RESTRICTED
WORLD TRADE WT/WGTCP/W/28
15September 1997
ORGANIZATION(97-3653)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
COMMUNICATION FROM SINGAPORE
Thefollowing communication, dated 10September, hasbeenreceived from thePermanent
Mission oftheRepublic ofSingapore withtherequest thatitbecirculated toMembers.
_______________
Introduction
1. Recognition ofthetrade andcompetition policy interface isnotnew. Thegrowing andrapid
integration oftheworld economy through increased tradeandinvestment flows has,however, brought
arenewed focus. Thishasessentially beentheproduct ofatwo-fold effect ofincreased economic
integration:
(a) Globalization hassomewhat obfuscated thedistinction between tradeandcompetition
policies. Increasing economic interdependence hasresulted intheadoption ofglobal
business strategies. Inresponse, governments havehadtore-think thenature, scope
andapplication ofthepolicies aimed atregulating business. Policy boundaries are
nolonger allthatclear.
(b) Thespillover effects ofbothsetsofpolicies havebecome more pronounced, throwing
upahostofnewchallenges forpolicy makers.
2. Against thisbackdrop, theWorking Group 'sconsideration ofthe"relationship between the
objectives, principles, concepts, scope andinstruments oftradeandcompetition policies"1isbothtimely
andnecessary.
3. Thispaper isintended tobeaninitial contribution tothediscussion. Itisneither meant to
beexhaustive initsapproach norprescriptive. However, thepaper does:
(a) focus onthetrade andcompetition interface from theperspective ofthemultilateral
trading system andtheWTO;
(b) attempt topin-point some ofthekeyconcepts, issues andproblems thattheWorking
Group should bearinmind initsdeliberations; and
(c) highlight some ofthepolitical economy considerations thatunderpin thecomplex
interface between trade andcompetition policy.
1Checklist ofissues suggested forstudy -non-paper bytheChair.WT/WGTCP/W/28
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Objectives andscope
4. Trade andcompetition policies havetheirgenesis insimilar objectives. Inbroad terms, they
aimtopromote competition withaviewtomaximising welfare andachieving anefficient allocation
ofresources. Acombination ofpositive measures aswellasremedies against inimical behaviour are
employed toachieve these objectives. There are,however, keydifferences intheirorientation which
often underpin theirinterface.
5. Competition Policy refers tothegamut ofgovernment policies intended toaffect thecompetitive
environment within which firms operate inaneconomy.2Itisdirected attheidentification andregulation
ofthose structures, entry restrictions andfirmbehaviour which arrest thecompetitive process. In
particular, competition policy aimstopromote theefficient functioning ofdomestic markets soasto
maximise consumer interests. Thus, broadly, itsfocus istwo-fold: (a)domestic transactions; and
(b)thewelfare gains accruing toconsumers through lower prices, greater variety etc.3
6. Conversely,tradepolicyprimarilyregulatescompetitionamongfirmsacrossnationalboundaries.
"Itisthecomplete framework oflaws, regulations, international agreements andnegotiating stances
adopted bygovernments toachieve legally binding market access fordomestic firms."4Although
macroeconomic pluses suchasemployment, rising realincomes andrising living standards arekey
objectives5,trade policy istypically implemented tofurther theinterests ofproducers andtoenhance
export earnings. Consumer interests often remain asecondary concern. Trade policy hasalsoa
prominentcountervailingroleinbalancingthepoliciesofothercountries.Forexample,traderestrictions
canbeusedasbargaining chips toextract concessions from other countries ortoforce countries to
honour theirinternational obligations.
Interaction
7. Bothsetsofpolicieshavesubstantialreasonsforbeingconcernedwithoneanother.International
tradeserves tosharpen competition inthedomestic market place. Aliberal trading regime helps ensure
thatdomestic producers donothaveacaptive market andareforced toadopt themostefficient means
ofproduction andmarketing tocompete withforeign enterprises.6Italsofacilitates theefficient
allocation ofresources across countries onthebasisofcomparative advantage. Inthissense, aliberal
trading regime enhances theability ofdomestic competition policy toachieve itsobjective ofallocative
efficiency. Conversely, trade barriers which shelter particular domestic industries have, incertain
circumstances, anti-competitive effects onnational markets.
2Under thisdefinition, competition policy encompasses, interalia,policy variables suchasaliberal trading
regime, greater deregulation, privatisation, industrial policy andofcourse competition law.
3Exceptions, however, doexist. Thecompetition lawsofsome countries dohave extraterritorial reach in
thatthey provide formeasures toinfluence thecompetitive environment prevailing inanexternal market.
