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Disputes by agreement (as cited in request for consultations) A dispute arises when a member government believes another member

government is violating a WTO agreement. The complaining member must submit a request for consultations identifying the agreements it believes are being violated. A dispute can be, and often is, brought under more than one agreement. The list below shows the agreements cited in the request for consultations.

This summary has been Click an agreement in the list below to see the relevant disputes. prepared by the Secretariat under its own AGREEMENT responsibility. The > Agreement Establishing the World Trade Organization summary is for general information only and is > Agriculture not intended to affect the rights and obligations of > Anti-dumping (Article VI of GATT 1994) Members. > Civil Aircraft See also: > Find disputes cases > Find disputes documents > Disputes chronologically > Disputes by country/territory > Disputes by current status > Disputes by short title > Disputes by subject > Map of disputes > GATT disputes (preWTO) > Customs valuation (Article VII of GATT 1994) > Dispute Settlement Understanding > GATT 1947 > GATT 1994 > Government Procurement > Import Licensing > Intellectual Property (TRIPS) > Preshipment Inspection > Rules of Origin > Problems viewing this page? Please contact giving details of the operating system and web browser you are using. > Safeguards > Sanitary and Phytosanitary Measures (SPS) > Services (GATS) > Subsidies and Countervailing Measures

> Technical Barriers to Trade (TBT) > Textiles and Clothing > Trade-Related Investment Measures (TRIMs) > Protocol of Accession

Subsidies and Countervailing Measures back to top 89 case(s) cite this agreement in the request for consultations. > Click here for the text of this agreement DS427 China Anti-Dumping and 20 September 2011 Countervailing Duty Measures on Broiler Products from the United States (Complainant: United States) Canada Measures Relating 11 August 2011 to the Feed-in Tariff Program (Complainant: European Union) China Measures concerning 22 December 2010 wind power equipment (Complainant: United States) China Countervailing and Anti-Dumping Duties on Grain Oriented Flat-rolled Electrical Steel from the United States (Complainant: United States) Canada Certain Measures Affecting the Renewable Energy Generation Sector (Complainant: Japan) China Grants, Loans and Other Incentives (Complainant: Guatemala) China Grants, Loans and Other Incentives (Complainant: Mexico) China Grants, Loans and 15 September 2010





13 September 2010


19 January 2009


19 December 2008


19 December 2008

Other Incentives (Complainant: United States) DS385 European Communities 4 December 2008 Expiry Reviews of Antidumping and Countervailing Duties Imposed on Imports of PET from India (Complainant: India) India Certain Taxes and Other Measures on Imported Wines and Spirits (Complainant: European Communities) United States Definitive Anti-Dumping and Countervailing Duties on Certain Products from China (Complainant: China) 22 September 2008



19 September 2008

UNDERSTANDING THE WTO: THE AGREEMENTS Anti-dumping, subsidies, safeguards: contingencies, etc Binding tariffs, and applying them equally to all trading partners (most-favoured-nation treatment, or MFN) are key to the smooth flow of trade in goods. The WTO agreements uphold the principles, but they also allow exceptions in some circumstances. Three of these issues are: actions taken against dumping (selling at an unfairly low price) subsidies and special countervailing duties to offset the subsidies emergency measures to limit imports temporarily, designed to safeguard domestic industries.

Click the + to open an Anti-dumping actions back to top item. If a company exports a product at a Understanding price lower than the price it normally the WTO charges on its own home market, it is said to be dumping the product. Is Basics this unfair competition? Opinions Agreements differ, but many governments take Settling disputes action against dumping in order to Cross-cutting defend their domestic industries. The and new issues WTO agreement does not pass The Doha judgement. Its focus is on how agenda governments can or cannot react to Developing dumping it disciplines anti-dumping countries actions, and it is often called the The Anti-Dumping Agreement. (This organization focus only on the reaction to dumping Abbreviations contrasts with the approach of the Subsidies and Countervailing Measures Agreement.) More introductory information > The WTO in Brief > 10 benefits > 10 misunderstandings The legal definitions are more precise, but broadly speaking the WTO agreement allows governments to act against dumping where there is genuine (material) injury to the competing domestic industry. In order to do that the government has to be able to show that dumping is taking place, calculate the extent of dumping (how much lower the export price is compared to the exporters home market price), and show that the

What is this agreement called? Agreement on the implementation of Article VI [i.e 6]of the General Agreement on Tariffs and Trade 1994

dumping is causing injury or threatening to do so. GATT (Article 6) allows countries to take action against dumping. The AntiDumping Agreement clarifies and expands Article 6, and the two operate together. They allow countries to act in a way that would normally break the GATT principles of binding a tariff and not discriminating between trading partners typically anti-dumping action means charging extra import duty on the particular product from the particular exporting country in order to bring its price closer to the normal value or to remove the injury to domestic industry in the importing country. There are many different ways of calculating whether a particular product is being dumped heavily or only lightly. The agreement narrows down the range of possible options. It provides three methods to calculate a products normal value. The main one is based on the price in the exporters domestic market. When this cannot be used, two alternatives are available the price charged by the exporter in another country, or a calculation based on the combination of the exporters production costs, other expenses and normal profit margins. And the agreement also specifies how a fair comparison can be made between the export price and what would be a normal price. Calculating the extent of dumping on a product is not enough. Anti-dumping measures can only be applied if the dumping is hurting the industry in the importing country. Therefore, a detailed investigation has to be conducted according to specified rules first. The investigation must evaluate all relevant economic factors that have

a bearing on the state of the industry in question. If the investigation shows dumping is taking place and domestic industry is being hurt, the exporting company can undertake to raise its price to an agreed level in order to avoid anti-dumping import duty. Detailed procedures are set out on how anti-dumping cases are to be initiated, how the investigations are to be conducted, and the conditions for ensuring that all interested parties are given an opportunity to present evidence. Anti-dumping measures must expire five years after the date of imposition, unless an investigation shows that ending the measure would lead to injury. Anti-dumping investigations are to end immediately in cases where the authorities determine that the margin of dumping is insignificantly small (defined as less than 2% of the export price of the product). Other conditions are also set. For example, the investigations also have to end if the volume of dumped imports is negligible (i.e. if the volume from one country is less than 3% of total imports of that product although investigations can proceed if several countries, each supplying less than 3% of the imports, together account for 7% or more of total imports). The agreement says member countries must inform the Committee on AntiDumping Practices about all preliminary and final anti-dumping actions, promptly and in detail. They must also report on all investigations twice a year. When differences arise, members are encouraged to consult each other. They can also use the WTOs dispute settlement procedure.

> more on anti-dumping > See also Doha Agenda negotiations

Subsidies and countervailing measures back to top This agreement does two things: it disciplines the use of subsidies, and it regulates the actions countries can take to counter the effects of subsidies. It says a country can use the WTOs dispute settlement procedure to seek the withdrawal of the subsidy or the removal of its adverse effects. Or the country can launch its own investigation and ultimately charge extra duty (known as countervailing duty) on subsidized imports that are found to be hurting domestic producers. The agreement contains a definition of subsidy. It also introduces the concept of a specific subsidy i.e. a subsidy available only to an enterprise, industry, group of enterprises, or group of industries in the country (or state, etc) that gives the subsidy. The disciplines set out in the agreement only apply to specific subsidies. They can be domestic or export subsidies. The agreement defines two categories of subsidies: prohibited and actionable. It originally contained a third category: non-actionable subsidies. This category existed for five years, ending on 31 December 1999, and was not extended. The agreement applies to agricultural goods as well as industrial products, except when the subsidies are exempt under the Agriculture Agreements peace clause, due to expire at the end of 2003. Prohibited subsidies: subsidies that

