On Monday, April 2, I will leave the Heritage Foundation to enter federal government service. Accordingly, today I am signing off as a regular contributor to Truth on the Market. First and foremost, I owe a great debt of gratitude to Geoff Manne, who was kind enough to afford me access to TOTM. Geoff’s outstanding leadership has made TOTM the leading blog site bringing to bear sound law and economics insights on antitrust and related regulatory topics. I was also privileged to have the opportunity to work on an article with TOTM stalwart Thom Lambert, whose concise book How To Regulate is by far the best general resource on sound regulatory principles (it should sit on the desk of the head of every regulatory agency). I have also greatly benefited from the always insightful analyses of fellow TOTM bloggers Allen Gibby, Eric Fruits, Joanna Shepherd, Kristian Stout, Mike Sykuta, and Neil Turkewitz. Thanks to all! I look forward to continuing to seek enlightenment at truthonthemarket.com.
Last week I attended the 17th Annual Conference of the International Competition Network (ICN) held in New Delhi, India from March 21-23. The Delhi Conference highlighted the key role of the ICN in promoting global convergence toward “best practices” in substantive and procedural antitrust analysis by national antitrust (“competition”) agencies. The ICN operates as a virtual network of competition agencies and expert “non-governmental advisers” (NGAs), not governments. As such, the ICN promulgates “recommended practices,” provides online training and other assistance to competition agencies, and serves as a forum for the building of relationships among competition officials (an activity which facilitates cooperation on particular matters and the exchange of advice on questions of antitrust policy and administration). There is a general consensus among competition agencies and NGAs (I am one) that the ICN has accomplished a great deal since its launch in 2001 – indeed, it has far surpassed expectations. Although (not surprisingly) inter-jurisdictional differences in perspective on particular competition issues remain, the ICN has done an excellent job in helping ensure that national competition agencies understand each other as they carry out their responsibilities. By “speaking a common antitrust language,” informed by economic reasoning, agencies are better able to cooperate on individual matters and evaluate the merits of potential changes in law and procedure.
Pre-ICN Program Hosted by Competition Policy International (CPI)
Special one-day programs immediately preceding the ICN have proliferated in recent years. On March 20, I participated in the small group one-day program hosted by Competition Policy International (CPI), attended by senior competition agency officials, private practitioners, and scholars. This program featured a morning roundtable covering problems of extraterritoriality and an afternoon roundtable focused on competition law challenges in the digital economy.
The extraterritoriality session reflected the growing number of competition law matters (particularly cartels and mergers) that have effects in multiple jurisdictions. There appeared to be general support for the proposition that a competition authority should impose remedies that have extraterritorial application only to the extent necessary to remedy harm to competition within the enforcing jurisdiction. There also was a general consensus that it is very difficult for a competition authority to cede enforcement jurisdiction to a foreign authority, when the first authority finds domestic harm attributable to extraterritorial conduct and has the ability to assert jurisdiction. Thus, although efforts to promote comity in antitrust enforcement are worthwhile, it must be recognized that there are practical limitations to such initiatives. As such, a focus on enhancing coordination and cooperation among multiple agencies investigating the same conduct will be of paramount importance.
The digital economy roundtable directed particular attention to enforcement challenges raised by Internet “digital platforms” (e.g., Google, Facebook, Amazon). In particular, with respect to digital platforms, roundtable participants discussed whether new business models and disruptive innovations create challenges to existing competition law and practices; what recent technology changes portend for market definition, assessment of market power, and other antitrust enforcement concepts; whether new analytic tools are required; and what are good mechanisms to harmonize regulation and competition enforcement. Although there was no overall consensus on these topics, there was robust discussion of multi-sided market analysis and differences in approach to digital platform oversight.
An ICN Conference Overview
As in recent years, the ICN Conference itself featured set-piece (no Q&A) plenary sessions involving colloquies among top agency officials regarding cartels, unilateral conduct, mergers, advocacy, and agency effectiveness – the areas covered during the year by the ICN’s specialized working groups. Numerous break-out sessions allowed ICN delegates to discuss in detail particular developments in these areas, and to evaluate and hash out the relative merits of competing approaches to problems. At least seven generalizations can be drawn from the Delhi Conference’s deliberations.
First, other international organizations that initially had kept their distance from the ICN, specifically the OECD, the World Bank, and UNCTAD, now engage actively with the ICN. This is a very positive development indeed. Research carried out by the OECD on competition policy – for example, on the economic evaluation of regulatory approaches (important for competition advocacy), digital platforms, and public tenders – has been injected as “policy inputs” to discrete ICN initiatives. Annual Competition advocacy contests cosponsored by the ICN and the World Bank have enabled a large number of agencies (particularly in developing countries) to showcase their successes in helping improve the competitive climate within their jurisdictions. UNCTAD initiatives on competition and economic development can be effectively presented to new competition agencies through ICN involvement.
Second, competition authorities are focusing more intensively on “vertical mergers” involving firms at different levels of the distribution chain. The ICN can help agencies be attentive to the need to weigh procompetitive efficiencies as well as new theories of anticompetitive harm in investigating these mergers.
Third, the transformation of economies worldwide through the Internet and the “digital revolution” is posing new challenges – and opportunities – for enforcers. Policy analysis, informed by economics, is evolving in this area.
Fourth, cartels and bid rigging (collusion in public tenders was the showcase “special project” at the Delhi Conference) investigations remain as significant as ever. Thinking on the administration of government leniency programs and “ex officio” investigations aimed at ferreting out cartels continues to be refined.
Fifth, the continuing growth in the number and scope of competition laws and the application of those laws to international commerce places a premium on enhanced coordination among competition agencies. The ICN’s role in facilitating such cooperation thus assumes increased importance.
Sixth, issues of due process, or procedural fairness, commendably are generally recognized as important elements of effective agency administration. Nevertheless, the precise contours of due process, and its specific application, are not uniform across agencies, and merit continued exploration by the ICN.
Seventh, the question of whether non-purely economic factors (such as fairness, corporate size, and the rights of workers) should be factored into competition analysis is gaining increased traction in a number of jurisdictions, and undoubtedly will be a subject of considerable debate in the years to come.
The ICN is by now a mature organization. As a virtual network that relies on the power to persuade, not to dictate, it is dynamic, not static. The ICN continues to respond flexibly to the changing needs of its many members and to global economic developments, within the context of the focused work carried out by its various substantive and process-related working groups. The Delhi Conference provided a welcome opportunity for a timely review of its accomplishments and an assessment of its future direction. In short, the ICN remains a highly useful vehicle for welfare-enhancing “soft convergence” among competition law regimes.
The U.S. Federal Trade Commission’s (FTC) well-recognized expertise in assessing unfair or deceptive acts or practices can play a vital role in policing abusive broadband practices. Unfortunately, however, because Section 5(a)(2) of the FTC Act exempts common carriers from the FTC’s jurisdiction, serious questions have been raised about the FTC’s authority to deal with unfair or deceptive practices in cyberspace that are carried out by common carriers, but involve non-common-carrier activity (in contrast, common carrier services have highly regulated terms and must be made available to all potential customers).
