./.WORLD TRADE
ORGANIZATIONWT/WGTCP/W/135
14 July 1999
(99-2921)
Working Group on the Interaction
between Trade and Competition PolicyOriginal: English
COMMUNICATION FROM JAPAN
The following communication, dated 10 June 1999, has been received from the Permanent
Mission of Japan with the request that it be circulated to Members.
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Relationship between Cartels and International Trade
In the previous Working Group session, Japan stated that it was necessary to further  consider
practices that affect international trade and competition.  Specifically, Japan pointed out that the
conducts needing further study were:  (a) hard core cartels that clearly restrict trade, such as price-
fixing, bid-rigging, output restriction and allocati on and market division;  (b) direct and indirect
horizontal boycotts;  (c) import cartels;  (d) export cartels;  and (e) monopolization and abuse of adominant position.
Japan has already discussed the trade distorting effects of horizontal boycotts and
monopolization and the abuse of a dominant position in our contribution paper for the fourth session
of this Working Group in March of last year.  The paper points out that joint actions by domestic
enterprises to restrict the market entry of foreign enterprises damage the market openness and
seriously affect trade.  It also states that anti-competitive practices by a dominant company to prohibitits trading partners from dealing with imported products would prevent foreign companies from
entering the domestic market.
Today's paper describes the impacts of import cartels, export cartels and hard core cartels on
international trade and the market entry of foreign enterprises.  To restrict them would be of closeconcern to the participation of foreign enterprises into the domestic market.  It is important to prevent
these anti-competitive practices, not only to ensure competition in a domestic market, but also
promote trade.  The active engagement of each government to eliminate anti-competitive practices, as
described below, will, therefore, deserve a clear welcome from the trade perspective.
Hence, when considering a framework for competition rules in the WTO, it will be
worthwhile considering giving priority to restricting these activities, as doing so will contribute to the
"expansion of the trade in goods and services", which is the objective of the WTO.
1. Import Cartels
Import cartels directly restrict competition between domestic and foreign enterprises in the
domestic market by restraining imports of goods and services.  Therefore, import cartels have direct
and serious trade distorting effects.WT/WGTCP/W/135
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2. Export Cartels
Export cartels restrict competition in foreign markets and, therefore, also have direct and
serious trade distorting effects.  It is said that there are no incentives for an exporting country's
government to actively prevent export cartels, as they do not directly affect competition in the
domestic market of an exporting country.  However, each government should recognize the tradedistorting effects of export cartels and tackle them actively as they distort competition in both
international trade and domestic trade in an importing country market.
3. Hard Core Cartels
(1) International Hard Core Cartels
International hard core cartels will prevent international competition and reduce international
trade, resulting in increases in the prices of goods and services in domestic markets and a
reduction in consumer economic welfare.  Therefore, international hard core cartels have
direct trade distorting effects.
(2) Domestic Hard Core Cartels
(a) Price-fixing, output restriction and allocation and market divisionPrice-fixing, output restriction and allocation and market division in the domestic
market itself will not directly distort international trade.  Successful domestic cartelswill require some measures to exclude foreign enterprises from the domestic market
since any new entry into the domestic market will undermine the effectiveness of
domestic cartels.  Thus, domestic cartels may be accompanied by tariffs and non-
tariff measures, preventing the entry into the domestic market of foreign enterprises.
Another possibility is that it may be linked to anti-competitive conducts of domesticenterprises to jointly prevent the entry of foreign enterprises, for example by
controlling distributors through their market power.  These analyses clearly illustrate
that hard core cartels and the subsequent acquisition of dominant market power
through such cartels will have distinctive trade distorting effects.
(b) Bid-rigging
As in the case of price-fixing, output re striction and allocation and market division,
domestic bid-riggings will require some measures to exclude foreign enterprises from
the domestic market in order to ensure their effectiveness.  There can be cases where
a bidding system restricts participation by foreign enterprises.  A bidding system that
statutory-wise allows easy access by foreign enterprises may not, in practice, allowthe participation of foreign companies, thereby making it possible for bid-riggings to
function effectively.  Bid-riggings, therefore, will have distortive effects on the entry
of foreign enterprises.
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