What is this agreement called? Agreement on Subsidies and Countervailing Measures AD-CVD? People sometimes refer to the two together AD-CVD but there are fundamental differences Dumping and subsidies together with antidumping (AD) measures and countervailing duties (CVD) share a number of similarities. Many countries handle the two under a single law, apply a similar process to deal with them and give a single authority responsibility for investigations. Occasionally, the two WTO committees responsible for these issues meet jointly. The reaction to dumping and subsidies is often a special offsetting import tax (countervailing duty in the case of a subsidy). This is charged on products from specific countries and therefore it breaks the GATT principles of binding a tariff and treating trading

require recipients to meet certain export targets, or to use domestic goods instead of imported goods. They are prohibited because they are specifically designed to distort international trade, and are therefore likely to hurt other countries trade. They can be challenged in the WTO dispute settlement procedure where they are handled under an accelerated timetable. If the dispute settlement procedure confirms that the subsidy is prohibited, it must be withdrawn immediately. Otherwise, the complaining country can take counter measures. If domestic producers are hurt by imports of subsidized products, countervailing duty can be imposed. Actionable subsidies: in this category the complaining country has to show that the subsidy has an adverse effect on its interests. Otherwise the subsidy is permitted. The agreement defines three types of damage they can cause. One countrys subsidies can hurt a domestic industry in an importing country. They can hurt rival exporters from another country when the two compete in third markets. And domestic subsidies in one country can hurt exporters trying to compete in the subsidizing countrys domestic market. If the Dispute Settlement Body rules that the subsidy does have an adverse effect, the subsidy must be withdrawn or its adverse effect must be removed. Again, if domestic producers are hurt by imports of subsidized products, countervailing duty can be imposed. Some of the disciplines are similar to those of the Anti-Dumping Agreement. Countervailing duty (the parallel of anti-dumping duty) can only be charged after the importing country has conducted a detailed investigation similar to that required for antidumping action. There are detailed

partners equally (MFN). The agreements provide an escape clause, but they both also say that before imposing a duty, the importing country must conduct a detailed investigation that shows properly that domestic industry is hurt. But there are also fundamental differences, and these are reflected in the agreements. Dumping is an action by a company. With subsidies, it is the government or a government agency that acts, either by paying out subsidies directly or by requiring companies to subsidize certain customers. But the WTO is an organization of countries and their governments. The WTO does not deal with companies and cannot regulate companies actions such as dumping. Therefore the Anti-Dumping Agreement only concerns the actions governments may take against dumping. With subsidies, governments act on both sides: they subsidize and they act against each others subsidies. Therefore the subsidies agreement disciplines both the subsidies and the reactions.

rules for deciding whether a product is being subsidized (not always an easy What is this agreement calculation), criteria for determining called? whether imports of subsidized products are hurting (causing injury to) domestic industry, procedures for initiating and conducting investigations, and rules on the implementation and duration (normally five years) of countervailing measures. The subsidized exporter can also agree to raise its export prices as an alternative to its exports being charged countervailing duty. Subsidies may play an important role in developing countries and in the transformation of centrally-planned economies to market economies. Least-developed countries and developing countries with less than $1,000 per capita GNP are exempted from disciplines on prohibited export subsidies. Other developing countries are given until 2003 to get rid of their export subsidies. Least-developed countries must eliminate importsubstitution subsidies (i.e. subsidies designed to help domestic production and avoid importing) by 2003 for other developing countries the deadline was 2000. Developing countries also receive preferential treatment if their exports are subject to countervailing duty investigations. For transition economies, prohibited subsidies had to be phased out by 2002. > more on subsidies and countervailing measures > See also Doha Agenda negotiations

Safeguards: emergency protection from imports back to top A WTO member may restrict imports

of a product temporarily (take safeguard actions) if its domestic industry is injured or threatened with injury caused by a surge in imports. Here, the injury has to be serious. Safeguard measures were always available under GATT (Article 19). However, they were infrequently used, some governments preferring to protect their domestic industries through grey area measures using bilateral negotiations outside GATTs auspices, they persuaded exporting countries to restrain exports voluntarily or to agree to other means of sharing markets. Agreements of this kind were reached for a wide range of products: automobiles, steel, and semiconductors, for example. The WTO agreement broke new ground. It prohibits grey-area measures, and it sets time limits (a sunset clause) on all safeguard actions. The agreement says members must not seek, take or maintain any voluntary export restraints, orderly marketing arrangements or any other similar measures on the export or the import side. The bilateral measures that were not modified to conform with the agreement were phased out at the end of 1998. Countries were allowed to keep one of these measures an extra year (until the end of 1999), but only the European Union for restrictions on imports of cars from Japan made use of this provision. An import surge justifying safeguard action can be a real increase in imports (an absolute increase); or it can be an increase in the imports share of a shrinking market, even if the import quantity has not increased (relative increase). Industries or companies may request safeguard action by their government.

The WTO agreement sets out requirements for safeguard investigations by national authorities. The emphasis is on transparency and on following established rules and practices avoiding arbitrary methods. The authorities conducting investigations have to announce publicly when hearings are to take place and provide other appropriate means for interested parties to present evidence. The evidence must include arguments on whether a measure is in the public interest. The agreement sets out criteria for assessing whether serious injury is being caused or threatened, and the factors which must be considered in determining the impact of imports on the domestic industry. When imposed, a safeguard measure should be applied only to the extent necessary to prevent or remedy serious injury and to help the industry concerned to adjust. Where quantitative restrictions (quotas) are imposed, they normally should not reduce the quantities of imports below the annual average for the last three representative years for which statistics are available, unless clear justification is given that a different level is necessary to prevent or remedy serious injury. In principle, safeguard measures cannot be targeted at imports from a particular country. However, the agreement does describe how quotas can be allocated among supplying countries, including in the exceptional circumstance where imports from certain countries have increased disproportionately quickly. A safeguard measure should not last more than four years, although this can be extended up to eight years, subject to a determination by competent national authorities that the measure is

needed and that there is evidence the industry is adjusting. Measures imposed for more than a year must be progressively liberalized. When a country restricts imports in order to safeguard its domestic producers, in principle it must give something in return. The agreement says the exporting country (or exporting countries) can seek compensation through consultations. If no agreement is reached the exporting country can retaliate by taking equivalent action for instance, it can raise tariffs on exports from the country that is enforcing the safeguard measure. In some circumstances, the exporting country has to wait for three years after the safeguard measure was introduced before it can retaliate in this way i.e. if the measure conforms with the provisions of the agreement and if it is taken as a result of an increase in the quantity of imports from the exporting country. To some extent developing countries exports are shielded from safeguard actions. An importing country can only apply a safeguard measure to a product from a developing country if the developing country is supplying more than 3% of the imports of that product, or if developing country members with less than 3% import share collectively account for more than 9% of total imports of the product concerned. The WTOs Safeguards Committee oversees the operation of the agreement and is responsible for the surveillance of members commitments. Governments have to report each phase of a safeguard investigation and related decisionmaking, and the committee reviews these reports.

> more on safeguards

Definition of 'Countervailing Duties'

A duty placed on imported goods that are being subsidized by the importing government. This helps to even the playing field between the domestic producers and the foreign

producers receiving subsidies.