Commendably, the Ninth Circuit held on February 26, in FTC v. AT&T Mobility, that harmful broadband data throttling practices by a common carrier were subject to the FTC’s unfair acts or practices jurisdiction, because the common carrier exception is “activity-based,” and the practices in question did not involve common carrier services. Key excerpts from the summary of the Ninth Circuit’s opinion follow:
The en banc court affirmed the district court’s denial of AT&T Mobility’s motion to dismiss an action brought by th Federal Trade Commission (“FTC”) under Section 5 of the FTC Act, alleging that AT&T’s data-throttling plan was unfair and deceptive. AT&T Mobility’s data-throttling is a practice by which the company reduced customers’ broadband data speed without regard to actual network congestion. Section 5 of the FTC Act gives the agency enforcement authority over “unfair or deceptive acts or practices,” but exempts “common carriers subject to the Acts to regulate commerce.” 15 U.S.C § 45(a)(1), (2). AT&T moved to dismiss the action, arguing that it was exempt from FTC regulation under Section 5. . . .
The en banc court held that the FTC Act’s common carrier exemption was activity-based, and therefore the phrase “common carriers subject to the Acts to regulate commerce” provided immunity from FTC regulation only to the extent that a common carrier was engaging in common carrier services. In reaching this conclusion, the en banc court looked to the FTC Act’s text, the meaning of “common carrier” according to the courts around the time the statute was passed in 1914, decades of judicial interpretation, the expertise of the FTC and Federal Communications Commission (“FCC”), and legislative history.
Addressing the FCC’s order, issued on March 12, 2015, reclassifying mobile data service from a non-common carriage service to a common carriage service, the en banc court held that the prospective reclassification order did not rob the FTC of its jurisdiction or authority over conduct occurring before the order. Accordingly, the en banc court affirmed the district court’s denial of AT&T’s motion to dismiss.
A key introductory paragraph in the Ninth Circuit’s opinion underscores the importance of the court’s holding for sound regulatory policy:
But what can the FTC do about unfair or deceptive practices affecting broadband services, offered by common carriers, subsequent to the FCC’s 2015 reclassification of mobile data service as a common carriage service? The FTC will be able to act, assuming that the Federal Communications Commission’s December 2017 rulemaking, reclassifying mobile broadband Internet access service as not involving a common carrier service, passes legal muster (as it should). In order to avoid any legal uncertainty, however, Congress could take the simple step of eliminating the FTC Act’s common carrier exception – an outdated relic that threatens to generate disparate enforcement outcomes toward the same abusive broadband practice, based merely upon whether the parent company is deemed a “common carrier.”
The cause of basing regulation on evidence-based empirical science (rather than mere negative publicity) – and of preventing regulatory interference with First Amendment commercial speech rights – got a judicial boost on February 26.
Specifically, in National Association of Wheat Growers et al. v. Zeise (Monsanto Case), a California federal district court judge preliminarily enjoined application against Monsanto of a labeling requirement imposed by a California regulatory law, Proposition 65. Proposition 65 mandates that the Governor of California publish a list of chemicals known to the State to cause cancer, and also prohibits any person in the course of doing business from knowingly and intentionally exposing anyone to the listed chemicals without a prior “clear and reasonable” warning. In this case, California sought to make Monsanto place warning labels on its popular Roundup weed killer products, stating that glyphosate, a widely-used herbicide and key Roundup ingredient, was known to cause cancer. Monsanto, joined by various agribusiness entities, sued to enjoin California from taking that action. Judge William Shubb concluded that there was insufficient evidence that the active ingredient in Roundup causes cancer, and that requiring Roundup to publish warning labels would violate Monsanto’s First Amendment rights by compelling it to engage in false and misleading speech. Salient excerpts from Judge Shubb’s opinion are set forth below:
[When, as here, it compels commercial speech, in order to satisfy the First Amendment,] [t]he State has the burden of demonstrating that a disclosure requirement is purely factual and uncontroversial, not unduly burdensome, and reasonably related to a substantial government interest. . . . The dispute in the present case is over whether the compelled disclosure is of purely factual and uncontroversial information. In this context, “uncontroversial” “refers to the factual accuracy of the compelled disclosure, not to its subjective impact on the audience.” [citation omitted]
On the evidence before the court, the required warning for glyphosate does not appear to be factually accurate and uncontroversial because it conveys the message that glyphosate’s carcinogenicity is an undisputed fact, when almost all other regulators have concluded that there is insufficient evidence that glyphosate causes cancer. . . .
It is inherently misleading for a warning to state that a chemical is known to the state of California to cause cancer based on the finding of one organization [, the International Agency for Research on Cancer] (which as noted above, only found that substance is probably carcinogenic), when apparently all other regulatory and governmental bodies have found the opposite, including the EPA, which is one of the bodies California law expressly relies on in determining whether a chemical causes cancer. . . . [H]ere, given the heavy weight of evidence in the record that glyphosate is not in fact known to cause cancer, the required warning is factually inaccurate and controversial. . . .
The court’s First Amendment inquiry here boils down to what the state of California can compel businesses to say. Whether Proposition 65’s statutory and regulatory scheme is good policy is not at issue. However, where California seeks to compel businesses to provide cancer warnings, the warnings must be factually accurate and not misleading. As applied to glyphosate, the required warnings are false and misleading. . . .
As plaintiffs have shown that they are likely to succeed on the merits of their First Amendment claim, are likely to suffer irreparable harm absent an injunction, and that the balance of equities and public interest favor an injunction, the court will grant plaintiffs’ request to enjoin Proposition 65’s warning requirement for glyphosate.
The Monsanto Case commendably highlights a little-appreciated threat of government overregulatory zeal. Not only may excessive regulation fail a cost-benefit test, and undermine private property rights, it may violates the First Amendment speech rights of private actors when it compels inaccurate speech. The negative economic consequences may be substantial when the government-mandated speech involves a claim about a technical topic that not only lacks empirical support (and thus may be characterized as “junk science”), but is deceptive and misleading (if not demonstrably false). Deceptive and misleading speech in the commercial market place reduces marketplace efficiency and reduces social welfare (both consumer’s surplus and producer’s surplus). In particular, it does this by deterring mutually beneficial transactions (for example, purchases of Roundup that would occur absent misleading labeling about cancer risks), generating suboptimal transactions (for example, purchases of inferior substitutes to Roundup due to misleading Roundup labeling), and distorting competition within the marketplace (the reallocation of market shares among Roundup and substitutes not subject to labeling). The short-term static effects of such market distortions may be dwarfed by the dynamic effects, such as firms’ disincentives to invest in innovation (or even participate) in markets subject to inaccurate information concerning the firms’ products or services.
In short, the Monsanto Case highlights the fact that government regulation not only imposes an implicit tax on business – it affirmatively distorts the workings of individual markets if it causes the introduction misleading or deceptive information that is material to marketplace decision-making. The threat of such distortive regulation may be substantial, especially in areas where regulators interact with “public interest clients” that have an incentive to demonize disfavored activities by private commercial actors – one example being the health and safety regulation of agricultural chemicals. In those areas, there may be a case for federal preemption of state regulation, and for particularly close supervision of federal agencies to avoid economically inappropriate commercial speech mandates. Stay tuned for future discussion of such potential legal reforms.
Over the last two decades, the United States government has taken the lead in convincing jurisdictions around the world to outlaw “hard core” cartel conduct. Such cartel activity reduces economic welfare by artificially fixing prices and reducing the output of affected goods and services. At the same, the United States has acted to promote international cooperation among government antitrust enforcers to detect, investigate, and punish cartels.
