WORLD TRADE
ORGANIZATIONWT/WGTCP/W/163
27 June 2001
(01-3218)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM HONG KONG, CHINA
The following is the final text of a paper received from the Permanent Mission of
Hong Kong, China which was circulated as an advance copy for the Working Group's meeting of
22-23 March 2001.
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"Interaction between Trade and Competition Policies:  Where to go from here?"
1. Introduction
1. At the informal meeting of this Working Group held on 29 January 2001, the Chairman
mentioned a number of suggestions offered by Members regarding topics that could be addressed bythe Working Group this year.  One of the topics cited is 'benefits and modalities of cooperation among
competition authorities, and those between trade and competition authorities'.  Hong Kong, China
(HKC) agrees that this is an important topic meriting more exploratory work by this Working Group.
The purpose of this submission is to stimulate more deliberation on the subject of coherence between
trade and competition policies, in particular how to promote policy coherence practically on various
fronts.
2. The Case for Addressing the Interaction between Trade and Competition Policies
The Working Group's mandate
2. WTO work on the trade and competition nexus has its root in the first Ministerial Conference
held in December 1996.  Paragraph 20 of the Singapore Ministerial Declaration (SMD) provides for
the setting up of "a working group to study issues raised by Members relating to the interaction
between trade and competition policy, including anti-competitive practices, in order to identify any
areas that may merit further consideration in the WTO framework".  Over the past four years, HKC
has maintained that this Working Group should, pursuant to its mandate, focus on addressing areas
where trade and competition policies interact.  It remains our firm belief that this Working Group can
best contribute to fulfilling the WTO objectives, including the promotion of international trade, by
devoting its energy to issues lying at the interface between trade and competition.
The impact of globalisation
3. Over the past few decades, technological advan cement and progressive liberalisation of trade
in goods and services have combined to propel a process of integration of economies and marketsworldwide.  Such a globalisation process has resulted in a paradigm shift in international commerce.
The volume of transnational business transactions has grown in leaps and bounds.  An increasing
volume of international trade is intra-firm in natu re, in part due to the growing incidence of cross-WT/WGTCP/W/163
Page 2
border investments, mergers and acquisitions and strategic alliances.  Production activities are
dispersed geographically so as to capitalise on the comparative advantages of different economies.
Businesses restructure themselves from time to time in keeping with the latest global market realities,
both to sharpen their competitive edges and to survive.
4. Globalisation of markets poses as much challenge for governments, not least in the realm of
economic policy making.  As economies become more intertwined, a domestic economic instrument
may well have significant implications for foreign governments and corporations by virtue of its spill-
over effects.  This calls for more inter-governmental efforts to address issues with major trans-border
consequences in pursuit of global welfare maximization.  This also calls into question the adequacy of
traditional analytical tools and policy instruments that are only directed at market conditions within
national borders.
5. The globalisation process has also unveiled the limitations of formulating/executing trade and
competition policies in a compartmentalised manner.  On the one hand, whether a domestic market is
contestable depends not only on a government's commitment to eliminate border barriers but also
those beyond-the-border measures as well as the strategies of market players.  On the other hand,
domestic pro-competition measures by themselves cannot ensure efficiency in an economy unless it is
fully exposed to competitive pressure from foreig n imports.  For example, a government's competition
policy may be emasculated by its protectionist trade measures that shield domestic producers from
competitive forces abroad.  HKC submits that only through a government philosophy committed to
promoting complementarity of competition and trade policies can we maximise the welfare-increasing
synergies between them.
6. HKC sees the WTO as a dynamic organisation adaptable to the global-wide economic forces
shaping the real world of commerce.  This notwithstanding, we consider that the way the WTO/GATT
rules have evolved in past decades has not adequately addressed the challenges posed by globalisation
of markets.  For example, certain multilateral trade rules, in particular those predicated on clear-cut
national identity of products and services, are getting increasingly out-of-touch with the business
realities in today's globalized economy.  In this connection, we see merit for this Working Group toexplore measures to ensure the continual effectiveness of the multilateral trading system in promoting
market contestability worldwide.
