Competition Policy: Implications from International Data

Implications from a 'snapshot' of the international debate about competition policy include:

· there is wide variation, and ongoing change in the nature of competition policy

· interest is increasing in the relationship between competition and competitiveness

· competition policy is now central to negotiations about market access. The negotiations between USA (which reflects an approach similar to Australia) and Japan are particularly significant.

· the UK, whose 1980s policies influenced many in Australia, is changing its approach

· there is some parallel between establishment of the European Community (a common market through competition policy) and Australia's NCP. Political obstacles are emerging in the EC.

· competition policy can, under some circumstances, be a restraint on effective competition

· the intellectual basis of competition policy still needs attention

16/10/96

Outline of Data

An attachment details articles from a search of data bases concerning competition policy. They deal with:

Asia

· Competition policy in Japan and Korea is oriented towards creating dynamic efficiency <11> [ie towards increasing, not restraining, the market power of national companies]. Data is available on Japan <1>

· Proposals for accelerated deregulation have been made in Japan, but with no firm timetable <52>

· After announcing competition with government monopolies, Malaysia backtracked (eg cancelled licences to competitors) to ensure companies do well. How government companies would operate in a competitive market had not been fully considered before competition was introduced <34>

United Kingdom

· The UK government is producing a report on competitiveness which will say little about competition policy. The goal is to promote national champions, rather than to protect consumers <13>

· Competition was Thatcher's main weapon in reversing industrial decline, but is now neglected <27>

· Compulsory competitive tendering may be eliminated in UK local government <40>.

· There is concern in UK that decisions about competition in electricity are made for political rather than strategic purposes <56>

· Competition policy is designed to benefit consumers, but in UK this is increasingly seen as irrelevant, and policy is implemented to strengthen industry <66> [Note: In East Asia policy is designed to increase the market power of national companies. However, the feasibility of achieving this outcome is very suspect in the UK, because of the different nature of its economic and political system]

European Community

· Europe may need a new federal agency to set competition policy <3>

· European competition policy seeks to restrain governments from helping national businesses <31>, which is a difficult task <8>. State aid to business in Europe has dropped slightly since 1992 when the EC launched its single market program to promote competition <24>

· A duopoly (of two separate companies) was held to be incapable of holding an anti-competitive dominant position in Europe <16>

· There is debate about who should run European competition policy. It was put into the hands of the European Commission to keep it separate from national politicians, but the Commission has become a political battleground - with many contentious issues arising over competition <25> [Note: Might a similar level of disputation about competition issues arise in Australia / Queensland?]

· The EC was created to ensure competition through deregulation, and was to be free of political interference. As its regulatory role broadens (to deal with social and environmental factors) it is more political. <38> [Note: There could be some parallel in this respect between the EC and the ACCC in Australia. Also this article includes a fundamental discussion of the relationship between regulation, competition and politics]

North America

· The US has had the strongest anti-trust laws in the world, but these have become more permissive in recent years <69>

· Reform of Canada's competition legislation focused on concerns much different to those in Australia <43> A detailed description of Canada's competition policy is available <64>

· Canada's new competition policy regards increased market power as not necessarily economically disadvantageous <71>

US / Japan Relations

· Competition policy is a central part of US / Japan negotiations <15> Trade disputes between USA and Japan are based on the inability of US companies to penetrate ties between Japanese manufacturers, distributors and retailers <2> [Note: Those relationships are tight because Japan - like other countries in East Asia - has a communitarian market system, where commercial relationships are part of long term social relationships, rather than at arm's length under contracts or law. Establishment of a competition policy on US terms is inconsistent with Japanese culture. Regulation (which is very tough - but not usually enforced) is not the means for ensuring compliance, but rather the means for disciplining those who might try, for their individual benefit, to deviate from the 'consensus'. In the late 1980s, the US undertook an extensive Structural Impediments Initiative with Japan to examine the practices which constrained market access. The SII neglected the cultural basis of those practices]

The Global Arena

· Competition policy is increasingly seen as more important than trade policy in reducing obstacles to market access. The OECD provides a forum to harmonise competition policies <5>

· Anti-competitive practices are now more important barriers to trade than government tariffs <72>

· International rules for competition policies would be better for anti-trust and trade issues.<6>

· Internally contestable markets could enhance the multi-lateral trading system <68>

· Following the Uruguay round, new issues (including competition policy), have been introduced to trade negotiations <17>

· Anti-dumping actions will replace voluntary export restraints as means for seeking protection after the Uruguay round. These are not likely to be replaced by a uniform anti-trust policy <41>

· A proposal exists for a uniform international approach to competition policy <45>

· Faster progress on competition was recommend to promote trade in the APEC region <46>

· Problems in internationalising competition policies include: juresdictional complexities; transnational externalities; and competition between competition policies <50>

· Multinationals are increasingly concerned about the problem of having to operate under many different national regulatory regimes <51>

· If an international competition policy is required, the issues involved are not yet clearly defined <53>

· Europe is taking a relaxed approach to anti-trust, while the USA is increasingly strict <63>

The Role of Competition Policy

· Competition policy and industry policy may have complementary roles <20>

· Competition policy can improve social cohesion <22>

· Competition policy can sometimes be a barrier to effective competition eg its rules can be a constraint on business activity <37>. Sham litigation is sometimes used under competition laws as a means for preventing others from competing. This is a misuse of market power <70>.

The Foundation of Competition Policy

· Antitrust law reflects the law's goal of incorporating the authority of science, and is compatible with neo-classical economics. This depends on assumptions of rationality and equilibrium, and is not producing relevant public policies. A new metaphor is needed <48> [Note: This article apparently relates to current scientific trends which are questioning some core assumptions of law and economics - from which competition policy is derived. It is also probably relevant to the difference between Western and East Asian economic systems].

· Economists have no clear way of judging whether an economy has enough competition <67>

Some Comments on Australia

· Australia's competition policy regime would be enhanced by: emphasis on reducing various transaction costs; and use of the marginal cost concept in assessing monopoly pricing, and determination of access prices <54>

· An analysis is available of Australia's competition regime from a legal perspective <57>

· Competition Policy: Some International Data

<1> Driffield, Nigel. ; Book notes -- The Revival of Japanese Competition Policy and its Importance for EU-Japan Relations by Stephen Wilks. ; Journal of Common Market Studies. 33(4):636. 1995 Dec.

<2> (Consider) a list of the bitterest trade rows of the past few years. Many concern not the traditional tools of protection, such as tariffs, import quotas and export subsidies, but differences supposedly intended to protect consumers from dangerous products are sometimes seen by foreigners as trade barriers. Plenty of America's frequent spats with Japan stem from American companies' inability to break down the ties between Japanese manufacturers, distributors and retailers; Japan's antitrust authorities, the Americans say, are slack. (Anonymous. ; The race for the bottom. ; Economist. 337(7935):90. 7/10/95

<3> There is debate over whether Europe needs a federal agency to set competition policy. The proposed European Cartel Office is at the center of Europe's competitiveness agenda. (Wilks, Stephen. McGowan, Lee. ; Disarming the Commission: The debate over a European cartel office. ; Journal of Common Market Studies. 33(2):259-273. 1995 Jun.)

<5> Four areas of considerable significance to global competition are foreign direct investment, taxation, trade in services and competition policy. OECD provides the leading forum for policy discussions among government officials from the advanced industrialized countries in each of these areas. (Witherell, William H. ; Investment, services, taxation and competition. ; Business Economics. 30(1):29-34. 1995 Jan.)

Nearly all OECD countries have adopted competition laws to increase economic efficiency in their countries. The benefits drawn from their enforcement domestically have been well demonstrated. At the international level, competition (antitrust) policy matters are already treated to a variable extent in bilateral, regional or international instruments, particularly in agreements, including an OECD Recommendation, which provides for cooperation between national antitrust authorities. The multilateral trade framework has not yet addressed anticompetitive private behavior. Nevertheless, it is increasingly recognized that business practices and market structures (especially distribution systems) may create barriers to the access of foreign firms to particular markets. Concepts and instruments available under competition law may prove more effective than traditional trade instruments in overcoming these barriers. On the other hand, certain business practices that restrain trade may not be covered by competition laws. Competition laws also face new challenges. International factors are increasingly affecting national markets. Trade liberalization and globalization are changing the basic features of competition in ways that increase the potential benefits to be derived from a greater convergence of national competition policies and greater cooperation between competition authorities. For several years now, the OECD has been carrying out an ambitious work program to encourage a better international convergence of national competition laws and policies, and to study the interaction between trade, international rules and competition policies. Further pursuit of this work was encouraged at the last G7 summit.

Convergence of Competition Laws and Policies

The OECD's Committee on Competition Law and Policy has served since 1961 as the principal forum for exchanges of views and experience between the antitrust authorities of the OECD countries. Through regular review and comparisons of their institutional and legal systems, a defacto consistency of approach and analytical tools among Member countries has been evolving over the years. This process has gained momentum in recent years as competition policy became more clearly based on economic theory. Moreover, reflecting the increasing globalization of business activities, governments of Member countries have felt it necessary to go a step further and explicitly seek to achieve a better convergence of competition laws and policies and their implementation. Considerable progress towards convergence has taken place with respect to objectives and other principles, analytical tools, enforcement practices and some areas of substantive law, such as horizontal agreements and resale price maintenance. The business community supports these efforts and takes an active part.

