Silviase/jgov_v1.4_full_ann huggingface dataset:
why governments tend to be, at best, revenue maximizers, whereas the private firms tend to be (or should be) profit maximizers.

In the transition from SOEs to private ownership, public sector restraints must also be proscribed as part of competition policy in regulated industries. Public sector restraints cover the behavior of government-owned companies, and the impact of regulatory policies and laws that distort competitive markets, such as state aids. As Tim Muris, the former Chairman of the US Federal Trade Commission (“FTC”) argues:

Attempting to protect competition by focusing solely on private restraints is like trying to stop the flow of water at a fork in a stream by blocking only one of the channels. Unless you block both channels, you are not likely to even slow, much less stop, the flow...The same is true of antitrust enforcement. If you create a system in which private price fixing results in a jail sentence, but accomplishing the same objective through government regulation is always legal, you have not completely addressed the competitive problem.⁴

Thus, effective regulated industry oversight requires the elimination of public sector restraints. $ ^{5} $

Public sector restraints are addressed in the competition laws of most countries. The only major developed market where there is a specific competition exception to state action is the US market. In large part, this is due to the particular history of the United States, where there was much less of a history of state intervention in the economy than one finds in other countries. Under US law, the state action exemption has its juridical basis in the Parker v. Brown decision. In Parker, the Supreme Court rejected the contention that the California raisin proration program violated the Sherman Act. $ ^{6} $ The Court found that the prorate program was not created to operate by force of individual agreement or combination, but rather by the legislative command of the state and did “not intend to operate without that command.” $ ^{7} $ Therefore, the Court found that the law did not violate the Sherman Act because the Sherman Act was not created to limit the ability of state officials or legislatures to regulate commerce. The Court buttressed this holding in the sovereignty accorded to state legislatures under the Constitution, which could only be limited by Congress. The Court did, however, place a limitation on the exemption by stating that it did not grant immunity to people or corporations who violated the Sherman Act under the guise of a state grant of authority. $ ^{8} $

In order to qualify for immunity under the Parker standard, “the challenged restraint must be clearly articulated and affirmatively expressed as state policy,” and “the policy must be actively
scope of Article 87 (1). The court in Altmark therefore had three opinions on the same issue (and countless articles). The judgment was clearly influenced by AG Jacobs' opinion (in GEMO) without however using the latter's terminology of a "direct" and "indirect" link. After Altmark, the court consequently applied the 4-pronged "Altmark test" in GEMO and Enirisorse. In Enirisorse (where an Italian company challenged a port tax because the proceeds went to a public undertaking), the ECJ found on the basis of the facts of the case that the Altmark test was not met, i.e. the measures were State aid. The case also discussed whether exclusive or special rights had been entrusted in the public undertaking but this question was dealt with separately from the question of application of State aid law. We therefore see that the GEMO and Enirisorse cases are examples of how the Altmark conditions are interpreted in a very strict fashion.

In considering what services are in the general economic interest, and how the funds that support them should be evaluated, several key facts have emerged: (1) Has there been a purchase of goods by the state above market price? (2) Is there a financial advantage to certain undertakings (i.e., if all the alleged aid does is offset the cost of discharging USO, it is not a real advantage to the undertaking that benefits from it). Applying this to regulated industries, one can see that there needs to be a clear link between the state financing and the USO itself, and the USO must be clearly defined (and overcompensation must be avoided). Interestingly, under the EU postal directive, it is recognized that deregulation will lead to an increase in demand which will partially solve the USO issue. $ ^{23} $ The Directive notes that the postal compensation fund contemplated in the directive was state aid which had to be notified, but we should note that the Directive was pre-Altmark and therefore the Altmark criteria would now be dispositive.

State aid rules are particularly important for countries that have had a history of state ownership and import substitution, but also for all sectors where there is a transition from regulation to competition. In such settings, governments are prone to use such aids in a market system because this has been the traditional form of state intervention. However, as developing countries become market economies, such aids have distorting effects that create costs to consumers and must be avoided.