Competition policies mayalsotakeintoaccount producer interests, forexample aswhen exemptions areprovided
toexport cartels indomestic competition laws.
4Walter Goode, Dictionary ofTrade Policy Terms, Centre forInternational Economic Studies, University
ofAdelaide.
5Thepreambles ofbothGATT 1947 andtheWTO Agreement state asmuch.
6Thisisoften termed intheliterature astheimport discipline hypothesis.WT/WGTCP/W/28
Page3
8. However, evenwhere trade barriers havebeencircumscribed, imports maybeineffectual as
acompetition source. Thismaybethecase, forexample where: there iscollusive orexclusionary
behaviouramongdomesticproducersorbetweendomesticandforeignproducers;orintellectualproperty
rights restrict parallel imports orcompeting technologies; orthere areprivate orregulatory barriers
toaccess todistribution channels. These examples suggest alegitimate roleforcompetition policy.
Competition policy measures which reduce artificial barriers toentry arelikely toimprove access for
imports aswellasdomestic competitors, thereby supporting theaimsofaliberal trade policy.
Divergence
9. Trade liberalization andcompetition policy can,thus, bemore appropriately viewed as
complements, rather thansubstitutes. Unfortunately, however, there areinpractice important points
ofdivergence between tradeandcompetition policies andthewayinwhich countries implement them.
These conflicts appear tobemainly driven by:
(a) political economy considerations; and
(b) differences inregulatory approaches.
10. Trade andcompetition policies canoften beapolitically convenient wayofassisting domestic
groups. Trade restrictive policies, inparticular, arehighly amenable tosuchinterest group "capture".
They shifttheburden ofadjustment abroad while thecosts tothedomestic economy arediffused and
rarely visible. Thismakes them anattractive policy instrument tofulfil sectional interests thatmay
notnecessarilybeconsistentwithwelfaremaximization7.Theireffectoncompetitionisignored,because
asalready pointed out,tradepolicy isconcerned, byandlarge, withthestateofdomestic firms rather
thanwiththestateofconsumer welfare.
11. With itsfocus ontheeffects onalldomestic market participants, welfare maximisation isa
keyparameter ofcompetition policy. Nevertheless, national competition policies maystillbeatrisk
of"capture". Competition policy tends toassess thecosts andbenefits ofanti-competitive conduct
interms ofstrictly national considerations. From theirparticular national perspectives, countries will
come toverydifferent conclusions about themerits ofspecific mergers andrestrictive practices. This
isclearly whatoccurs when antitrust exemptions aregranted toexport andimport cartels. Thebasic
trade-off thatcountries faceinconstructing theircompetition policies isthatbetween firmprofits and
consumer welfare. When theconsumers affected bycollusion arenotnationals, since thefirms are
exporters, thetrade-off vanishes andthesearch forfirmprofits guides policy. Countries arethen
maximising national benefits attheexpense ofglobal welfare andtheobjectives oftradeliberalization.8
12. Considerable differences existbetween countries inthegoals, scope, andenforcement approach
oftheirdomestic lawsandregulations. Such differences maybeasource offriction incross-border
transactions.9Twopertinent examples areoftencitedintheliterature ontradeandcompetition policy:
(a)thecomplaint thatweakcompetition lawsand/or weakenforcement ofcompetition lawscanadversely
7Welfare inthiscontext istaken tomean thesumofconsumers 'andproducers 'surplus.
8Seeforinstance Jacquemin, A.(1994), "Goals andMeans ofEuropean Antitrust Policy after 1992" inH.
Demsetz andA.Jacquemin (eds.), Antitrust Economics: NewChallenges forCompetition Policy (Lund: Lund
University Press).
9Thishasbeen termed byDr.Sylvia Ostry as"systems frictions". SeeSylvia Ostry, Beyond theBorder:
TheNewInternational Policy Arena, inE.Kantzerbach, H.-EScharrer, andL.Waverman (eds.), Competition
Policy inanInterdependent World Economy, Nomos Verlagsgesellschaft, Baden-Baden, 1993.WT/WGTCP/W/28
Page4
affectinternationaltradeiftheeffectistoleranceofanti-competitivepracticesaimedathinderingimports;
and(b)theprotection provided forspecific sectors suchastransportation, distribution andtrading
intermediaries. Thehighindustrial concentration thatisengendered caneffectively actasabarto
trade andcompetition within these sectors. Itshould bestressed thatthese examples arenotcitedto
make thecaseforharmonisation ofregulatory approaches butrather tounderline thepointthatconflicts
between trade andcompetition policies doarisefromdifferences inregulatory approaches. Whether
harmonisation isdesirable orindeed would alleviate "systems frictions" would ofcourse depend on
ahostofother political andeconomic factors.