In 2017, however, the U.S. Court of Appeal for the Second Circuit (citing concerns of “international comity”) held that a Chinese export cartel that artificially raised the price of vitamin imports into the United States should be shielded from U.S. antitrust penalties—based merely on one brief from a Chinese government agency that said it approved of the conduct. The U.S. Supreme Court is set to review that decision later this year, in a case styled Animal Science Products, Inc., v. Hebei Welcome Pharmaceutical Co. Ltd. By overturning the Second Circuit’s ruling (and disavowing the overly broad “comity doctrine” cited by that court), the Supreme Court would reaffirm the general duty of federal courts to apply federal law as written, consistent with the constitutional separation of powers. It would also reaffirm the importance of the global fight against cartels, which has reflected consistent U.S. executive branch policy for decades (and has enjoyed strong support from the International Competition Network, the OECD, and the World Bank).
Finally, as a matter of economic policy, the Animal Science Products case highlights the very real harm that occurs when national governments tolerate export cartels that reduce economic welfare outside their jurisdictions, merely because domestic economic interests are not directly affected. In order to address this problem, the U.S. government should negotiate agreements with other nations under which the signatory states would agree: (1) not to legally defend domestic exporting entities that impose cartel harm in other jurisdictions; and (2) to cooperate more fully in rooting out harmful export-cartel activity, wherever it is found.
For a more fulsome discussion of the separation of powers, international relations, and economic policy issues raised by the Animal Science Products case, see my recent Heritage Foundation Legal Memorandum entitled The Supreme Court and Animal Science Products: Sovereignty and Export Cartels.
On January 23rd, the Heritage Foundation convened its Fourth Annual Antitrust Conference, “Trump Antitrust Policy after One Year.” The entire Conference can be viewed online (here). The Conference featured a keynote speech, followed by three separate panels that addressed developments at the Federal Trade Commission (FTC), at the Justice Department’s Antitrust Division (DOJ), and in the international arena, developments that can have a serious effect on the country’s economic growth and expansion of our business and industrial sector.
- Professor Bill Kovacic’s Keynote Speech
The conference started with a bang, featuring a stellar keynote speech (complemented by excellent power point slides) by GW Professor and former FTC Chairman Bill Kovacic, who also serves as a Member of the Board of the UK Government’s Competitive Markets Authority. Kovacic began by noting the claim by senior foreign officials that “nothing is happening” in U.S. antitrust enforcement. Although this perception may be inaccurate, Kovacic argued that it colors foreign officials’ dealings with the U.S., and continues a preexisting trend of diminishing U.S. influence on foreign governments’ antitrust enforcement systems. (It is widely believed that the European antitrust model is dominant internationally.)
In order to enhance the perceived effectiveness (and prestige) of American antitrust on the global plane, American antitrust enforcers should, according to Kovacic, adopt a positive agenda citing specific priorities for action (as opposed to a “negative approach” focused on what actions will not be taken) – an orientation which former FTC Chairman Muris employed successfully in the last Bush Administration. The positive engagement themes should be communicated powerfully to the public here and abroad through active public engagement by agency officials. Agency strengths, such as FTC market studies and economic expertise, should be highlighted.
In addition, the FTC and Justice Department should act more like an “antitrust policy joint venture” at home and abroad, extending cooperation beyond guidelines to economic research, studies, and other aspects of their missions. This would showcase the outstanding capabilities of the U.S. public antitrust enterprise.
- FTC Panel
A panel on FTC developments (moderated by Dr. Jeff Eisenach, Managing Director of NERA Economic Consulting and former Chief of Staff to FTC Chairman James Miller) followed Kovacic’s presentation.
Acting Bureau of Competition Chief Bruce Hoffman began by stressing that FTC antitrust enforcers are busier than ever, with a number of important cases in litigation and resources stretched to the limit. Thus, FTC enforcement is neither weak nor timid – to the contrary, it is quite vigorous. Hoffman was surprised by recent political attacks on the 40 year bipartisan consensus regarding the economics-centered consumer welfare standard that has set the direction of U.S. antitrust enforcement. According to Hoffman, noted economist Carl Shapiro has debunked the notion that supposed increases in industry concentration even at the national level are meaningful. In short, there is no empirical basis to dethrone the consumer welfare standard and replace it with something else.
Other former senior FTC officials engaged in a discussion following Hoffman’s remarks. Orrick Partner Alex Okuliar, a former Attorney-Advisor to FTC Acting Chairman Maureen Ohlhausen, noted Ohlhausen’s emphasis on “regulatory humility” ( recognizing the inherent limitations of regulation and acting in accordance with those limits) and on the work of the FTC’s Economic Liberty Task Force, which centers on removing unnecessary regulatory restraints on competition (such as excessive occupational licensing requirements).
Wilson Sonsini Partner Susan Creighton, a former Director of the FTC’s Bureau of Competition, discussed the importance of economics-based “technocratic antitrust” (applied by sophisticated judges) for a sound and manageable antitrust system – something still not well understood by many foreign antitrust agencies. Creighton had three reform suggestions for the Trump Administration:
(1) the DOJ and the FTC should stress the central role of economics in the institutional arrangements of antitrust (DOJ’s “economics structure” is a bit different than the FTC’s);
(2) both agencies should send relatively more economists to represent us at antitrust meetings abroad, thereby enabling the agencies to place a greater stress on the importance of economic rigor in antitrust enforcement; and
(3) the FTC and the DOJ should establish a task force to jointly carry out economics research and hone a consistent economic policy message.
Sidley & Austin Partner Bill Blumenthal, a former FTC General Counsel, noted the problems of defining Trump FTC policy in the absence of new Trump FTC Commissioners. Blumenthal noted that signs of a populist uprising against current antitrust norms extend beyond antitrust, and that the agencies may have to look to new unilateral conduct cases to show that they are “doing something.” He added that the populist rejection of current economics-based antitrust analysis is intellectually incoherent. There is a tension between protecting consumers and protecting labor; for example, anti-consumer cartels may be beneficial to labor union interests.
In a follow-up roundtable discussion, Hoffman noted that theoretical “existence theorems” of anticompetitive harm that lack empirical support in particular cases are not administrable. Creighton opined that, as an independent agency, the FTC may be a bit more susceptible to congressional pressure than DOJ. Blumenthal stated that congressional interest may be able to trigger particular investigations, but it does not dictate outcomes.
- DOJ Panel
Following lunch, a panel of antitrust experts (moderated by Morgan Lewis Partner and former Chief of Staff to the Assistant Attorney General Hill Wellford) addressed DOJ developments.
The current Principal Deputy Assistant Attorney General for Antitrust, Andrew Finch, began by stating that the three major Antitrust Division initiatives involve (1) intellectual property (IP), (2) remedies, and (3) criminal enforcement. Assistant Attorney General Makan Delrahim’s November 2017 speech explained that antitrust should not undermine legitimate incentives of patent holders to maximize returns to their IP through licensing. DOJ is looking into buyer and seller cartel behavior (including in standard setting) that could harm IP rights. DOJ will work to streamline and improve consent decrees and other remedies, and make it easier to go after decree violations. In criminal enforcement, DOJ will continue to go after “no employee poaching” employer agreements as criminal violations.