Investopedia explains 'Countervailing Duties'

Subsidized goods allow a producer to sell at a lower price than it could without the subsidy compensation. If this producer sells into the international market, they can often undercut the pricing of producers in other countries who don't receive subsidies from their government. If the subsidized foreign producer goes unchecked, the domestic producers could be run out of business, causing lost jobs and other economic losses. Read more:

Countervailing duties
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Countervailing duties (CVDs), also known as anti-subsidy duties, are trade import duties imposed under World Trade Organization (WTO) Rules to neutralize the negative effects of subsidies. They are imposed after an investigation finds that a foreign country subsidizes its exports, injuring domestic producers in the importing country. According to World Trade Organization rules, a country can launch its own investigation and decide to charge extra duties, provided such additional duties are in accordance with the GATT Article VI and the GATT Agreement on Subsidies and Countervailing Measures. Since countries can rule domestically whether domestic industries are in danger and whether foreign countries subsidize the products, the institutional process surrounding the investigation and determinations has significant impacts beyond the countervailing duties. Countervailing duties in the U.S. are assessed by the International Trade Administration of the U.S. Department of Commerce which determines whether imports in question are being subsidized and, if so, by how much. If there is a determination that there is material injury to the competing domestic industry, the Department of Commerce will instruct U.S. Customs and Border Protection to levy duties in the amount equivalent to subsidy margins. Petitions for remedies may be filed by domestic manufacturers or unions within the domestic industry, however the law requires that the petitioners represent at least 25% of the domestic production of the goods for which competition is causing material injury.

Dumping (pricing policy)

From Wikipedia, the free encyclopedia (Redirected from Antidumping) Jump to: navigation, search This article is about the economics term. For industrial relations and social justice issue, see Social dumping. For the tax avoidance term, see SUTA dumping.

In economics, "dumping" is any kind of predatory pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price either below the price charged in its home market, or in quantities that cannot be explained through normal market competition. Dumping can force established domestic producers out of a market and lead to monopolistic positions by the exporting nation. For example, a glut of Chinese garlic exports in the mid 2000s forced many North American producers to switch crops and leave the market. When the price of Chinese garlic soared in 2009, the shuttered North American businesses were unable to quickly re-enter the local market due to barriers to entry.[citation needed]


1 Overview 2 Anti-dumping actions o 2.1 Legal issues o 2.2 Definitions and extent o 2.3 Procedures in investigation and litigation o 2.4 Actions in the United States o 2.5 Actions in the European Union 2.5.1 Chinese economic situation 3 Agricultural support o 3.1 European Union and Common Agricultural Policy 4 See also 5 References 6 External links

[edit] Overview
A standard technical definition of dumping is the act of charging a lower price for a good in a foreign market than one charges for the same good in a domestic market. This is often referred to as selling at less than "fair value". Under the World Trade Organization (WTO)

Agreement, dumping is condemned (but is not prohibited) if it causes or threatens to cause material injury to a domestic industry in the importing country.[1] The term has a negative connotation as advocates of free markets see "dumping" as a form of protectionism. Furthermore, advocates for workers and laborers believe that safeguarding businesses against predatory practices, such as dumping, help alleviate some of the harsher consequences of such practices between economies at different stages of development (see protectionism). The Bolkestein directive, for example, was accused in Europe of being a form of "social dumping," as it favored competition between workers, as exemplified by the Polish Plumber stereotype. While there are very few examples of a national scale dumping that succeeded in producing a national-level monopoly, there are several examples of dumping that produced a monopoly in regional markets for certain industries. Ron Chenow points to the example of regional oil monopolies in Titan : The Life of John D. Rockefeller, Sr. where Rockefeller receives a message from Colonel Thompson outlining an approved strategy where oil in one market, Cincinnati, would be sold at or below cost to drive competition's profits down and force them to exit the market. In another area where other independent businesses were already driven out, namely in Chicago, prices would be increased by a quarter.[2]

[edit] Anti-dumping actions

[edit] Legal issues

If a company exports a product at a price lower than the price it normally charges in its own home market, it is said to be "dumping" the product. Opinions differ as to whether or not such practice constitutes unfair competition, but many governments take action against dumping to protect domestic industry. The WTO agreement does not pass judgment. Its focus is on how governments can or cannot react to dumping it disciplines anti-dumping actions, and it is often called the "anti-dumping agreement". (This focus only on the reaction to dumping contrasts with the approach of the subsidies and countervailing measures agreement.) The legal definitions are more precise, but broadly speaking, the WTO agreement allows governments to act against dumping where there is genuine ("material") injury to the competing domestic industry. To do so, the government has to show that dumping is taking place, calculate the extent of dumping (how much lower the export price is compared to the exporters home market price), and show that the dumping is causing injury or threatening to cause injury.
[edit] Definitions and extent

While permitted by the WTO, General Agreement on Tariffs and Trade (GATT) (Article VI) allows countries the option of taking action against dumping. The Anti-Dumping Agreement clarifies and expands Article VI, and the two operate together. They allow countries to act in a way that would normally break the GATT principles of binding a tariff and not discriminating between trading partnerstypically anti-dumping action means charging extra import duty on the particular product from the particular exporting country in order to bring its price closer to the normal value or to remove the injury to domestic industry in the importing country.

There are many different ways of calculating whether a particular product is being dumped heavily or only lightly. The agreement narrows down the range of possible options. It provides three methods to calculate a products normal value. The main one is based on the price in the exporters domestic market. When this cannot be used, two alternatives are availablethe price charged by the exporter in another country, or a calculation based on the combination of the exporters production costs, other expenses and normal profit margins. And the agreement also specifies how a fair comparison can be made between the export price and what would be a normal price. Five percent rule According to Footnote 2 Anti-Dumping Agreement, domestic sales of the like product are sufficient to base normal value on if they account for 5 per cent or more of the sales of the product under consideration to the importing country market. This is often called the five per cent or home market viability test. This test is applied globally by comparing quantity sold of like product on the domestic market with quantity sold to importing market. Normal value cannot be based on the price in the exporters domestic market when there are no domestic sales. For example, if the products are sold only for foreign market, the normal value will have to be determined on another basis. Besides, the products may be sold on both markets but the quantity sold on the domestic market is small compared to quantity sold on foreign market. This situation often happens in countries with small home market (Hong Kong, Singapore for example). Large market, however, may face the same situation while the like products are sold in significant on both markets, some types of products are sold in larger quantity on foreign market while other types are vice versa. This is because of differences in consumer tastes, maintenance, etc. This leads to some exported types of products are sold in small quantities on the domestic market. Calculating the extent of dumping on a product is not enough. Anti-dumping measures can only be applied if the dumping is hurting the industry in the importing country. Therefore, a detailed investigation has to be conducted according to specified rules first. The investigation must evaluate all relevant economic factors that have a bearing on the state of the industry in question. If the investigation shows dumping is taking place and domestic industry is being hurt, the exporting company can undertake to raise its price to an agreed level in order to avoid anti-dumping import duty.
[edit] Procedures in investigation and litigation

Detailed procedures are set out on how anti-dumping cases are to be initiated, how the investigations are to be conducted, and the conditions for ensuring that all interested parties are given an opportunity to present evidence. Anti-dumping measures must expire five years after the date of imposition, unless a review shows that ending the measure would lead to injury. Generally speaking an anti-dumping investigation usually develops along the following steps: domestic producer(s) make(s) a request to the relevant authority to initiate an anti-dumping investigation. Then investigation to the foreign producer is conducted to determine if the allegation is valid. It uses questionnaires completed by the interested parties to compare the foreign producers export price to the normal value (the price in the exporters domestic market, the price charged by the exporter in another country, or a calculation based on the combination of the exporters production costs, other expenses and normal profit margins). If

the foreign producers export price is lower than the normal price and the investigating body proves a causal link between the alleged dumping and the injury suffered by the domestic industry, it comes to a conclusion that the foreign producer is dumping his products. According to Article VI of GATT, dumping investigations shall, except in special circumstances, be concluded within one year, and in no case more than 18 months after initiation. Anti-dumping measures must expire five years after the date of imposition, unless a review shows that ending the measure would lead to injury. Anti-dumping investigations are to end immediately in cases where the authorities determine that the margin of dumping is, de minimis, or insignificantly small (defined as less than 2% of the export price of the product). Other conditions are also set. For example, the investigations also have to end if the volume of dumped imports is negligible (i.e., if the volume from one country is less than 3% of total imports of that productalthough investigations can proceed if several countries, each supplying less than 3% of the imports, together account for 7% or more of total imports). The agreement says member countries must inform the Committee on Anti-Dumping Practices about all preliminary and final anti-dumping actions, promptly and in detail. They must also report on all investigations twice a year. When differences arise, members are encouraged to consult each other. They can also use the WTOs dispute settlement procedure.
[edit] Actions in the United States

