(Right to) Development and International Transfer of Technology: A Competition Law Perspective
Lúcio Tomé Féteira1
One of the issues that developing countries often bring to the foreground in international forums is the critical association between development and access to technology. The substance of the claim is that development and access to technology should work in tandem, with the latter being considered ‘a prerequisite, even an imperative, for desirable economic and social development’.2 Although the details behind the interplay between development and access to technology are a complex and contentious issue,3 this chapter will address the combination between development and technology from three complementary perspectives: the right to development (henceforth ‘R2D’), international transfer of technology (henceforth ‘ITT’) and competition law.
The reference to the R2D is arguably the one that requires fewer justifications, as it purports to reflect the human rights approach that underlies the remaining chapters of this book. In this context, it can be said that access to technology is one of the components of a wider and expanding notion of development incorporated into the R2D. The limitation inherent to this approach is that, as it will be argued in a brief incursion into the topic, the enduring debate concerning the contents and legal nature of the R2D does not provide solid ground for widening and fostering access to technology.
The reference to ITT can easily be explained on account of its role as a vehicle to promote access to technology. More specifically, this chapter will be focussing on ITT via licensing agreements. These concepts and their economic relevance will be explained in some detail and provide the background for the third and last perspective: competition law.
Including competition law as part of a chapter dedicated to development and access to technology may invite perplexity, if not downright scepticism from the readers. However, if one thinks that ITT agreements and, in particular, licensing agreements, may be the source of anticompetitive effects that can be particularly damaging to countries that are highly dependent upon imported technology, then competition law might not appear as implausible as it did at first glance. Such is, in fact, the situation in most developing countries, as became painfully clear during the ill-fated negotiations of the ‘Draft International Code of Conduct on the Transfer of Technology’ (henceforth ‘TOT Draft Code’),4 when developing countries complained about the detrimental effect of unfair and restrictive conditions included in – or deriving from – ITT.5 The role that competition law can play both in stimulating the inward flow of technology to developing countries and in fighting against the effects of anticompetitive practices associated with ITT provides the background of this chapter while purporting to be, by the same token, an illustration of how to combine three apparently unrelated topics: development, ITT and competition law.
In addition to what has been said, the reference to competition law should be contextualized as part of the growing debate amidst competition law scholars concerning the design and implementation of competition rules adjusted to the context of developing countries.6 Discussing the anticompetitive implications of ITT provides a welcome opportunity to take part in this on-going debate and deal with the question of whether it is appropriate7 to include developmental concerns in competition law and, this being the case, how and to which extent this can be achieved. While dealing with these issues, the more practical aspects relating to the enforcement of competition law should not be forsaken – a point that is not always taken into due account by the literature – as they amount to a considerable portion of the difficulties that developing countries face when dealing with anticompetitive conduct that has an extra-territorial effect in multiple jurisdictions.
This chapter will be structured as follows: the ensuing section will introduce the basic features of the R2D (§ 2) merely with the aim of providing an overview of its notion, nature and present significance. The following section (§ 3) will be dedicated to briefly discussing the notion, as well as the economic and legal aspects of ITT. The latter can take place through different arrangements, licensing agreements being one of the available options. Though generally considered as being pro-competitive, licensing agreements may have a restrictive impact on competition (they can involve price-fixing, restrictions of output, etc.) and thus call for the intervention of competition law. The competition law issues that may generally arise from technology transfer will be addressed in § 4. This section will take as reference points, on the one hand, the approach under US antitrust and EU competition law (§ 4 a)) and, on the other hand, article 40 of the TRIPS Agreement (§ 4 b)). In both cases the purpose is to expose the inherent limitations of both national jurisdictions and international instruments regarding anticompetitive effects of ITT, namely in developing countries (§ 4 c)). Against this background, § 5 will explore the possible role of competition law in addressing these issues, while accommodating some of the developmental concerns voiced by developing countries. The chapter will end with some closing remarks and conclusions in § 6.