3. A Balanced Agenda to Address the Interaction between trade and competition Policies
7. HKC continues to regard a balanced work programme for the Working Group as the best
approach to fulfill the Singapore mandate.  In our views, a balanced work programme reflecting the
interests/concerns of the full membership should en compass, inter alia, the following four elements: -
(a) Trade and Competition Interface :  The interaction between trade and competition
policies is not a one-way street.  It is important that equal attention be accorded to
both the "adverse impact of a deficient competition policy on trade liberalisation" and
the "welfare-reducing effect of protectionist trade policies/measures on market
contestability".  Focusing on either aspect in a one-sided manner would lead to sub-
optimal results.  Further exploratory work by this Working Group should thereforelook at (i) how trade policies/measures could impede the free play of market
forces and (ii) how the lack of a sound competition policy could obstruct the
unfettered flow of international trade.
(b) Anti-competitive Governmental and Business Actions :  Past contributions by
Members have provided ample empirical evidence that anti-competitive behaviourcould be of private or governmental origin.  Some Members regard anti-competitive
practices of enterprises as a prominent market access barrier eroding the benefits of
trade liberalisation.  Others maintain that governmental restraints and distortionsWT/WGTCP/W/163
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remain a major threat to the attainment of  global market contestability.  Given that
both anti-competitive governmental measures  and r estrictive practices of
enterprises  could work against the competitive process, we see no reason why either
type of actions should be excluded from future WTO work on trade and competition.
(c) Policy Coherence within and across Borders :  As markets enlarge beyond their
traditional national boundaries, the inadequacies of territorially limited trade and
competition policy instruments have all the more surfaced.  There is a need for more
inter-governmental efforts to ensure policy coherence across national borders  (i.e.
through cross-border co-operative efforts to address competition issues with an
international dimension).  Equally important is governments' commitment to
achieving policy coherence within national borders  (i.e. through implanting a
competition dimension in the whole fabric of domestic economic policies).  In thisconnection, an integrated and coherent approach in the application of trade and
competition policies within national borders, featuring appropriate coordination and
communication modalities between the relevant authorities, is best attuned to
contemporary business realities.
(d) Interests of both Consumers and Producers :  Trade liberalisation and pro-
competition policies broadly share the same objective of promoting efficiency and
economic welfare.  However, conflicts between trade and competition policies can
arise in practice.  For example, traditional trade policy tends to emphasise fairness in
protecting an economy's trade flows.  Such a notion of 'fair trade', as distinct from
'competitive trade', is especially prone to protectionist lobbies seeking to maximisethe interests of producers (not consumers).  With an integrated world economy, it is
essential that both trade and competition policies should be grounded on welfare
maximisation in the  interests of consumers and producers alike  rather than
producers alone.
4. Cooperation Modalities to Promote Policy Coherence at a Practical Level
8. Past deliberations by this Working Group reflected a broad recognition among Members of
the importance of enhancing consistency of trade and competition policies.  HKC submits that the
conceptual significance of policy coherence has to be backed by coherence at the practical level.
With a view to stimulating discussion on how to promote policy coherence, the following paragraphs
enumerate a number of real-life examples under three broad categories of cooperation modalities.
Cooperation Modalities between competition authorities across national borders
9. In practice, cooperation between competition authorities are generally governed by
international instruments dealing with competition law and policy, notably bilateral agreements
1 and
relevant parts of free trade, custom union or common market agreements2.  Typical modalities for co-
operation include consultations to resolve conflicts between respective laws and policies, coordinated
actions in respect of restrictive business practices, exchange of information, and administrative orjudicial assistance for investigation or enforcement.
                                                     
1 Examples of these bilateral agreements are the US-Japan Agreement concerning Cooperation on Anti-
competitive Activities (1999) and the US-Canada Agreemen t regarding the Application of their Competition and
Deceptive Marketing Practices Laws (1995).
2 Examples of these agreements are the North American Free Trade Agreement, the Australia-New
Zealand Closer Economic Relations Trade Agreement and the Treaty Establishing the Common Market forEastern and Southern Africa (COMESA).WT/WGTCP/W/163
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10. In retrospect, this Working Group has spent much time discussing the WTO's possible
contributions to cooperation between competition authorities.  Further discussions on how to achieve
the optimum results from cooperation, with due regard to the diversity in socio-economic
circumstances and competition regimes across economies, would be helpful.
Cooperation modalities between trade au thorities across national borders
11. Compared to cooperation between competit ion authorities, cooperation between trade
authorities is marked by a longer history and a wider scope of application.  Yet, the competition
dimension was not necessarily at the heart of negotiations leading to the prevailing multitude of
cooperation modalities between trade authorities.  As a result, the utility of many of these modalities
in promoting coherence of trade and competition policies is at best marginal.
