WORLD TRADE
ORGANIZATIONWT/WGTCP/W/122
28 May 1999
(99-2177)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM JAPAN
The following communication, dated 16 April 1999, has been received from the Permanent
Mission of Japan with the request that it be circulated to Members.
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The Contribution of Competition Policy to Achieving the Objectives of the WTO,
including the Promotion of International Trade
I. OBJECTIVES OF THE WTO AND COMPETITION POLICY
One of the major objectives of the WTO, as stated in the preamble of the Agreement
Establishing the World Trade Organization, is "raising standards of living, ensuring full employment
and a large and steadily growing volume of real income and effective demand, and expanding theproduction of and trade in goods and services".  Briefly, a major objective is to realize "expanding the
production of and trade in goods and services" for the development of the global economy.
The Working Group on the Interaction between Trade and Competition Policy decided to take
up  "The Contribution of Competition Policy to Achieving the Objectives of the WTO, including the
Promotion of International Trade" as an agenda for its future study.  Therefore, we will consider in
this paper how competition policy can contribute to "expanding the production of and trade in goodsand services" for the development of global economy, a major objective of the WTO.
II. EXISTING WTO AGREEMENT AND COMPETITION POLICY
It has already been recognized that the introduction of competition policy perspectives to
WTO agreements is necessary for the achievement of WTO objectives.  In point of fact, the TRIPSand GATS include competition-related clauses to regulate anti-competitive conducts by private
companies.
As the trade liberalization that has achieved so far a reduction of the trade barriers on border,
it is then natural that the domestic anti-competitive conducts by private companies should be focusedon as a factor impeding the expansion of the production of and trade in goods and services.  However,
while those anti-competitive conducts by private companies can be dealt with by introducing and
implementing national competition laws, government actions are naturally excluded from the
application of national competition laws even if they impede competition in the domestic market.
Moreover, in case a government regulates competition in the domestic market through a regulatoryscheme, it is possible to introduce competition policy perspectives into it by the participation of the
competition authority in policy making, insisting on competition advocacy.  National competition
laws, however, have no counter measure to trade restrictive measures taken by the government itself,
even if those measures directly impede competition with foreign competitors.WT/WGTCP/W/122
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In this context, this paper intends to verify the anti-competitive effects of trade measures
allowed under the existing WTO agreements and to consider the possibility of introducing
competition policy perspectives to those agreements, if needed.
III. IMPORT RESTRICTIONS ALLOWED BY THE EXISTING WTO AGREEMENTS
1. Exceptions to General Prohibition of Quantitative Restrictions
Quantitative import and export restrictions against WTO Members are prohibited under
GATT Article XI:1.  GATT provisions, however, provide some exceptions for quantitative
restrictions applied on a limited basis.  Those exceptions explicitly provided for in the WTO
Agreement include the exceptions noted in Article XI, the exceptions for non-economic reasons in
Article XX and Article XXI, and the exceptions for economic reasons in Article XVIII and
Article XIX.  There is no question from the viewpoint of competition policy about the generalexceptions in Article XI and the exceptions for non-economic reasons in Article XX and Article XXI.
Rather, it is the exceptions for economic reasons in Article XVIII and Article XIX that come into
question in terms of competition policy, and particularly the Article XIX safeguards.
2. Principles on Tariffs as Legal Measures to Protect Domestic Industries
At the same time, GATT Article XI bans in principle the use of quantitative restrictions as a
means of protecting domestic industries but does allow tariffs to be used for this purpose because
quantitative restrictions are considered to have a greater distorting effect on trade than tariffs.  Also,
GATT Article II prohibits Members from applying tariff rates higher than their bound rate.
Exceptions to these principles include "counter measures to unfair trade", such as anti-dumpingmeasures.  The anti-competitive effect of these measures should be also considered.
IV. SAFEGUARDS AND ANTI-DUMPING MEASURES
GATT Article XIX provides the rules on safeguard measures as emergency measures to
prevent domestic industry from being injured by a sudden surge of imports.  It permits Members torestrict imports under certain conditions.  On the other hand, GATT Article VI defines dumping as an
export at a price below normal value and allows Members to take counter measures, since dumping is
to be condemned in case it has injured domestic industry.  Here, the problem is that since the
safeguard measures require the government to provide offsetting concessions or consent to counter
measures taken by trading partner, import restrictions that should take the form of safeguards are
often invoked as trade measures against "unfair trade", which need the far lower requirement.
In addition, safeguards requires the adherence to the WTO principle of Most-Favored-Nation
Treatment and Non-Discriminatory Administration of Quantitative Restrictions for its
implementation, while anti-dumping measures are allowed to take selective use departing from the
basic WTO principle of Most-Favoured-Nation Tr eatment.  Anti-dumping measures therefore are
considered to have greater distorting effect on trade than safeguards.
