RESTRICTED
WORLD TRADE WT/WGTCP/W/56
10December 1997
ORGANIZATION(97-5398)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
SUBMISSION FROM KOREA
Thefollowing communication wasprovided bythePermanent Mission oftheRepublic ofKorea
forthemeeting of16-17 September 1997, andisbeing circulated toMembers atitsrequest.
_______________
Interaction between Trade andCompetition Policy andtheirRelationship to
Economic Growth andDevelopment
AFocus onGoals, Principles, Scope andInstruments
I. RELATIONSHIP BETWEEN TRADE AND COMPETITION POLICY
Globalization andtrade policy
1. Intoday'sworld ofglobalization, ithasbecome increasingly clearthatimpediments totrade
include internal aswellasexternal barriers. Thesuccessful progress oftradeliberalization sponsored
bytheGATT/WTO hasremarkably minimized external barriers. Instead, internal barriers inhibiting
effective market access toimporting countries stillremain tobedealt with. Under thenewtrade
environment, acountry 'strade authorities areincreasingly concerned about thedomestic policies of
itstrading partners which mayaffect itsmarket access opportunities.
2. Therefore, thedeepening integration oftheworld economy andthegrowing interdependence
among nations requires theharmonization oftrade policy anddomestic policies. Oneimportant case
inpoint istheinteraction between trade policy andcompetition policy, thelatter having traditionally
remained outside oftheconcern oftrade authorities.
Comparison oftrade policy andcompetition policy
3. Bothtradepolicyandcompetitionpolicyhaveincommontheultimategoalofeconomicefficiency
andwelfare enhancement. They are,however, different intheirrespective goals, principles, scope
andinstruments.
4. Goals:tradepolicyfocusesbasicallyonpromotinginternationaltradeopportunities,maximizing
thebenefit ofinternational trade bysecuring market access, andincreasing theefficiency ofresource
allocation. Competition policy aimsatcreating competitive market conditions through regulating anti-
competitive practices andatpromoting faircompetition ineachnation 'seconomy.
5. Principles: thecurrent international codes ontradepolicy arebased ontheprinciples ofmost-
favoured-nations andnational treatment which guarantee freemarket access. Although nointernationalWT/WGTCP/W/56
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competition codehasasyetbeenendorsed, competition policy stresses thepromotion ofcompetitive
market structures andfairtrade practices asbasic principles.
6. Scope: tradepolicy aimsmainly atmanaging government actions thataffect international trade.
Incontrast, competition policy basically deals withprivate business practices affecting competitive
conditions.
7. Instruments: tradepolicyinstruments,includingtariffs,non-tariffbarriers,tradediscrimination,
andsubsidies, areformulated mainly through suchmeans asnegotiations among nations. Ontheother
hand, competition policy instruments suchasprohibition orders, fineimpositions andfiling private
lawsuits areadopted byeachnation inconsideration ofitsdomestic conditions.
8. Intermsoftheirinteraction,tradeandcompetitionpoliciesarenotonlymutuallycomplementary
butconflicting aswell:
- They arecomplementary toeachother inthattrade policy stimulates competition in
thedomestic market byliberalizing international trade, while competition policy, with
itscontrolofanti-competitivebusinesspractices,alsopromotessubstantialmarketaccess
forforeign companies. Inthisway, theycanbring about synergy effects for
international trade.
- Ontheother hand, there arecases inwhich thetwopolicies areinconflict. When
trade instruments areapplied suchasexport restraints, anti-dumping measures and
safeguards, market competition maybediscouraged. Particularly, anti-dumping
measures, albeit inconformity tothecurrent WTO system, mayleadtoadecrease
inconsumers 'welfare anddistort theefficient allocation ofresources bydiminishing
competition. Furthermore, these anti-competitive instruments might discourage
innovation andcost-savings expected from international trade. Competition policy
alsomayhaveacontradictory effect ontradepolicy. Freetrademaybedistorted when
export cartels arecovered byexemption clause ofthecompetition law.
II. RELATIONSHIP OFTRADE AND COMPETITION POLICY TOECONOMIC GROWTH
AND DEVELOPMENT
9. Concerning therelationship oftrade andcompetition policy toeconomic growth, weneedto
determine theextent towhich these twopolicies would bebestcombined tosustain economic growth
andatwhat stage ofdevelopment theintroduction ofcompetition lawprovides theenvironment for
thebesteconomic performance. Most academic research hasfound empirically thatstimulating
competition andliberalizing thetrading system work together tohavepositive effects onthegrowth
ofthenational economy. With respect totheeffect ofcompetition policy oneconomic growth, itis
generally acknowledged thatthefreetrade policy alone isnotenough topromote competition andthat
apro-competitive policy isneeded forthemarket tofunction effectively.