Interaction Between Trade and Competition Policies

A greater convergence of competition laws and policies is probably a precondition for the possible adoption in the future of competition rules that would be acceptable in a multilateral context (such as the WTO). The OECD's Trade Committee and its Committee on Competition Law and Policy have been working jointly for three years to understand better the interaction of trade and competition policies, seeking to develop a common approach to actual and potential frictions between the two policy areas and to exploit the potential synergies between them. This dialogue between the trade and antitrust communities is now well underway, in spite of significant differences in approaches and analytical tools. While the task has proven to be complex, progress has been achieved in the comparisons of objectives and the understanding of how policies can either mutually reinforce or contradict efforts to attack anticompetitive behaviors and to create and maintain competitive conditions in domestic and international markets. The main elements of a common approach would appear to be the following: 1. Efforts to improve the mutual understandine of the terminology, objectives, methods and tools of analysis of competition and trade policies are needed to increase the complementarity of both policies as well as to avoid frictions and to establish whether policy instruments of one set of rules can assist in the achievement of the objectives of the other. 2. Differences among countries in the scope, coverage and enforcement of competition laws are an important area for investigation as they may account in some instances for difficulties in international trade. 3. Basic principles such as transparency, nondiscrimination and national treatment are key issues in the context of both policies. 4. International cooperation in enforcement appears to hold considerable potential for better achievement of the objectives of both areas as well as for reducing frictions. 5. Additional frictions are attributed to the way in which antidumping and other trade remedies, intended to limit unfair trade practices, may limit market competition. A major study of the economic effects of antidumping measures is nearing completion.

<6> Extending international trade rules to cover competition policy would produce better antitrust laws and better trade rules. Competition policies have already sparked bilateral trade disputes. (Anonymous. ; A borderline case. ; Economist. 333(7894):73. 1994 Dec 17.)

Ominously, competition policies are already sparking bilateral trade disputes--most obviously (though not only) between America and Japan. Japanese regulations have been at the heart of the two countries' "framework" trade talks that have been going on, intermittently, since July 1993. Most recently, on December 12th, the Japanese agreed to improve foreign access to their flat-glass market, which is currently carved up by three firms selling through tightly controlled distributors. Indeed, America has long complained that Japanese companies' distribution networks are barriers to trade. The reliance of many Japanese firms on exclusive local component suppliers also annoys America. In some Japanese industries, such as banking and insurance, say the Americans, tight regulation favours the locals. Another moan is that Japan's own competition laws are poorly enforced, allowing big domestic suppliers to dominate Japanese markets at the expense of Americans and other foreigners. At first sight, it may seem that competition policy is merely the latest stick used by American trade negotiators to beat the Japanese. Although that view is partly right, it is nonetheless true that bad, or poorly enforced, competition policies can stifle freer trade in much the same way as tariffs and other trade barriers. How so? Put simply, by allowing monopolies or cartels to hold sway in their domestic markets, governments stifle not only domestic competition, they keep foreigners out as well. Such monopolies are often owned by governments themselves: in most countries, for example, utilities are still state monopolies.

National competition policies could be improved by making them subject to international trade rules; but doing so would also show up the more damaging features of countries' trade regimes. As Frederic Scherer of Harvard University argues in a recent book, competition policy keeps markets open.* The snag is that it stops at national frontiers.

Mr Scherer gives several examples of how this happens. Governments often turn a blind eye when firms form cartels to control international trade--eg, in oil or aluminum. Most competition authorities would not tolerate such stitch-ups in the domestic market; it is equally wrong to do so in international markets. But Mr Scherer's clearest illustration of the clash between trade and competition policies is in the way governments deal with price discrimination--the sale of the same good or service at different prices in different markets. Competition authorities usually fear that firms discriminate in the hope of creating or keeping a monopoly and hence, eventually, of fleecing consumers. Not so in the world of trade. If trade officials (egged on by local companies) reckon that the price of imports is less than in their country of origin, they can, within the WTO's rules, slap on "anti-dumping" duties. Anti-dumping is a convenient, if intellectually flimsy, way of keeping out imports. Alas, it is increasingly popular, growing especially fast in developing countries (see chart). (Chart omitted) Far from promoting competition, the purpose of anti-dumping is to thwart it: virtually everywhere, says Mr Scherer, anti-dumping laws are "unambiguously protectionist".

What to do about it

Is there a way to bring trade and competition policies together? Edward Graham, an economist at the Institute for International Economics, a think-tank in Washington, DC, points to two main problems.** First, competition policies do not stand still, but reflect advances (and fashions) in industrial economics. There is a place for competition policy in trade rules--but, Mr Graham says, the rules must adapt to changes in economists' understanding of how markets work.

Second, governments are unlikely to want to give up control over competition policy to a global authority. Even if they promised to do so, there would be no way of holding them to their word. True, the example of the European Union--whose competition rules override those of its members and are backed by European law--suggests that this hurdle can be overcome, more or less. But it is highly unlikely, Mr Graham says, that the EU's authority can be copied on a global scale. Mr Graham reckons, however, that the WTO's new dispute-settlement system, which permits limited sanctions against countries that break world trade rules, could make it easier for the WTO to incorporate (and for its members to enforce) a competition-policy code. Such a code need not, at least at first, be very detailed. Countries could merely commit themselves to enforce their anti-trust laws in a non-discriminatory way. That would be a good start. Mr Scherer, though, is more ambitious. He would like to see an International Competition Policy Office (ICPO) set up within the WTO. The WTO's members would agree to outlaw cross-border cartels. The ICPO would oversee that deal and would be able to recommend national policies to curb abuses by cartels and multinational companies. This scheme will no doubt prove too much, too soon. Nevertheless, the WTO could try to bring trade rules and competition rules together sooner rather than later. Otherwise, piecemeal bilateral deals will proliferate. As ever, the danger is that they will suit only the parties involved, at everybody else's expense.

<8> The job of controlling the European urge to help out national champions has never been an easy one. The European Union competition commissioner recently suffered two reverses: a battle to rationalize the steel industry; and the Spanish government's request to bail out its national airlines, Iberia. (Anonymous; European competition policy: Banned aid; Economist. 333(7890):75-76. 1994 Nov 19. )

<10> Many economic and political constraints have affected and will affect Russia's move toward an open, competitive economy. (Joskow, Paul L. Schmalensee, Richard. Tsukanova, Natalia. Shleifer, Andrei. ; Competition policy in Russia during and after privatization. ; Brookings Papers on Economic Activity. (Microeco(omics)):301-381. 1994. )

<11> Competition policy has been neglected in East Asian development. Competition policy in both Japan and South Korea is oriented towards creating dynamic efficiency. (Amsden, Alice H. Singh, Ajit. ; The optimal degree of competition and dynamic efficiency in Japan and Korea. ; European Economic Review. 38(3-4):941-951. 1994 Apr. )

<12> Public officials are running into formidable roadblocks from unions, middle managers and private contractors as they attempt to privatize municipal government public services. Cities' competition policy is discussed. (Melcher, Richard A. ; Ironing the wrinkles out of privatization. ; Business Week (Industrial/Technology Edition). (3374):122. 1994 May 30)

<13> The UK government is preparing to release its long-awaited report on competitiveness, which is expected to say little about competition policy (Anonymous. ; Screaming at the umpire. ; Economist. 331(7864):63-65. 1994 May 21. )

In A famous passage of "The Wealth of Nations", Adam Smith sounded a warning against the penchant of businessmen for "conspiring" against the public interest. During the heyday of Margaret Thatcher, the British government seemed to take that warning seriously. Today the tune seems to have changed. References to the Monopolies and Mergers Commission (MMC), the government agency which rules on competition cases have dried up, partly as a result of a decline in merger activity, but also because the Office of Fair Trading (OFT), the agency which investigates and then passes cases to the MMC, has got fed up with having most of its recommendations rejected.

When Mr Heseltine delivers his white paper on competitiveness, it is expected to contain little on competition policy. Mr Heseltine has already expressed more interest in nurturing national industrial champions than championing the interests of the nation's consumers. A softly, softly approach to competition issues is already apparent. A planned strengthening of the law against anti-competitive practices has been watered down. Graeme Odgers, a former industrialist who took over as the MMC's boss last year, has spoken of his concern that over-zealous enforcement of competition rules risks "damaging our great enterprises". Since his arrival the MMC has issued a series of judgments that have dismayed consumer organisations, which see in them a pro-industry bias. The government appears less than keen to reform the law. A new restrictive practices bill is still waiting for parliamentary time five years after one of the government's own white papers promised fines and greater investigative powers against illegal cartels.

The MMC's credibility has also been damaged, say its critics, by its lack of resources and its amateurism. Its 31 part-time commissioners, headed by a full-time chairman and three part-time deputy chairmen, are backed up by a permanent staff of 100. Civil service high-fliers are reluctant to work in what is considered a Whitehall dead end. Good economists can earn much more money in industry. Though it hires outside consultants for its biggest inquiries, the MMC is too often outpointed by highly paid talent hired by companies to represent them. "The MMC and its staff make herculean efforts to gather evidence and to wrestle with the details of complex markets, but at the end of the day it is heavily dependent on the judgment of a few individuals for whom MMC membership is only a part-time occupation,"

<15> Negotiations are taking place between the US and Japan on foreign direct investment and on buyer-supplier relations. The US is proposing that both sides focus on deregulation, competition policy, targeted financial incentives, industry-to-industry meetings and information policy. (McCurry, Michael. ; U.S.-Japan economic framework talks. ; US Department of State Dispatch. 5(4):35. 1994 Jan 24. )

<16> The idea that a duopoly, consisting of two completely separate companies, could occupy an anti-competitive dominant position in the EU market was rejected (Anonymous. ; EU competition policy: Down the tubes. ; Economist. 330(7848):68-69. 1994 Jan 29)

<17> The Uruguay Round opened the door for new issues to be introduced into trade negotiations. Competition policy, domestic policy and foreign investment are among issues that may be introduced into GATT. (Hoekman, Bernard M. ; New issues in the Uruguay Round and beyond. ; Economic Journal. 103(421):1528-1539. 1993 Nov.)

<18> Anonymous. ; EC commissioner to discuss antitrust, competitive policy at conference in Washington. ; Business America. 114(19):10. 1993 Sep 20. )

<19> The prospects for adopting a cooperative competition policy are discussed. (Jacquemin, Alexis. ; The international dimension of European competition policy; Journal of Common Market Studies. 31(1):91-101. 1993 Mar.)