Before bringing this introduction to an end, two final words of caution should be added. Firstly, there are a number of issues that have to be excluded at the outset from the scope of this chapter so as to keep it reasonably within space limits. The excluded subjects include human rights issues pertaining to the connection between the R2D and ITT;8 economic issues relating to developing economies, most of them addressed by the literature on development economics and technology economics;9 and the developmental impact of intellectual property rights (‘IPR’), a subject closely associated with ITT and a topic on its own right.10 Secondly, a word of caution concerning the use of the expression ‘developing countries’. Despite being aware that the notion – and indeed the term itself – falls short of gathering international consensus,11 practical reasons owing to its wide use explain why it will be kept throughout this chapter, whilst trying to avoid the pitfalls associated with the expression (namely the fact that it refers to a heterogeneous group of countries but masks the complexity of the underlying realities,12 as well as the fact that the expression may acquire different meanings according to the context in which it is deployed).13 These general considerations extend to the field of competition law, as one quickly realizes when comparing the mixed results delivered by competition law in Latin American countries with the profound limitations of competition regimes in Sub-Saharan Africa.14 Since it would be impossible to attend to the specificities of each developing country, this chapter will strive to circumvent the difficulties by addressing some of the issues that may be of relevance to a large number of developing countries.
(Right to) Development: Overview of its Background, Notion and Present Significance
The first express reference to the R2D as a human right can be found in the 1986 Declaration on the Right to Development (hereinafter ‘Declaration on the R2D’),15 whose article 1 paragraph 1 states:
1. The right to development is an inalienable human right by virtue of which every human person and all peoples are entitled to participate in, contribute to, and enjoy economic, social, cultural and political development, in which all human rights and fundamental freedoms can be fully realized.
The Declaration on the R2D was meant as a bridge that would cover the gap between civil and political rights, on the one hand, and economic, social and cultural rights on the other, thus reflecting an integrated and indivisible conception of human rights, arguably in consonance with their original understanding in the Universal Declaration of Human Rights.16 Although the latter addresses both civil and political rights (articles 1–21) and economic, social and cultural rights (articles 22–28) under the common roof of human rights, it was the Declaration on the R2D that rendered explicit the underlying unity.17
The Declaration on the R2D was further complemented in 1993, during the Second UN World Conference on Human Rights that took place in Vienna. The Conference dealt extensively with the R2D, leading to the adoption of the Vienna Declaration and Programme of Action,18 which emphasized R2D as a universal and inalienable right and the facilitating role of development for the enjoyment of all human rights. None of the Declarations19 that followed the Vienna Conference conferred legally binding effect to the R2D. As it became increasingly clear, the implementation of the R2D hinged upon the coordinated action of the developing countries and the international community (donor countries and international financial institutions) through what would be later designated as a ‘development compact’.20 The implementation of the ‘development compact’ would require a number of steps to be taken by the international community, with ITT being one of those steps.
In spite of the implicit, and occasionally explicit, references to the R2D at the international level,21 the legal22 obstacles to the recognition of the R2D remain practically unchanged since its inception and can be summarized in two major points: on the one hand, the lack of a legally binding instrument addressing the R2D; and on the other hand, the (vague) content of the R2D and its implications for the right holders and the duty bearers. Concerning the first objection, it is generally recognized that neither the Declaration on the R2D, nor any of the ensuing international instruments dealing with the R2D, have legally binding force, so the discussion that follows is whether the R2D, in its present formulation, has developed ‘sufficient normative power’23 that would compel its transformation into an internationally binding right. The second objection relates to the content of the R2D. Although it is possible to identify the core elements of the R2D,24 it becomes much harder to derive from them specific rights and obligations.25 While reference to development as ‘a comprehensive economic, social, cultural and political process’ in the Preamble of the Declaration on the R2D makes clear that development is neither confined to economic growth nor to developing countries,26 it remains of very little avail in what concerns its implementation.
Rather than approaching development and access to technology from the much discussed and excessively vague R2D, it seems thus preferable to step on firmer ground. If the beneficial effects of technology are undisputed, the negative developmental impact arising from restrictions to the dissemination of knowledge seem equally straightforward. Anticompetitive conduct may be one of such restrictions, as it will become increasingly clear in the following sections.