12. Given the terms of reference of this Working Group, HKC sees fit to place emphasis on those
cooperation arrangements which seek to reap the practical benefits of ensuring policy coherence
between trade and competition.  For example, the contracting parties to a number of free trade
agreements3 have undertaken not to apply to one another certain trade defence instruments which are
anti-competitive in nature (e.g. anti-dumping (AD), countervailing (CV) actions).  In a similar vein,
some regional agreements have sought to defend the competitive process by containing at sourcecompetition distortions of a governmental origin
4 (e.g. prohibiting subsidies distorting competition
and restricting trade).
13. Existing multilateral trade rules are replete with provisions pertaining to cooperation
arrangements between trade authorities.  While some arrangements (e.g. commitments to reduce trade
barriers at the border, undertakings to prohibit export subsidies and eliminate certain investmentrestrictions) are congruent with the competition goals of maximising welfare, others (e.g.
consultations in respect of AD and CV investigations) are not founded on competition concepts as
such.  As HKC sees it, the challenge ahead is to explore what more competition-friendly cooperation
modalities between trade authorities could be brought within the WTO framework possibly along the
lines of those pro-competitive modalities established in free trade agreements.  For example, it isworth studying whether and how the substantial commitments described in paragraph 12 above could
be introduced into the WTO.
Cooperation modalities between trade and compet ition authorities within national borders
14. According to Members' previous submissions to this Working Group, a number of economies
have put into place certain domestic institutional arrangements conducive to enhancing consistency of
trade and competition policies.  Some examples are as follows: -
(a) In the case of HKC, its trade and competition policies are both grounded on the
economic philosophies of preserving the integrity of market forces and optimal
allocation of resources.  The Competi tion Policy Advisory Group (COMPAG), a
high-level advisory body tasked to review competition issues that have policy or
systemic implications, oversees the implementation of pro-competition initiatives byall government departments, including the Trade and Industry Department.  In the
other way round, the Director-General of Trade and Industry attends regular
                                                     
3 As illustrative examples, the Free Trade Agreement between Canada and Chile and the Australia-New
Zealand Closer Economic Relations Trade Agreement provide for the non-application of AD measures to tradein goods between the contracting parties.  Similarly, AD and CV actions are precluded among members of theEuropean Community and the European Economic Area.
4 As illustrative examples, the Treaty Establishing the COMESA prohibits all subsidies distorting
competition which affect trade among member states, and the Treaty Establishing the Caribbean Community
(CARICOM) prohibits state aid affecting sub-regional trad e and trade-restricting or discriminatory practices by
public enterprises.WT/WGTCP/W/163
Page 5
COMPAG meetings, providing inputs from an international trade perspective as
appropriate.
(b) The Competition Bureau in Canada has been contributing objective and independent
analyses on AD cases to facilitate the relevant Tribunal in determining whether the
alleged anti-competitive conduct has caused material injury.  Their analyses are basedon the Bureau's own investigations which are not intended to support the claims of
dumping.
5
(c) In Colombia, the Office of the Supervisor of Industry and Trade, an agency
responsible for advising on matters concerning formulation of competition policies,
participates in the Committee on Trade practices which decides on the imposition of
AD and CV duties.6
(d) The Federal Competition Commission in Mexico keeps a close eye on the possible
anti-competitive effects of AD actions.  The Commission is a member of the inter-
ministerial Foreign Trade Commission, which reviews AD measures before
application.7
15. Since its inception, this Working Group has devoted little time to exploring how best to
promote coherence of trade and competition domestically.  HKC believes that given the welfare-enhancing effects of instituting cooperation modalities between trade and competition authorities,
such modalities should be given more prominence in this Working Group's discussion.  More
experience sharing by Members in respect of cooperation modalities on this front would provide
useful pointers for our future work.
5. Conclusion
16. The inter-relationship between trade and competition policies is something that must be
addressed in a globalising economy.  Practical options to ensure consistency in the formulation and
application of trade and competition policies, including the three categories of cooperation modalities
covered in Section IV of this submission, merit further exploratory dialogues by this Working Group.
HKC is confident that this Working Group will continue to contribute usefully to enhancing policycoherence so long as its work is guided by a balanced agenda which addresses the interaction between
trade and competition policies.
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5 This example derives from communications between Canada and HKC arising from a Canadian
submission (ref: WT/WGTCP/W/146) dated 12 September 2000.
6 See page 24 of Columbia's submission (ref: WT/WGTCP/W/44) dated 22 January 1998 for details.
7 See section 5.2 of Mexico's submission (ref: WT/WGTCP/W/54) dated 8 December 1997 for details.