Former Assistant Attorney General Tom Barnett, a Covington & Burling Partner, noted that more national agencies are willing to intervene in international matters, leading to inconsistencies in results. The International Competition Network is important, but major differences in rhetoric have created a sense that there is very little agreement among enforcers, although the reality may be otherwise. Muted U.S. agency voices on the international plane and limited resources have proven unfortunate – the FTC needs to engage better in international discussions and needs new Commissioners.
Former Counsel to the Assistant Attorney Eric Grannon, a White & Case Partner, made three specific comments:
(1) DOJ should look outside the career criminal enforcement bureaucracy and consider selecting someone with significant private sector experience as Deputy Assistant Attorney General for Criminal Enforcement;
(2) DOJ needs to go beyond merely focusing on metrics that show increased aggregate fines and jail time year-by-year (something is wrong if cartel activities and penalties keep rising despite the growing emphasis on inculcating an “anti-cartel culture” within firms); and
(3) DOJ needs to reassess its “amnesty plus” program, in which an amnesty applicant benefits by highlighting the existence of a second cartel in which it participates (non-culpable firms allegedly in the second cartel may be fingered, leading to unjustified potential treble damages liability for them in private lawsuits).
Grannon urged that DOJ hold a public workshop on the amnesty plus program in the coming year. Grannon also argued against the classification of antitrust offenses as crimes of “moral turpitude” (moral turpitude offenses allow perpetrators to be excluded from the U.S. for 20 years). Finally, as a good government measure, Grannon recommended that the Antitrust Division should post all briefs on its website, including those of opposing parties and third parties.
Baker and Botts Partner Stephen Weissman, a former Deputy Director of the FTC’s Bureau of Competition, found a great deal of continuity in DOJ civil enforcement. Nevertheless, he expressed surprise at Assistant Attorney General Delrahim’s recent remarks that suggested that DOJ might consider asking the Supreme Court to overturn the Illinois Brick ban on indirect purchaser suits under federal antitrust law. Weissman noted the increased DOJ focus on the rights of IP holders, not implementers, and the beneficial emphasis on the importance of DOJ’s amicus program.
The following discussion among the panelists elicited agreement (Weissman and Barnett) that the business community needs more clear-cut guidance on vertical mergers (and perhaps on other mergers as well) and affirmative statements on DOJ’s plans. DOJ was characterized as too heavy-handed in setting timing agreements in mergers. The panelists were in accord that enforcers should continue to emphasize the American consumer welfare model of antitrust. The panelists believed the U.S. gets it right in stressing jail time for cartelists and in detrebling for amnesty applicants. DOJ should, however, apply a proper dose of skepticism in assessing the factual content of proffers made by amnesty applicants. Former enforcers saw no need to automatically grant markers to those applicants. Andrew Finch returned to the topic of Illinois Brick, explaining that the Antitrust Modernization Commission had suggested reexamining that case’s bar on federal indirect purchaser suits. In response to an audience question as to which agency should do internet oversight, Finch stressed that relevant agency experience and resources are assessed on a matter-specific basis.
- International Panel
The last panel of the afternoon, which focused on international developments, was moderated by Cadwalader Counsel (and former Attorney-Advisor to FTC Chairman Tim Muris) Bilal Sayyed.
Deputy Assistant Attorney General for International Matters, Roger Alford, began with an overview of trade and antitrust considerations. Alford explained that DOJ adds a consumer welfare and economics perspective to Trump Administration trade policy discussions. On the international plane, DOJ supports principles of non-discrimination, strong antitrust enforcement, and opposition to national champions, plus the addition of a new competition chapter in “NAFTA 2.0” negotiations. The revised 2017 DOJ International Antitrust Guidelines dealt with economic efficiency and the consideration of comity. DOJ and the Executive Branch will take into account the degree of conflict with other jurisdictions’ laws (fleshing out comity analysis) and will push case coordination as well as policy coordination. DOJ is considering new ideas for dealing with due process internationally, in addition to working within the International Competition Network to develop best practices. Better international coordination is also needed on the cartel leniency program.
Next, Koren Wong-Ervin, Qualcomm Director of IP and Competition Policy (and former Director of the Scalia Law School’s Global Antitrust Institute) stated that the Korea Fair Trade Commission had ignored comity and guidance from U.S. expert officials in imposing global licensing remedies and penalties on Qualcomm. The U.S. Government is moving toward a sounder approach on the evaluation of standard essential patents, as is Europe, with a move away from required component-specific patent licensing royalty determinations. More generally, a return to an economic effects-based approach to IP licensing is important. Comprehensive revisions to China’s Anti-Monopoly Law, now under consideration, will have enormous public policy importance. Balanced IP licensing rules, with courts as gatekeepers, are important. Chinese law still has overly broad essential facilities and deception law; IP price regulation proposals are very troublesome. New FTC Commissioners are needed, accompanied by robust budget support for international work.
Latham & Watkins’ Washington, D.C. Managing Partner Michael Egge focused on the substantial divergence in merger enforcement practice around the world. The cost of compliance imposed by European Commission pre-notification filing requirements is overly high; this pre-notification practice is not written down and has escaped needed public attention. Chinese merger filing practice (“China is struggling to cope”) features a costly 1-3 month pre-filing acceptance period, and merger filing requirements in India are particularly onerous.
Jim Rill, former Assistant Attorney General for Antitrust and former ABA Antitrust Section Chair, stressed that due process improvements can help promote substantive antitrust convergence around the globe. Rill stated that U.S. Government officials, with the assistance of private sector stakeholders, need a mechanism (a “report card”) to measure foreign agencies’ implementation of OECD antitrust recommendations. U.S. Government officials should consider participating in foreign proceedings where the denial of due process is blatant, and where foreign governments indirectly dictate a particular harmful policy result. Multilateral review of international agreements is valuable as well. The comity principles found in the 1991 EU-U.S. Antitrust Cooperation Agreement are quite useful. Trade remedies in antitrust agreements are not a competition solution, and are not helpful. More and better training programs for foreign officials are called for; International Chamber of Commerce, American Bar Association, and U.S. Chamber of Commerce principles are generally sound. Some consideration should be given to old ICPAC recommendations, such as (perhaps) the development of a common merger notification form for use around the world.
Douglas Ginsburg, Senior Judge (and former Chief Judge) of the U.S. Court of Appeals for the D.C. Circuit, and former Assistant Attorney General for Antitrust, spoke last, focusing on the European Court of Justice’s Intel decision, which laid bare the deficiencies in the European Commission’s finding of a competition law violation in that matter.
In a brief closing roundtable discussion, Roger Alford suggested possible greater involvement by business community stakeholders in training foreign antitrust officials.
Heritage Foundation host Alden Abbott closed the proceedings with a brief capsule summary of panel highlights. As in prior years, the Fourth Annual Heritage Antitrust Conference generated spirited discussion among the brightest lights in the American antitrust firmament on recent developments and likely trends in antitrust enforcement and policy development, here and abroad.