<20> The respective roles of industrial policy and competition policy have been controversial both in Europe and the US. A case for assigning complementary roles to competition policy and industrial policy is presented, and the approach is applied to the problem of mergers. (Neumann, Manfred. ; Industrial policy and competition policy. ; European Economic Review. 34(2-3):562-567. 1990 May.)

<21> (Kay, J A. ; Vertical restraints in European competition policy. ; European Economic Review. 34(2-3):551-561. 1990 May.

<22> The contribution to economic and social cohesion achieved by EC competition policy is at least as significant as that made by the Stuctural Funds. The measures by which regional aid is assessed are discussed. (Marques, A. ; Community competition policy and economic and social cohesion. ; Regional Studies. 26(4):404-407. 1992)

<23> (King, Stephen P. ; Reviews -- Barriers to Entry and Strategic Competition by Paul Geroski, Richard J. Gilbert and Alexis Jacquemin / Competition Policy in Europe and North America by W. S. Comanor, K. George, A. Jacquemin, F. Jenny, E. Kantzenbach and others. ; Economic Record. 68(202):287-288. 1992 Sep)

<24> State aid to businesses in the EC countries has dropped slightly since the EC launched its single-market program in 1985. (Anonymous. ; European Competition Policy: Aid Addicts. ; Economist. 324(7771):61. 1992 Aug 8).

When European Commission launched its single-market programme in 1985, it feared that governments would seek to shelter cherished firms from the winds of competition by increasing subsidies. To shame governments, every two years the commission has prepared a report on state aid in the European Community. It approved the third of these surveys on July 31st. .... The report finds that state aid in the EC has fallen slightly from an annual average of 93 billion ecus ($103 billion) in 1986-88 to 89 billion ecus in 1988-90 (in 1989 prices). .............

Sir Leon Brittan, the competition commissioner, hopes that a new method for curing state aid, to take effect next year, will help to banish the blight. Until now the commission has not been able to investigate aid until a company receives it. But the new procedure, which the commission approved in July 1991, will require each government to notify the commission of its financial relationship with state-owned companies and of any aid before it is paid. France has complained to the European Court that the commission has exceeded its powers in establishing this procedure. Sir Leon is confident of winning the legal battle but will in any case find it difficult to whittle down subsidies in the current, gloomy economic climate. National governments are persuasive pleaders for their own special interests, and commissioners sometimes listen.

<26> The proposed creation of a single European market is causing concern over who should run the EC antitrust policy. (Anonymous. ; The EC's Competition Policy: Pleasing Nobody. ; Economist. 322(7750):82-83. 1992 Mar 14)

Is the European Commission the right body to run the European Community's antitrust policy? The authors of the Community's founding Treaty of Rome thought so 35 years ago, when they put antitrust in the commission's hands to keep it away from national politicians. But the creation of a single European market has turned the commission itself into a political battleground, and many of the fiercest battles have been over competition policy. A series of controversial decisions by Sir Leon Brittan, the competition commissioner, and a handful of botched court cases have increased support for a separate antitrust authority independent of both the commission and national governments.

The Treaty of Rome gives the commission the authority to crack down on price-fixing, cartels and other anti-competitive behaviour by firms that operate across the Community's national borders, and to an government subsidies that distort trade. Since September 1990 the commission has also had the power to veto large cross-border mergers and takeovers. As firms and governments have jostled for advantage in the emerging single market, the whole subject of competition regulation has become fraught.

<27> Many observers feel those charged with the task of applying competition policy in the UK are not up to the job demands. Ambitious plans have gone nowhere (Anonymous. ; Competition Policy: Who's Afraid of the MMC? ; Economist. 322(7749):56-61. 1992 Mar 7. )

In the heyday of Thatcherism, competition was the Tories' big gun in their battle against industrial decline. That troika of the Department of Trade and Industry(DTI), the Monopolies and Mergers Commission (MMC) and the Office of Fair Trading (OFT) had a mission to seek out and destroy monopolies wherever they lurked. Not so now. The high hopes that surrounded the appointment of a Thatcherite, Peter Lilley, as industry secretary in 1990 have evaporated. ........ his most likely successors--Michael Heseltine or Golden Brown--both prefer "industrial strategy" to competition.

Ambitious plans to strengthen the OFT have come to nothing. And now there is a growing unease in many quarters about the performance of the MMC: has it gone soft? The main worry concerns the MMC'S monopoly-bashing role. A series of recent MMC reports, say critics, have shown too much respect for the views of the firms under investigation. ....... Much of this criticism is harsh. Ever since an earlier industry secretary, Norman Tebbit, narrowed the definition of "public interest" to the effects of a monopoly or merger on competition, the MMC has at least taken a more consistent line on takeovers. And none of the recent reports has been easy; economists differed sharply over some of the questions that needed confronting.

<31> The European Commission has wide powers under the Treaty of Rome to prevent member states from distorting competition when they give aid to their domestic industries. The EC's competition policy is discussed. (Anonymous. ; Featherbedding for Europe's Industry. ; Economist. 300(7454):63. 1986 Jul 12.)

<32> US military services are achieving between 12% and 40% cost savings and lower production lead times two years after initiating competitive spare parts procurement policies (Proctor, Paul. ; Pentagon Competition Policy Producing Spare Parts Savings. ; Aviation Week & Space Technology. 124(21):101-111. 1986 May 26)

<33> Hampton, Celia. ; Czech Republic: Co-ordination of EC and Czech competition rules. ; East European Business Law. (96-III): 10-11. 1996 Mar.

<34> Malaysia's celebrated privatization program is in crisis. After selling a bundle of state companies and promising open competition between them and their private sector rivals, the government is now backtracking and trying to ensure that former monopolies continue to do well. State companies were bounced into the private sector before rules governing their behaviour in the free market were laid down. The government needs to come up with a comprehensive competition policy (Astbury, Sid. ; Sorting out the sell-offs. ; Asian Business. 32(4): 38-40. 1996 Apr)

The competition policy now being haggled over should set down the obligations of all players in industries that used to be virtual government departments. In telecoms, there is now a realisation that it's unfair for Telekom to be the only provider burdened with social obligations. In place of 'free' competition, Malaysia is realising, it needs 'fair' competition. Put simply, free competition threatened the profitability of Telekom, the biggest company on the Kuala Lumpur Stock Exchange (KLSE), and the government felt obliged to intercede on its behalf. An analyst with a Kuala Lumpur stockbroker says: 'The government was forced to act. It didn't want Telekom to go the way of Tenaga.' Tenaga Nasional is the former government-run power company that holds second place on the KLSE. Still 71% owned by the state, it has seen its share price halve because of flagging performance. Declining profitability over the past 18 months is easily explained: since October 1994, Tenaga has had to buy electricity from independent power producers (IPPs) under take-or-pay contracts thrust upon it by the government.

<36> the European Commission gave a clear signal that companies concerned about low-price parallel imports cannot use restrictive practices to stamp out the trade, however damaging to their business (Anonymous. ; Competition rules. ; Business Europe. 36(4): 6. 1996 Jan 29)

<37> the European employers' federation UNICE has called for major improvements to EU competition policy. It argues that a more modern approach to competition is crucial if business is to cope with radical changes in the business environment, including globalization of markets. .... UNICE points out that while strong competition in the marketplace provides the best incentive for business efficiency, encourages innovation and guarantees consumer choice, the way in which competition rules are interpreted can be a considerable constraint on business activity. (Anonymous; Cut the red tape; Business Europe. 36(3): 5. 1996 Jan 22)

<38> The EC was created through a program of deregulation designed to enhance competition, and was expected to carry out this role free from political influence. However as its role is now including new regulatory responsibilities (eg environmental and social) problems are emerging (Holmes, Peter. McGowan, Francis. ; The Commission after 1992 - regulating Europe? ; European Business Journal. 7(4): 11-18. 1995.)

The Single European Market initiative was widely regarded as a much needed programme of deregulation for the economies of the European Community. However, over the years it has become clear that '1992' has been as much about regulating Europe as about deregulating it. Moreover, while much of the re-regulation was geared towards increasing competition and removing market barriers, in other areas (the environment and social policy being the most controversial) the Commission was proposing new programmes of regulation and, in some areas, new regulatory institutions.

Throughout the 1980s and 1990s a number of member states have resorted to regulation as a means of policy-making. The British government has been to the fore in this activity, creating a plethora of regulatory agencies and quangos. The regulatory regimes for the privatised utilities (Offer for electricity, Ofwat for water, etc.) are probably the best known examples. At a European level, meanwhile, the Commission has taken on a number of regulatory tasks itself (with the development of a small number of specific organisations, notably for environmental protection and for pharmaceuticals). The increased activism of the Commission, much of it since the Single Market initiative, has prompted comparisons with the much more established use of regulation in the US at both the federal and the state levels.

Some observers (Majone, 1994; Gatsios and Seabright, 1989; Francis, 1993; Bulmer, 1994) have seen in these developments a wholly new role for the institutions of the EU, not least the Commission. It is argued that the functions that the Commission has traditionally had in the area of competition policy ideally places it to become an economic regulator on a broader stage using quasi-judicial rather than political processes to apply efficiency based rather than redistributive solutions to economic policy problems. Hitherto, this role was largely concerned with maintaining a level playing field between member states by preventing unfair public or private practices which undermine the Common Market. It now extends to a much wider range of regulatory activities. Our argument is that while this trend is taking place there are likely to be limits to its ultimate scope. Taken to extremes it would imply a dramatic transformation in the role of the Commission and the EU in general. As much as anything, this is because the new style of regulatory regime implies policymaking on a depoliticised and quasi-judicial basis. In many areas of policy such an approach is likely to be at odds with European political traditions.

This article examines the growth of regulation in the European Union and the consequences of that growth. It focuses on three questions: are there any principles for determining the allocation of regulatory responsibilities between different levels of government; is the resort to regulation a means of depoliticising difficult policy decisions; where should lie the balance between accountability and effectiveness in determining regulatory discretion? In exploring these issues the article draws upon one particular area of regulatory policy-making in the EU - competition policy - though the questions are important for regulation per se. The paper also contrasts aspects of the emerging approach to regulation with the more established regulatory politics of the US and considers whether the EU can learn from American experience or whether it will draw upon European traditions of policy-making.