In the United States, domestic firms can file an antidumping petition under the regulations determined by the United States Department of Commerce, which determines "less than fair value" and the International Trade Commission, which determines "injury". These proceedings operate on a timetable governed by U.S. law. The Department of Commerce has regularly found that products have been sold at less than fair value in U.S. markets. If the domestic industry is able to establish that it is being injured by the dumping, then antidumping duties are imposed on goods imported from the dumpers' country at a percentage rate calculated to counteract the dumping margin. Related to antidumping duties are "countervailing duties". The difference is that countervailing duties seek to offset injurious subsidization while antidumping duties offset injurious dumping. Some commentators have noted that domestic protectionism, and lack of knowledge regarding foreign cost of production, lead to the unpredictable institutional process surrounding investigation. Members of the WTO can file complaints against anti-dumping measures.
[edit] Actions in the European Union

European Union anti-dumping is under the purview of the European Council. It is governed by European Council regulation 384/96. However, implementation of anti-dumping actions (trade defence actions) is taken after voting by various committees with member state representation. The bureaucratic entity responsible for advising member states on anti-dumping actions is the Directorate General Trade (DG Trade), based in Brussels. Community industry can apply to have an anti-dumping investigation begin. DG Trade first investigates the standing of the

complainants. If they are found to represent at least 25% of community industry, the investigation will probably begin. The process is guided by quite specific guidance in the regulations. The DG Trade will make a recommendation to a committee known as the AntiDumping Advisory Committee, on which each member state has one vote. Member states abstaining will be treated as if they voted in favour of industrial protection, a voting system which has come under considerable criticism.[3] As is implied by the criterion for beginning an investigation, EU anti-dumping actions are primarily considered part of a "trade defence" portfolio. Consumer interests and non-industry related interests ("community interests") are not emphasized during an investigation. An investigation typically looks for damage caused by dumping to community producers, and the level of tariff set is based on the damage done to community producers by dumping. If consensus is not found, the decision goes to the European Council. If imposed, duties last for five years theoretically. In practice they last at least a year longer, because expiry reviews are usually initiated at the end of the five years, and during the review process the status-quo is maintained.
[edit] Chinese economic situation

The dumping investigation essentially compares domestic prices of the accused dumping nation with prices of the imported product on the European market. However, several rules are applied to the data before the dumping margin is calculated. Most contentious is the concept of "analogue market". Some exporting nations are not granted "Market Economy Status" by the EU: China is a prime example. In such cases, the DG Trade is prevented from using domestic prices as the fair measure of the domestic price. A particular exporting industry may also lose market status if the DG Trade concludes that this industry receives government assistance. Other tests applied include the application of international accounting standards and bankruptcy laws. The consequences of not being granted market economy status have a big impact on the investigation. For example, if China is accused of dumping widgets, the basic approach is to consider the price of widgets in China against the price of Chinese widgets in Europe. But China does not have market economy status, so Chinese domestic prices can not be used as the reference. Instead, the DG Trade must decide upon an analogue market: a market which does have market economy status, and which is similar enough to China. Brazil and Mexico have been used, but the USA is a popular analogue market. In this case, the price of widgets in the USA is regarded as the substitute for the price of widgets in China. This process of choosing an analogue market is subject to the influence of the complainant, which has led to some criticism that it is an inherent bias in the process. However, China is one of the countries that has the cheapest labourforce. Criticisms have argued that it is quite unreasonable to compare China's goods price to the USA's as analogue. China is now developing to a more free and open market, unlike its planned-economy in the early 60s, the market in China is more willing to embrace the global competition. It is thus required to improve its market regulations and conquer the free trade barriers to improve the situation and produce a properly judged pricing level to assess the "dumping" behaviour.

[edit] Agricultural support

[edit] European Union and Common Agricultural Policy

The Common Agricultural Policy of the European Union has often been accused of dumping though significant reforms were made as part of the Agreement on Agriculture at the Uruguay round of GATT negotiations in 1992 and in subsequent incremental reforms, notably the Luxembourg Agreement in 2003. Initially the CAP sought to increase European agricultural production and provide support to European farmers through a process of market intervention whereby a special fund - the European Agricultural Guidance and Guarantee Fund (EAGGF) - would buy up surplus agricultural produce if the price fell below a certain centrally determined level (the intervention level). Through this measure European farmers were given a 'guaranteed' price for their produce when sold in the European community. In addition to this internal measure a system of export reimbursements ensured that European produce sold outside of the European community would sell at or below world prices at no detriment to the European producer. This policy was heavily criticised as distorting world trade and since 1992 the policy has moved away from market intervention and towards direct payments to farmers regardless of production (a process of "decoupling"). Furthermore the payments are generally dependent on the farmer fulfilling certain environmental or animal welfare requirements so as to encourage responsible, sustainable farming in what is termed 'multifunctional' agricultural subsidies - that is, the social, environmental and other benefits from subsidies that do not include a simple increase in production.

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In the technical language of the World Trade Organization (WTO) system, a safeguard is used to restrain international trade in order to protect a certain home industry from foreign competition. A member may take a safeguard action (e.g. restrict importation of a product temporarily) to protect a specific domestic industry from an increase in imports of any product which is causing, or which is threatening to cause, serious injury to the domestic industry that produces like or directly competitive products.


1 Background 2 See also 3 References 4 External links

[edit] Background
Safeguard measures were always available under the General Agreement on Tariffs and Trade (GATT) (Article XIX). However, they were infrequently used, and some governments preferred to protect their industries through grey area measures (voluntary export restraint arrangements on products such as cars, steel and semiconductors). As part of the WTO deal, members gave up these grey area measures and adopted a specific WTO Safeguards Agreement [1] which disciplines the use of safeguard measures. Safeguards are usually seen as responses to fair trade behaviour, as opposed to unfair trade practices such as

Dumping Subsidy

As such they are supposed to be used only in very specific circumstances, with compensation, and on a universal basis, i.e., a member restricting imports for safeguard purposes will have to restrict imports from all other countries. However, exceptions to this non-discriminatory rule are provided for in the Agreement on Safeguards itself as well as in some ad hoc agreements. In this last respect it is worthwhile noting that the People's Republic of China has accepted that discriminatory safeguards may be imposed on its exports to other WTO members until 2013. Regional trading arrangements have their own rules relating to safeguards. Some safeguard measures can be resorted to in the area of services, as provided for in the General Agreement on Trade in Services (GATS).

Competition law
From Wikipedia, the free encyclopedia Jump to: navigation, search "Antitrust" redirects here. For the 2001 film, see Antitrust (film). For laws specific to the U.S., see United States antitrust law.

