Excessive Extra Territoriality of Competition Laws: A Failed Harmonization

By Harshini Jhothiraman

Editor’s Note: Regulatory mechanisms in every country work perfectly until before they overlap each other resulting in a conflict of laws. Ironically, international laws have attempted and failed in trying to harmonize the extraterritorial application of competition laws in resolving disputes. The efforts of the WTO in resolving international trade disputes by assuming exclusive and compulsory jurisdiction has failed to resolve less than half the problems as claims of private entities with respect to restrictive trade practices are not subject matter of the Dispute Settlement Understanding under the WTO Agreements. As the Havana Charter did not to come into force after the sad demise of the International Trade Organization, its provisions with respect to the restrictive trade practices have undergone an indecent burial. After examining the effects doctrine in different jurisdictions the author concludes that Regional Frameworks and Bilateral Agreements are the only solutions to this jurisdictional conundrum.


The landscape of the world economy has witnessed gradual yet marked progress in its growth as a result of globalization and liberalizations of various economies over the last three decades. This has resulted in a conspicuous and remarkable shift in the characteristic perception of the concept of sovereignty demonstrated in territoriality of jurisdiction. The intensification of competition has culminated in the mushrooming of a legion of private and non-state players in the world market.

The result of these changes is that the challenges facing international antitrust and competition law lie not only in the emergence of global markets and the increasing nationalization of business processes as manifested in mergers and acquisitions but more importantly in the profound and comprehensive changes to the regulatory framework, in particular considering that there is no international regulatory regime[1]. Despite the ongoing World Trade Organization (WTO) and International Competition Network (ICN) efforts, the currently dominating ‘regime’ in international antitrust is the non-coordinated extraterritorial application of national and regional competition laws by national and regional authorities, supplemented by discretionary inter-jurisdictional cooperation[2].

With the notification of Sections 43A and 44 of the Competition Act, 2002 (hereinafter referred to as ‘the Act’) the competition law of India comes into full force nearly a decade after its inception[3] but is still in its nascent stage in view of controlling anti-competitive activities taking place outside the territorial jurisdiction of India. The ‘Effects Doctrine’ allocates the competence to handle an antitrust case non-exclusively to every jurisdiction whose internal markets are affected by the case. In view of this, the Act has an extraterritorial reach based on the ‘effects doctrine’.

This lacuna was identified by the Supreme Court in the ANSAC[4] case in which it was held that under the Monopolies and Restrictive Trade Practices (MRTP) Act, 1969, the MRTP Commission could take action only against the Indian leg of restrictive trade practice[5]. The effects doctrine is an extended form of objective territorial principle that was mainly developed by American Courts in anti-trust cases wherein they asserted jurisdiction over acts of foreign nationals committed abroad but having effects in the American marketplace[6].

In this paper, I would be discussing the efforts of WTO in harmonizing the extraterritorial application of competition laws in terms of violating international laws and the claim of restrictive trade practices by the private parties before the international forum. Finally, examine the development of the effects doctrine in various jurisdictions.

Chapter 1

Masimo Motta defines the term ‘competition policy’ as “the set of policies and law which ensures that competition in the marketplace is not restricted in a way that is detrimental to society”[7]. This necessarily calls for an effective measure to regulate the competition laws in various jurisdictions. There have been many efforts by WTO in coordinating the extraterritorial application of national competition laws by the nations and its authorities. In view of this, it provides for the national treatment principle and an effective dispute settlement mechanism between the member countries.

Chapter 1.1: Principle of National Treatment

The principle of national treatment is incorporated in all the three main WTO Agreements with the virtue of subtle variations in each. The Most Favored Nation (MFN) treatment in juxtaposition with national treatment rule this is one of the most significant steps of the international organizations towards reconciliation of international trade and national competition laws among its members. Article III of the General Agreement on Trade and Tariffs (GATT) establishes national treatment in respect of “all laws regulations and requirements” to the extent that they affect the “internal sale, offering for sale, purchase, transportation, distribution or use of goods”.

This Article has been interpreted as encompassing not only the rules on their face, but also their de facto consequences[8]. Article III of GATT spells out to its Members to abstain from imposing restrictions on imports that are more than what is imposed on “like products” of national origin. The rule lobbies for favorable treatment of all goods regardless of their origin. The impact of enforcing such rules upon developed and developing nations alike is always an unsettling concern/matter of contention. It provides for the defense of equal competitive conditions within a market for national and foreign products[9].

