, when the IACP is running at its 75-student-per-year capacity. The model plan has been very well-received by our expert advisors. Still, the model curriculum in the business plan is highly speculative and variations in the curriculum could affect the budget significantly.

To get the project off the ground, then, we feel that we should first carry out a preliminary study of the IACP's curriculum, in day-by-day, lesson-by-lesson detail. In particular, we must resolve a certain tension between our skills-based curriculum and our multi-national student body. To develop skills, the IACP will want to focus on mock cases and other hands-on exercises. But the more practical the exercises become, the greater the chances that they will stray from the legal rules of any given country. For instance, it may make little sense to teach students how to issue civil investigative demands (mandatory calls for evidence prior to the filing of a civil or criminal action), if half of those students come from countries where investigative tools similar to CIDs do not exist. We are confident that remaining curriculum questions can be pinpointed and resolved around the discussion table we are planning.

The next step, then, is for the AAI to hold a two-day meeting of its advisors on this project-a total of 18 people. The list includes many who have taught competition-law enforcement in varied settings, including the enforcement agencies of less-developed countries. We expect the advisors to help us develop a detailed curriculum for the IACP, and a more definitive policy concerning the language of instruction.

The AAI will further refine the curriculum by consulting with the competition authorities of several countries, especially ones less experienced in competition-law enforcement. We will then prepare a revised business plan, including a much more detailed curriculum than the one included in our draft budget, and cost projections that are correspondingly more accurate. We plan to submit that refined business plan to governments, multinational organizations, foundations and other potential funding sources, seeking money for the IACP's first 4 years of operation, which will probably cost in the neighborhood of $4.8 million in all.

To fund the preliminary study, the AAI is currently seeking $60,000.

The preliminary study-including the two-day meeting of our advisors, incorporation of advice from the competition authorities of several nations, and preparation of a second business plan and budget-should cost roughly $60,000. We are currently seeking a grant of $60,000 so that we can complete our plan for the IACP. Month by month, competition laws are going into effect around the world, and the attention of the public and of policy-makers is focused on the subject. If we move quickly, the IACP could be graduating students some time in 2002.

Why the AAI?

The American Antitrust Institute was formed in the spring of 1998. It has already become one of the most frequently quoted sources of information in the United States on the subject of competition policy. The AAI has an advisory board of 55 people, including many of the most distinguished antitrust practitioners and scholars in the U.S., and an international advisory group composed for development of the IACP. The AAI is the only public-interest group in the U.S. focusing exclusively on antitrust issues. The AAI's president, Albert A. Foer, is a former senior executive in the Bureau of Competition of the U.S. Federal Trade Commission, and former CEO of a medium-sized retail business.

A highly detailed plan, with three-year projections and a full statement of assumptions, is available from the AAI. Organizations-including foundations, governments, and multi-government bodies-that may be interested in funding the preliminary study or that have inquiries about the project, should contact Albert Foer at (202) 244-9800 or at bfoer@aol.com. A complete repository of the AAI's work, including copies of articles, issue papers and testimony provided by the organization, can be found at http://www.antitrustinstitute.org.

1 Eighteen responding countries had transitioning or developing economies: Benin, Colombia, Croatia, Cyprus, Czech Republic, Estonia, Kenya, Lithuania, Malta, Mexico, Philippine Republic, Poland, Romania, Slovak Republic, Taiwan, Uzbekistan, Venezuela, and Zambia. Four represented advanced economies with well-established competition laws and institutions: Canada, Israel, New Zealand, and Switzerland.