The regulatory phenomenon

The English term 'regulation' covers a variety of concepts. Typically economists use the term to refer to administrative controls, e.g. on prices or environmental impacts, designed to ensure that private firms take into account the public interest as well as private profit. It is contrasted with government running the activity itself or using public expenditure to achieve its ends. The use of regulation has been most developed in the US, where the federal government began establishing regulatory agencies -of varying degrees of independence - at the turn of the century, with further waves of regulatory activism in the 1930s (financial and economic affairs) and 1960s (social and environmental affairs), while state governments established regulators to oversee the activities of largely privately-owned utilities. Although the 1970s saw a backlash of 'deregulatory' initiatives - in response to the shortcomings of regulation in various economic spheres - the US remains the classic example of the regulatory state. (On the development of US regulation see Moran (1986). The term regulatory state - with the US as its best example - appears to have been coined by Chalmers Johnson (1983) as the opposite of the 'developmental state' exemplified by Japan.)

The resort to independent regulation has not been as prominent in Europe; instead governments at the national and local levels are more likely to have been directly engaged in providing services which are generally subject to regulation in the US. Moreover, some central regulatory activities - such as anti-trust - were scarcely developed until relatively recently in Europe. However, it would be wrong to suggest that regulation is a foreign concept to European administration, even if the techniques and priorities are rather different from those in the US, and there are grounds for arguing that regulation is becoming a more visible and important part of government activities. Constrained public finances have rendered direct intervention and ownership less feasible while adverse experiences have rendered them less desirable. Regulation, by contrast, entails relatively modest financial commitments and appears to offer the possibility of depoliticising complex issues through a mixture of legal procedure and technocratic expertise.

This process has arguably been enhanced by developments within the European Union. Elements of regulatory responsibility can be identified in the Rome Treaty, though it has only been with the revived pursuit of the Treaty's objectives through the Single Market project, and its emphasis on the liberalisation of markets, that these have been put into practice. A central element has been the erosion of national by Community policies, the latter setting in many senses a regulatory constraint. This is particularly true of competition policy which is more and more being applied at an EU level as an apparently judicial rule based regulatory regime, though arguably similar roles are played out in the areas of environmental and social regulation. While in these latter areas there is no equivalent institutional and legal basis to that in competition policy, there has been a shift in the degree to which the policies are initiated and decided upon at a European level. The distinction between competition policy and other areas of regulation becomes less sharp when we recall that one of the central aims of competition policy is 'levelling the playing field', i.e. providing access for each member state to each other on comparable terms.

Much of the emphasis in the debate on European regulation focuses on the Commission. This is understandable given the Commission' s classic role as the initiator of policy and its particular powers in areas such as competition. The Commission's image as a relatively independent and expert agency reinforces its regulatory credentials. However, such a view underestimates the interplay of the Commission with the other institutions of the Union, notably the Court of Justice, which serves both as a catalyst for and constraint upon the Commission's regulatory activities, and the Council of Ministers - and to a lesser extent the Parliament - which serve as political constraints. Trade policy, for example, is the responsibility of the Council of Ministers. As the EU incorporates World Trade Organisation (WTO) rules and tightens its own legal precedents, it becomes increasingly rule bound; and yet there is a limit to how far the Council will see its political discretion eroded. There is thus a limited field where the Commission can act on its own. Nonetheless there appear to be some grounds for characterising policy-making in the EU as regulatory policy-making and for placing the Commission at the centre of that process.

What constitutes the Community model of regulation? Perhaps it is worth contrasting Community practice against the approach to regulation which prevails in the US. In the US, regulation mirrors the political process, with commissioners appointed for their known political views or sensitivities operating an 'adversarial evidentiary process that is constructed to reach some sort of compromise'. In the EU by contrast a more 'technocratic' philosophy prevails and debates are internal to the process. The US system is premised on the recognition of substantial divergences of interest but a recognition that the observance of process can lead to an acceptable outcome. Again the European model depends upon a consensual starting point (Noll, 1989).

Indeed the Community's approach to regulation is more akin to the European continental inquisitorial judicial system than to the AngloSaxon adversarial system. It could be argued that the role of the Commission in competition cases as investigator, prosecutor, judge and jury subject only to appeal to the European Court of Justice is at odds with the US notion of due process (though one could also argue that the ECJ plays an important if rather different role in supporting the Commission in regulatory activities). These differences emerge in the judicial sphere as well. In the US the appointment of Supreme Court Justices is acknowledged to be a matter of ideological debate. By contrast, nominations to the ECJ remain in total obscurity, as do the identity of the judges for most people. Whereas in the US it is common for the Supreme Court to split with published minority opinions being widely cited, this is ruled out in the ECJ.

Regulatory problems

The growth and style of the Commission' s regulatory activism, in competition policy and elsewhere, has not been without its critics. Some of these criticisms reflect concerns at the scale and scope of Commission initiatives. However, there is also a more general unease about the process of regulation per se and the ways in which it is carried out in a Community context. Three interrelated problems stand out: the allocation of regulatory responsibilities; the politicisation of regulatory decisions and the balance of accountability and effectiveness in carrying out regulation.

Allocating regulatory tasks

The division of regulatory responsibilities between different tiers of government is a highly contested issue. The notion of regulation does not itself specify where it is to be carried out. In the US a very large amount of regulation of public utilities is carried out at state level and even in the UK local authorities still retain some regulatory powers, e.g. over taxes, retail activities or land use. Yet in other areas, the national or federal level of government is involved (e.g. the Environmental Protection Agency and the Federal Trade Commission in the US or the Department of the Environment and the Office of Fair Trading in the UK). The issue of the locus of regulation is obviously important in considering how regulatory tasks have developed in the EU and raises the question of when it is appropriate to regulate on a pan-European basis. Eurosceptic claims of centralised regulation by the Brussels bureaucracy notwithstanding, there is a real problem of subsidiarity in the formation and implementation of regulatory regimes and establishing criteria for this purpose has so far proved difficult.

In the US the trigger for federal involvement is where a regulatory issue spills over state borders. Thus the regulation of utility pricing is normally carried out at a state level whereas the question of network access is a federal responsibility. In practice the distinction between state and federal domains is complex and controversial, but mechanisms for determining the balance of power between the different tiers of government exist by virtue of the Constitution. While the European Treaties have at times been referred to as equivalent to a constitution, they do not offer guiding principles on the allocation of regulatory responsibilities. Instead the regulatory task is to a large extent discretionary, determined by the Commission's interpretation of Community law and member states' acquiescence.

However, moving beyond the de facto politics of Community regulation, what criteria might one use as principles for shifting the responsibility to the European level? If as some argue, subsidiarity dictates that regulation be carried out - if at all - at the lowest tier of government appropriate to the regulatory task, when is it necessary to regulate on a European scale? In an environment like the Single Market there is no guarantee that national regulators will operate cooperatively, preferring to protect or promote national interests (defined as those of local producers). Community-level regulation may deliver benefits in terms of credibility. A Community regime may overcome the biases in national regulation and offer coordination and even harmonisation of regulatory standards where this is desirable. (These issues are addressed in McGowan and Seabright, 1995.) The EU need not establish elaborate European agencies to achieve these goals, however; a close monitoring of national implementation of agreed European rules may be adequate.

Regulation, politicisation and policy-making

One of the supposed advantages of regulation is that it 'depoliticises' difficult and complex issues. Rather than leave such issues to politicians, regulation (it is argued) allows for decisions to be taken by experts, enabling rational decisions to be taken on the basis of defined criteria without the pressures of short-term political calculations or lobbying by various vested interests. Moreover, the purpose of such regulatory decision-making is well defined, effectively limited by set criteria and the remit of the regulatory authority. How realistic is this vision of regulation as an objective rational policy process, however?

It is clear that while, in practice, there is no rigid division between 'political' and 'nonpolitical' or 'technical' issues, it may be possible to identify some general characteristics which might distinguish these two categories. Decisions are more likely to be seen as technical where there are criteria for choice that command broad acceptance and where it is assumed that only technical or legal expertise is needed to establish whether rules have been complied with. By contrast, political decisions might cover a wider range of criteria: where major ethical judgements are at stake; where major distributional impacts occur; where very subjective decisions of fact are involved; where these are subject to substantial differences of opinion in the society; where adjudication between interests is needed; where, in the past, voters have been called upon to pronounce. A decision is likely to be all the more politicised where divisions of opinion about 'facts' coincide with other social fault lines, whether regional, party-political or social class based.

It is clear that many of the problems which the Commission has to address as a regulator fall into the 'political' category. If regulators have to venture into political territory, however, how do they maintain legitimacy? To some extent the Commission's legitimacy depends on whether it is seen to consult in framing policy and whether it is accountable for its decisions, considerations which are dealt with in the next section, though we should note here the debate on the degree of transparency concerning Community decision-making and the vagueness of the limits to Community discretion. Here we focus on a rather different source of legitimacy - the application of universally agreed principles.

The question of universally accepted principles arises acutely in regulation in the form of the trade-off between different objectives. The classic trade-off is between efficiency and equity. Both can be regarded as delivering broader benefits to society, yet both are also open to interpretation. In practice, efficiency is a highly contentious and difficult to measure concept, while equity needs to be specified carefully (equity between producers and consumers, or different classes of consumers).

Equity poses equally severe problems for the Commission as a regulator: the EU as a whole has no instruments to allow budgetary compensation for those adversely affected by moves to efficiency. (The rules covering the coal and steel sectors in the original Treaty of Paris - as opposed to the Treaty of Rome - are one exception.) However, it is clear that leaving outcomes to market forces has consequences for distribution and cohesion, both contentious issues. Even where the net effects of regulation are positive (as is claimed for many liberalisation measures), there can be major impacts on overall employment and the regional distribution of activity.

