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25 June 2001

Why Labour is wrong on competition

The last thing we want is more lawyers pursuing antitrust cases, US-style, argues Stephen Pollard

By Stephen Pollard

For new Labour, there is no word more sacred than “competition”. Anything “anti-competitive” ought to be destroyed. And because the US has the most competitive economy in the world, it follows that American competition policy is the model to which we should aspire.

Thoughts of the virile antitrust busters – court orders blazing – of the US Federal Trade Commission (FTC) are enough to make new Labour policy-wonks go weak at the knees. So, when Gordon Brown and Patricia Hewitt boasted on 18 June that Labour was remodelling UK competition law along US lines, it was surely the triumph of Labour as the party of the market and of the consumer.

Except that Labour has got it wrong. America’s competition law is almost the worst thing we could import. The reasoning behind the proposed reforms is that aggressive multinationals are an enemy that can only be fought properly in the courtroom and the office of the regulator; that, left to the market place, such companies simply run rampant. In addition, “boosting enterprise”, as Brown puts it, will strengthen the UK’s status as a haven for investment – just like the US.

The problem is that there isn’t one US competition law, there are 51: the federal edict, and those of all 50 states. Business needs to have a common standard against which to operate, and the wide variations within the US market mean that a rabid competition policy hurts, rather than benefits, consumers. The European Single Market is, in that respect, exactly the same. Instead of one standard, there are 15 – and the 18 June announcement complicates things further.

In April, the FTC – along with the Department of Justice, the federal competition enforcer – settled a complaint against the French pharmaceutical company Aventis. Aventis had reached an agreement with a US company over that company’s manufacturing of a generic version of Aventis’s patented drug Cardizem. The FTC found that, contrary to the allegation, the agreement was not anti-competitive, and had not delayed the introduction of the generic drug on to the US market place.

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That, one might think, would be that. But, in May, the attorneys-general of 15 American states and the District of Columbia launched their own separate and further action against Aventis, alleging that the agreement had indeed somehow harmed buyers of Cardizem, and demanding $100m in damages. As each US state has its own competition law, to which any company operating in its jurisdiction is subject, state attorneys-general can and do bring competition cases – even when, as with Aventis, the alleged culprit has already been investigated and cleared, or settled, by the federal competition authorities.

The federal competition authorities have, over the years, developed highly professional staff who take the consumer interest as the standard for judging corporate behaviour. The same is true for the increasingly professional European Commission competition authority, which has developed a good working relationship with the US Department of Justice and the FTC, co-operating on such things as multinational mergers and international price-fixing.

But while, at a federal level, this can mean real progress, the parallel devolution of competition law to the states undermines it, and the same is true in the EU.

It is not the rights or wrongs of the case that matter. For all I know, the pharmaceutical companies were all able to hoodwink the FTC and get away with ripping off the US consumer. That is not the point. The point is that the effects on the consumer of this explosion in antitrust lawsuits, which the British government seems to think are something to admire, can be catastrophic.

As well as the direct litigation costs of defending the actions, and the risk of potential damages, any potential victim firm must learn to cope with – and factor in to its costs – greater legal uncertainty. Knowledge of what is, and what isn’t, acceptable to the competition authorities is no longer a basis for suitable behaviour.

Companies can no longer be sure what will be considered illegal by, say, a jury in California or by the attorney-general in Connecticut. Those costs are borne by only one group – consumers, both in terms of slower innovation and higher prices. Even worse, the omnipresence of well-funded, entrepreneurial plaintiffs and lawyers in search of easy riches, often from class-action litigation on behalf of large groups of consumers, means that any business operating in the US faces all sorts of unpredictable fines.

The lessons are surely obvious. At the very time when attention is beginning to be focused on the EU’s competition policy, the government is about to introduce a wholly new framework in the UK.

If ever there was an area that called for a common, Europe-wide approach, it is competition law. Instead of 15 different competition laws, a single market needs a single competition policy. To avoid the consequences of adopting US-style litigation and class-action suits, the EU competition authority should have a right of first refusal, including the right to recover damages on behalf of classes of consumers, on all antitrust cases.

This is not about Brussels taking over powers. It is about avoiding what seems an inevitable drift towards a European version of the American lunacy. The EU and the UK have enough problems making the single market work, without importing a further source of inefficiency from America.

Stephen Pollard is a senior fellow at the Centre for the New Europe, a Brussels-based think-tank

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