Technology Transfer: Notion, Economic and Legal Aspects
The transmission of knowledge can occur through a number of ways, one of them being technology transfer. For the purposes of this chapter, technology transfer is to be understood as the transmission of a particular form of knowledge – technology – from a transferor (A) to a recipient (B). The transfer acquires an international dimension through the participation of a multinational corporation27 based in a developed country acting as the transferor, and an institution or undertaking in a developing country that act as the recipient of technology. It usually implies ‘an integrated sequence of commercial transactions’28 that takes the shape of a consensual legal arrangement involving the temporary use of technology against the periodic payment of an agreed fee (royalties). In this context, the term technology encompasses all knowledge useful in production, frequently though not necessarily protected under IPR.29 It follows that ITT frequently, though not necessarily involves the temporary transmission of IPR.
So far we have only emphasized the private transaction side of ITT. However, there is an equally important dimension to ITT: the transfer of technology as a communication and learning process.30 The latter perspective is complementary to the transaction side of ITT, and it brings to the forefront two interrelated problems: firstly, the transmission of knowledge cannot be completed without the recipient actually being able to receive and process the information transferred; secondly, since technology involves immaterial knowledge beyond its material applications, one of the major difficulties that ITT poses is the assessment whether the process of transmission has been completed.31 Both problems are related because developing countries, for the most part greatly dependent on ITT for technological progress,32 frequently face considerable difficulties in selecting the appropriate technology, absorbing it and optimizing its exploitation.33 These difficulties may be created or exacerbated by anticompetitive effects associated with ITT agreements, since certain practices that restrict competition may also reinforce the choice of inadequate technology (e.g. when the sale of one product or service is made conditional on the purchase of an unrelated good or service; this practice is usually known as ‘tying’), hamper its absorption (e.g. restrictions on research imposed upon the recipient) and/or prevent its optimal exploitation (e.g. restrictions of output imposed upon the recipient).
The transmission of technology through ITT can take place through several methods. The basic option is usually put in terms of international trade, foreign direct investment (‘FDI’) and licensing,34 although in practice these options are frequently combined and supplemented by a number of additional features taken from other legal instruments. As it has been advanced in the introductory section of the chapter, we will focus our attention on licensing – which comprises both ‘pure’ and mixed licensing agreements35 – since it remains a widely used legal instrument for the acquisition and exploitation of technology36 and it may be the source of a number of competitive concerns.37 In any case, given the absence of a fixed boundary between licensing and FDI,38 or between external (through the market) and internal (intra-firm) modes of ITT for that matter, licensing agreements may involve unaffiliated undertakings or institutions in developing countries as the recipients.
From an economic perspective, licensing is considered to be an external mode of ITT because it takes place through the market, as opposed to intra-firm (internal) modes of ITT.39 According to a study conducted by the United Nations Centre for Transnational Corporation (‘UNCTC’)40 the choice between different modes of ITT is influenced by the combination of three variables: (i) the strategies pursued by transnational corporations, (ii) the host country’s environment, and (iii) the characteristics of a particular industry.41 The study distinguished between ‘internalized’ and ‘externalized’ modes of foreign involvement,42 concluding that externalized modes of ITT such as licensing of unaffiliated enterprises ‘tend to be used in cases where transnational corporations desire to continue to earn rents on standardized technology or where the absorptive capacity of domestic enterprises is strong’.43 The same study concludes that, although the form of ITT varies considerably from industry to industry and from country to country, licensing to both affiliated and unaffiliated undertakings appear particularly relevant in the sectors of food and beverage processing (branded food and beverage), textiles and clothing (man-made fibres and branded clothing), pharmaceuticals, electric power equipment and automobiles, just to name a few.44
More recent studies45 dealing with the relationship between the process of industrialization and the methods (and contents) of ITT indicate that licensing is first used for the transfer of ‘mature’ technologies during the initial stages of industrialization in cases relating to large-scale industries and tends to become more relevant as the industrialization process advances. When compared to other modes of ITT, it would seem that:
