Janus-Faced Competition Policy: For or Against FDI?

By Sergio Mariotti, Department of Management, Economics and Industrial Engineering, Politecnico di Milano, Milan, Italy 


The dark side of globalisation has become visible in recent years, unfolding a series of toxic effects: uneven development among countries and regions of the world; imbalances and instability in the global order; social inequalities among peoples; and economic, political and military crises that are slowing down the world economy and opening up prospects for much lower growth than in past decades. Contextually, we are witnessing rampant “global protectionism” by nation-states pursuing policies to defend their domestic economy in the name of their sovereignty and the supposed superior interests of the people.  

Compared with traditional protectionism, global protectionism is an articulated, adaptive and more powerful system, see here: (i) the scope of protectionism is expanded beyond trade restrictions to include restrictions on capital movement, foreign direct investment (FDI), offshore sourcing, migration; (ii) such forms of protection include traditional ones—tariffs, quotas, non-tariff barriers—but also subsidies, public procurement, industrial policies, the creation of national champions, the promotion of state-owned enterprises, finance measures, health and safety concerns; (iii) the protection sentiment relies on both economic weakness (as in the past) and economic strength (e.g., commodity exporters who leverage on their protected economic rent to benefit the national economy, such as Russia for gas and oil); (iv) the pressures come from local producers, but also from national leaders, industry bodies, consumer association, trade unions; (v) selective strategic approaches are followed to maximize the benefits of globalization, but also to avoid the costs; (vi) the geographical scope of protectionism extends to all the developed and emerging countries. The “state as strategist”, cemented by economic patriotism and national security, is the governing actor in the new system of global protectionism. 

In this context, competition (antitrust) policy (CP) seems to have become one more weapon at the disposal of nation-states to exercise more or less hidden control over international transactions affecting the domestic economy. In particular, the control concerns FDI, thus going hand in hand with the foreign investment screening regulations increasingly adopted around the world. In Competition policy in the new wave of global protectionism. Prospects for preserving a FDIfriendly institutional environment, I analysed the reasons, forms and evidence associated with this phenomenon. Below is a summary of the main points. 

Competition policy as weapon in the protectionist battle

CP is a two-faced Janus. A basic principle guiding it is to ensure that competition in the marketplace is not restricted in a way that is detrimental to the economy and society. In the international context, CP aims to establish a level playing field for all investors, domestic and foreign, through enforcement of law by authorities that in most countries are formally independent of the state. As scholars and practitioners point out, effective implementation of this goal is a key factor influencing the location of FDI by removing barriers to market entry and impediments to trade and investment. However, as the antitrust law leaves room for discretion in enforcement, it can be abused as a barrier to investment and intentionally manipulated to prevent FDI. Thus, its contradictory nature exposes the CP to capture by governments and lobbies, and is resolved one way or the other depending on economic and political trends that take hold internationally. After decades of massive pro-market reforms around the world, the pendulum of history is now swinging toward state interventionism, through actions and legislative measures that indicate governments’ propensity for national competition authorities (NCAs) to move away from their institutional role of defending free competition to protect domestic businesses. 

In this light, CP can become a favoured weapon in the battle of global protectionism over other national policies (e.g., regulatory policies). Indeed, while regulation must adopt fairly crystalline ex-ante rules to remedy market failures, CP acts through “discretion-laden, post hoc muddy rules”, see here. In other words, CP is a flexible tool, but one that leaves room for various forms of NCA capture and strategic operations to discriminate against particular industries, firms and individuals. Especially with regard to FDI, CP offers an opportunity to circumvent the constraints and protracted litigation that multilateral institutions (WTO in primis) and the existing network of international agreements on trade and investment still manage to impose on individual countries, making it difficult for them to act protectionistically. The absence of supranational jurisdictional bodies with the power to introduce binding global CP rules and the power to prevent and sanction is the main explanation. Indeed, efforts have been made to informally harmonize international competition laws. For example, the International Competition Network (ICN) was established to encourage cooperative action on CP principles. However, ICN provides recommendations on best practices and exert peer pressure on deviant regimes, but can do nothing to curb protectionist behaviour by countries. The lack of international enforcement of competition law means that competition authorities are subject only to national jurisdiction. Even when regional jurisdictional bodies are in place, there remains a robust autonomy of individual authorities. In the EU, a decentralized enforcement system obliges NCAs to apply European antitrust law but, at the same time, leaves them a certain degree of freedom in devising the best enforcement procedures according to the specific characteristics of their jurisdictions. Thus, if national jurisdictional autonomy is added to the dual-faced prerogatives of CP, it follows that NCAs are an instrument of economic and political power that national governments can easily abuse to promote protectionist policies and deter inward FDI. 