Competition law
Basic concepts

History of competition law Monopoly o Coercive monopoly o Natural monopoly Barriers to entry HerfindahlHirschman Index Market concentration Market power SSNIP test Relevant market Merger control

Anti-competitive practices

Monopolization Collusion o Formation of cartels o Price fixing o Bid rigging Product bundling and tying Refusal to deal o Group boycott o Essential facilities Exclusive dealing Dividing territories Conscious parallelism Predatory pricing Misuse of patents and copyrights

Enforcement authorities and organizations

International Competition Network List of competition regulators

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Competition law, known in the United States as antitrust law, is law that promotes or maintains market competition by regulating anti-competitive conduct by companies.[1] The history of competition law reaches back to the Roman Empire. The business practices of market traders, guilds and governments have always been subject to scrutiny, and sometimes severe sanctions. Since the 20th century, competition law has become global. The two largest and most influential systems of competition regulation are United States antitrust law and European Union competition law. National and regional competition authorities across the world have formed international support and enforcement networks. Modern competition law has historically evolved on a country level to promote and maintain competition in markets principally within the territorial boundaries of nation-states. National competition law usually does not cover activity beyond territorial borders unless it has significant effects at nation-state level.[1] Countries may allow for extraterritorial jurisdiction in competition cases based on so-called effects doctrine.[1][2] The protection of international competition is governed by international competition agreements. In 1945, during the negotiations preceding the adoption of the General Agreement on Tariffs and Trade (GATT) in 1947, limited international competition obligations were proposed within the Charter for an International Trade Organisation. These obligations were not included in GATT, but in 1994, with the conclusion of the Uruguay Round of GATT Multilateral Negotiations, the World Trade Organization (WTO) was created. The Agreement Establishing the WTO included a range of limited provisions on various cross-border competition issues on a sector specific basis.[3]


1 Principle 2 History o 2.1 Roman legislation o 2.2 Middle ages o 2.3 Early competition law in Europe 3 Modern competition law o 3.1 United States antitrust o 3.2 European Union law o 3.3 International expansion 4 Enforcement

5 Theory o 5.1 Classical perspective o 5.2 Neo-classical synthesis o 5.3 Chicago School 6 Practice o 6.1 Collusion and cartels o 6.2 Dominance and monopoly o 6.3 Mergers and acquisitions o 6.4 Public sector regulation o 6.5 Intellectual property, innovation and competition 7 See also 8 Notes 9 References 10 Further reading 11 External links

[edit] Principle
Competition law, or antitrust law, has three main elements:

prohibiting agreements or practices that restrict free trading and competition between business. This includes in particular the repression of free trade caused by cartels. banning abusive behavior by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position. Practices controlled in this way may include predatory pricing, tying, price gouging, refusal to deal, and many others. supervising the mergers and acquisitions of large corporations, including some joint ventures. Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to "remedies" such as an obligation to divest part of the merged business or to offer licenses or access to facilities to enable other businesses to continue competing.

Substance and practice of competition law varies from jurisdiction to jurisdiction. Protecting the interests of consumers (consumer welfare) and ensuring that entrepreneurs have an opportunity to compete in the market economy are often treated as important objectives. Competition law is closely connected with law on deregulation of access to markets, state aids and subsidies, the privatization of state owned assets and the establishment of independent sector regulators, among other market-oriented supply-side policies. In recent decades, competition law has been viewed as a way to provide better public services.[4] Robert Bork has argued that competition laws can produce adverse effects when they reduce competition by protecting inefficient competitors and when costs of legal intervention are greater than benefits for the consumers.[5] Ideas about competitive law were published during the 18th century with such works as Adam Smith's The Wealth of Nations. Different terms were used to describe this area of the law, including "restrictive practices", "the law of monopolies", "combination acts" and the "restraint of trade".

[edit] History

Main article: History of competition law [edit] Roman legislation

An early example of competition law can be found in Roman law. The Lex Julia de Annona was enacted during the Roman Republic around 50 BC.[6] To protect the grain trade, heavy fines were imposed on anyone directly, deliberately and insidiously stopping supply ships.[7] Under Diocletian in 301 AD an edict imposed the death penalty for anyone violating a tariff system, for example by buying up, concealing or contriving the scarcity of everyday goods.[7] More legislation came under the Constitution of Zeno of 483 AD, which can be traced into Florentine Municipal laws of 1322 and 1325.[8] This provided for confiscation of property and banishment for any trade combination or joint action of monopolies private or granted by the Emperor. Zeno rescinded all previously granted exclusive rights.[9] Justinian I subsequently introduced legislation to pay officials to manage state monopolies.[9]
[edit] Middle ages

Legislation in England to control monopolies and restrictive practices were in force well before the Norman Conquest.[9] The Domesday Book recorded that "foresteel" (i.e. forestalling, the practice of buying up goods before they reach market and then inflating the prices) was one of three forfeitures that King Edward the Confessor could carry out through England.[10] But concern for fair prices also led to attempts to directly regulate the market. Under Henry III an act was passed in 1266[11] to fix bread and ale prices in correspondence with grain prices laid down by the assizes. Penalties for breach included amercements, pillory and tumbrel.[12] A 14th century statute labeled forestallers as "oppressors of the poor and the community at large and enemies of the whole country."[13] Under King Edward III the Statute of Laborers of 1349[14] fixed wages of artificers and workmen and decreed that foodstuffs should be sold at reasonable prices. On top of existing penalties, the statute stated that overcharging merchants must pay the injured party double the sum he received, an idea that has been replicated in punitive treble damages under US antitrust law. Also under Edward III, the following statutory provision outlawed trade combination.[15] "...we have ordained and established, that no merchant or other shall make Confederacy, Conspiracy, Coin, Imagination, or Murmur, or Evil Device in any point that may turn to the Impeachment, Disturbance, Defeating or Decay of the said Staples, or of anything that to them pertaineth, or may pertain." In continental Europe competition principles developed in Lex Mercatoria. Examples of legislation enshrining competition principles include the constitutiones juris metallici by Wenceslaus II of Bohemia between 1283 and 1305, condemning combination of ore traders increasing prices; the Municipal Statutes of Florence in 1322 and 1325 followed Zeno's legislation against state monopolies; and under Emperor Charles V in the Holy Roman Empire a law was passed "to prevent losses resulting from monopolies and improper contracts which many merchants and artisans made in the Netherlands." In 1553 King Henry VIII reintroduced tariffs for foodstuffs, designed to stabilize prices, in the face of fluctuations in supply from overseas. So the legislation read here that whereas, "it is very hard and difficult to put certain prices to any such things... [it is necessary because] prices of such victuals be many times enhanced and raised by the Greedy Covetousness and Appetites of the Owners of such Victuals, by occasion of ingrossing and regrating the same,

more than upon any reasonable or just ground or cause, to the great damage and impoverishing of the King's subjects."[16] Around this time organizations representing various tradesmen and handicrafts people, known as guilds had been developing, and enjoyed many concessions and exemptions from the laws against monopolies. The privileges conferred were not abolished until the Municipal Corporations Act 1835.
[edit] Early competition law in Europe

Judge Coke in the 17th century thought that general restraints on trade were unreasonable

The English common law of restraint of trade is the direct predecessor to modern competition law later developed in the US.[17] It is based on the prohibition of agreements that ran counter to public policy, unless the reasonableness of an agreement could be shown. It effectively prohibited agreements designed to restrain another's trade. The 1414 Dyer's is the first known restrictive trade agreement to be examined under English common law. A dyer had given a bond not to exercise his trade in the same town as the plaintiff for six months but the plaintiff had promised nothing in return. On hearing the plaintiff's attempt to enforce this restraint, Hull J exclaimed, "per Dieu, if the plaintiff were here, he should go to prison until he had paid a fine to the King." The court denied the collection of a bond for the dyer's breach of agreement because the agreement was held to be a restriction on trade.[18] English courts subsequently decided a range of cases which gradually developed competition related case law, which eventually were transformed into statute law.[19]

Elizabeth I assured monopolies would not be abused in the early era of globalization