[L]icenses will always provide an economical way of transfer – from the transferor view point – of standardized, relatively simple and mature, technologies to recipients having absorptive capacities. Licensing will also be the first option for small and medium enterprises lacking the financial resources to enter into equity venture of FDI. Licensing is also likely to be used in transactions between large industrial groups with comparable technological levels.46
Licensing agreements are usually part of larger arrangements, which involve not only the transfer of IP rights or know-how, but may also include the provision of ‘finance, raw materials, skilled labour, engineering and management services and marketing assistance’.47 The inclusion of different inputs combined with the economic conditions and legal structure in the host country48 will favour the choice of a particular commercial arrangement (turn-key contract, joint venture arrangement, industrial cooperation agreement, intra-enterprise transfers, product purchase or marketing arrangements).49
Although it can generally be stated that developing countries, both at the government and at the industry level, find themselves in a weaker bargaining position vis-à-vis multinational enterprises – and thus more exposed to restrictive or disproportionate conditions – this assertion bequeaths qualification. In fact, certain developing countries have managed to develop endogenous capabilities under relative isolation from external competition and have thus succeeded in increasing their bargaining power.50 The latter are, however, the exception that confirms the rule, as in most cases the combination of dependency on foreign technology with a wide set of endemic institutional weaknesses51 pose severe constrains to the bargaining position of developing countries.
Certain clauses and practices that are frequently included in or associated with ITT agreements – including but not limited to licensing agreements –, have been consistently contested by developing countries as being detrimental to their development on account of the significant limitations they impose to access to technology.52 However, given the multi-jurisdictional effect of ITT, transnational anticompetitive effects cannot be fully captured by any set of national legislation.53 The developmental and the anticompetitive impact of ITT was clearly acknowledged in Chapter 4 of the TOT Draft Code,54 which included a number of provisions dealing with several restrictive business practices adopted in ITT. Examples of such restrictive practices include grant-back provisions, prohibitions of challenge to the validity, exclusive dealing, restrictions on research, price fixing, exclusivity agreements, tying arrangements, export restrictions, restrictions of output, etc.
In the next section we will review some of these anticompetitive concerns both from the perspective of the two most important antitrust jurisdictions – the US and the EU – and within the context of article 40 TRIPS.
Technology Transfer and Anticompetitive Effects
The facilitating role of technology dissemination for the promotion of development justifies placing anticompetitive practices that impair or restrict the former at the centre of our concerns. From an economic perspective, restrictive practices or conditions entail indirect costs and have welfare-reducing effects for developing countries, be it directly as the recipient of technology or at the place where the recipient is located.55 They restrict the export capacity of the recipient, raise its import costs and restrain the expansion of its technological capacity.56 Furthermore, such practices have an overall impact on the country’s balance of payments and generally impair economic development.57 They may, for instance, take the shape of an abuse (unilateral conduct) of IPR, build upon overly protective (both in duration and scope) IP legislation that restricts competition,58 or relate to restrictive clauses included in ITT agreements. Competition law has a prominent role to play in fighting against restrictive practices. Either as the result of internal initiative or as the consequence of external pressure, the widespread adoption of competition law regimes59 should not be dissociated from the idea that competition policy forms an integral part of development policy that requires a ‘complex sets of market institutions to support economic growth and policy management capability’.60
The response to multi-jurisdictional effects of anticompetitive practices has been twofold: convergence and multilateral agreements.61 The first endeavours to bring national competition laws closer through non-binding instruments such as policy papers, recommendations, ‘best practices’, reports, etc. The most important forum for convergence has been the International Competition Network (‘ICN’) – composed of national and multinational competition authorities – whose convergence efforts are directed at bringing national competition laws closer to the template of US antitrust and EU competition law.62 For this reason, we shall briefly review the approach of US antitrust and EU competition law to technology transfer, with a particular emphasis on its jurisdictional limitations (sub-section a)) and, at a later stage (§ 5), assess whether they provide an adequate template for competition law in developing countries.