Moreover, the view of regulation as a depoliticised activity which is limited in scope is undermined by those cases where the regulatory process is itself used to determine policy. In a number of instances, regulatory powers have been used to obtain results well beyond those envisaged by the framers of the regulatory regime. There is some evidence of this occurring in the conduct of European competition policy. It has been a central element in creating the Common Market, but has recently widened its scope, effectively determining European policies where more explicit attempts to foster common strategies have failed. Competition policy has always had two aims. It is the main arm of 'negative integration' preventing firms and states erecting barriers or cheating against one another, i.e. an instrument for guaranteeing reciprocal market access. However, it has also had a secondary positive goal of ensuring that the EU market was not only integrated but an efficient competitive market. This dual role - along with the fact that policy-making sometimes results from member states being allowed to 'derogate', that is, to delay implementation of rules - has taken European competition policy into highly political territory. Thus the Community's complex set of rules on subsidies has involved the Commission seeking to decide on desirable levels of capacity in various industries - and even where it should be located.

The pro-active role of European regulation becomes more apparent in the case of the energy sector. This is an area of policy where national governments have been unwilling to surrender sovereignty in the past.

However, in the wake of the internal market programme and the development of environmental policy the Commission has been able to intervene much more effectively than it was ever able to in the past: the agreement between the Energy and Competition Commissioners to allow limited protection of national energy resources on the grounds of supply security has gone much further than previous attempts to influence the management of European energy resources. (On the regulatory implications of the merger rules see Neven et al, 1993.)

Indeed, in some cases, the Commission has moved into areas where the Council of Ministers is unwilling or unable to act. Telecommunications is the most obvious example where the Commission has used regulatory powers to seek to bring about highly contentious changes in policy. Less dramatic moves have happened in other utility areas. The Commission is being forced to make major political judgements over what is and is not acceptable. Some of these are one-off choices or 'regime'. But in order to preserve the legalistic framework it must rule certain options out. The Commission must avoid being seen to favour individual firms on ill-defined public policy grounds under its competition activities, and it is increasingly seeking to prevent member states doing so. How broadly can the Commission use competition policy without provoking opposition?

The problems are well illustrated by the development of European merger policy. Though often presented as something technical in the sense used above, the Commission itself is now exercising the final say on mergers which in the UK or Germany used to be adjudicated by the member states government. The industrial economics literature long ago established that the definition of the market and the choice of concentration measure are far from neutral, while the exact nature of the relationship between concentration, competition and efficiency (however defined) is controversial. If an EU Cartel office were established supposedly to make policy recommendations on grounds solely of micro-economic efficiency, should one allow its policies to be overruled? If so by whom: the Commission or the Council of Ministers? (On the use of regulation to pursue broader objectives on energy policy see McGowan, 1993.)

Accountability and effectiveness

The problems of politicisation and policy-making by regulatory derogation in turn raise questions concerning the discretion required by regulators to be effective, i.e. about the trade-off between accountability and effectiveness in regulation. On the one hand, regulators need to be responsible for their actions and the various interests in regulation need to be able to influence the regulatory process. On the other, autonomy and discretion are needed to ensure regulatory effectiveness.

One of the great attractions of the regulatory approach is that it allows politicians to establish principles of sound economic policy (whether of efficiency alone or fairness as well) and then takes detailed implementation out of their hands. It thus allows politicians to pre-commit themselves to 'virtue' by self-denial of the ability to intervene. However, it is impossible to set rules so precisely in advance that little discretion is transferred to the regulator. Legislators - and at the European level, this means the Council of Ministers - may reasonably fear that their wishes will be ignored by a regulator who will set their own agenda. This can come about through the agency developing a political agenda of its own which it can enforce through its control of information and legitimate expertise. But on the other hand, might not regulatory agencies therefore inevitably give way to political or other pressures unless very strong bulwarks are established to support their independence?

The contrast with the US is marked. The US regulatory system is relatively open, with other parts of government involved in appointments, scrutiny and overall direction. With these various mechanisms in place the regulators are aware that the discretion and autonomy they may enjoy on a day-to-day basis does not render them unaccountable. It is not obvious that similar mechanisms are in place in the European context. Surely the Commission's regulatory activities should be subject to close scrutiny and override by politicians and the active involvement of those directly affected by particular regulatory decisions? These are both aspects of accountability and highly desirable as checks on the regulator. The challenge is how to maintain such accountability without it becoming a form of regulatory capture whether by political masters or other interests. (The US regulatory system is also, of course, much criticised either for granting too much power to budget maximising bureaucrats or for its susceptibility to capture by various interests. Again, however, the contrast with the Commission is noteworthy. The Commission has rarely been considered as a rent-seeking organisation in its own right. Whereas the US public choice literature is full of studies of rent seeking maximising politicians and bureaucrats, there is a tendency for writers on the EU Commission to conclude that it is relatively immune to such temptations.)

Accountability in the sense of being answerable to politicians is probably the most politically important issue surrounding the growth of regulation. Notwithstanding the supposed desire to deny oneself the option of intervention, many would argue that democratic sensitivities require that an ultimate veto of regulators' actions lie with elected politicians. They are as seen as the custodians of the public/national/Community interest.

Problems arise, however, when too much recourse to that veto is made because short-term political calculations dictate that the 'correct' regulatory decision is too risky. In such circumstances, the credibility of the regulator will be quickly eroded. In a Community context, it could be argued that the Council of Ministers and increasingly the Parliament exercise a control in terms of their role in shaping and even rejecting Commission proposals. Some propose to increase political control, by returning to unanimity within the Council or extending a Council' s override veto to Court judgements. However, such a move would risk institutional sclerosis and cripple the regulatory role of European institutions.

Accountability may also mean that the agency must be embedded in a policy community in which its technical authority and legitimacy are not contested. Often this means the regulator must have constituencies on whom it relies for information and whose willing compliance is an effective sign of credibility (examples include the 'regulatees' themselves or a section of the legal profession). In many cases, close cooperation can literally lead to co-option in the sense that sectoral professionals are seconded to a regulatory agency or officials end up in jobs with companies they have come to know, a process established and even encouraged in France, Japan and now the UK. While it may be relatively new to Brussels, the Commission is catching up fast. For example, in order to legitimise its radical policies for change in some utility sectors DG IV thought it useful to build up links with actors other than the core producer interests, the latter having in many cases close ties to the Commission (even staff on secondment in sectoral DGs). DG IV must also build up a constituency in the legal profession. It may be argued that a competition agency must be willing to run the risk of allying with certain large industrial users if it is to build up political muscle vis-avis dominant suppliers. But this may be at the expense of both producers and unorganised users. Closeness to some of the actors can give the chosen policies a form of legitimacy, but it brings the Commission perilously close to risking a different kind of capture.

Conclusion

Although the extent of its role might be debated, the European Commission is involved in a range of regulatory activities which require serious consideration. In competition policy but also in such areas as the environment and social policy, as well as a range of technical standardisation activities, the European dimension to economic regulation is becoming increasingly important. As its significance grows, however, the problems associated with this activism have to be considered carefully and the possible limits of its scope recognised. Not the least important reason for caution (particularly as the 1996 Intergovernmental Conference looms) is that too much regulatory intervention at the European level could be counterproductive, provoking member states to limit in one way or another its powers and or/its scope for intervention.

`The context within which regulation takes place is an important guide to understanding its potential and its limits. The emergence of regulation as a pervasive phenomenon in the US has taken place over more than a century in the very particular political traditions of that country (such as federalism, a strong judicial system and a particular balance of public and private power). In the EU, by contrast, regulation has only come to the fore in the last decade, largely on the back of a unique conjunction of economic and political forces. The EU was inspired in the late 1980s by a combination of UK and above all German experience to look for ways of resolving complex economic problems by trying to replace political decision-making by rule-based regulation. Competition policy epitomised this role (though other areas of policy and even perhaps the proposal for an independent central bank are other examples). Some developments in trade policy, including the greater role of the Court of First Instance, foreshadow greater use of rules set by the Council being executed by the Commission as a kind of agency or even agent. The question is how far the accumulation of regulatory responsibilities can go on the basis of past developments given the changed context of contemporary Europe and the particular problems of regulation itself.

Recent shifts in the broader European context present the most immediate challenge to European regulation . The recession of the early 1990s and the reaction to Maastricht suggested that there were both economic and political limits to the Commission's regulatory role. Times have changed - not least in the shape of a recovery in Europe's economic fortunes - but distrust of the EU has not - so far - dissipated. In such an environment, the EU institutions, particularly the Commission, have to be aware of the limits to intervention.

Such a cautious approach may in fact be desirable given the problems associated with regulation noted earlier. The task of allocating regulatory responsibilities between different levels of government may tend to favour European-wide regimes in areas where national regulation might be equivalent to national protectionism. However, it is much more difficult to deliver regulation as a technocratic, rational and non-political approach to sensitive issues. Partly, this is because of the contested nature of the issues themselves, but also because of the Commission's occasional willingness to use regulation as a means to pursue much broader policy objectives. The ultimately political nature of much regulation renders our discussion of the trade-off between effectiveness and accountability - and the problems of striking a balance between the two - especially pertinent.

Many of those who have analysed the growth of the EU's regulatory role see it as a broadly positive development. However, at the root of their arguments lies an assumption that there are few if any ideological disagreements about the content of policy and that consensus or compromise can therefore be formalised in policy guidelines which can be specified in advance and issued to some form of agency, such as the Commission. In the absence of such a consensus, however, it is far harder to contract out political choice to the Commission. Although there is more or less agreement in principle that the Commission can be left to run competition policy, member states are wary of the Commission alone being given more power to determine other areas of policy such as trade policy. Indeed, the latter case demonstrates the problems of developing regulatory regimes in the absence of a consensus. Anti-dumping policy illustrates this. WTO rules and the EU's own legislation tend to move the system to a more rule based quasi-judicial system. The recent debate over a new anti-dumping regulation of 1994 indicates that the 'Community Interest' must be taken into account in any decision to impose duties. The Commission would have to decide what this is and make proposals to the Council, but the text does not define the term, such as the weights to be given to producer rather than user interests, even though it lays down quite tight procedures that have to be followed in most respects (see Financial Tlmes, 18 September 1995). Consensus on such a specification would be necessary, but will be hard to arrive at, for the Commission to carry out in full its existing responsibilities in this area.