Europe around the 16th century was changing quickly. The new world had just been opened up, overseas trade and plunder was pouring wealth through the international economy and attitudes among businessmen were shifting. In 1561 a system of Industrial Monopoly Licenses, similar to modern patents had been introduced into England. But by the reign of Queen Elizabeth I, the system was reputedly much abused and used merely to preserve privileges, encouraging nothing new in the way of innovation or manufacture.[20] In response English courts developed case law on restrictive business practices. The statute followed the unanimous decision in Darcy v. Allein 1602, also known as the Case of Monopolies,[21] of the King's bench to declare void the sole right that Queen Elizabeth I had granted to Darcy to impost playing cards into England.[19] Darcy, an officer of the Queen's household, claimed damages for the defendant's infringement of this right. The court found the grant void and that three characteristics of monopoly were (1) price increases (2) quality decrease (3) the tendency to reduce artificers to idleness and beggary. This put an end to granted monopolies until King James I began to grant them again. In 1623 Parliament passed the Statute of Monopolies, which for the most part excluded patent rights from its prohibitions, as well as guilds. From King Charles I, through the civil war and to King Charles II, monopolies continued, especially useful for raising revenue.[22] Then in 1684, in East India Company v. Sandys it was decided that exclusive rights to trade only outside the realm were legitimate, on the grounds that only large and powerful concerns could trade in the conditions prevailing overseas.[23] The development of early competition law in England and Europe progressed with the diffusion of Adam Smith's work, who first established the concept of the market economy. At the same time industrialisation replaced the individual artisan, or group of artisans, with paid labourers and machine-based production. Commercial success increasingly dependent on maximising production while minimising cost. Therefore the size of a company became increasingly important and a number of European countries responded by enacting laws to regulate large companies which restricted trade. Following the French Revolution in 1789 the law of 1417 June 1791 declared agreements by members of the same trade that fixed the price of an industry or labour as void, unconstitutional, and hostile to liberty. Similarly the Austrian Penal Code of 1852 established that "agreements... to raise the price of a commodity... to the disadvantage of the public' should be punished as misdemeanours." Austria passed a law in 1870 abolishing the penalties, though such agreements remained void. However, in Germany laws clearly validated agreements between firms to raise prices. Throughout the 18th and 19th century ideas that dominant private companies or legal monopolies could excessively restrict trade were further developed in Europe. However, as in

the late 19th century a depression spread through Europe, known as the Panic of 1873, ideas of competition lost favour and it was felt that companies had to co-operate by forming cartels to withstand huge pressures on prices and profits.[24]

[edit] Modern competition law

Competition law by country
G-20 major economies Australia China India Japan Russia United Kingdom United States European Union Other economies Ireland
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While the development of competition law stalled in Europe during the late 19th century Canada in 1889 enacted what is considered the first competition statute of modern times. The Act for the Prevention and Suppression of Combinations formed in restrained of Trade was based one year before the United States enacted the most famous legal statute on competition law, the Sherman Act of 1890. It was named after Senator John Sherman who argued that the Act "does not announce a new principle of law, but applies old and well recognised principles of common law".[25]
[edit] United States antitrust Main article: United States antitrust law

The Sherman Act of 1890 attempted to outlaw the restriction of competition by large companies, who co-operated with rivals to fix outputs, prices and market shares, initially through pools and later through trusts. Trusts first appeared in the US railroads, where the capital requirement of railroad construction precluded competitive services in then scarcely settled territories. This trust allowed railroads to discriminate on rates imposed and services provided to consumers and businesses and to destroy potential competitors. Different trusts could be dominant in different industries. The Standard Oil Company trust in the 1880s controlled a number of markets, including the market in fuel oil, lead and whiskey.[25] Vast

numbers of citizens became sufficiently aware and publicly concerned about how the trusts negatively impacted them that the Act became a priority for both major parties. A primary concern of this act is that competitive markets themselves should provide the primary regulation of prices, outputs, interests and profits. Instead, the Act outlawed anticompetitive practices, codifying the common law restraint of trade doctrine.[26] Prof Rudolph Peritz has argued that competition law in the United States has evolved around two sometimes conflicting concepts of competition: first that of individual liberty, free of government intervention, and second a fair competitive environment free of excessive economic power. Since the enactment of the Sherman Act enforcement of competition law has been based on various economic theories adopted by Government.[27] Section 1 of the Sherman Act declared illegal "every contract, in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations". Section 2 prohibits monopolies, or attempts and conspiracies to monopolize. Following the enactment in 1890 US court applies these principles to business and markets. Courts applied the Act without consistent economic analysis until 1914, when it was complemented the Clayton Act which specifically prohibiting exclusive dealing agreements, particularly tying agreements and interlocking directorates, and mergers achieved by purchasing stock. From 1915 onwards the rule of reason analysis was frequently applied by courts to competition cases. However, the period was characterized by the lack of competition law enforcement. From 1936 to 1972 courts' application of anti-trust law was dominated by the structure-conduct-performance paradigm of the Harvard School. From 1973 to 1991, the enforcement of anti-trust law was based on efficiency explanations as the Chicago School became dominant. Since 1992 game theory has frequently been used in antitrust cases.[28]
[edit] European Union law Main article: European Union competition law

Competition law gained new recognition in Europe in the inter-war years, with Germany enacting its first anti-cartel law in 1923 and Sweden and Norway adopting similar laws in 1925 and 1926 respectively. However, with the Great Depression of 1929 competition law disappeared from Europe and was revived following the second world war when the United Kingdom and Germany, following pressure from the United States, became the first European countries to adopt fully fledged competition laws. At a regional level EU competition law has its origins in the European Coal and Steel Community (ECSC) agreement between France, Italy, Belgium, the Netherlands, Luxembourg and Germany in 1951 following the Second World War. The agreement aimed to prevent Germany from reestablishing dominance in the production of coal and steel as it was felt that this dominance had contributed to the outbreak of the war. Article 65 of the agreement banned cartels and article 66 made provisions for concentrations, or mergers, and the abuse of a dominant position by companies.[29] This was the first time that competition law principles were included in a plurilateral regional agreement and established the trans-European model of competition law. In 1957 competition rules were included in the Treaty of Rome, also known as the EC Treaty, which established the European Economic Community (EEC). The Treaty of Rome established the enactment of competition law as one of the main aims of the EEC through the "institution of a system ensuring that competition in the common market is not distorted". The two central provisions on EU competition law on companies were established in article 85, which prohibited anti-competitive agreements, subject to some exemptions, and article 86 prohibiting the abuse of dominant position. The treaty also established principles on

competition law for member states, with article 90 covering public undertakings, and article 92 making provisions on state aid. Regulations on mergers were not included as member states could not establish consensus on the issue at the time.[30] Today, the Treaty of Lisbon prohibits anti-competitive agreements in Article 101(1), including price fixing. According to Article 101(2) any such agreements are automatically void. Article 101(3) establishes exemptions, if the collusion is for distributional or technological innovation, gives consumers a "fair share" of the benefit and does not include unreasonable restraints that risk eliminating competition anywhere (or compliant with the general principle of European Union law of proportionality). Article 102 prohibits the abuse of dominant position, such as price discrimination and exclusive dealing. Article 102 allows the European Council to regulations to govern mergers between firms (the current regulation is the Regulation 139/2004/EC.[31] The general test is whether a concentration (i.e. merger or acquisition) with a community dimension (i.e. affects a number of EU member states) might significantly impede effective competition. Articles 106 and 107 provide that member state's right to deliver public services may not be obstructed, but that otherwise public enterprises must adhere to the same competition principles as companies. Article 107 lays down a general rule that the state may not aid or subsidize private parties in distortion of free competition and provides exemptions for charities, regional development objectives and in the event of a natural disaster.[citation needed]
[edit] International expansion

By 2008 111 countries had enacted competition laws, which is more than 50 percent of countries with a population exceeding 80,000 people. 81 of the 111 countries had adopted their competition laws in the past 20 years, signalling the spread of competition law following the collapse of the Soviet Union and the expansion of the European Union.[32]

[edit] Enforcement
See also: World Trade Organization and International Competition Network

There is considerable controversy among WTO members, in green, whether competition law should form part of the agreements

At a national level competition law is enforced through competition authorities, as well as private enforcement. The United States Supreme Court explained:[33]

Every violation of the antitrust laws is a blow to the free-enterprise system envisaged by Congress. This system depends on strong competition for its health and vigor, and strong competition depends, in turn, on compliance with antitrust legislation. In enacting these laws, Congress had many means at its disposal to penalize violators. It could have, for example, required violators to compensate federal, state, and local governments for the estimated damage to their respective economies caused by the violations. But, this remedy was not selected. Instead, Congress chose to permit all persons to sue to recover three times their actual damages every time they were injured in their business or property by an antitrust violation.