A second strategy to deal with multi-jurisdictional anticompetitive effects consists in multilateral agreements, namely against the background of trade liberalization. Attempts to introduce competition issues in the WTO agenda came to a standstill in the 2003 Cancún ministerial conference, only to be dropped altogether in July 2004.63 Nevertheless, the TRIPS Agreement deals with a number of competition issues that are relevant in the context of ITT and will therefore be included in this chapter (sub-section b)).
Technology Transfer under US Antitrust and EU Competition Law: an overview
Agreements for the transfer of technology, including licensing arrangements, are generally considered to have pro-competitive effects. Under EU competition law, they are covered by the Technology Transfer Block Exemption Regulation (hereinafter ‘TTBER’)64 which, together with the Technology Transfer Guidelines65 issued by the Commission, unequivocally state that: ‘Most licence agreements do not restrict competition and create pro-competitive efficiencies. Indeed, licensing as such is pro-competitive as it leads to dissemination of technology and promotes innovation.’66
In the same vein, the ‘Antitrust Guidelines for the Licensing of Intellectual Property’67 jointly issued by the US the Department of Justice and the Federal Trade Commission include explicit references to the pro-competitive benefits of licensing as facilitating the ‘integration of the licensed property with complementary factors of production’68 and ‘benefiting consumers through the reduction of costs and the introduction of new products’.69
Notwithstanding the common shared goal of promoting dynamic competition70 and the acknowledgement of numerous benefits provided by licensing agreements – including but not restricted to improvement of economic efficiency, reduction or avoidance of duplication of investments in R&D, encouragement of incremental innovation, diffusion of knowledge and creation of product market competition71 – both jurisdictions also recognize that licensing agreements have the potential to restrict competition.72 In the most serious cases, they may involve price fixing, reduction of output and allocation of markets (or customers), all of them banned as ‘hardcore restrictions’ under the TTBER,73 and subject to per se prohibitions under the Sherman Act.74 In other cases, certain contractual provisions – that include grant-back obligations, obligations to assign or the obligation not to challenge the validity of an IPR75 – though not outright detrimental to competition, may nevertheless have a negative impact on the latter.
Both jurisdictions take market power – including the market share in the relevant market and whether the undertakings involved are competitors76 – as the pivotal element for an economic balance between the pro- and the anti-competitive effects of transfer of technology agreements. Market shares below 20 percent of the affected relevant market are generally considered unproblematic from a competition law standpoint.
However, even in those cases where technology transfer does have anticompetitive effects, the application of national competition rules is invariably limited by their territorial scope of application. This means that neither EU competition law nor US antitrust will be applicable to anticompetitive conduct that fails to produce an effect within their respective scope of application. The territorial scope of application of competition law is usually defined by the principle of territoriality, but both the EU and the US allow for an extension of jurisdiction under certain circumstances in what can be described as ‘unilateral jurisdictionalism’.77 In the US courts rely on the so-called ‘effects doctrine’78 to support the extraterritorial application of antitrust rules to those cases that produce a direct and substantial effect within the US. In the EU, the Court of Justice has allowed for the extraterritorial application of European competition law in cases that involve an anticompetitive practice implemented within the EU (‘implementation doctrine’).79 Minor differences apart,80 both the effects and the implementation doctrines allow for the extraterritorial application of national competition rules in similar cases,81 since implementation generally implies effect and the latter relates in both jurisdictions to the impact on inter-state trade.82 A practical implication of this selective application of extraterritoriality with direct relevance for our topic is, for example, the exclusion of export cartels from the scope of application of competition law.83 In the event that the anti-competitive effects associated with ITT were the result of an export cartel, this would mean that such effects would take place outside the territorial scope of application of competition law and, therefore, beyond its grasp.