Because of this, and in light of the fact that the number of safeguards being applied is in
decline worldwide, we believe that discussions should focus on anti-dumping measures.WT/WGTCP/W/122
Page 3
V. PROBLEMS THAT ANTI-DUMPING MEASURES INVOLVE
1. Definition of Dumping in GATT Article VI
Anti-dumping measures were originally intended to regulate "predatory pricing" in the
international context just like domestic competition laws do in domestic markets (see the Japanese
contribution paper to the Fifth WTO Working Group on the Interaction between Trade andCompetition Policy: WT/WGTCP/W/92).
GATT Article VI, however, defines price discrimination in international transactions as
dumping, and provides anti-dumping meas ures as countermeasures against it.
The problem is that anti-dumping measures should regulate "predatory pricing" in
international transactions, but what GATT Article VI restricts is international "price discrimination",which causes a disparity between the original objectives of anti-dumping measures and those shown
in the wording of the agreement.  This disparity makes the purpose of anti-dumping measures
ambiguous and enables a broad interpretation, and then results in the abuse of anti-dumping measures.
In other words, certain conducts that should not be condemned as dumping originally are broadly
restricted as dumping in fact.
2. "Price Discrimination" and "Predatory Pricing" in Competition Law
"Predatory pricing", whose possibility to realize may be in question, is regulated in the
competition laws of the United States and the European Union.
Both the US and the EU competition laws also cover "price discrimination".  "Price
discrimination" itself, however, is not unlawful under both of the laws.  In case "price discrimination"
deteriorates market competition, it will be a matter of competition laws.  In fact, "price
discrimination" itself is not illegal under the US competition law, but it matters only in the context of
"predatory pricing" (Brooke Group Ltd. vs. Brown & Williamson Tobacco Corp, 1993).  EU has nospecific laws on "price discrimination" and it will matter in a case of "predatory pricing" like the US
(AKZO,1991).
Therefore, both the US and EU are only concerned with "price discrimination" in the context
of "predatory pricing" and "price discrimination" itself is not a problem under both competition laws.
Also, some economists, such as Samuelson, criticize strongly the "Robinson-Patman Act," one of the
US antitrust laws, that regulates "price discrimination" specifically.  Such a view is affecting therecent application of those competition laws to "price discrimination".
On the other hand, anti-dumping provisions condemn "price discrimination" between normal
value and an actual export price as "dumping".  As a result, the application of anti-dumping measures
based on the current provision sometime may result in restricting "price discrimination" that wouldnot be illegal under domestic competition laws, other than "price discrimination" as a means of
achieving "predatory pricing".
VI. ANTI-COMPETITIVE EFFECTS OF ANTI-DUMPING MEASURES: A CASE
STUDY IN THE STEEL INDUSTRY
In addition to the problem on philosophy of anti-dumping described above, the trade
distortion effects of filing anti-dumping suit also cause serious matters as a more real-life problem.
The steel anti-dumping suit filed by the US steel industry, which is currently at issue between Japan
and the United States, provides a good example about this issue.WT/WGTCP/W/122
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1. Background of Export Increase from Japan
During the January-June 1998 period, US steel consumption increased by 6.4 per cent in year-
on-year terms, an increase of about 4.5 million tons in volume.  This expansion in steel demand,
which itself was driven by the robust US economy, was covered with increased supplies from the
domestic industry and with increased imports.  In point  of fact, the US steel industry shipped about 55
million tons during the period in question, up 4.6 per cent from a year earlier and representing a
volume increase of about 2.5 million tons.  The remainder of market expansion, about 2 million tons,
was covered by imports, and Japanese steel exports to the United States increased by about 1.5
million tons at this time.
As it should be clear from this review, the domestic shipping volumes of the US steel industry
rose during the first half of last year, and the percentage of US steel consumption occupied by importsincreased only slightly.  This indicates that domestic US steel-making capacity was insufficient to
keep up with strong US steel demand and the shortfall was being covered by imports.
2. The Anti-dumping Suit Filed by the US Steel Industry and its Effects
Last June, General Motors, one of America's largest users of steel, went on a strike, which
changed atmosphere in the US steel market overnight.   Owing to this strike in combination with some
other reasons, US steel-makers saw their business take a sharp turn for the worse.  During the April-
June quarter, operating profits at the Big Six steel-makers declined by 47 per cent compared to the
same quarter a year earlier, and this was what provided the impetus for the anti-dumping suit.
On 30 September 1998, twelve US steel-makers and two steel labour unions filed an anti-
dumping suit against imports of hot-rolled carbon steel flat products from Japan and two other
countries and on 15 October, Department of Commerce made a decision to initiate its investigation.