In the European Union, the Modernisation Regulation 1/2003[34] means that the European Commission is no longer the only body capable of public enforcement of European Union competition law. This was done in order to facilitate quicker resolution of competition-related inquiries. In 2005 the Commission issued a Green Paper on Damages actions for the breach of the EC antitrust rules,[35] which suggested ways of making private damages claims against cartels easier.[36] Antitrust administration and legislation can be seen as a balance between:

guidelines which are clear and specific to the courts, regulators and business but leave little room for discretion that prevents the application of laws from resulting in unintended consequences. guidelines which are broad, hence allowing administrators to sway between improving economic outcomes versus succumbing to political policies to redistribute wealth.[37]

Chapter 5 of the post war Havana Charter contained an Antitrust code[38] but this was never incorporated into the WTO's forerunner, the General Agreement on Tariffs and Trade 1947. Office of Fair Trading Director and Professor Richard Whish wrote sceptically that it "seems unlikely at the current stage of its development that the WTO will metamorphose into a global competition authority."[39] Despite that, at the ongoing Doha round of trade talks for the World Trade Organization, discussion includes the prospect of competition law enforcement moving up to a global level. While it is incapable of enforcement itself, the newly established International Competition Network[40] (ICN) is a way for national authorities to coordinate their own enforcement activities.

[edit] Theory
Main article: Competition law theory [edit] Classical perspective See also: Classical economics

Under the doctrine of laissez-faire, antitrust is seen as unnecessary as competition is viewed as a long-term dynamic process where firms compete against each other for market dominance. In some markets a firm may successfully dominate, but it is because of superior skill or innovativeness. However, according to laissez-faire theorists, when it tries to raise

prices to take advantage of its monopoly position it creates profitable opportunities for others to compete. A process of creative destruction begins which erodes the monopoly. Therefore, government should not try to break up monopoly but should allow the market to work.[41]

John Stuart Mill believed the restraint of trade doctrine was justified to preserve liberty and competition

The classical perspective on competition was that certain agreements and business practice could be an unreasonable restraint on the individual liberty of tradespeople to carry on their livelihoods. Restraints were judged as permissible or not by courts as new cases appeared and in the light of changing business circumstances. Hence the courts found specific categories of agreement, specific clauses, to fall foul of their doctrine on economic fairness, and they did not contrive an overarching conception of market power. Earlier theorists like Adam Smith rejected any monopoly power on this basis. "A monopoly granted either to an individual or to a trading company has the same effect as a secret in trade or manufactures. The monopolists, by keeping the market constantly understocked, by never fully supplying the effectual demand, sell their commodities much above the natural price, and raise their emoluments, whether they consist in wages or profit, greatly above their natural rate."[42] In The Wealth of Nations (1776) Adam Smith also pointed out the cartel problem, but did not advocate specific legal measures to combat them. "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."[43]

By the latter half of the 19th century it had become clear that large firms had become a fact of the market economy. John Stuart Mill's approach was laid down in his treatise On Liberty (1859). "Again, trade is a social act. Whoever undertakes to sell any description of goods to the public, does what affects the interest of other persons, and of society in general; and thus his conduct, in principle, comes within the jurisdiction of society... both the cheapness and the good quality of commodities are most effectually provided for by leaving the producers and sellers perfectly free, under the sole check of equal freedom to the buyers for supplying themselves elsewhere. This is the so-called doctrine of Free Trade, which rests on grounds different from, though equally solid with, the principle of individual liberty asserted in this Essay. Restrictions on trade, or on production for purposes of trade, are indeed restraints; and all restraint, qua restraint, is an evil..."[44]
[edit] Neo-classical synthesis See also: Neoclassical synthesis

Paul Samuelson, author of the 20th century's most successful economics text, combined mathematical models and Keynesian macroeconomic intervention. He advocated the general success of the market but backed the American government's antitrust policies.

After Mill, there was a shift in economic theory, which emphasized a more precise and theoretical model of competition. A simple neo-classical model of free markets holds that production and distribution of goods and services in competitive free markets maximizes social welfare. This model assumes that new firms can freely enter markets and compete with existing firms, or to use legal language, there are no barriers to entry. By this term economists mean something very specific, that competitive free markets deliver allocative, productive and dynamic efficiency. Allocative efficiency is also known as Pareto efficiency after the Italian economist Vilfredo Pareto and means that resources in an economy over the long run will go precisely to those who are willing and able to pay for them. Because rational producers will keep producing and selling, and buyers will keep buying up to the last marginal unit of possible output or alternatively rational producers will be reduce their

output to the margin at which buyers will buy the same amount as produced there is no waste, the greatest number wants of the greatest number of people become satisfied and utility is perfected because resources can no longer be reallocated to make anyone better off without making someone else worse off; society has achieved allocative efficiency. Productive efficiency simply means that society is making as much as it can. Free markets are meant to reward those who work hard, and therefore those who will put society's resources towards the frontier of its possible production.[45] Dynamic efficiency refers to the idea that business which constantly competes must research, create and innovate to keep its share of consumers. This traces to Austrian-American political scientist Joseph Schumpeter's notion that a "perennial gale of creative destruction" is ever sweeping through capitalist economies, driving enterprise at the market's mercy.[46] This led Schumpeter to argue that monopolies did not need to be broken up (as with Standard Oil) because the next gale of economic innovation would do the same. Contrasting with the allocatively, productively and dynamically efficient market model are monopolies, oligopolies, and cartels. When only one or a few firms exist in the market, and there is no credible threat of the entry of competing firms, prices rise above the competitive level, to either a monopolistic or oligopolistic equilibrium price. Production is also decreased, further decreasing social welfare by creating a deadweight loss. Sources of this market power are said[by whom?] to include the existence of externalities, barriers to entry of the market, and the free rider problem. Markets may fail to be efficient for a variety of reasons, so the exception of competition law's intervention to the rule of laissez faire is justified if government failure can be avoided. Orthodox economists fully acknowledge that perfect competition is seldom observed in the real world, and so aim for what is called "workable competition".[47][48] This follows the theory that if one cannot achieve the ideal, then go for the second best option[49] by using the law to tame market operation where it can.
[edit] Chicago School

Robert Bork See also: Chicago school of economics and Neoclassical economics

A group of economists and lawyers, who are largely associated with the University of Chicago, advocate an approach to competition law guided by the proposition that some actions that were originally considered to be anticompetitive could actually promote competition.[50] The U.S. Supreme Court has used the Chicago School approach in several recent cases.[51] One view of the Chicago School approach to antitrust is found in United States Circuit Court of Appeals Judge Richard Posner's books Antitrust Law[52] and Economic Analysis of Law.[53] Robert Bork was highly critical of court decisions on United States antitrust law in a series of law review articles and his book The Antitrust Paradox.[54] Bork argued that both the original intention of antitrust laws and economic efficiency was the pursuit only of consumer welfare, the protection of competition rather than competitors.[55] Furthermore, only a few acts should be prohibited, namely cartels that fix prices and divide markets, mergers that create monopolies, and dominant firms pricing predatorily, while allowing such practices as vertical agreements and price discrimination on the grounds that it did not harm consumers.[56] Running through the different critiques of US antitrust policy is the common theme that government interference in the operation of free markets does more harm than good.[57] "The only cure for bad theory", writes Bork, "is better theory".[55] The late Harvard Law School Professor Philip Areeda, who favours more aggressive antitrust policy, in at least one Supreme Court case challenged Robert Bork's preference for non-intervention.[58]