#### ii U.S. State Action Exemption

The US is behind the curve in terms of disciplining public sector restraints of trade that harm competition. The issue turns on the approach to universal service obligations. As we have seen, in the EU, the carve-out from state aids disciplines for services in the general economic interest is limited by case law to cases where there is a direct linkage with clearly defined universal service obligations. US state action exemption law is approaching what we see in the EU with the market participant exemption to the state action exemption (i.e., a state acting as a market participant is subject to the same rules as a private participant, see above).
Generally under U.S. law, when a state antitrust law is inconsistent $ ^{24} $ with federal antitrust law, the state law is preempted. If the state law, however, falls into the “state action” exemption $ ^{25} $ implicitly created by antitrust law, then the state law is not preempted. $ ^{26} $ Under the state-action exemption doctrine, certain actions of state and locals government are immune from the federal antitrust laws even though they would not survive a preemption analysis. $ ^{27} $ The state-action exemption was set out by the Supreme Court in Parker v. Brown. $ ^{28} $ In Parker, the Supreme Court rejected the contention that the California raisin proration program violated the Sherman Act. $ ^{29} $ The Court found that the prorate program was not created to operate by force of individual agreement or combination, but rather than by the legislative command of the state and did “not intend to operate without that command.” $ ^{30} $ Therefore, the Court found that the law did not violate the Sherman Act because the Sherman Act was not created to limit the ability of state officials or legislatures to regulate commerce. $ ^{31} $ The Court buttressed this holding in the sovereignty accorded to state legislatures under the Constitution, which could only be limited by Congress. $ ^{32} $

The Court did, however, place a limitation on the scope of the state-action exemption. The state-action exemption did not grant immunity to people or corporations who violated the Sherman Act under the guise of a state grant of authority. $ ^{33} $ The exemption also does not apply when the state or municipality becomes a party in a private agreement or combination that restricts trade. $ ^{34} $ Since the California statute set production limits but did not authorize private individuals or corporations to do so, the Court found that it was consistent enough with the Sherman Act to avoid preemption under the state-action exemption. $ ^{35} $
In order to qualify for immunity under the Parker standard, “the challenged restraint must be clearly articulated and affirmatively expressed as state policy,” and “the policy must be actively supervised.” $ ^{36} $ In Midcal, the Court struck down a California statute because, although the price fixing restraint was clearly expressed as state policy, the state neither set the prices nor regulated the reasonableness of the price schedules. $ ^{37} $ Had California’s program completely controlled the distribution of liquor within the state, that comprehensive regulation would be exempt from the Sherman Act under the state-action doctrine. $ ^{38} $

State legislation that appears inconsistent with federal antitrust law can survive preemption if it qualifies as a state-action exemption. $ ^{39} $ A restraint unilaterally imposed by a state government does not qualify as a violation of the Sherman Act just because it has a coercive effect upon those who must obey the law. $ ^{40} $ Some restraints imposed by a legislature, however, are not unilateral but a hybrid because they are enforced by private regulatory schemes. $ ^{41} $ If the statute grants private parties a degree of regulatory power, that statute is vulnerable to scrutiny under the Sherman Act. $ ^{42} $ In order for the state-action exemption to apply, there must be an express or strong implication of the intent of the state to remove certain markets from antitrust scrutiny. $ ^{43} $

Clearly, in the United States, any set of disciplines that purported to apply competition policy to public sector restraints would have to grapple with the state-action exemption. Some precedent already exists for competition provisions in free trade agreements, which does apply some discipline to public sector restraints. These may be found in Chapter 15 of NAFTA, $ ^{44} $ in Article VIII of the General Agreement on Trade In Services (“GATS”) $ ^{45} $ or in the competition safeguards listed in the WTO Reference Paper on Basic Telecommunications. $ ^{46} $

Chapter 15 of NAFTA recognizes the importance of maintaining an effective competition policy in the Contracting Parties so as to promote trade and is an example of existing competition provisions that deal with public sector restraints at a regional level. In Article 1501, it states:

Each party shall adopt or maintain measures to proscribe anti-competitive business conduct, and shall
take appropriate action with respect thereto, recognizing that such measures will enhance the fulfillment of the objectives of this Agreement. To this end the Parties shall consult from time to time about the effectiveness of measures undertaken by each Party. $ ^{47} $

GATS addresses competition issues that face public sector restraints at a global level. Article VIII addresses the issue of monopolies and exclusive service suppliers and specifically provides the following:

Where a Member’s monopoly supplier competes, either directly or through an affiliated company, in the supply of a service outside the scope of its monopoly rights and which is subject to that Member’s specific commitments, the Member shall ensure that such a supplier does not abuse its monopoly position to act in its territory in a manner inconsistent with such commitments.

The Council for Trade in Services may, at the request of a Member which has a reason to believe that monopoly supplier of a service of any other Member is acting in a manner inconsistent with paragraph 1 or 2, request the Member establishing, maintaining or authorizing such supplier to provide specific information concerning the relevant operations. $ ^{48} $

The WTO Reference Paper on Basic Telecommunications is yet another international agreement that includes competition provisions and bonds the U.S., notwithstanding the state action exemption. This agreement requires Members to maintain measures that prevent major suppliers from engaging or promoting anti-competitive practices. $ ^{49} $ Furthermore, it includes a list of anti-competitive practices that should be particularly regulated. These practices include engaging in anti-competitive cross-subsidization, using data obtained from competitors in an anti-competitive manner, and not making available to other service suppliers technical information about important facilities and commercially relevant information which are needed for them to adequately provide services. $ ^{50} $

All of these agreements bind, inter alia, the United States, and all have been successfully concluded with extensive U.S. participation.