Evidence from the field 

Evidence of the CP tendency toward protectionism can be found in countries with populist governments. Maciej Bernatt (see here) examines the relationship between populism and antitrust in Poland and Hungary. He observes that the policies put in place have a strong nefarious impact on NCAs: (i) the limitation (almost abolition) of their independence; (ii) the decrease in human and financial resources allocated to their operation; (iii) the overall reduction in the strength of enforcement, especially in favour of large domestic and state-owned firms; and (iv) the government’s discretionary power to exempt certain transactions from merger control on grounds of strategic importance to the national interest. 

However, the most striking signal about the possible misuse of CP comes from China and the US. In her recent book Chinese antitrust exceptionalism, Angela Zhang illustrates how China has turned competition law into a powerful economic weapon and explains its strategic application during the Sino-American tech war through numerous case studies. Zhang also informs about the vast administrative discretion possessed by the Chinese government, showing how agencies can even exploit the media to pursue hostile enforcement. 

In the US, the New Brandeisian movement claims for the CP a task that goes beyond the consumer-welfare-standard to embrace a public-interest-standard that borders on the political domain with reference to social goals such as redistribution, the environment, unemployment, wage growth, privacy and data security, and national strategic independence. This approach has been adopted by the Biden Administration, which has stated that its central goal is to ensure that antitrust laws in the US are vigorously enforced to address these social problems. At the same time, Lina Khan, a prominent New Brandeisian, assumed the chairwomanship of the Federal Trade Commission. Beyond intentions, the promotion of “socially responsible” agencies and the creation of an antitrust position in the White House have a strong potential to undermine the independence of the FTC. As Jean Tirole points out in a recent note, while governments are typically multi-mission actors, delegating specialised missions to independent agencies allows for greater effectiveness in pursuing targeted objectives, “[but] independence comes with duties. The agencies do not choose their mission and the broad lines of what is expected from them is clearly specified: independence requires limited and mandated powers. The expansion of missions to the political domain therefore exposes agencies to the loss of independence”. 

A to-do-list for governments 

In view of this development, a to-do-list must be formulated for national governments and authorities to preserve a FDIfriendly institutional environment. In particular, the risk of capture would be reduced if national governments acted to return CP back to its core aims. Namely: 

i. the explicit abandonment of all non-competition goals introduced over time through both legislative measures and practice is a crucial step in preventing the misuse of CP to further national lobbying interests.  

ii. improvements would be welcome to reorient the rule of reason closer to rule-of-law ideal principles, i.e.: prospectivity, accessibility and clarity, to prevent NCAs from arbitrarily exercising their power; equal protection for all without discrimination; predictability so that regulated actors can reasonably anticipate what actions would be prosecuted and shape their behaviour accordingly; and general application and consistent implementation (laws must be able to be complied with).  

iii. governments should strengthen the powers conferred to NCAs (investigations and sanctions) by increasing the resources available to them and encouraging the use of tools that facilitate their action, such as private enforcement, leniency programs, commitments, and settlements.  

All of these measures are at the discretion of national governments, and their implementation would help increase the credibility of CPs and the confidence of foreign investors in the lasting establishment of a non-discriminatory business climate. 

Needless to say, the adoption of these measures depends on symmetry of behaviour among countries, so that the limitation of interventionist policies by one government is matched by a similar commitment by other governments. To avoid the prisoner’s dilemma in an uncooperative environment such as that of current international relations, governments should be aware of the domestic costs of strategic use of CP, i.e., the risks to their own economies of a generalized application of distorted competition laws. Moreover reciprocal commitments are rather ineffective when behaviours are difficult to observe, due to the complexity of situations and policies brought to bear, see here 

The answer to these difficulties lies in identifying a credible international forum for policy coordination among countries. Ideally there should be a supranational jurisdictional body with the power to introduce binding global rules on competition and antitrust laws and to prevent and sanction, so as to guarantee individual countries from other countries’ opportunistic resort to disguised protectionism. Realistically, this model is currently unworkable. Alternatively, soft coordination, such as that of ICN, OECD and UNCTAD, may help, but moral suasion against deviation is not sufficient. And, given the failure of previous attempts, negotiating competition enforcement under the WTO umbrella also appears to be ineffective. 

To overcome the impasse, some scholars point to bilateral and regional free trade agreements (FTAs) as a promising way to try to bridge the gap, see here. It has been noted that there has been an increase in the number of FTAs containing chapters on competition law, or at least competition-related rules, although the dispute settlement mechanisms implemented have hardly ever addressed competition provisions. In particular, FTAs may contribute to the convergence of competition law through “localized harmonization”. The latter takes advantage of the greater affinity and shared background among bilateral and regional partners in order to mitigate the problem of clashes in competition law. Achieving satisfactory levels of convergence would create the conditions for a future revival of international efforts for a multilateral competition agreement.  


The to-do list challenges the reform capabilities of national and international institutions. No one knows if and to what extent its content will be implemented. Certainly, CP is an issue that will have a significant impact on international economic and political communities in the years to come. The hope is that a debate on the CP-FDI relationship will open up to make up for the scant attention paid so far.

Explore more of Professor Mariotti’s research on this topic here.

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