Another strategy to deal with multi-jurisdictional anticompetitive effects is multilateral agreements. Although this sub-section proposes to review the provisions of TRIPS that deal with the anticompetitive effects of ITT,84 it should be said that TRIPS was not the first attempt to address the matter at the international level,85 though it was the first to become a legally binding instrument. Previous attempts86 testify to the limitations of multilateral agreements for dealing with transnational competition issues. They include the previously mentioned TOT Draft Code, as well as the Draft International Antitrust Code (known under the acronym ‘DIAC’), a bold but equally ill-fated attempt to establish international antitrust rules that took place in the first half of the 1990s, under the auspices of the WTO.87 In this context, and despite its scarce practical significance, we should also mention the Restrictive Business Practices Code (‘RBP Code’) approved by the UN General Assembly in 1980.88 In the case of the RBP Code, the necessary minimum consensus that was necessary for its approval was obtained at the expense of its contents, which amounts to little more than a set of non-binding recommendations dealing only partially with the least contentious aspects of antitrust.89
Despite the fact that the WTO regime contains several provisions that touch upon competition matters,90 article 40 TRIPS is the only provision that expressly deals with the interplay between ITT and competition law, and it does so against the background of ensuring free trade.91 However, article 40 TRIPS addresses only some of the issues of ITT92 and, furthermore, it does so within the rather limited perspective of protecting free trade and ensuring a minimum threshold of the protection for IPR. While developed countries had since long strived for the introduction in developing countries of a minimum threshold of protection of IPR, article 40 TRIPS was seen as a concession to the latter aimed at appeasing concerns that the strengthening of IPR regime would open the way to anticompetitive practices adopted by multinationals from developed countries.93 In this respect article 40 TRIPS states as follows:94
1. Members agree that some licensing practices or conditions pertaining to intellectual property rights which restrain competition may have adverse effects on trade and may impede the transfer and dissemination of technology.
2. Nothing in this Agreement shall prevent Members from specifying in their legislation licensing practices or conditions that may in particular cases constitute an abuse of intellectual property rights having an adverse effect on competition in the relevant market. As provided above, a Member may adopt, consistently with the other provisions of this Agreement, appropriate measures to prevent or control such practices, which may include for example exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing, in the light of the relevant laws and regulations of that Member. [emphasis added]
As it becomes immediately noticeable upon reading the provision, it deals only with anticompetitive implications of ‘licensing practices and conditions’ of IPR.95 It covers restrictive clauses included in licensing agreements, as well as the granting and execution of the license, but excludes from its scope other anticompetitive practices associated with ITT, namely those that do not involve IPR.96 Article 40 TRIPS is to be seen as developing the general principle enunciated in article 8 paragraph 2 TRIPS, which states:97
2. Appropriate measures, provided that they are consistent with the provisions of this Agreement, may be needed to prevent the abuse of intellectual property rights by right holders or the resort to practices which unreasonably restrain trade or adversely affect the international transfer of technology.98
What article 40 paragraph 1 conveys is the WTO Members’ shared understanding that certain licensing practices and conditions with anti-competitive effect may equally have an adverse effect on trade and on the dissemination of technology. In this context, article 40 paragraph 2 authorizes the same Members to introduce competition rules that address the anticompetitive aspects of licensing practices and conditions. However, the adoption of national provisions in the context of article 40 TRIPS is subject to several constraints: firstly, it presupposes that the licensing practice or condition restrains competition (the ‘competition test’)99 and has a negative impact on trade or on the transfer and dissemination of technology;100 secondly, national provisions must be generally consistent with other provisions of TRIPS, which would arguably mean that national provisions should not erode upon the substantive minimum standards of IP protection established in TRIPS.101
Though article 40 TRIPS is silent on the type of national provisions that Members are allowed to adopt, its paragraph 2 expresses nevertheless a preference102 towards a rule of reason approach (‘may in particular cases’) to anticompetitive conduct. At the same time, it illustrates some of the cases of anticompetitive conduct that the Members may decide to address (‘exclusive grantback conditions, conditions preventing challenges to validity and coercive package licensing’). However, the provision is of no avail concerning the notions of abuse or relevant market (where the abuse takes place). Furthermore, even if restricted to contractual ‘licensing practices and conditions’, article 40 TRIPS does not provide any clarification as to the contractual nature of ITT agreements covered by the provision, nor does it clarify whether it can be applied to mixed agreements.103
