RESTRICTED
WORLD TRADE WT/WGTCP/W/42
1October 1997
ORGANIZATION(97-4066)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
COMMUNICATION FROM CANADA
Thefollowing communication hasbeenreceived fromthePermanent Mission ofCanada with
therequest thatitbecirculated toMembers.
_______________
Relationship between Trade andCompetition
Liberal trade policy andsound competition policy share thesame objective ofimproving the
allocation ofresources between markets andwithin markets. Successive rounds oftariff reductions
andother trade liberalizing results ofmultilateral negotiations intheGATT andWTO haveproduced
amore competitive environment forproducers andagreater variety ofproducts atlower prices for
consumers. Inthisway,tradeliberalization hascontributed totheprincipal objectives ofcompetition
policy -efficiency andconsumer welfare. Theeffective operation ofcompetition lawsandpolicies
andthepursuance oftrade policies consistent withWTO obligations canplayanimportant rolein
economic growth anddevelopment.
Theprincipal rationale forexamining thisrelationship istostudy inasystematic manner how
these twopolicies interact andtoensure thatthegains from trade liberalization areconsolidated and
arenotcompromised byprivate restrictive business practices orgovernment measures conducive to
suchpractices. Theimpact oftradepolicy oncompetition policy objectives isalsorelevant tothework
oftheGroup.
Thefounders oftheinternational trading system appreciated howcompetitive conditions are
vitaltorealizing thebenefits oftradeliberalization. Since then,however, thetreatment ofcompetition
concerns intrade agreements hasbeenuneven andfragmented. Competition-related issues havebeen
addressed inanumber ofdifferent trade initiatives. Themost recent illustration isintheUruguay
Round agreements. Forexample theTRIPs Agreement recognizes thepotential negative effect on
competition ofabuse ofintellectual property rights. TheAgreement onBasic Telecommunications
Services provides explicit recognition oftheimportance ofcompetition principles inprivatization and
liberalization actions taken bygovernments. Thecompetitive safeguards require thatappropriate
measures bemaintained inorder toprevent major suppliers fromengaging inanti-competitive practices.
Inlightofdevelopments inthetwopolicy areas, itisappropriate toexamine thedevelopment ofa
more integrated approach todealwiththeinterface between competition andtrade liberalization.
Objectives
Strong competition lawandpolicy, properly framed andvigorously enforced, plays apivotal
roleinpromoting thecompetitive process indomestic markets. Moreover, byexpanding opportunities
forforeign competition, ithelps toensure thatthegains fromtrade liberalization canmaterialize and
contribute toeconomic growth.WT/WGTCP/W/42
Page2
Trade liberalization creates opportunities forfirms toenter newmarkets andtoachieve
efficiencies arising fromeconomies ofscaleordynamic innovation. Competition lawandpolicy can
ensure thatthegains oftradeliberalization arenotcompromised byprivate anti-competitive practices.
Thetrade policy objective ofeliminating discriminatory treatment ininternational commerce
inorder topromote thegrowth anddevelopment oftheworld economy complements thecompetition
policy objective ofincreasing competition, spurring innovation andcreating wealth. Itistherefore
critical tothesuccess oftradeliberalization andmeaningful market access thatanti-competitive practices
bechecked through effective competition lawsandpolicies.
Canada believes that, duetosuch similar objectives, itisimportant toensure thatthe
implementation oftrade andcompetition policies should work inacomplementary andmutually
reinforcing fashion. Tothisend,itwillbeuseful forthisgroup toexamine inmoredetail theprinciples,
standards andtheenforcement ofbothpolicies toensure anappropriate congruence intheiroperation.
Principles
Non-discriminationisafundamentalprincipleintheprocessoftradeliberalization.Specifically,
theGATT wasfounded onmost-favoured nation andnational treatment principles. Theapplication
ofthisprinciple ensures thesecurity ofmarket access toallsignatories ofatrade agreement.
Asecond important principle istransparency. Theapplication oftrade policies byWTO
Members, including border measures suchasimport licensing, aresubject totransparency obligations.
Firms engaged ininternational trade benefit from thisgreater certainty andsecurity.
Thirdly, procedural fairness cutsacross thevarious WTO agreements, including provisions
intheWTO Anti-dumping Agreement andtheWTO Agreement onSubsidies andCountervailing
Measures.
Similarly, competition policy, liketrade policy, pursues principles, suchastransparency,
predictability, fairness andnon-discrimination. Inthecompetition policy context, non-discrimination
ensures equal market opportunities forallpotential entrants toconduct business, andequal treatment
forfirms before thecompetition authority regardless oftheirnationality. Itwould behelpful forthe
group todiscuss theseprinciples inmore detail toobtain abetter understanding ofthelinkages between
thetwopolicy areas.
Standards
Competition lawsestablish basic rules fortheconduct ofbusiness inajurisdiction anddeal
withawidevariety ofpractices. These generally include horizontal arrangements (e.g.price fixing
andmarket sharing), mergers, vertical restraints (e.g. exclusive dealing), andabuses ofdominant
position. Thebasic framework ofnational competition lawsreflect differences ininteraliathelevel
ofeconomic development, legal history andregimes, thebusiness culture, andnational economic
objectives. However, theeconomic impact ofsuchconduct canhaveanadverse impact oneconomic
efficiency andultimately onnational welfare.