10. Theexperience oftheKorean economy regarding theroleoftrade andcompetition policies
inrelation toeconomic development mayprovide anempirical casestudy fortherelationship ofthe
twopolicies toeconomic growth anddevelopment. During the1950s aftertheKorean War,theKorean
economy wasconfronted withthequestion ofsimple survival. Atthisstage there wasnochoice but
toproduce consumer goods based onthestrategy ofimport substitution. During the1960s, focuses
wereshifted toexport promotion andindustrialization asKorea hadnootherresources thantheabundant
manpower. Ascompetition policy wasnotintroduced atthattime, therewasnopolicy tooltoprevent
market concentration.WT/WGTCP/W/56
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11. Only in1975, competition policy wasintroduced inKorea withthelegislation ofthe"Price
Stabilization andFairTrade Act". Under thatAct,however, competition policy placed priority on
pricestability, while leaving thepromotion ofacompetitive market asasecondary objective. Market
concentration continued without control anditsnegative effects became more andmore apparent.
Automatic adjustment ofprices inthemarket place didnotwork properly anddeepening monopolistic
structures caused economic inefficiency andsocial inequity.
12. Toresolve these problems, thecurrent competition lawentitled the"Monopoly Regulation
andFairTrade Act"wasenacted in1980. Competition policy initsrealsense wasputinplace. At
thesametime,liberalization ofthedomestic market waspromoted andKorea 'straderegime wasbrought
intoconformity withinternational norms. These changes provided conditions forharmonization of
trade andcompetition policies.
13. Inhindsight, itseems thatifcompetition policy hadbeenintroduced earlier, Korea 'seconomic
development would havebeenachieved inamore balanced andsound manner. Attheearly stage
ofdevelopment, thenegative structural effects ofmarket concentration andthedistortions ofthemarket
structure were largely overlooked. Asaconsequence, Korea isnowconfronting theverydifficult
taskofindustrial restructuring. Ifcompetition policy hadbeenintroduced before themarket structure
wasdistorted, suchtasks could havebeenavoided.
14. Under thecurrent international trading system, theintroduction ofcompetition policy atthe
earlystageofnational economic development isallthemorenecessary. Thecurrent international trading
environment isfundamentally different fromthatofthe1970s when Korea 'seconomy began tojump-
start. Under thecurrent WTO rules, actions protecting domestic industries areallowed onlyin
exceptional conditions. From thepolicy point ofview, protectionist measures arenolonger auseful
policy toolbecause itonlyleads tothedegradation ofacountry 'sindustrial competitiveness inanage
ofunlimited competition. Inthissense, theharmonization oftrade andcompetition policies towards
acompetitive market system would bethebestpolicy choice foreconomic development inthelong
run.
III. CONCLUSION
15. Fortheattainment ofincreased synergies andtheavoidance ofpossible conflicts between trade
andcompetition policies, itisessential topursue theharmonization ofbothpolicies. Harmonization
ismore andmore crucial because theinterface ofbothpolicies hasbeenenlarged withthedeepening
integration oftheworld economy. Tobemore systematic andeffective, thework onharmonization
should bedoneintwo-way directions. Onedirection would betowork onproblems arising where
competition elements work astrade barriers; theother would bewhere trade elements work asanti-
competitive factors.
16. Korea isoftheview thattoachieve thisobjective, theWorking Group should, firstofall,
embark onthework ofidentifying theareas inwhich bothpolicies areinconflict. Thiswork should
beundertaken inacomprehensive andbalanced manner. Inorder tohaveanoverall andbalanced
perspective oftheinteraction between tradeandcompetition policies, noaspect ofrelated policies should
beexcluded apriori fromthescope ofthework tobeundertaken. Inother words, theWorking Group
should endeavour toidentify theelements ofcompetition policy thathaveanimpact ontrade(including
itsanti-trade bias), aswellastheelements oftradepolicy thathaveanimpact oncompetition (including
itsanti-competitivebias).ThecomprehensiveapproachwouldalsoensurewideparticipationofMembers
inthework oftheWorking Group, thuspromoting theircommon understanding oftheissue tothe
maximum extent possible.WT/WGTCP/W/56
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17. Regarding thework ontradeelements causing adverse effects oncompetition, Korea proposes
toreview theexisting competition-related trade provisions intheWTO Agreement andtoanalyse the
empirical effect oftradepolicy oncompetition policy onthebasisofimplementation ofvarious trade-
related lawsofeachMember country. Anti-dumping measures, among various trade measures, seem
tobeoneofthemostconspicuous examples thatshow possible conflicts withcompetition policy. Given
thatthere areanti-dumping cases andthatthenotion ofdumping intheinternational market issimilar
tothatofpredation indomestic market, thisareamaybeanimportant subject forstudy intheWorking
Group.