Japan’s competition law, the Anti-Monopoly Act (the “AMA”), does not currently have Article 87-like provisions. Japan does have an Unfair Competition Prevention Law, which addresses
issues such as trade secrets and intellectual property rights, and is administered by METI. Either (or both) of these laws could include Article 87-like provisions (refined and adapted for the Japanese context). Such provisions must adequately deal with the USO.

### b. Cross-Subsidization

All businesses cross-subsidize. Not all of this activity is harmful to consumers. Indeed, many forms of cross subsidization are beneficial to consumers. Cross-subsidization is only harmful if it is anti-competitive. It is anti-competitive if it could lead to the elimination of competitors and then the increase in prices to supra competitive levels. One has to be extremely careful in ensuring that the discipline of competition is only used when behavior is genuinely anti-competitive and leads to consumer harm. The ordinary test of what is anti-competitive behavior is determined by an evaluation of whether the low price charged (the price in the market which is being subsidized by the higher price in the non-competitive market) is indeed below some measure of cost (which is required in determining whether there is the potential for anti-competitive pricing in the future). The theory is based on the fact that there can only be one reason for a price below cost, and that is to knock out competitors and recoup lost profit later.

This test was originally outlined in Brooke Group v. Brown & Williamson. $ ^{51} $ The Brooke Group test has to be modified in the case of cross-subsidization by governmental entities or those that have legacy government ownership. For companies that are government owned, the key issue is that because governments are not profit maximizers the element of the Brooke Group test that requires lost profits to be capable of being recouped is not as important. Governments are at best revenue maximizers (and even this is doubtful – see USPS sponsorship of US cycling team, even though they already have a letter mail monopoly). Therefore, if there is below cost pricing, we would argue that this is prima facie evidence of anti-competitive cross-subsidization. Indeed the European Union cases on this issue assume anti-competitive cross-subsidization by governments, even absent a possibility of recoupment of lost profit. We will discuss the issue of costs and cross-subsidization in more detail after the case studies.

We analyze this issue in greater detail in the context of postal reform.
2. Independence of sectoral regulator. What role will the sectoral regulator have? What does independence mean? Frequently, independence means more than simply not being part of a ministry. Independence is a measure of the real ability of the regulator to face down the regulated entity in a non-cooperative game. It relies on credibility and political power.

3. Interaction. How is it envisaged that the competition regulator will interface with the sectoral regulator? What weight will be given to the views of the competition agency?

These studies and reports can be used to educate legislators on the key issues that impact postal privatization and the dangers of turning a public monopoly with regulation into a private monopoly without regulation. The purpose of this is to ensure that legislators who craft a particular framework or regulatory design understand the consequences of their actions.

### 8. Global Competition Advocacy

Competition advocacy is practiced by a number of countries throughout the world. We illustrate practices in the United States and Mexico, both of which have vigilant competition advocacy systems to promote consumer welfare and economic efficiency. These countries have noted success in competition advocacy and we illustrate their guiding principles.

As we discussed earlier, the United States DOJ is guided by four principles in its competition advocacy:

1. To eliminate unnecessary and costly existing regulation;

2. To inhibit the growth of unnecessary new regulation;

3. To minimize the competitive distortions caused where regulation is necessary by advocating the least-anticompetitive form of regulation consistent with the valid regulatory objectives; and

4. To ensure that regulation is properly designed to accomplish legitimate regulatory objectives. $ ^{58} $

These principles serve to guide US competition regulators to limit the effects of regulation that hurt consumers. In this sense, the approach that a competition agency must take in analyzing the need for new or continued regulation is to focus attention on the comparative benefits of free competition, on the one hand, and the proposed method of regulation on the other to prevent regulations that would lead to an anti-competitive result. To the questions that the DOJ asks, we would add an additional question:

“Is regulation based on normative principles of efficiency and consumer welfare, or is it designed to favor certain competitors at the expense of consumers?”

Like the United States, the Mexican Federal Competition Commission (“CFC”), has adopted a proactive role in advocating for the integration of competition policy and regulatory reform. The CFC issues opinions on the impact of proposed regulations on competition conditions that prevail in a regulated market and applies competition policy to specific institutional, legal and economic
conditions in specific regulated sectors that characterize each regulated market. Recent examples of the CFC's efforts include involvement in the drafting of the revisions to the telecommunications law and issuing opinions regarding natural gas regulations.