Are current antitrust tools fully adequate to cope with the challenges posed by giant online “digital platforms” (such as Google, Amazon, and Facebook)? Yes. Should antitrust rules be expanded to address broader social concerns that transcend consumer welfare and economic efficiency, such as income inequality and allegedly excessive big business influence on the political process? No. For more details, see my January 23 Heritage Foundation Legal Memorandum entitled Antitrust and the Winner-Take-All Economy. That Memo concludes:
[T]he U.S. antitrust laws as currently applied, emphasizing sound economics, are fully capable of preventing truly anticompetitive behavior by major Internet platform companies and other large firms. But using antitrust to attack companies based on non-economic, ill-defined concerns about size, fairness, or political clout is unwarranted, and would be a recipe for reduced innovation and economic stagnation. Recent arguments trotted out to use antitrust in such an expansive manner are baseless, and should be rejected by enforcers and by Congress.
On January 23rd, for the fourth consecutive year, The Heritage Foundation will host a one-day antitrust conference that focuses on major thematic developments in domestic and international antitrust policy. The conference pulls together leaders of the antitrust bar and top current and former Federal Trade Commission (FTC) and Justice Department (DOJ) officials to provide an overarching perspective of antitrust trends that will affect the business community over the next year.
This year’s program, entitled “Trump Antitrust Policy after One Year,” will as usual feature an opening keynote address by former FTC Chairman and scholar extraordinaire Professor Bill Kovacic, followed by three separate panels covering FTC, DOJ, and international developments, respectively. A light lunch will be served following the FTC panel. The program will be held in the Allison Auditorium at The Heritage Foundation headquarters in the District of Columbia.
I hope to see you there!
On December 1, 2017, in granting certiorari in Salt River Project Agricultural Improvement and Power District v. SolarCity Corp., the U.S. Supreme Court agreed to consider “whether orders denying antitrust state-action immunity to public entities are immediately appealable under the collateral-order doctrine.” At first blush, this case might appear to involve little more than a narrow technical question regarding the availability of interlocutory appeals. But more fundamentally, this matter may afford the Supreme Court yet another opportunity to weigh in on the essential nature of the antitrust state action doctrine (albeit indirectly), in deciding whether the existence of state action immunity should be decided prior to the litigation of substantive antitrust suits.
The Salt River Power District (SRP) is the only supplier of traditional electrical power in Phoenix, and is a subdivision of the State of Arizona. SRP has lobbied successfully for special governmental status and has used its longstanding ties to government to advance the interests of its private shareholders. (This sort of tale comes as no surprise to students of public choice.) Counsel for respondent SolarCity discussed these ties in their brief opposing certiorari:
[SRP] was created in 1903 to take advantage of a federal law that provided interest-free loans for landowners to build reclamation projects to irrigate their lands. During the Great Depression, SRP successfully lobbied the Arizona legislature for a law denominating it a political subdivision of Arizona so the landowners who ran SRP could avoid income taxes and sell tax-free bonds. . . . Arizona denominates SRP a public entity, but as th[e] [U.S. Supreme] Court . . . explained [in a 1981 case involving [the right of local non-landowner residents to vote on SRP policy determinations], SRP and organizations like it are “essentially business enterprises, created by and chiefly benefitting a specific group of landowners.” . . . . Among other things, SRP lacks “the crucial powers of sovereignty typical of a general purpose unit of government” and SRP’s electric business does not implicate any traditional sovereign power. . . .
SRP’s retail electric business is unregulated. The business answers only to its own self-interested Board, not a public utility commission or any similar independent body. . . . 42 (ER55). SRP is thus free to serve private, not public interests. . . . SRP takes profits from electricity sales and uses them to subsidize irrigation and canal water so that, for example, certain agricultural interests can farm cheaply by a city in the desert. . . .
In short, [as the Supreme Court explained in 1981,] SRP makes money from electric customers and pays out dividends in the form of irrigating “private lands for personal profit.”
SolarCity sells and leases rooftop solar-energy panels in Arizona. It alleges that SRP used its special government subsidies to drive it out of the market for the supply of those panels to customers in the SRP district area. Specifically, according to counsel for SolarCity:
As solar generation increased in popularity and efficiency, SRP started to view solar as a long-term competitive threat to its electricity sales and profits. . . . Facing competition for the first time ever, SRP had a choice between competing in the market or using its monopoly power to exclude competition. . . . SRP first attempted to compete on the merits by developing its own solar offerings. . . . However, consumers continued to prefer SRP’s solar competitors. . . . Then, rather than offer consumers a better product or value, SRP used its unregulated market power to impose terms that lock customers into remaining what SRP calls “requirements” customers—those who satisfy all their electric needs from, and deal exclusively with, SRP. . . .
SRP’s plan [which imposed a large penalty on any customer who obtained power from its own solar system] worked. . . . The new requirements it mandated for its customers had a drastic anticompetitive effect. . . . New rooftop solar applications—from customers of any firm, not just SolarCity—dropped by about 96 percent. . . . SolarCity was forced to stop selling in SRP territory and to relocate employees.
SolarCity sued SRP for Sherman Antitrust Act violations in Arizona federal district court. SRP moved to dismiss under the antitrust state action doctrine, which (as Professor Herbert Hovenkamp puts it) “exempts qualifying state and local government regulation from federal antitrust [law], even if the regulation at issue compels an otherwise clear violation of the law.” The district court denied the motion to dismiss, and the Ninth Circuit affirmed. The Ninth Circuit panel opinion (Judge Michelle Friedland, joined by Judges Alex Kozinski and Ronald Lee Gilman) assessed the applicability of the “collateral order doctrine,” which allows an appeal of a non-final district court decision if it is: (1) conclusive; (2) addresses a question separate from the merits of the underlying case; and (3) raises “some particular value of a high order” that will evade effective review if not considered immediately. The Ninth Circuit emphasized the Supreme Court’s teaching that the collateral order doctrine is a “narrow exception” that must be “strictly applied.” It concluded that, “because the state-action doctrine is a defense to liability and not an immunity from suit, the collateral-order doctrine does not give us jurisdiction here [footnotes omitted].”
In its brief supporting its writ of certiorari, SRP stressed that an interlocutory appeal was justified here because“[a] denial of state-action immunity, like a denial of state sovereign immunity, offends state sovereignty, dignity, and autonomy. . . . [T]he decision below threatens the dignity and autonomy of the states, as well as the division of regulatory power between the state and federal governments, by allowing a political subdivision of a state to be subjected to prolonged litigation for engaging in conduct that was clearly authorized by the state.”
In short, the Supreme Court has been asked to take fundamental federalism principles into account in weighing the applicability of the collateral order doctrine.
Set aside for the moment the narrow question of the applicability of specific collateral order doctrine criteria in this case. Assuming the validity of the facts summarized above, this matter highlights the always-present anticompetitive potential of enabling private parties to exercise monopoly power under the mantle of state authority. Let us briefly examine, then, key state action principles that apply to essentially private conduct that seeks to shelter under a governmental cloak.
Commendably, in Midcal and 324 Liquor, the Supreme Court made it clear that the state action doctrine does not enable state governments to directly authorize purely private actors to violate the Sherman Act, free from state oversight. But should an entity such as SRP that is in essence an unregulated for-profit private enterprise, acting in an anticompetitive fashion, be free to undermine the competitive process (benefiting from government subsidies to boot) merely because a century-old state law characterized it as a state political subdivision?