Twoexamples
13. Twoexamples, inparticular, mayhelpgeltogether thevarious points hitherto raised inthis
paper. More importantly, these examples helpmake concrete some oftheeconomic andpolicy
considerations thatshould underpin theWTO 'swork ontrade andcompetition policy10:
A. Private Restraints
14. Governmental anti-competitive practices suchastariffs andnon-tariff barriers (NTBs) have
beenthesubject ofsuccessive GATT negotiations. These haveresulted inbinding disciplines anda
reduction ofsuchbarriers. However, intheirrecent efforts tobreak intoforeign markets, many
companies haveencountered anadditional layerofprotection behind tariffwalls, intheformofprivate
anti-competitive practices. "The concern increasingly voiced isthat,while liberal international trade
policies willremove public (State-imposed) impediments toforeign competition, suchpolicies will
leave unaddressed private restrictions oncompetition, including foreign competition, andindeed may
increase reliance onsuchrestrictions byuncompetitive domestic producers, asasubstitute fordirectly
imposed State restrictions."11
15. Private anti-competitive practices doposedifficult questions. These practices haveessentially
beenadomestic concern ofgovernments, andpolicy responses arereflective ofthis. Thedisparity
inapproaches thathasbeenengendered hasgiven riseto:
(a) Doubts over theeffectiveness ofnational competition policies orlaws. Weak
enforcement isacommon complaint.
(b) "Beggar-thy-neighbour" practices. Again aclearillustration ofthisaretheexport cartel
exemptions found incompetition laws. Theeconomic effect ofsuchcartels istoraise
export prices, thereby securing aterms oftrade gainfortheexporting country and
acorresponding lossforthecountry; and
(c) Andasaresponse toalloftheabove, arising incidence ofextra-territorial application
ofdomestic competition laws.
10Private Restraints andPrice Discrimination areonlybuttwoexamples ofthesortchallenges raised bythe
interaction between trade andcompetition policy.
11Michael J.Trebilcock, Competition Policy andTrade Policy -Mediating theInterface, inJournal ofWorld
Trade, 30August 1996.WT/WGTCP/W/28
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16. Concerns suchasthese havedriven thecallforaharmonisation ofregulatory approaches.12
However, there areseveral important economic andpolicy questions thatneedtobeaddressed even
before adebate onharmonization asapossible panacea canbeembarked upon. These include; inter
alia:
(a) Howsignificant aretrulyprivate anti-competitive business practices? There isevidence
tosuggest thatinmany instances anti-competitive business practices byfirms areeither
actively ortacitly supported bygovernments. Itisnoteworthy thatwhen asked to
provide examples ofinteraction between trade andcompetition policies foranOECD
assessment, thebulkofissues listed byvarious national submissions didnotinvolve
strictly private arrangements butarrangements inwhich agovernment wasanessential
participant.13
(b) Ifindeed thebulkofprivate anti-competitive practices aresupported bygovernments,
doestheWTO notatpresent provide anadequate means ofaddressing them? Some
commentators havesuggested thatboththeviolation andnon-violation routes ofthe
WTO 'sDispute Settlement Mechanism already provide aneffective means ofcurtailing
thoseprivate anti-competitive practices thatnullify orimpair negotiated market access.14
They argue thatthenon-violation option, inparticular, isapowerful toolthathasnot
really beentested.
(c) Iftheobjective ismarket access, would notfurther impetus intheWTO toreducing
trade barriers andtrade restrictive practices beamore effective means ofpromoting
thecontestability ofmarkets? "Thefurther countries move towards freemarket access,
thelessscope there willbeforrestrictive business practices tobepursued byfirms
oninternational markets."15
B. Price Discrimination
17. Theclearest illustration ofthegreyareathatexists between tradepolicy andcompetition policy
isthedisparate wayinwhich governments address domestic andinternational price discrimination.16
12Twostrands ofharmonisation proposals canbeidentified intheliterature. Themore ambitious strand calls
forinternational norms encompassing competition policy standards andtheirnational enforcement. Such norms
couldeitherprovideforminimumstandardspermittingsomediversityortheycouldbetotallyharmonisedstandards.