There are some areas where a consensus does exist and where the regulatory mode does seem to offer a fruitful way forward. These are essentially ones in which the Community institutions have a successful track record of agreeing principles and where technical monitoring of compliance is at least to some extent a matter of fact. But in many areas the Commission and the European court are not trusted enough either by the politicians or the public for them to be able to handle extremely sensitive issues. Perhaps if the EU were to establish a greater degree of political legitimacy - for example through strengthening the role of the European Parliament - there would be a greater acceptance of the transfer of power involved in more European regulation. With the backing of a stronger Parliament, the Commission might then be in a stronger position to assert political priorities other than those of the Council. For the time being, however, it seems likely that the scope of European regulation cannot extend much further without provoking a major backlash.

<39> In South Africa there is concern about the extent to which competition will be "enforced" by public servants rather than left to market forces. .... the country is still failing to attract meaningful levels of foreign direct investment. (Anon; Promoting competition in South Africa; Business Africa 4(19): 1-2. 1995 Oct 16-31.

<40> In UK a Labour government could make a profound difference to employment policy and practice in local government in competition policy. The signs are that compulsory competitive tendering would go, but it is not clear what centralised measures would replace it and still encourage value for money in a financial environment that is bound to be as tough as the present one. (Nolda, Charles. ; Value for money is a worthy principle. ; Personnel Management. 2(5): 25. 1996 Mar 7.)

<41> the Uruguay Round prohibits the further use of voluntary export restraint agreements. Lobbying for protection will thus focus on antidumping. But an attempt to obtain a multilateral agreement to replace antidumping with common antitrust rules is unlikely to be successful. Two alternatives are (a) antidumping to become one of 3 possible remedies, with its initiation conditional upon a finding, by the competition authorities of the exporting country, that the exporting industry benefits from substantial barriers to entry on its home market. (b) to allow the Secretariat of the World Trade Organization (WTO) to play a fact-finding role in cases where it is alleged that a Member tolerates restrictive business practices on its territory that impede entry by foreign suppliers. (Hoekman, Bernard M. Mavroidis, Petros C. ; Dumping, antidumping and antitrust. ; Journal of World Trade. 30(1): 27-52. 1996 Feb.)

<42> Denton, Ross. ; Competition policy. ; European Trends. 32-42. 1996 First Quarter.

<43> The Canada-US Free Trade Agreement of 1988 and NAFTA in 1992, together with development of communications and business technology and a rapidly changing national and global economy, have necessitated a further review of Canadian competition legislation. The Bureau of Competition Policy is the federal agency responsible for enforcing and administering Canada's Competition Act. Four areas in which the Bureau considers change to be necessary are: 1. Simplifying notification about mergers 2. confidentiality and mutual assistance (amongst domestic / international agencies) in enforcing competition laws, 3. misleading advertising and deceptive marketing practices to be remedied not treated as criminal) , and 4. access to the Competition Tribunal needed by interested parties). (Thomson, Kent E. Farrow, Trevor C W. ; Amending the Competition Act. ; International Commercial Litigation. 35-37. 1996 Dec 1995/Jan.)

<45> EC has produced unofficial study of requirements for international cooperation in competition policy (Anonymous. ; International cooperation report. ; International Financial Law Review. 14(9): 53. 1995 Sep. <45>

The report considers that action is necessary to prevent private anti-competitive activity from closing off markets opened by the Gatt/WTO regime. It recommends that the existing network of bilateral arrangements between the EU and other countries should be extended, on the EC-US agreement model. In cross-border cases, the better placed authority should act on the principle of 'positive comity', allowing one authority to ask another to act where the interests of the first are affected. Confidentiality laws should not hamper exchanges of information, although the concerns of European companies are recognized. To resolve disputes between rival enforcement authorities, the progressive construction of a set of common rules is suggested as a medium-term remedy.

A plurilateral cooperation structure accompanied by a dispute resolution procedure based on a set of common rules is also suggested. This should extend to the OECD countries, central and eastern Europe, Korea, Japan, Canada, Hong Kong, Taiwan and possibly some Latin American and mediterranean countries. The common rules would be negotiated internationally and drafted and reviewed by an international body. Countries should adopt new legislation to conform to these rules, if necessary. Certain forms of conduct, such as price-fixing, would be illegal per se, and for other types of commercial cooperation such as vertical agreements, the advantages to the consumer of the activity should be weighted against the restriction of competition. One suggested method of dealing with procedural disputes is "negative comity," whereby the complainant country would be allowed to apply its own competition laws.

The report dismisses the possibility of an international code of competition law, enforced by a world authority, which it considers unrealistic in the short or medium term.

On the issue of confidential information, it is suggested that the relevant EC internal regulations could be overridden by an international agreement "in return for certain negotiated guarantees".

The report also calls for member states to undertake the necessary legislative amendments to allow them to investigate conduct on their territory that has its effects elsewhere, and take enforcement action against it. The use of competition policy as a means to open markets is not specifically advocated--in contrast to the US approach--but a more cooperative, consensual approach is preferred. Although the report calls for extension of the EC-US cooperation agreement, including the disclosure of confidential information, the Commission has said that it does not at present foresee this.

<46> The Eminent Persons group established in 1992 to look at the future of trade in the Asia / Pacific region has suggested many initiative, including faster progress on competition policy (Anonymous. ; Eminent persons seek to build on APEC initiatives at Seattle, Bogor. ; New Zealand Manufacturer. 16. 1995 Oct.)

<47> the American Society of International Law convened a panel on the subject of international regulatory competition and trade and competition policy. (Smith, Clint. ; The challenge of international regulatory competition: Trade and competition policy. ; American Society of International Law Proceedings of the Annual Meeting. 395-408. 1995.)

<48> American antitrust law is an advanced case of the law's aspiration to model itself on, and incorporate the authority of science. Imitation of science has produced an antitrust law that is coextensive with neoclassical price theory. This theory is the formal elaboration of assumptions of rationality and equilibrium. However, the antitrust that scientism has produced is increasingly irrelevant to important public policies. Antitrust approaches that a new metaphor might take are explored. (Wise, Michael O. ; Antitrust's newest "new learning" returns the law to its roots: Chaos and adaptation as new metaphors for competition policy. ; The Antitrust Bulletin. 40(4): 713-777. 1995 Winter.).

<50> The lowering of tariffs and non-tariff barriers, the growing efficiency of transport and communications techniques and the international dissemination of technology and capital have boosted the globalization of economies and the competitive climate in which firms operate. Problems that arise with internationalization of competition policy include: jurisdictional complexities, overcoming inefficiencies created by transnational externalities and inefficiency of competition between competition policies. International cooperation to establish a common set of minimum rules in the domain of competition policy will improve the credibility of the economic system. (Jacquemin, Alexis. ; Towards an internationalisation of competition policy. ; World Economy. 18(6): 781-789. 1995 Nov.)

<51> Regional trade agreements increasingly reflect the shift in the focus of trade liberalization away from tariffs and other measures at the border toward domestic policy issues, including competition policy and investment rules. As multinational corporations seek to site production close to local markets rather than export from afar, so they have become increasingly preoccupied with having to operate under many different national regulatory regimes. (Anonymous. ; Regional trade pacts best route for MNCs in '96. ; Crossborder Monitor. 4(1): 1,12. 1996 Jan 10.)

<52> Compiled by a subcommittee of Japan's Administrative Reform Committee, a report calls for accelerated deregulation, although it remains vague in how and when recommendations should be carried out. (Maruko, Maya; Faster deregulation called for; Japan Times Weekly International Edition. 35(50): 1,5 1995 Dec 18- 24)

"It is difficult to come to a consensus on these sectors, not because the bureaucrats or politicians are resisting deregulation, but because there are many groups concerned with different interests,"

<53> Over the past 50 years, there have been numerous attempts in international organizations to deal with competition policies that relate to international trade. Recently, the relationship between the trading system and trade and competition policy was addressed at the Uruguay Round meeting in April 1994. If competition policy is to be addressed through multilateral trade negotiations, the scope of negotiations and the principal issues are not yet clearly defined. Discusses: reasons why a multilateral competition policy may be needed; options available; Past initiatives in multilateral discussions; characteristics of past agreements; recent work in the OECD; and why there are suggestions for initiatives to deal with trade and competition policy considerations at this point in time.(Lloyd, Peter. Sampson, Gary. ; Competition and trade policy: Identifying the issues after the Uruguay Round. ; World Economy. 18(5): 681-705. 1995 Sep.)

<54> The Hilmer Report focuses on the important issues of legislative and regulatory measures to directly reduce monopolistic structures and conduct. But competition policy also should help reduce transaction costs (which increase the substitutability of different options and help to extend the competitive market, and particularly to reduce entry barriers for new entrants and for innovations). Also contrary to Hilmer, economic theory, and particularly the marginal cost concept, should have a central role in assessment of monopolistic behavior and in the determination of access prices to essential services provided by natural monopolies. (Freebairn, John. ; Competition policy: Some neglected issues in the Hilmer Report. ; Australian Economic Review. (111): 27-42. 1995 Third Quarter)

The economics literature is replete with articles, theorems and propositions on the efficiency properties of competition as a mechanism for achieving welfare increasing exchanges of goods, services and factors. These include static equilibrium models in which the price mechanism plays the key information role for mutually beneficial exchange, for example, the formal models of Arrow and Debreu (1954), Arrow and Hahn (1980) and modern textbooks. Typically, these models assume, implicitly or explicitly, zero transaction costs, or more fundamentally they assume perfect, costless knowledge and they assume secure, clearly defined property rights. Under such circumstances, competition ensures that all beneficial exchanges take place.

