Photo illustration by John Lyman

World News


International Competition Doesn’t have to be so Messy

Thinly veiled protectionism reigned supreme in 2022. This year, the European Union enacted the Digital Markets Act (DMA), targeting successful U.S. companies in the name of competition. This act raises costs for major U.S. firms by increasing the number of rules and regulations they must follow. Harmful laws like the DMA are precisely why there needs to be international cooperation on competition policy.

The U.S. should lead the Organization for Economic Cooperation and Development (OECD) in establishing a harmonized framework for competition policy. Current free trade agreements on competition policy are not flexible enough for our globalized economy. A plurilateral framework on competition policy would help the U.S. economy, eliminate issues of procedural fairness and inconsistent decisions, and improve diplomatic relations.

Current competition policy is unnecessarily complicated and inefficient. Free trade agreements, such as the one between the U.S., Mexico, and Canada (USMCA) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), have competition clauses outlining the need for cooperation, transparency, and fairness. They are a start, but not good enough. There’s beginning to be a “spaghetti bowl” effect, where policies become increasingly entangled and provisions in different trade agreements conflict with one other. Even between the USMCA and CPTPP, there are different definitions of a state-owned enterprise (SOE). Without change, businesses will continue to face increasing obstacles when operating overseas.

Because there’s no unified international approach, competition policy agencies come to conflicting decisions. For example, U.S. and EU competition agencies permitted the Seagate/Samsung merger unconditionally; the competition agency of China required they wait for a year and then apply for a waiver of the hold-separate commitments. Since 1995, divergent decisions have impacted cross-border merger deals valued at over $100 billion.

A harmonized framework for competition policy has several benefits.

First, it helps the U.S. economy. It lowers barriers to market access and increases consumer welfare. Firms entering a market with SOEs, or other government-supported businesses, face higher fixed costs as they face unfair competition. The result is higher prices for consumers, decreasing welfare. Agreement on competition policy levels the playing field and ensures these firms can compete fairly while maximizing welfare.

Second, it enhances the U.S. image of cooperation. For over a century, the U.S. has long been a proponent of global cooperation. Working through the OECD to change policy demonstrates that the U.S. prioritizes its commitment to increasing welfare, transparency, and cooperation worldwide.

Third, it results in better diplomatic outcomes. Each country has its own competition agency in charge of regulating and enforcing antitrust laws. As with the Seagate/Samsung merger, these agencies often come to conflicting decisions. With the World Trade Organization at a standstill, there is currently no international body capable of trade dispute resolution. A plurilateral, harmonized approach through the OECD will reduce conflicts between long-standing allies.

The elephant in the room is China. How would this harmonized framework through the OECD work, if one of our largest trade partners is not part of it? China is not a member state of the OECD because its economy is not market-based. However, China is a key partner of the OECD and collaborates regularly with the OECD’s Development Assistance Committee. The OECD has 38 member states; the majority are high-income, developed, and major actors in the global economy. If this framework is established, it signals to the world, including China, that cooperation is key, and this framework is the new norm.

A harmonized competition policy framework through the OECD is vital to increasing U.S. consumer welfare and market access, eliminating issues on procedural fairness and conflicting decisions, and improving diplomatic relations. Although the DMA has already been signed, it is not the end of international cooperation in anti-trust law. Let’s not fight fire with fire. Let’s negotiate a better outcome on competition policy. In a time of economic uncertainty, let’s cooperate to advance prosperity and peace.