Thesecondstrandfocusesexclusivelyonenforcemen t.Nationalcompetitionpolicystandardswouldnotbesubject
tonegotiation, butgovernments would have toaccept international obligations ontheenforcement ofexisting
national lawsandregulations orofnewly negotiated minimum orharmonised standards relating tothenational
enforcement ofcompetition policies.
13These submissions aresummarised inOECD, Cases ofInteraction between Trade andCompetition Policy,
OECD Doc. COM/TD/DAFFE/CLP (92)50 (1992).
14Seeforinstance Bernard M.Hoekman andPetros C.Mavroidis (1994), Competition,Competition Policy
andtheGATT intheWorld Economy, 17(2):121-50. Theauthors argue thatactive support ofprivate restrictive
practises through aviolation ofaWTO obligation would automatically besubject toaGATT Article XXIII(a)
complaint, whilst tacitsupport, forinstance through weak enforcement ofdomestic competition law,could be
thesubject ofanon-violation complaint, i.e.Article XXIII (b).
15Ibid
16Price discrimination issimply defined hereasthesaleofthesame goods orservice atdifferent prices
indifferent markets.WT/WGTCP/W/28
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18. Competition policy addresses pricediscrimination invarious ways. Inthecontext ofthispaper,
however, twoimportant perspectives areworth reiterating. Firstly, predatory intent orbehaviour is
adefining standard incompetition policy. Price discrimination istobecondemned totheextent that
itmaybeatooltodriving competitors outandthenkeeping therelevant market closed tocompetition
sothatmonopolistic profits canbeearned. Andsecondly theeffects ofpricing differences onallmarket
participants (downstream producers, users andconsumers) areconsidered.
19. International pricediscrimination, inthecontext oftradepolicy, istermed dumping. Dumping
isthepractice ofselling goods inanexport market atapricelower thanthenormal value intheeconomy
oforigin. Under GATT rules, WTO members areabletoimpose anti-dumping measures when dumping
takesplaceandwhenitcausesmaterialinjurytodomesticproducers.Thus,thefocusunderanti-dumping
analysis isonthesizeofthedumping margin i.e.price below normal value (asopposed topredatory
intent) andtheextent towhich suchpricediscrimination causes injury tocompeting domestic producers
intheimporting market (asopposed toafullimpact assessment ofdumping ontheeconomy).
20. These differences infocus would notmatter ifnotforthefollowing negative consequences:
(a) Given itslessrigorous standards fordetermining price discrimination aswellasits
emphasis onproducer interests, anti-dumping policy isactively manipulated byindustry
groups forprotectionist purposes. Numerous empirical studies have shown that
anti-dumping actions have asignificant competition reducing impact inaffected
markets.17Thus, ironically, anti-dumping tends topromote theresult itissupposed
tocounter: lessrather thanmore equivalent opportunities ofmarket access.
(b) Anti-dumping actions havebecome asource ofconsiderable trade friction. Over and
above their likelihood of"capture" byproducer interests, they reveal frequent
arbitrariness andinherent bias towards inflated dumping margins andinjury
determinations. Anti-dumping measures arealsooftennotconfined todumped imports
andtothedumping exporter but,forreasons of"administrative convenience", are
applied toallimports oftheproduct fromtheexporting country concerned evenifthe
products wereproduced andexported byfirms which werenotinvestigated andhave
notbeenfound tohaveengaged indumping. Anti-dumping actions, inessence, offer
adiscriminatory formofprotection thatisoftennottransparent andinsignificant ways
distort production, consumption andtrade patterns.
(c) Anti-dumping analysis mayrepresent asignificant derogation ofthenational treatment
principle oftheGATT. Itsubjects foreign producers tomuch moreburdensome pricing
constraints thanthose towhich domestic producers aresubjected under domestic laws,
including competition laws.
Conclusion
21. Itisadeliberate intention ofthispaper nottosuggest anyspecific policy prescriptions. The
trade andcompetition policy interface isacomplex andmultifaceted one. Thepaper’sobjective is
toidentify some ofthecomplementarities, anomalies andpolitical economy concerns thatunderpin
thisinterface. Itishoped thatthepoints raised willcontribute toabetter understanding oftheinteraction
between trade andcompetition policy. Inthefinalanalysis, onlythrough better understanding can
theWTO beinaconsidered position toassess thepolicy options opentoit.
17Various studies haveshown thatanti-dumping actions mayfoster cartelization andother restrictive practices
andthusreduce price competition inaffected markets. Seeforinstance P.Messerlin, Antidumping Regulations
orProcartel Law? TheECChemical cases'World Economy (1990), 13.