Yet, the reality is that exchange costs are far from zero, and that transaction costs impose a wedge between the valuations perceived by the buyer and the seller. Transaction costs are defined broadly as the costs of the collection and evaluation of information about alternative exchange options, of negotiating the conditions of the actual exchange transaction, and of policing and enforcing exchange contracts, and in the event of dispute costs of litigation are incurred. Not all contracts are explicit legal agreements. Often exchanges are in the form of implicit contracts based on conventions, established cultural and business histories, and on perceptions of fairness and 'the right thing'. Both explicit and implicit contracts require the use of resources. .....

Apart from lowering barriers to entry for new entrants, the Hilmer Report largely ignores policy changes affecting the structure and operation of Australian institutions. The previous section argued that attention also should be given to institutional changes that lower transaction costs as a mechanism to facilitate a more competitive economy. This section provides some illustrations of a potentially large area for policy...... Labour is the most important input, contributing about two-thirds of production costs and indirectly influencing the productivity of capital and the rate of adoption of new technology. High transaction costs are incurred in negotiations about remuneration, work and management practices, career prospects, training, and so forth. These costs arise in part because of the dominance of the human element in industrial relations, because of long time frames associated with career aspirations and human capital, because of the endogeneity of work effort, and because of information asymmetries between the parties......... Financial Markets: Deficiencies in information, including asymmetrical information leading to principal-agent problems, and uncertain property rights contribute to high transaction costs, and especially for new entrants relative to incumbents, in financial and business institutions. Ironically, as argued by Davis (1995), many of the deregulatory changes to financial markets in the 1980s aimed at increasing competition in these markets concurrently aggravated the information asymmetry problems and increased transaction costs. Symptoms or examples of deficiencies include: failures in prudential supervision against perceived standards of capital adequacy and security; unsatisfactory, incomplete and obscure financial records about the tne financial position of enterprises and their relationships with other enterprises; and in extreme cases long delays in the signalling to shareholders and others of mismanagement and corruption; the complexity and costs of preparing prospectuses for raising equity capital; and protracted, expensive litigation to settle disputes. ....... Property Rights and Natural Resources : Uncertain property rights regarding the ownership of, conditions and rights of access to, payments for use of, and conditions on the transfer of land for agriculture, mining, forestry and tourism, and about the use of water, air and the environment generally, raise the entry costs for new entrants to an industry as well as creating uncertainty and additional transaction costs. Numerous examples can be cited of poorly defined property rights in Australia. These include: the still uncertain ramifications of the MABO decisions on land ownership and access in large parts of Australia; uncertainty, short-term contracts, and frequent revision of contract conditions in response to political forces for forestry and some fishing resources; unclear and vague regulations for environmental protection conditions on the use of natural resources for mining, agriculture, tourist and some manufacturing activities, and especially the evolving and uncertain role of political pressure groups in pushing for change after change in regulations and in their interpretation and implementation; and changing and uncertain land zoning restrictions and building codes. Lack of clarity of legislation and regulations, and often in Australia conflicting Commonwealth, State and Local guidelines and decisions, and especially the prospect of further changes in legislation and regulations, generate uncertainty and raise the risk premium required to be earned by new projects. Further, the inevitable lags while decisions are made, and then usually challenged and remade, add to the costs of projects using land and other natural resources. ........ Product Markets : Several possibilities can be investigated for lowering transaction costs for the transfer of goods and services between producers and between producers and consumers. These include commercial laws clearly defining the rights and responsibilities of buyers and sellers; and accurate and reliable information specifying the characteristics of products exchanged, of which price is just one characteristic. Property rights refer not just to ownership but also to responsibility for defects, misuse and the liability for any spillover effects on third parties. The system of weights and measures is the simplest, and yet a fundamental, example of information required to facilitate mutually beneficial exchanges of goods and services. In practice a very wide range of product attributes, such as colour, fashion, reliability, durability, taste, and so forth, are important to buyers. Because of the many attributes and their different values to different buyers, it is difficult and often undesirable to seek formal measures of all attributes, and hence informal implicit contracts based on personal relationships, repeat buying and historical precedent can be important in product exchanges. ........ Macroeconomic Policy : Stable, predictable fiscal and monetary policy strategies indirectly facilitate effective competition by reducing important sources of uncertainty and complexity in factor and product markets. Low and predictable inflation removes one element of uncertainty in contracts for transactions spanning into the future, and it lowers transaction costs relative to those incurred with high and especially variable inflation. Also, inflation tends to confuse signals about relative prices and thus adds to search costs. A stable currency is especially important to provide confidence for saving and investment decisions which are critical at the cutting edge of competition in new products and processes....... Taxation: the complexity of Australian taxation not only involves high administration and especially compliance costs, but also it is relatively more burdensome to new producers and to small producers. Pope (1994) estimates compliance costs of company income tax at 23 per cent of revenue collected, of personal (including many unincorporated business enterprises) income tax of 9 per cent of revenue collected, and of employers Prescribed Payments System at 9 per cent of revenue collected for 1990-91. Further, these compliance cost estimates are double to four times the level reported for comparable studies for the United Kingdom, United States and New Zealand. The estimated compliance costs have a very large fixed cost or up-front element, and they are highly regressive in their incidence. One outcome of a much simpler taxation system, which in turn generally means the use of a broad and comprehensive tax base with a single rate, would be a more level playing field for new entrants and established firms.

The setting of an evaluation of prices is at the heart of competition. The Hilmer Report raises at least two sets of issues in which price is critical to its general proposals. First, many evaluations of the ACCC concern prices directly as measures of anticompetitive behaviour to be avoided, stopped or fixed. Examples include the assessment of predatory pricing, cross subsidisation, and monopolistic pricing. Second, for areas of natural monopoly, the NCC is charged with setting access prices to the essential facilities. Whilst raising the importance of prices, the Hilmer Report says little about how prices should be evaluated and set. Rather, it proposes that the price issues be considered by the ACCC and NCC. Further, and more worrying to this author, the report is rather scathing of the potential contribution of economics to the pricing issues. ........ In the pursuit of higher profits firms will expand output so long as marginal revenue exceeds marginal cost, and vice-versa. Further, in a competitive context in which individual firms have negligible market power, prices will converge to marginal cost. To set prices against other criteria, such as average cost, and worse still an artificial accounting conventional measure of average cost, deviates from the competitive solution. Then, marginal cost ought to be at the forefront of thinking for the ACCC and NCC, and not ignored as a difficult and perhaps unrealistic concept as suggested in the Hilmer Report.

<56> When bidders emerged for the regional electricity companies, Lang was minded to wave them through without reference to the Monopolies & Mergers Commission. The fear must be that regulatory decisions on subsequent takeover bids will not be made on the basis of strategic purpose, but for short-term political reasons. Too much is being left to chance. (Pitcher, George. ; The govt's abuse of power. ; Marketing Week. 18(27): 29. 1995 Sep 22. )

<57> Reviews Australia's competition policy from a legal viewpoint (Baxt, Robert. ; A new competition law regime for Australia. ; Australian Business Law Review. 23(4): 303-307. 1995 Aug)

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<58> Baxt, Bob. ; Editorial. ; Australian Business Law Review. 23(4): 239-240. 1995 Aug. <58>

<59> Holmes, Peter. ; Global monopolies: No longer outside trade rules? ; Business Strategy Review. 6(3): 51-62. 1995 Autumn. [References]

<62> In European competition policy, when the Germans start complaining, Brussels starts listening. The German authorities have traditionally been the strongest exponents of a strict European competition policy and have had the most influence over the design and operation of policy. Since 1991, however, the Federal Cartel Office has begun to express unease about aspects of the enforcement of European policy. In this it has been joined by the Federal Economics Ministry and together these German authorities have begun to push strongly for a major institutional reform of European policy. (Wilks, Stephen. McGowan, Lee. ; Disarming the Commission: The debate over a European cartel office. ; Journal of Common Market Studies. 33(2): 259-273. 1995 Jun.)

<63> Competition policy is following different paths on either side of the Atlantic. European authorities are taking a relaxed approach to anti-trust cases, while the USA is increasingly strict (Anonymous. ; Antitrust in America and Europe: Off-line. ; Economist. 335(7916): 59 (UK 93). 1995 May 27.)

<64> Canada's Competition Act contains a mixture of criminal offenses, discretionary reviewable practices, and private damage actions. The stated purpose of the Competition Act is to maintain and encourage competition in Canada, to promote efficiency and adaptability, and to ensure equitable opportunities for small business. Balancing these sometimes conflicting objectives is a central feature of Canadian antitrust enforcement, particularly where mergers have both domestic and international competition implications. The Director of Investigation and Research is Canada's chief antitrust enforcement official. The director heads the Bureau of Competition Policy and has exclusive statutory responsibility for administration and enforcement of the Competition Act. (Rowley, J William. Clifford, John F. Roode, Jeffrey P. Dingle, Paul F. Burke, George; Canada; International Corporate Law: 6-13. 1995 Apr)

<66> Competition benefits consumers, but serious flaws in the UK's competition policy are becoming increasingly apparent. The Monopolies and Mergers Commission (MMC) has presented what for consumers has been a series of disastrous reports, and the UK is now regarded as being a soft touch when it comes to abuses of market power and anti-competitive agreements. The competition laws are too complex, and overlaps with the EU system have not been resolved. This complexity has led to a structure that is slow, unpredictable, and purely reactive, and which provides virtually no deterrent effect. The government has promised limited change, but there needs to be more searching reform. This should include the abolition of the MMC in its present form. (Locke, Stephen. ; A new approach to competition policy. ; Consumer Policy Review. 4(3): 159-168. 1994 Jul)

Competition is one of the consumer's best friends. Competitive markets provide choice. they help to ensure efficient allocation of resources, and they provide the strongest possible incentive for companies of all sizes to maximise the value for money presented by the goods and services they offer to the general public. Similarly, restraints on competition -- of whatever form -- almost always act against the consumer, by encouraging inefficiency, by limiting choice, and by enhancing the power of vested interests. However, there have been increasing signs of serious flaws in the system set up to put Britain's competition policy into practice. These flaws should be of great concern to all those with an interest in the economic welfare of consumers. .........