Apart from the members applying their rules in a non-discriminatory manner it also provides that rules whether procedural or substantive is of no relevance. Although this rule does not imply any obligation on competition standards, it provides foreign private parties vis vis nationals with fair protection of their competitive interests within national markets. This assertion is confirmed through the acceptance and discussion of an Article III (paragraphs 1 and 4) claim in the Kodak non-violation competition dispute[10]. The principle of National Treatment annexes the principle of non-discrimination with its underlying object of ensuring healthy competitive conditions for all goods regardless of their supplementary attributes which are believed to bring about comity between national competition laws of its Members.

Chapter 1.2: WTO Dispute Settlement Understanding and Exhaustion of Local Remedies

International law can impose limitations to the ambit of domestic jurisdiction in one of the three ways: through treaty law, through recourse to general principles of law, or through customary law. At any rate, the starting point in order to define jurisdiction is domestic law[11]. There is exhaustion of local remedies rule, and individuals have no access to the international dispute settlement procedure[12]. The exhaustion of local remedies is a negative rule to prevent protection until remedies had been exhausted unsuccessfully. In other words, it places a restriction upon a nation to espouse claims of its nationals, at the first instance, before a forum other than one available locally. But it is also possible to waive this rule by a treaty.

International Court of Justice held in the case of Interhandel Switzerland v. United States that “the rule that local remedies must be exhausted before international proceedings may be instituted is a well-established rule of customary international law; before resort may be to an international court in a situation, it has been considered necessary that the State where the violation occurred should have an opportunity to redress by its own means, within the framework of its own domestic legal system.” [13] It is recognized rule that a claim will be inadmissible on the international plane unless the individual or corporation concerned has exhausted the remedies available to him in State which is alleged to be the author of the injury[14]. Internal remedies have to be exhausted before the initiation of an international dispute settlement, as is the case with diplomatic protection[15].

There is a clear withdrawal from the customary international law practice by GATT and WTO in following the principle of exhaustion of local remedies as a consequence of which a complainant need not pursue all the available domestic remedies before bringing its complaint before a WTO tribunal[16]. The provisions of the Dispute Settlement Understanding under the WTO Agreements do not explicitly mention any rule which hints at judicial restraint of any nature like that of the exhaustion of local remedies though it provides to clarify the provisions in accordance with customary rules of interpreting public international law. Nevertheless, provisions of both the Anti Dumping and Subsidies and Countervailing Measures Agreements suggest that exhaustion of the local remedy mandated under those Agreements is required before a request for the establishment of a WTO panel may be made to the DSB[17].

The consent to the WTO tribunal jurisdiction is given generally on accession to the WTO Agreements[18]. The WTO has compulsory and exclusive jurisdiction[19] over a dispute when Members seek the redress of a violation of obligations or other nullification or impairment of benefits under the covered agreements or an impediment to the attainment of any objective of the covered agreements, they shall have recourse to, and abide by the rules and procedures of the Dispute Settlement Understanding (DSU)[20]. There are treaty provisions in other treaties that enable international adjudication among states, or among private parties and the foreign government, without prior exhaustion of local remedies[21]. The WTO Agreements does not make prior exhaustion of administrative and judicial remedies at the national level a condition for recourse to the international WTO dispute settlement system[22].

As witnessed in the WTO Panel Report in the Panel Report, European Communities – Anti-Dumping Measure on Farmed Salmon from Norway (Salmon case)[23] arguments were put forth and the rule of exhaustion was thoroughly argued but not resolutely decided by the Panel. Also, the United States effectively withdrew its argument based on the rule of exhaustion of local remedies. Any dispute arising out of such an agreement would subject to the DSU under the WTO Agreements, as provided in Article 31(3) of the Vienna Convention on Law of Treaties (VCLT), 1969 with respect to the general rules of interpretation of treaties. A GATT Panel Report in the United States – Anti-Dumping Duties on Gray Portland Cement (Cement Case)[24], later, reiterated the same sentiments as the Salmon Case.

  • Restrictive business practice under WTO DSU

Governmental measures initiating restrictive business practices can be made a subject of the dispute settlement procedure if such conducts have the effect of impeding market access of foreign products or entry of foreign enterprises[25]. If there is no government involvement in restrictive business practice, the possibility that it is a subject matter of dispute settlement procedure of the WTO is remote[26]. All anticompetitive practices and abuse of dominance through horizontal or vertical agreements are determined by the national laws within the territorial jurisdiction of the country. These restrictive business practices are not a subject matter of the dispute settlement process of the WTO/GATT[27].