The “spirit” of recent Supreme Court jurisprudence suggests that the answer should be no, and that the Court may be willing to look beyond the formality of a legislative designation (in this case, “state political subdivision”) to questions of political accountability. In 2015, In North Carolina Dental Board, the Court rejected the claim that state action immunity applied to the self-interested actions of a state dental regulatory board stacked with dentists (the board barred competition from non-dentists in tooth whitening). In so doing, the Court held that entities designated as state agencies are not exempt from active supervision when they are controlled by market participants, because immunizing such entities from federal antitrust challenge would pose the risk of self-dealing that the Court had warned against in prior decisions, such as Midcal.
A legal formalist might respond that a mere state board is of a lesser dignity than a state political subdivision, such as SRP, which directly exercises state sovereign power, and, as such, is not subject to “active supervision” requirements. Functionally, however, SRP acts in all respects like a private company, except that it benefits from certain special state subsidies that assist it in undermining competition. Recognizing that reality, the Court might be willing to say that it will look beyond formal legislative designations to the actual role of a state entity in deciding whether it is, or is not, engaging in “sovereign action.” (State instrumentalities engaging in classic sovereign functions, such as a state supreme court or state treasury department, would not raise this sort of problem.)
More specifically, the Court might wish to consider whether federal antitrust law should be applicable when a state instrumentality that does not have the attributes of a classic private business – such as a state owned-controlled- and operated electric company, for example – engages in business activity and uses its governmental ties to subvert competition. Such a company might, for instance, predate against competing private companies by pricing below its own cost to drive out and keep out rivals, relying on taxpayer funding to support its activities. Activity of this sort could be made subject to a “market participant exception” to the state action doctrine (at the very least requiring state active supervision), as recommended by the Federal Trade Commission’s 2004 State Action Task Force Report. Such an exception, which has not yet been specifically addressed by the Supreme Court, would reduce the returns to anticompetitive business activity engaged in by privileged “state” agents, thereby promoting commercial freedom and vibrant markets. And, as two learned commentators recently pointed out, it would not offend federalism principles that underlie the antitrust state action doctrine (footnote references deleted):
[T]he state does not act within its sovereign prerogative when engaged in economic conduct. It cannot be that the government is truly exercising sovereign powers when acting in the same way as its private citizens. Thus, restricting the prerogative of state and local governments to engage in economic conduct does not abrogate sovereign immunity. Therefore, the federalism concerns underpinning the . . . [state action] immunity doctrine are not in play when the State acts as an ordinary market-participant on equal-footing with private citizens.
The policy and federalism justifications for denying state action immunity to an unsupervised state agency acting as a commercial operator would apply “in spades” to SRP, which, as has been seen, in all material respects looks like a purely private actor.
Let’s return now to the specific question before the Supreme Court. While state action doctrinal issues (including, of course, a possible market operator exception) are not directly presented in the SRP v. SolarCity case, they may well flavor the approach the Court takes in determining the availability of interlocutory appeals of state action immunity denials. The clear and ringing invocation of federalism principles in petitioners’ brief for certiorari suggests a possible doctrinal hook. In particular, the Court might determine that respect for the dignity and role of states as coordinate sovereigns compels a finding that denials of antitrust state action immunity should be subject to immediate review.
A ruling that state action questions should be decided “up front” might, however, prove a pyrrhic victory for petitioners. Counsel for respondents have ably pointed out the quintessentially private commercial nature of SRP’s activities, which could amply support a judicial finding of no state action immunity – whether based on the somewhat novel “market participant” exception or because of inadequate state supervision.
The Supreme Court’s decision in SPR v. SolarCity will determine the narrow issue of the availability of interlocutory appeals to an antitrust defendant that is denied a dismissal on antitrust state action grounds. A holding that authorizes such appeals also would have the incidental salutary effect of furthering efficiency, by eliminating a significant source of costly uncertainty affecting the litigation of cases that fall under the shadow of the “state action” umbrella.
More broadly, the facts in SPR v. SolarCity highlight a potential future clarification of the antitrust state action doctrine – establishment of a clear “market participant” exception to state action immunity. Such an exception commendably would promote effective market processes without offending federalism. It would also tend to diminish returns to (and thereby weaken incentives to engage in) rent seeking by those firms that seek to obtain a business advantage through special government privilege, rather than through competition on the merits.
The terms of the United Kingdom’s (UK) exit from the European Union (EU) – “Brexit” – are of great significance not just to UK and EU citizens, but for those in the United States and around the world who value economic liberty (see my Heritage Foundation memorandum giving the reasons why, here).
If Brexit is to promote economic freedom and enhanced economic welfare, Brexit negotiations between the UK and the EU must not limit the ability of the United Kingdom to pursue (1) efficiency-enhancing regulatory reform and (2) trade liberalizing agreements with non-EU nations. These points are expounded upon in a recent economic study (The Brexit Inflection Point) by the non-profit UK think tank the Legatum Institute, which has produced an impressive body of research on the benefits of Brexit, if implemented in a procompetitive, economically desirable fashion. (As a matter of full disclosure, I am a member of Legatum’s “Special Trade Commission,” which “seeks to re-focus the public discussion on Brexit to a positive conversation on opportunities, rather than challenges, while presenting empirical evidence of the dangers of not following an expansive trade negotiating path.” Members of the Special Trade Commission are unpaid – they serve on a voluntary pro bono basis.)
Unfortunately, however, leading UK press commentators have urged the UK Government to accede to a full harmonization of UK domestic regulations and trade policy with the EU. Such a deal would be disastrous. It would prevent the UK from entering into mutually beneficial trade liberalization pacts with other nations or groups of nations (e.g., with the U.S. and with the members of the Transpacific Partnership (TPP) trade agreement), because such arrangements by necessity would lead to a divergence with EU trade strictures. It would also preclude the UK from unilaterally reducing harmful regulatory burdens that are a byproduct of economically inefficient and excessive EU rules. In short, it would be antithetical to economic freedom and economic welfare.
Notably, in a November 30 article (Six Impossible Notions About “Global Britain”), a well-known business journalist, Martin Wolf of the Financial Times, sharply criticized The Brexit Inflection Point’s recommendation that the UK should pursue trade and regulatory policies that would diverge from EU standards. Notably, Wolf characterized as an “impossible thing” Legatum’s point that the UK should not “’allow itself to be bound by the EU’s negotiating mandate.’ We all now know this is infeasible. The EU holds the cards and it knows it holds the cards. The Legatum authors still do not.”
Shanker Singham, Director of Economic Policy and Prosperity Studies at Legatum, brilliantly responded to Wolf’s critique in a December 4 article (published online by CAPX) entitled A Narrow-Minded Brexit Is Doomed to Fail. Singham’s trenchant analysis merits being set forth in its entirety (by permission of the author):
“Last week, the Financial Times’s chief economics commentator, Martin Wolf, dedicated his column to criticising The Brexit Inflection Point, a report for the Legatum Institute in which Victoria Hewson, Radomir Tylecote and I discuss what would constitute a good end state for the UK as it seeks to exercise an independent trade and regulatory policy post Brexit, and how we get from here to there.
We write these reports to advance ideas that we think will help policymakers as they tackle the single biggest challenge this country has faced since the Second World War. We believe in a market place of ideas, and we welcome challenge. . . .