The trend represented by these reports is unmistakeable. The MMC's reports are becoming progressively more corporatist in tone and supportive of the status quo: what should be a fearless guardian of the consumer interest is gradually diminishing into a toothless watchdog. ........At one level, this development ought not to be that surprising. .... the current Chairman of the Monopolies and Mergers Commission, an experienced industrialist, made his priorities clear when he was appointed: 'I would say that appointment was very consistent with the kind of views that Michael Heseltine has expressed in the past. He would clear be seeking in this particular appointment to have someone who sees the industrial structure of this country as enormously important, and would like to see -- in terms of the way in which competition policy develops over the next four or five years -- that the interests of industry as such are properly looked after. 'I don't feel at all apologetic about feeling that the industrial base and the commercial base of this country we enormously important: I really do believe that'(14). Mr Odgers has been equally dismissive of what he describes as 'the short term consumerist view': "The interest of the consumer is king in the last resort, but we need to look at the situation longer-term to see what would really serve the consumer's interest best. There could be a conflict where a group has a powerful position locally but needs the ability to compete in the international marketplace. 'Competition can be enormously beneficial in many cases, but where it involves the destruction of strong interests in a wider context, it could be weakening from UK PLC's point of view'(15).

Confused corporatism: For anyone concerned about the promotion of competition, not just in the interests of consumers but also as a means of promoting economic growth through the eradication of inefficiency and easier market entry for dynamic new companies, the corporatist emphasis behind these remarks will be deeply disturbing. At their heart seems to be a confusion between the interests of industry in general and the interests of existing companies: there is absolutely no guarantee that what existing companies want -- and least of all the major players who have most to lose -- will necessarily be in the interests of the productive sector of the economy as a whole, even in the short term, let alone the long term. Thinking of the United Kingdom as no more than a giant holding company merely compounds this error: the UK is a constantly changing market, in which big companies collapse and small ones grow according to prevailing economic conditions. It is up to the competition authorities to ensure that existing companies do not abuse their market power, whether operated through dominant presence or through collusion -- even if that means going strongly against their wishes....

<67> The UK government has framed new proposals for competition policy. However, economists have no simple formula for judging whether an economy has enough competition. (Anonymous. ; Weighing up the competition. ; Economist. 339(7967):61-62. 1996 May 25)

FROM the Labour Party, from the Confederation of British Industry and even from within the Tory government come urgent calls to strengthen the rules on competition. The recent row over anti-competitive mergers in the electricity industry, in which the government proved keener on competition than its own competition watchdog, the Monopolies and Mergers Commission, suggests that adopting a more sensible and effective competition policy makes sense. The government has framed new proposals to that end. But is such reform really necessary? Does Britain really lack competition in its markets?

Surprisingly, given the current concerns over competition, economists have no simple formula for judging whether an economy has enough of it. Or, indeed, too much. It is certainly possible to promote competition over-zealously. If firms that expand their business by serving customers better than their rivals are constantly punished, they will stop trying so hard. Many of the old economic verities about markets are now widely questioned. Even a monopoly with a 100% share of the market might not be regarded as harmful if economists reckoned its market was "contestable"meaning that it faced the threat (as opposed to the fact) of competition from newcomers. In such a case, it might behave as if the competition already existed.

Even when economists agree about when a large share of the market is likely to be harmful, applying this to any particular market is not easy. There is room for disagreement over how to define a market Should a merger of two newspapers be assessed on its competitive impact on the market for newspapers, or on the (bigger) market for news? Should a merger between two British manufacturers be judged within the British market, or the European or global markets? It is equally hard to tell if a firm that wins customers from a rival by charging lower prices is being predatory (charging less in the short run in order to raise prices later, when its rival has left the market) or merely more efficient.

Those who believe Britain has too little competition point to the high degree of concentration in British manufacturing. Encouraged by post-war nationalisation, and the creation by merger of national champions in the 1960s, the share of manufacturing output enjoyed by the 100 largest firms rose from 17% in 1918, less than in America and Japan and the same as in Germany, to 36%, higher than in those rival economies (see chart on next page). But does this indicate too little competition? After all, economies of scale and scope mean that some industries are naturally dominated by a few big firms, and Britain might simply be more heavily represented in those industries than other countries.

Moreover, Britain has long been one of the world's most open economies-far more so than, say,America-exporting a lot, importing a lot, and encouraging foreign firms to enter its markets. This exposure to international competition suggests that life is far from cosy for British manufacturers. Strikingly, although concentration remains high in British manufacturing, it fell to 36% in 1990 from 40% in 1970-a period that saw Britain's exposure to international trade increase. The share of British manufacturing output provided by subsidiaries of foreign firms, long stable at around 18%, soared to 24% between 1986 and 1992.

Another common argument is that since Britain has higher prices on average than some other countries, it must be less competitive This claim, recently made about compact discs, is false: prices may differ from country to country for reasons that have nothing to do with competition, such as transport costs, and differences in consumer tastes. In any case, British prices are not out of line. A new study by the OECD, "Mark-up ratios in manufacturing industries", looked at the gap between price and the marginal cost of producing a product across 36 industries in 14 countries. As a rule, the greater the gap (the "mark-up"), the less competitive the market. The study found that, during the 1980s, mark-ups in Britain were mostly very low, on a par with those in America and Denmark and far less than those in Japan and Germany.

Stephen Davies, an economist at the University of East Anglia, is undertaking a broad overview of the state of competition in Britain. He is examining concentration ratios for a wide range of markets, taking into account the natural and artificial limits to competition (such as barriers to entry) that might be expected to occur in them. The work suggests that manufacturing, by and large, is adequately exposed to competition, particularly from abroad. But there are two notable exceptions: a handful of small, non-traded-goods industries, ranging from building materials and furniture to food production; and a group mainly composed of consumer-goods industries that are, in effect, big, Europe-wide oligopolies (and as such, beyond the oversight of British competition policy).

These exceptions might account at most for 20% of manufacturing output. But remember that manufacturing itself accounts for less than a quarter of British output. Mr Davies believes that the far bigger service sector poses competition problems that are potentially much worse. Most service industries are far less exposed to trade than manufacturing. Concentration has been rising rapidly in a number of service industries, including food retailing, banking, auditing, the media, contracted-out local-authority services and bus services. The lack of competition in some of the privatised utilities has been widely noted.

Intriguingly, however, this increase in concentration in services is mostly the result of intense competition, triggered by falling costs flowing from new technology, deregulation and the reduction of surplus capacity. Thus, it has mostly been good for consumers, who have enjoyed improved service and lower prices from, for example, supermarkets and banks. The danger is that once the big changes in these industries are over, the firms that win the current competitive battles will start to exploit what may be considerable market power. It is that potential lack of competition, rather than any meaty evidence of it at the moment, that is the strongest reason for reforming Britain's weak, confused competition policy now.

<68> One of the central policy challenges arising from the globalization of markets has been the need to promote competition values and principles and to develop a broader concept of market access than that applied in the Uruguay Round. This needs to embrace the continuum of trade, investment, and competition policy domains, its chief focus being the need to stem anti-competitive practices that impede the international contestability of markets. The notion of internally-contestable markets, which defines competitive conditions in which the rivalries between firms are unimpeded by public and private anti-competitive behavior, could be a useful means of revisiting the core efficiency-enhancing objective pursued by the multilateral trading system and of benchmarking both domestic public policy actions and international regulatory initiatives. (Zampetti, Americo Beviglia. Sauve, Pierre; Onwards to Singapore: The international contestability of markets and the new trade agenda; World Economy 19(3): 333-343 1996 May)

<69> The US' antitrust policy spans more than 100 years. For most of its history, the US has had the toughest antitrust laws and enforcement policies of any country in the world. A shift to a more permissive attitude has occurred in recent years, however. The changes in antitrust policy that have occurred are traced, and the concurrent shifts in thinking among economists on antitrust questions are examined. The critical appraisals of both the economic underpinning of the new leanings on antitrust matters is offered, and the changes in antitrust policy that have accompanied them are discussed. A discussion of the implications of the analysis for European antitrust (competition) policy is presented. (Mueller, Dennis C. ; Lessons from the United States's antitrust history. ; International Journal of Industrial Organization. 14(4): 415-445. 1996 Jun.)

<70> On occasion, it may appear that the primary objective of an action in court by a business against a competitor is to apply anti-competitive pressure, rather than to resolve some legal dispute. Such occurrences, which gain significance as competition policy objectives broaden, have been identified in various jurisdictions. Case examples assist the distinguishing of such anti-competitive conduct, but there is no clear line. In Australia, avenues for redress for such conduct are relatively unexplored, for reasons which likely include cost and risk. There could be misuse of market power under the Trade Practices Act 1936, Pt. IV. The development of the US antitrust doctrine of sham litigation and its usefulness are examined in this context. Where the instigator has commercial power but not market (Welsman, Sandra J. ; Commercial power and competitor litigation. ; Australian Business Law Review. 24(2): 85-109. 1996 Apr. )

<71> Much of what is new in Canada's new Competition Act involves the recognition that increases in market power are not necessarily surplus reducing. The statutory requirement that would allow anti-competitive mergers to proceed if they offer efficiency gains in excess of their anti-competitive effects has had very little effect on merger enforcement or adjudication in Canada. (McFetridge, Donald G. ; The prospects for the efficiency defence. ; Canadian Business Law Journal. 26(3): 321-357. 1996 Apr. )

<72> Increasingly, competition authorities across the world are having to talk to one another in order to do their jobs effectively. The completion of the Uruguay Round in 1994 provides both opportunities and dangers for EU businesses. It also reinforces the need for increased cooperation between competition authorities if the new, freer, trading regime is to be allowed to prosper. The biggest barriers to international trade are, increasingly, anti-competitive practices rather than state-imposed tariffs. (Anonymous. ; Internationalising competition policy. ; Business Europe. 35(40): 2-3. 1995 Oct 16).