[edit] Practice
[edit] Collusion and cartels Main articles: Collusion and Cartel

Scottish Enlightenment philosopher Adam Smith was an early enemy of cartels

[edit] Dominance and monopoly Main articles: Dominance (economics) and Monopoly

The economist's depiction of deadweight loss to efficiency that monopolies cause

When firms hold large market shares, consumers risk paying higher prices and getting lower quality products than compared to competitive markets. However, the existence of a very high market share does not always mean consumers are paying excessive prices since the threat of new entrants to the market can restrain a high-market-share firm's price increases. Competition law does not make merely having a monopoly illegal, but rather abusing the power that a monopoly may confer, for instance through exclusionary practices. First it is necessary to determine whether a firm is dominant, or whether it behaves "to an appreciable extent independently of its competitors, customers and ultimately of its consumer."[59] Under EU law, very large market shares raise a presumption that a firm is dominant,[60] which may be rebuttable.[61] If a firm has a dominant position, then there is "a special responsibility not to allow its conduct to impair competition on the common market".[62] Similarly as with collusive conduct, market shares are determined with reference to the particular market in which the firm and product in question is sold. Then although the lists are seldom closed,[63] certain categories of abusive conduct are usually prohibited under the country's legislation. For instance, limiting production at a shipping port by refusing to raise expenditure and update technology could be abusive.[64] Tying one product into the sale of another can be considered abuse too, being restrictive of consumer choice and depriving competitors of outlets. This was the alleged case in Microsoft v. Commission[65] leading to an eventual fine of 497 million for including its Windows Media Player with the Microsoft Windows platform. A refusal to supply a facility which is essential for all businesses attempting to compete to use can constitute an abuse. One example was in a case involving a medical company named Commercial Solvents.[66] When it set up its own rival in the tuberculosis drugs market, Commercial Solvents were forced to continue supplying a company named Zoja with the raw materials for the drug. Zoja was the only market competitor, so without the court forcing supply, all competition would have been eliminated. Forms of abuse relating directly to pricing include price exploitation. It is difficult to prove at what point a dominant firm's prices become "exploitative" and this category of abuse is rarely found. In one case however, a French funeral service was found to have demanded

exploitative prices, and this was justified on the basis that prices of funeral services outside the region could be compared.[67] A more tricky issue is predatory pricing. This is the practice of dropping prices of a product so much that in order one's smaller competitors cannot cover their costs and fall out of business. The Chicago School (economics) considers predatory pricing to be unlikely.[68] However in France Telecom SA v. Commission[69] a broadband internet company was forced to pay 10.35 million for dropping its prices below its own production costs. It had "no interest in applying such prices except that of eliminating competitors"[70] and was being cross-subsidized in order to capture the lion's share of a booming market. One last category of pricing abuse is price discrimination.[71] An example of this could be offering rebates to industrial customers who export your company's sugar, but not to customers who are selling their goods in the same market as you are in.[72]
[edit] Mergers and acquisitions Main article: Mergers and acquisitions

A merger or acquisition involves, from a competition law perspective, the concentration of economic power in the hands of fewer than before.[73] This usually means that one firm buys out the shares of another. The reasons for oversight of economic concentrations by the state are the same as the reasons to restrict firms who abuse a position of dominance, only that regulation of mergers and acquisitions attempts to deal with the problem before it arises, ex ante prevention of market dominance.[74] In the United States merger regulation began under the Clayton Act, and in the European Union, under the Merger Regulation 139/2004 (known as the "ECMR"[75]). Competition law requires that firms proposing to merge gain authorization from the relevant government authority. The theory behind mergers is that transaction costs can be reduced compared to operating on an open market through bilateral contracts.[76] Concentrations can increase economies of scale and scope. However often firms take advantage of their increase in market power, their increased market share and decreased number of competitors, which can adversely affect the deal that consumers get. Merger control is about predicting what the market might be like, not knowing and making a judgment. Hence the central provision under EU law asks whether a concentration would if it went ahead "significantly impede effective competition... in particular as a result of the creation or strengthening off a dominant position..."[77] and the corresponding provision under US antitrust states similarly, "No person shall acquire, directly or indirectly, the whole or any part of the stock or other share capital... of the assets of one or more persons engaged in commerce or in any activity affecting commerce, where... the effect of such acquisition, of such stocks or assets, or of the use of such stock by the voting or granting of proxies or otherwise, may be substantially to lessen competition, or to tend to create a monopoly.[78] What amounts to a substantial lessening of, or significant impediment to competition is usually answered through empirical study. The market shares of the merging companies can be assessed and added, although this kind of analysis only gives rise to presumptions, not conclusions.[79] The Herfindahl-Hirschman Index is used to calculate the "density" of the market, or what concentration exists. Aside from the maths, it is important to consider the product in question and the rate of technical innovation in the market.[80] A further problem of collective dominance, or oligopoly through "economic links"[81] can arise, whereby the new market becomes more conducive to collusion. It is relevant how transparent a market is, because a more concentrated structure could mean firms can coordinate their behavior more easily, whether firms can deploy deterrents and whether firms are safe from a reaction by

their competitors and consumers.[82] The entry of new firms to the market, and any barriers that they might encounter should be considered.[83] If firms are shown to be creating an uncompetitive concentration, in the US they can still argue that they create efficiencies enough to outweigh any detriment, and similar reference to "technical and economic progress" is mentioned in Art. 2 of the ECMR.[84] Another defense might be that a firm which is being taken over is about to fail or go insolvent, and taking it over leaves a no less competitive state than what would happen anyway.[85] Mergers vertically in the market are rarely of concern, although in AOL/Time Warner[86] the European Commission required that a joint venture with a competitor Bertelsmann be ceased beforehand. The EU authorities have also focused lately on the effect of conglomerate mergers, where companies acquire a large portfolio of related products, though without necessarily dominant shares in any individual market.[87]
[edit] Public sector regulation

Public sector industries, or industries which are by their nature providing a public service, are involved in competition law in many ways similar to private companies. Many industries, such as railways, electricity, gas, water and media have their own independent sector regulators. These government agencies are charged with ensuring that private providers carry out certain public service duties in line of social welfare goals. For instance, an electricity company may not be allowed to disconnect someone's supply merely because they have not paid their bills up to date, because that could leave a person in the dark and cold just because they are poor. Instead the electricity company would have to give the person a number of warnings and offer assistance until government welfare support kicks in.
[edit] Intellectual property, innovation and competition

Intellectual property and competition have become increasingly intertwined.[88] On the one hand, it is believed that promotion of innovation through enforcement of intellectual rights promotes competitiveness, while on the other the contrary may be the consequence. The question rests on whether it is legal to acquire monopoly through accumulation of intellectual property. In which case, the judgment needs to decide between giving preference to intellectual rights or towards promoting competitiveness

Should antitrust laws accord special treatment to intellectual property Should intellectual rights be revoked or not granted when antitrust laws are violated.

Concerns also arise over anti-competitive effects and consequences due to

Intellectual properties that are collaboratively designed with consequence of violating antitrust laws (intentionally or otherwise) and the further effects on competition when such properties are accepted into industry standards Cross-licensing of intellectual property. Bundling of intellectual rights to long term business transactions or agreements to extend the market exclusiveness of intellectual rights beyond their statutory duration. Trade secrets, if they remain a secret, having an eternal length of life.

Some scholars suggest that a prize instead of patent would solve the problem of deadweight loss, when innovators got their reward from the prize, provided by the government or non-

profit organization, rather than directly selling to the market, see Millennium Prize Problems. However innovators may accept the prize only when it is at least as much as how much they earn from patent, which is a question difficult to determine.[89]