GATT was, and WTO Agreements are, government-to-government agreements involving products and services, not agreements between private parties per se, although private parties often have a profound interest in the obligations that other governments owe their government. The failure of private parties to exhaust local remedies, therefore, should not have a bearing on whether one government has acted in a manner inconsistent with its obligations to another government[28]. In the case of Switz. v. U.S., (Interhandel case) the court held that ‘the rule of exhaustion of local remedies applies not only in cases of espousal of private claims by the State in the context of classical diplomatic protection but also when the rights derived by individuals from treaties are at stake.’[29] This was also reiterated in U.S. v. Italy (ELSI case)[30].

Pursuant to the customary rules of international treaty interpretation as codified in Article 31 of the VCLT, international treaties must be construed taking into account “any relevant rules of international law applicable in relations between parties” (Article 31:3,c)[31]. The DSU under the WTO agreements provides for two types of complaints- Violation complaints (alleging the failure of another Member to carry out its obligation under a covered agreement)[32] and Non- Violation Complaints (alleging that Member has applied a measure that does not necessarily conflict with a WTO provision but that nullifies or impairs a benefit accruing directly or indirectly under a covered agreement or that impedes the attainment of an objective of a covered agreement)[33].

Under the Non-Violation complaint, a Member can refer the dispute to the WTO through Chapter V of the Havana Charter Article 46 which deals with restrictive business practices that contracting parties ought to prevent and sanction[34]. Although the Havana Charter never came into force, the dispute settlement provisions drafted for it were assumed in the General Agreement on Tariffs and Trade’s Article XXIII[35]. The failure of the International Trade Organisation does not affect the enforcement of this Article[36]. Therefore, in principle, private anticompetitive practices could be prosecuted in the WTO indirectly through GATT[37].

Also, Article 23(1)(c) states that, if a contracting party is denied any benefit under the WTO/GATT agreements due to the existence of “a situation”, it can utilize this Article for dispute settlement. The articulation of “a situation” in the provision assumes that there is no governmental measure or breach of an agreement. In the WTO, dispute settlement currently revolves around the concept of nullification and impairment of benefits rather than on violation of the treaty language[38]. The WTO is aimed at liberalization of trade and easement of market access among the member states. The beneficial effects of liberalization achieved through the WTO, The Uruguay Round, and previous international trade negotiations may be offset by restrictive business practices exercised by private enterprises[39]. Thus, as of now, such disputes are not subject to the jurisdiction of the WTO Dispute Settlement Board.

Chapter 2: Effects Doctrine under EU, US and Indian laws.

Under the Effects Doctrine, a State may assume jurisdiction when an act is committed in another State, by citizens or companies of other states, has effects in the former.40 This was accepted by the Permanent Court of International Justice in the S.S.Lotus[41] case. Back in 1909, in the case of American Banana Co. v. United Fruit Co.,[42] all the acts complained of were committed outside the territory of the United States, including the defendant’s alleged inducements of the Costa Rican government to monopolize the banana trade, the US Supreme Court, categorically denied jurisdiction over the issue on the basis of the traditional territorial principle.

The US has long applied the effects doctrine in the enforcement of anti-trust law, the primary authority deriving from the case of Alcoa Case[43]. The ALCOA case contains the classic statement of the ‘effects doctrine’ of the territorial jurisdiction of a state. Judge Learned Hand stated that it was[44] “settled law” that “any state may impose liabilities, even upon persons not within its borders which the state reprehends.”[45]It states that national authorities are entitled to prosecute any restrictive business practices, which affect competition in their jurisdiction, irrespective of their origin.

The effects doctrine is increasingly accepted and used to settle international cartel issues. The sufficiency of effects doctrine is also contested. Under the US legal system, the federal courts have jurisdiction over a defendant corporation if the corporation is incorporated or has its principal place of business in the state where the federal court sits.[46] A court has general jurisdiction over a resident corporation if the corporation’s contacts with the forum state are “continuous and systematic”.[47]

In the case of United States v Nippon Paper[48], the Supreme Court repeated that jurisdiction can be exercised over ‘foreign conduct that was meant to produce and did, in fact, produce some substantial effect in the United States’. With regard to jurisdiction over foreign anti-trust defendants, the locus classicus in the US is Hartford Fire Insurance Co. case[49], wherein a number of states and a private plaintiff sued the defendant companies, alleging that the insurance companies had violated Section 1 of the Sherman Act by conspiring to restrict the terms of coverage of commercial general liability insurance available in the United States. The court also clarified that “international comity” is not a bar to the court’s jurisdiction over a foreign defendant.