[W]e are thankful that Martin Wolf, an eminent economist, has chosen to engage with the substance of our arguments. However, his article misunderstands the nature of modern international trade negotiations, as well as the reality of the European Union’s regulatory system – and so his claim that, like the White Queen, we “believe in impossible things” simply doesn’t stack up.
Mr Wolf claims there are six impossible things that we argue. We will address his rebuttals in turn.
But first, in discussions about the UK’s trade policy, it is important to bear in mind that the British government is currently discussing the manner in which it will retake its independent WTO membership. This includes agricultural import quotas, and its WTO rectification processes with other WTO members.
If other countries believe that the UK will adopt the position of maintaining regulatory alignment with the EU, as advocated by Mr Wolf and others, the UK’s negotiating strategy would be substantially weaker. It would quite wrongly suggest that the UK will be unable to lower trade barriers and offer the kind of liberalisation that our trading partners seek and that would work best for the UK economy. This could negatively impact both the UK and the EU’s ongoing discussions in the WTO.
Has the EU’s trading system constrained growth in the World?
The first impossible thing Mr Wolf claims we argue is that the EU system of protectionism and harmonised regulation has constrained economic growth for Britain and the world. He is right to point out that the volume of world trade has increased, and the UK has, of course, experienced GDP growth while a member of the EU.
However, as our report points out, the EU’s prescriptive approach to regulation, especially in the recent past (for example, its approach on data protection, audio-visual regulation, the restrictive application of the precautionary principle, REACH chemicals regulation, and financial services regulations to name just a few) has led to an increase in anti-competitive regulation and market distortions that are wealth destructive.
As the OECD notes in various reports on regulatory reform, regulation can act as a behind-the-border barrier to trade and impede market openness for trade and investment. Inefficient regulation imposes unnecessary burdens on firms, increases barriers to entry, impacts on competition and incentives for innovation, and ultimately hurts productivity. The General Data Protection Regulation (GDPR) is an example of regulation that is disproportionate to its objectives; it is highly prescriptive and imposes substantial compliance costs for business that want to use data to innovate.
Rapid growth during the post-war period is in part thanks to the progressive elimination of border trade barriers. But, in terms of wealth creation, we are no longer growing at that rate. Since before the financial crisis, measures of actual wealth creation (not GDP which includes consumer and government spending) such as industrial output have stalled, and the number of behind-the-border regulatory barriers has been increasing.
The global trading system is in difficulty. The lack of negotiation of a global trade round since the Uruguay Round, the lack of serious services liberalisation in either the built-in agenda of the WTO or sectorally following on from the Basic Telecoms Agreement and its Reference Paper on Competition Safeguards in 1997 has led to an increase in behind-the-border barriers and anti-competitive distortions and regulation all over the world. This stasis in international trade negotiations is an important contributory factor to what many economists have talked about as a “new normal” of limited growth, and a global decline in innovation.
Meanwhile the EU has sought to force its regulatory system on the rest of the world (the GDPR is an example of this). If it succeeds, the result would be the kind of wealth destruction that pushes more people into poverty. It is against this backdrop that the UK is negotiating with both the EU and the rest of the world.
The question is whether an independent UK, the world’s sixth biggest economy and second biggest exporter of services, is able to contribute to improving the dynamics of the global economic architecture, which means further trade liberalisation. The EU is protectionist against outside countries, which is antithetical to the overall objectives of the WTO. This is true in agriculture and beyond. For example, the EU imposes tariffs on cars at four times the rate applied by the US, while another large auto manufacturing country, Japan, has unilaterally removed its auto tariffs.
In addition, the EU27 represents a declining share of UK exports, which is rather counter-intuitive for a Customs Union and single market. In 1999, the EU represented 55 per cent of UK exports, and by 2016, this was 43 per cent. That said, the EU will remain an important, albeit declining, market for the UK, which is why we advocate a comprehensive free trade agreement with it.
Can the UK secure meaningful regulatory recognition from the EU without being identical to it?
Second, Mr Wolf suggests that regulatory recognition between the UK and EU is possible only if there is harmonisation or identical regulation between the UK and EU.
This is at odds with WTO practice, stretching back to its rules on domestic laws and regulation as encapsulated in Article III of the GATT and Article VI of the GATS, and as expressed in the Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary (SPS) agreements.
This is the critical issue. The direction of travel of international trade thinking is towards countries recognising each other’s regulatory systems if they achieve the same ultimate goal of regulation, even if the underlying regulation differs, and to regulate in ways that are least distortive to international trade and competition. There will be areas where this level of recognition will not be possible, in which case UK exports into the EU will of course have to satisfy the standards of the EU. But even here we can mitigate the trade costs to some extent by Mutual Recognition Agreements on conformity assessment and market surveillance.
Had the US taken the view that it would not receive regulatory recognition unless their regulatory systems were the same, the recent agreement on prudential measures in insurance and reinsurance services between the EU and US would not exist. In fact this point highlights the crucial issue which the UK must successfully negotiate, and one in which its interests are aligned with other countries and with the direction of travel of the WTO itself. The TBT and SPS agreements broadly provide that mutual recognition should not be denied where regulatory goals are aligned but technical regulation differs.
Global trade and regulatory policy increasingly looks for regulation that promotes competition. The EU is on a different track, as the GDPR demonstrates. This is the reason that both the Canada-EU agreement (CETA) and the EU offer in the Trade in Services agreement (TiSA) does not include new services. If GDPR were to become the global standard, trade in data would be severely constrained, slowing the development of big data solutions, the fourth industrial revolution, and new services trade generally.
As many firms recognise, this would be extremely damaging to global prosperity. In arguing that regulatory recognition is only available if the UK is fully harmonised with the EU, Mr Wolf may be in harmony with the EU approach to regulation. But that is exactly the approach that is damaging the global trading environment.
Can the UK exercise trade policy leadership?
Third, Mr Wolf suggests that other countries do not, and will not, look to the UK for trade leadership. He cites the US’s withdrawal from the trade negotiating space as an example. But surely the absence of the world’s biggest services exporter means that the world’s second biggest exporter of services will be expected to advocate for its own interests, and argue for greater services liberalisation.
Mr Wolf believes that the UK is a second-rank power in decline. We take a different view of the world’s sixth biggest economy, the financial capital of the world and the second biggest exporter of services. As former New Zealand High Commissioner, Sir Lockwood Smith, has said, the rest of the world does not see the UK as the UK too often seems to see itself.
The global companies that have their headquarters in the UK do not see things the same way as Mr Wolf. In fact, the lack of trade leadership since 1997 means that a country with significant services exports would be expected to show some leadership.
Mr Wolf’s point is that far from seeking to grandiosely lead global trade negotiations, the UK should stick to its current knitting, which consists of its WTO rectification, and includes the negotiation of its agricultural import quotas and production subsidies in agriculture. This is perhaps the most concerning part of his argument. Yes, the UK must rectify its tariff schedules, but for that process to be successful, especially on agricultural import quotas, it must be able to demonstrate to its partners that it will be able to grant further liberalisation in the near term future. If it can’t, then its trading partners will have no choice but to demand as much liberalisation as they can secure right now in the rectification process.
This will complicate that process, and cause damage to the UK as it takes up its independent WTO membership. Those WTO partners who see the UK as vulnerable on this point will no doubt see validation in Mr Wolf’s article and assume it means that no real liberalisation will be possible from the UK. The EU should note that complicating this process for the UK will not help the EU in its own WTO processes, where it is vulnerable.