We now look at two regulated sectors which are of great importance to the competitiveness of Japanese economy. As mentioned before, the communications infrastructure is the key to an efficient and globally competitive business sector. Many of the gains of the New Media Economy would be lost if a competition communications infrastructure is not in place.

### 9. Telecommunications

Competition can be stifled through a dominant participant exerting its market power and other anti-competitive practices to extinguish weaker participants and consequently control the market. Therefore, it is important that the competition agency have some power to review anti-competitive conduct in order to protect consumers. When an agency does not have the power to enforce its decisions, it is incapable of preventing ongoing abuses. The case study of Teléfonos de Mexico SA (“Telmex”) in Mexico demonstrates this.

### a. Teléfonos de Mexico

After its privatization, Telmex’s activities were regulated under the 1990 Telmex Concession, which allowed for competition in certain sectors, in particular the international long-distance sector, while other sectors such as inter-urban and local were insulated from competition. Telmex was to be regulated in this manner until it could be shown that Telmex had a dominant position in any of these sectors under the Mexican competition law. At this point the regulatory environment changed and an alternative regulatory system was required. In 1998, the CFC did rule that Telmex was dominant in five markets where there was inadequate competition. This ruling was largely ignored by Cofetel (the telecoms regulator), who continued to apply the 1990 Telmex Concession. The problem was worsened, because the CFC had no power to intervene in the decisions of other regulators. The real problem was that cross-subsidization was allowed by the 1990 Telmex Concession since every time foreign entrants lowered prices in the competitive international long-distance segment, Telmex was able to price at predatorily low levels in this sector, and recoup its losses by supra-competitive pricing in the local markets where there was inadequate price competition. As the head of the CFC observed, “Regulation has not been able to diminish the dominance of Telmex, and is not being applied concretely. There are a lot of points that are still not applied.” $ ^{59} $ The cure to this problem in Mexico would have been that the CFC had greater power to enforce its judgments.

This has resulted in a US request for consultation to the WTO regarding Mexico’s violation of several GATS articles in the Telmex situation. The complaint, filed August 29 $ ^{th} $ of 2000, stated five main complaints: $ ^{60} $

1. Mexico enacted and maintained laws, regulations, rules and other measures that deny or limit market access, national treatment, and additional commitments for service suppliers
seeking to provide basic and value-added telecommunications services into and within Mexico;

2. Mexico failed to issue and enact regulations, permits, or other measures to ensure implementation of Mexico’s market access, national treatment, and additional commitments for service suppliers seeking to provide basic and value-added telecommunications services into and within Mexico;

3. Mexico failed to enforce regulations and other measures to ensure compliance with Mexico’s market access, national treatment, and additional commitments for service suppliers seeking to provide basic and value-added telecommunications services into and within Mexico;

4. Mexico failed to regulate, control and prevent its major supplier, Telefonos de Mexico (Telmex), from engaging in activity that denies or limits Mexico's market access, national treatment, and additional commitments for service suppliers seeking to provide basic and value-added telecommunications services into and within Mexico; and

5. Mexico failed to administer measures of general application governing basic and value-added telecommunications services in a reasonable, objective, and impartial manner, ensure that decisions and procedures used by Mexico's telecommunications regulator are impartial with respect to all market participants, and ensure access to and use of public telecommunications transport networks and services on reasonable and non-discriminatory terms and conditions for the supply of basic and value-added telecommunications services.

Telmex prevented US suppliers from supplying cross-border telecoms services, from obtaining competitive rates for termination in Mexico, and from leasing lines. Termination rates are the rates charged for calls made from abroad whose final destination is Mexico. A USTR press release highlights two problems with call termination in Mexico: price, as well as the mechanism for determining the price of call termination. The structure in Mexico allows for only the dominant carrier - who has an incentive to keep prices as high as possible - to negotiate an international termination rate. All other carriers in the country must accept this rate, protecting the rate from competition. This has resulted in termination costs in Mexico being 19 cents a minute, whereas in the US, Canada and Chile, termination costs are six cents a minute. $ ^{61} $

Another serious problem mentioned in both the WTO filing and press release concerns interconnection. By their nature, telecom services have network characteristics. The more significant the network characteristic is, the more consumers will be attracted to the firm with the largest market share. For this reason, interconnection is crucial. $ ^{62} $ On certain occasions, Telmex has outright refused to provide interconnection. Even where it has provided for interconnection, however, the situation is less than ideal. While interconnection rates in the US, Canada and Chile are at half a US cent, Telmex charges 4.6 cents in Mexico. $ ^{63} $