In Institut Merieux[50] case, the Federal Trade Commission took action in respect of the acquisition by Institut Merieux, a French company, of Connaught BioSciences, a Canadian company, because of perceived detriments to competition in the US in the market for anti-rabies vaccines.[51]

The European Commission has also stressed that it has recognized the ‘Effects Doctrine’ in the cases of Dyestuffs[52] and Woodpulp[53], though there is lack of any explicit provision in the Treaty of Rome under Articles 81 and 82 with regard to the scope of jurisdiction. In the sixth report on Competition Policy in 1977 the Commission restated its view, concluding that the Community Authorities “can act against restrictions of competition whose effects are felt within the territory under their jurisdiction, even if companies involved are locating and doing business outside the territory, and of foreign nationality, have no link with that territory, and are acting under an agreement governed by foreign law.”[54]

Also, without such an extraterritorial reach of the rules, transnational business entities could engage in restrictive business practices in a “twilight zone” where no state could fully exercise jurisdiction and yet the harmful effects of such restrictive business practices would be felt in one or more states.[55]

This doctrine is still in its nascent stage in India. Section 32 of the Competition Act of 2002 confers the powers over the Commission to inquire into the agreement referred in Section 3 that have been entered into outside India which has an appreciable adverse effect on the competition in the relevant market in India. This Section empowers the Commission to take jurisdiction over disputes taking place outside India if it produces an adverse effect within its territory.

The mechanism for controlling anti-competitive acts carried on by persons having the location of their operations at some place in India and are, therefore, directly subject to the territorial jurisdiction of Indian courts and tribunals. Thus, it is an evident inference that where there is conduct within the country and such conduct causes an appreciable adverse effect within the market of that country, then the Commission positively has jurisdiction to decide such cases.

Also, Section 14 of the MRTP Act stated that “Where any practice substantially follows within monopolistic, restrictive, or unfair, trade practice relating to the production, storage, supply, distribution or control of goods of any description or the provision of any services and any party to such practice does not carry on business in India, an order may be made under this Act, with respect to that part of the practice which is carried on in India.”

Declaring unlawful any agreement or practice and restraining the local enterprise that is a party to such an agreement is sufficiently effective to make the arrangement inoperative within the country enforcing its domestic law. In Haridas Exports v. All India Float Glass Mrfs. Association[56], the Supreme Court of India while dealing with the application of “effects doctrine” and the jurisdiction of the MRTP Commission held that “This ‘effects doctrine’ will clothe the MRTP Commission with jurisdiction to pass an appropriate order even though a transaction, had been carried out outside the territory of India if the effect of that had resulted in a restrictive trade practice in India.

Therefore, even though such an agreement had been entered into outside the territorial jurisdiction of the Commission but if it results in a restrictive trade practice in India then the Commission will have jurisdiction under Section 37 to pass appropriate orders in respect of such restrictive trade practice”. A very brief perusal of the laws in the US, EU, and India would clearly suggest the non-application of international law unless there is a distinct conflict of laws of two countries.


Two types of disputes are possible in case of international trade, a dispute between the member countries and the dispute where one or both the opposing entities are nongovernmental entities. On accession to the WTO, the member countries subject themselves to the exclusive jurisdiction of the WTO dispute settlement procedure and there is no necessity to exhaust local remedies before approaching the international forum. With the growth of privatization and globalization, many companies from foreign countries are striving to establish their mark outside their home country. Thus the forum provided by WTO solves only half the problem. As WTO agreements are government to government agreement, private party disputes cannot be the subject matter of the same.

Also, not all countries are members of WTO. These companies are subject to national laws under the national treatment principle. Thus the restrictive trade practices by these private entities are not the subject matter of dispute under the WTO as the only member can refer the dispute to the WTO DSB unless the member country espouses the claim of the private entity before the forum. The only defense to escape from being prosecuted under the national laws can be the argument of forum nonconveniens. It is pertinent to point out at this juncture that the Central Government can exempt the application of the act in the interest of the public or because of any obligation assumed under a treaty with any country or if the entity performs any sovereign function on behalf of the government.

In light of the theme of the article, it indicates the failure of WTO along with other international organizations such as OECD and UNCTAD to try and bring about a common framework for the resolution of disputes. The existing guidelines, rules are ill-equipped to address such issues. As it is very clear from the fact that Havana Charter did not come into force, the WTO DSU will not cover the disputes of private anticompetitive practices. Thus, a multilateral system is not a solution for this jurisdictional conundrum. The only viable option as of now would be Regional Frameworks and Bilateral Agreements among the countries.

Formatted on 14th February 2019.

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