An additional difficulty is assessing the nature of the obligation that arises from article 40 paragraph 1 TRIPS. The more detailed nature of this provision, when contrasted with the general principle enunciated in article 8 paragraph 2 TRIPS, seems to suggest that article 40 paragraph 1 imposes a minimum obligation to act,104 which could be translated into ‘a duty to protect national IPR systems against practices that undermine their proper operation on domestic markets’.105 However, should this be the case, the provision could hardly be seen as ‘a minimum step toward minimum harmonization of IPR-related competition rules for global markets’.106 In addition, and to make the situation even more complex, Members are also obliged ‘to respect whatever measures other Members legitimately take pursuant to Art. 40.2’.107
If the general tone adopted in TRIPS is already one that hardly incentivizes licensing,108 article 40 TRIPS is of very limited avail concerning the possibility to foster the dissemination of technology through the adoption of national legislation against anticompetitive practices associated with ITT.109 The most salient shortcomings of the provision lie in its excessively vague and unclear wording, combined with the fact that it cannot be directly applied.110 All things considered, it seems hardly surprising that article 40 TRIPS has had scarce – if any – practical relevance.111 The context in which ITT is addressed – free trade and the guarantee of a minimum threshold of protection for IP rights – has deviated TRIPS from the most topical issue in ITT:112 access to knowledge. Instead, the provision adopts a selective approach to anticompetitive practices, dealing only with licensing and, within the latter, only with a fraction of the problems at stake. Furthermore, the question of inferior bargaining power of developing countries is left completely unattended since article 40 paragraph 2 TRIPS leaves the adoption and enforcement of competition rules entirely to the sphere of the WTO Members.113
Competition Law in Developing Countries: Legal Framework and Enforcement
The 1990s witnessed an exponential growth in the number of competition law regimes, many of them introduced in developing countries for the first time, a surge that can be explained as the combined result of internal impetus – namely liberalization – and external pressure.114 However, the enactment of competition rules has frequently not been translated into an effective application of those rules,115 thus bearing witness to the well-known gap that separates ‘law in books’ from ‘law in action’. The explanations behind this gap concerning enacted and applied competition rules have been frequently addressed by the literature. They encompass a number of factors such as deficiencies at the level of substantive law, frailties on the institutional level (institutional design),116 absence of a competition culture,117 lack of expertise, absence of autonomy and/or financial means to ensure a non-biased application of competition rules,118 political instability, strong presence of informal economy, as well as more general problems afflicting the overall functioning of the judicial system.119
In what concerns transnational anticompetitive effects, namely those associated with ITT, developing countries face at least two types of difficulties. The first concerns the design of an appropriate legal framework to deal with such issues. This is the question of what type of competition law would be better suited to the social, economic and legal context of these countries, as well as to meet their specific needs. The second major difficulty concerns the enforcement of such rules against anticompetitive practices that are implemented by a foreign (and usually stronger) business partner and which have a multi-jurisdictional reach. A solution to the latter problem remains beyond the reach of national competition laws being bound as they are by a strict – in the absence of any realistic chance of resorting to ‘unilateral jurisdictionalism’ – principle of territoriality. At the same time, these problems are not adequately dealt with at the international level by any of the existing instruments of international law. This section will address both issues in turn.
Designing Adequate Competition Rules for Developing Countries
Behind competition law stands a particular type of competition policy responsible for the selection of the goal or set of goals that legal provisions should pursue. This selection is influenced by the embedment of competition culture in society and, ultimately, by the overall cultural setting.120 Taking these general thoughts into consideration and moving from competition policy to competition law, it has been rightly argued a ‘one size fits all’ solution may not, and frequently will not, deliver the best results for the design of the appropriate legal framework121 in the context of small market economies,122 developing countries or transition countries.123 The point can be illustrated by the limited results achieved through legal transplants of competition law from developed to developing countries or by the modest success attained by models of competition law designed at the international level.124 Furthermore, ‘one size fits all’ solutions follow the approach adopted by US antitrust and EU competition law, a feature that frequently gives rise to suspicion – if not outright hostility – from developing countries. However, most of the complaints125 voiced by developing countries against competition policy and competition law are in fact directed against US or EU-modelled competition law rather than arguments against competition law per se.126