Trade negotiations are dynamic not static and the UK must act quickly
Fourth, Mr Wolf suggests that the UK is not under time pressure to “escape from the EU”. This statement does not account for how international trade negotiations work in practice. In order for countries to cooperate with the UK on its WTO rectification, and its TRQ negotiations, as well to seriously negotiate with it, they have to believe that the UK will have control over tariff schedules and regulatory autonomy from day one of Brexit (even if we may choose not to make changes to it for an implementation period).
If non-EU countries think that the UK will not be able to exercise its freedom for several years, they will simply demand their pound of flesh in the negotiations now, and get on with the rest of their trade policy agenda. Trade negotiations are not static. The US executive could lose trade-negotiating authority in the summer of next year if the NAFTA renegotiation is not going well. Other countries will seek to accede to the Trans Pacific Partnership (TPP). China is moving forward with its Regional Cooperation and Economic Partnership, which does not meaningfully touch on domestic regulatory barriers. Much as we might criticise Donald Trump, his administration has expressed strong political will for a UK-US agreement, and in that regard has broken with traditional US trade policy thinking. The UK has an opportunity to strike and must take it.
The UK should prevail on the EU to allow Customs Agencies to be inter-operable from day one
Fifth, with respect to the challenges raised on customs agencies working together, our report argued that UK customs and the customs agencies of the EU member states should discuss customs arrangements at a practical and technical level now. What stands in the way of this is the EU’s stubbornness. Customs agencies are in regular contact on a business-as-usual basis, so the inability of UK and member-state customs agencies to talk to each other about the critical issue of new arrangements would seem to border on negligence. Of course, the EU should allow member states to have these critical conversations now. Given the importance of customs agencies interoperating smoothly from day one, the UK Government must press its case with the European Commission to allow such conversations to start happening as a matter of urgency.
Does the EU hold all the cards?
Sixth, Mr Wolf argues that the EU holds all the cards and knows it holds all the cards, and therefore disagrees with our claim that the the UK should “not allow itself to be bound by the EU’s negotiating mandate”. As with his other claims, Mr Wolf finds himself agreeing with the EU’s negotiators. But that does not make him right.
While absence of a trade deal will of course damage UK industries, the cost to EU industries is also very significant. Beef and dairy in Ireland, cars and dairy in Bavaria, cars in Catalonia, textiles and dairy in Northern Italy – all over Europe (and in politically sensitive areas), industries stands to lose billions of Euros and thousands of jobs. This is without considering the impact of no financial services deal, which would increase the cost of capital in the EU, aborting corporate transactions and raising the cost of the supply chain. The EU has chosen a mandate that risks neither party getting what it wants.
The notion that the EU is a masterful negotiator, while the UK’s negotiators are hopeless is not the global view of the EU and the UK. Far from it. The EU in international trade negotiations has a reputation for being slow moving, lacking in creative vision, and unable to conclude agreements. Indeed, others have generally gone to the UK when they have been met with intransigence in Brussels.
What do we do now?
Mr Wolf’s argument amounts to a claim that the UK is not capable of the kind of further and deeper liberalisation that its economy would suggest is both possible and highly desirable both for the UK and the rest of the world. According to Mr Wolf, the UK can only consign itself to a highly aligned regulatory orbit around the EU, unable to realise any other agreements, and unable to influence the regulatory system around which it revolves, even as that system becomes ever more prescriptive and anti-competitive. Such a position is at odds with the facts and would guarantee a poor result for the UK and also cause opportunities to be lost for the rest of the world.
In all of our [Legatum Brexit-related] papers, we have started from the assumption that the British people have voted to leave the EU, and the government is implementing that outcome. We have then sought to produce policy recommendations based on what would constitute a good outcome as a result of that decision. This can be achieved only if we maximise the opportunities and minimise the disruptions.
We all recognise that the UK has embarked on a very difficult process. But there is a difference between difficult and impossible. There is also a difference between tasks that must be done and take time, and genuine negotiation points. We welcome the debate that comes from constructive challenge of our proposals; and we ask in turn that those who criticise us suggest alternative plans that might achieve positive outcomes. We look forward to the opportunity of a broader debate so that collectively the country can find the best path forward.”
As the Federal Communications (FCC) prepares to revoke its economically harmful “net neutrality” order and replace it with a free market-oriented “Restoring Internet Freedom Order,” the FCC and the Federal Trade Commission (FTC) commendably have announced a joint policy for cooperation on online consumer protection. According to a December 11 FTC press release:
The Federal Trade Commission and Federal Communications Commission (FCC) announced their intent to enter into a Memorandum of Understanding (MOU) under which the two agencies would coordinate online consumer protection efforts following the adoption of the Restoring Internet Freedom Order.
“The Memorandum of Understanding will be a critical benefit for online consumers because it outlines the robust process by which the FCC and FTC will safeguard the public interest,” said FCC Chairman Ajit Pai. “Instead of saddling the Internet with heavy-handed regulations, we will work together to take targeted action against bad actors. This approach protected a free and open Internet for many years prior to the FCC’s 2015 Title II Order and it will once again following the adoption of the Restoring Internet Freedom Order.”
“The FTC is committed to ensuring that Internet service providers live up to the promises they make to consumers,” said Acting FTC Chairman Maureen K. Ohlhausen. “The MOU we are developing with the FCC, in addition to the decades of FTC law enforcement experience in this area, will help us carry out this important work.”
The draft MOU, which is being released today, outlines a number of ways in which the FCC and FTC will work together to protect consumers, including:
The FCC will review informal complaints concerning the compliance of Internet service providers (ISPs) with the disclosure obligations set forth in the new transparency rule. Those obligations include publicly providing information concerning an ISP’s practices with respect to blocking, throttling, paid prioritization, and congestion management. Should an ISP fail to make the required disclosures—either in whole or in part—the FCC will take enforcement action.
The FTC will investigate and take enforcement action as appropriate against ISPs concerning the accuracy of those disclosures, as well as other deceptive or unfair acts or practices involving their broadband services.
The FCC and the FTC will broadly share legal and technical expertise, including the secure sharing of informal complaints regarding the subject matter of the Restoring Internet Freedom Order. The two agencies also will collaborate on consumer and industry outreach and education.
The FCC’s proposed Restoring Internet Freedom Order, which the agency is expected to vote on at its December 14 meeting, would reverse a 2015 agency decision to reclassify broadband Internet access service as a Title II common carrier service. This previous decision stripped the FTC of its authority to protect consumers and promote competition with respect to Internet service providers because the FTC does not have jurisdiction over common carrier activities.
The FCC’s Restoring Internet Freedom Order would return jurisdiction to the FTC to police the conduct of ISPs, including with respect to their privacy practices. Once adopted, the order will also require broadband Internet access service providers to disclose their network management practices, performance, and commercial terms of service. As the nation’s top consumer protection agency, the FTC will be responsible for holding these providers to the promises they make to consumers.
Particularly noteworthy is the suggestion that the FCC and FTC will work to curb regulatory duplication and competitive empire building – a boon to Internet-related businesses that would be harmed by regulatory excess and uncertainty. Stay tuned for future developments.