Anumber ofthesebasicrulesforconduct canalsohaveadirect impact ontrade. Itisgenerally
recognized thathardcorecartels havesignificant negative impact oncompetitive markets, yetmany
countries haveexceptions intheirlawsforexport cartels, ineffect indicating that,itispermissible
toengage insuchactivity abroad butnotathome. Inatrade policy context, suchpolicies adversely
affect global welfare. Itisnoteworthy, inthiscontext, thatithasbeenagreed toprohibit export
subsidies.WT/WGTCP/W/42
Page3
Inaglobal marketplace inwhich more andmore business activity crosses national borders,
more andmore mergers haveinternational effects andarereviewed bymore thanonejurisdiction.
Concerns about howsuchmergers should beconsidered inanefficient manner alsoreflect theimportant
linkage between theapplication ofcompetition policy andtrade andinvestment.
Finally, other issues suchaspredatory pricing, abuse ofdominance andvertical restraints are
alsoimportant competition policy standards which canhavesignificant impact onmarket access. It
isworth discussing howandwhythese could negate trade liberalization efforts.1
Scope andCoverage
Various sectors oftheeconomy andcertain activities areexempt from theapplication of
competitionlaw.Suchexemptionsreflecthistoricaldecisions,basedonpoliticalandeconomicrationales.
Thedecision toafford special treatment tovarious sectors andactivities under competition ortrade
policy varies from country tocountry, given theirdifferent economic structures. These exceptions
embedded inourcompetition policies have animportant effect ontheability toexpand market
opportunities incertain sectors. Tothisendadetailed examination oftheexemptions andexceptions
ofcompetition policy willbevitalforanappropriate understanding ofhowtheyinfluence tradeflows.
With deregulation andprivatization, thescope andimportance ofcompetition policy has
expanded. Ofparticular noteinthecaseofregulatory reform initiatives inCanada, istheverystrong
advocacy roleplayed bytheCompetition Bureau inpromoting theopening upofpreviously regulated
sectors.
Enforcement
Enforcement ofcompetition lawfocuses ontheinvestigation ofalleged anti-competitive
behaviour. Aneffective policy requires adequate enforcement tools tocontribute tothisprocess:
mechanisms forevidence gathering andadjudication ofcases, andeffective sanctions. Suchtraditional
enforcement tools canbecomplemented through measures topromote andensure conformity tothe
lawthatallow foracontinuum ofenforcement responses.
Investment andtradeliberalization hasaccelerated theintegration ofeconomies, substantially
increasing thelevelofcross-border trade, investment andtheexchange oftechnology. The"nationality"
ofcorporations hasbecome moredifficult toascertain inthewakeoffar-reaching investment andcapital
marketliberalization.Thishasincreasedtheneedforcompetitionauthoritiestocooperateinenforcement
activity. Todate, cooperation efforts have focused ontheexchange ofinformation, notification,
consultation andactive enforcement cooperation, particularly guided bytheprinciple ofpositive comity.
Comity requires thattheother party'sinterests beconsidered indeliberations oftheauthorities inthe
other jurisdiction. TheGroup should alsoexplore thevalue ofstrengthening mutually beneficial
cooperative arrangements, byexamining thepractical experience withexisting agreements.
Enforcement ofcompetition policy andlawisakeyelement inassuring thatprivate anti-
competitive conduct doesnotreplace public conduct inpreviously regulated sectors andthattradeand
investment opportunities arenotclosed offtoforeign competition.
1From aneconomic perspective, acasecanbemade thatvertical restraints canbeefficient andultimately
pro-competitive. From acompetition policy perspective, suchrestraints should beassessed onacasebycase
basis.However,inthetradepolicycontext,verticalrestraintsmayhavetradedistortingmarketaccessimplications.WT/WGTCP/W/42
Page4
Intheconduct ofinternational trade, theWTO framework offers rules, disciplines, andan
integrated dispute settlement mechanism toenforce thecommitments andobligations undertaken by
theparties totheagreements.
Conclusion
Although traditionally directed toaddressing economic activity within national borders,
competition policy alsoplays anincreasingly important roleintheinternational trading system.
Competition policy isrightly perceived asaninstrument thatcanassist infacilitating access fornew
entrants orotherwise encourage thefreeflowofinternational trade andinvestment. Aneffective
competition policy facilitates tradeliberalization andtradeliberalization inturnreinforces competition
andefficiency inanational economy.
Inviewoftherising importance oftradeinnational economies ofbothdeveloped anddeveloping
countries, andthegrowing recognition oftheneedforsound competition law,itishighly desirable
thatbothtradeandcompetition policies haveastheirmainobjective theefficient functioning ofmarkets
within anopeninternational trading system. Thework oftheWorking Group should serve toshed
lightontheinteraction andimpact ofthefullrange oftrade andcompetition policies.