This led to a decline in exports from the Japanese steel industry.  Especially, after November, exports
from Japan virtually stopped.  November was the deadline for Japanese steel export companies whichwanted to avoid the imposition of deposit requirement after the preliminary determination by DOC,
which was initially scheduled in February 1999, because the time required between the signing of
contracts and the arrival in the US needed to be taken into consideration.  Also, the determination of
"critical circumstances" by the US government at an unusual timing had a significant impact on
Japanese exports.  Actually, Japanese steel exports to the US showed a continuous decline for the five
months from October 1998 to February 1999 and also a decrease on a year on year basis for three
consecutive months, from December 1998 to February 1999.  As a result, Japanese exports to the USin February were less than the 1997 monthly average in volume, the exact volume expected by the
United States.  Japanese exports of hot-rolled steel, the subject of the anti-dumping suit, were down
by 99.5 per cent in February 1999 compared to February 1998.
3. The Reasons for the Sharp Decline in Japanese Steel Exports
As described above, the anti-dumping suit filed against hot-rolled steel by the US steel
industry at the end of September 1998, in combination with the decline in demand and consequently
in price in the US steel market, caused the rapid and significant decline of Japanese steel exports.
What we should underscore here, however, is the fact that this anti-dumping suit is still being
investigated and the US government has not yet made a final determination of whether "dumping"regulated by the GATT Article VI occurred.
One might assert that the Japanese steel industry took voluntary export restraints measures
after the anti-dumping suit filed by the US steel industry.  In fact, no customer, however, is willing to
bear the deposits followed by the preliminary determination to import the Japanese products inWT/WGTCP/W/122
Page 5
question and, if the deposits are included, Japanese products lose their price-competitiveness entirely.
As a result, the truth is that it became impossible to maintain exports to the US.
Indeed, after the US steel industry filed the anti-dumping suit last September, most of
Japanese steel export companies announced their intention to give up immediately future export
transactions with the US.  Then, the Japanese government has explained the movements of those
companies to the US government and has asked to deal with the anti-dumping suit rationally and
calmly.
VII. REVIEW OF ANTI-DUMPING REGIMES
As stated above, the current anti-dumping regimes contain two serious problems; one is the
problem of their philosophy from the competition policy view.  The another is that of trade distortioneffects brought by the filing of anti-dumping suits.  In the following pages we describe an idea for a
concrete review of anti-dumping regimes at the moment.
First, we need to prevent the abuse of anti-dumping measures stemming from the discrepancy
between the purpose implied in the wording of the agreement and the original purpose to regulate"predatory pricing", as described Section 5.  Therefore, the purpose of anti-dumping measures should
be stated as the regulation of "predatory pricing", not the regulation of "international price
discrimination".  To do this, the following should be considered.
1. Introduction of Competition Policy Perspectives to the Concept of "Normal Value"
"Marginal cost or average variable cost" could be used as a basis for the definition of "normal
value" in GATT Article VI as the "Areeda-Turner Test suggests in the enforcement of the US
competition law against "predatory pricing." Since sales at price below "marginal cost or average
variable cost" may realize the unfair elimination of competitors by low price sales and the recoupment
of losses with subsequent price hikes, "marginal cost or average variable cost" is considered as acriterion of whether predatory pricing exists in the US.  "Marginal cost or average variable cost",
however, is not the absolute standard for the determination of anti-dumping.
2. Introduction of the Conditions of Competit ion in the Market of the Importing Country
Since the original purpose of anti-dumping measures is to prevent "predatory pricing", the
proof of the probability of future success in predation by low price exports in a rational period should
be required before applying anti-dumping measures.  Therefore, the condition of competition in themarket of the importing country needs to be considered in the anti-dumping investigation.
In addition, we should note that Caterpillar, GM, and other large steel users in the United
States have verbally criticized the US steel industry that it filed anti-dumping suits at a time when the
Big Six steel-makers made operating profits of total US$580 million in the first half of last year.
1
Therefore, stricter determination of "injury to domestic industry" in the investigation and, in
addition, the introduction of the concept of "impact on the domestic economy as a whole" could be
considered for the review of anti-dumping regimes.
                                                     
1 "GM supports the steel industry's right to pursue trade remedies, such as using current dumping laws
and safeguard actions.  However, it is critical that such  trade remedies be applied only when conditions truly
warrant it, in order to avoid an unintended effect on other industries.  [The statutory injury requirement] leads
me to question whether in fact the data or statements that the steel industry has made can be substantiated.  I
don't think that's the case".  Mustafa Mohatarem, Chief Economist, General Motors, 11 February 1999.WT/WGTCP/W/122
Page 6
3. Introduction of the concept of "Impac t on the Domestic Economy as a Whole"
When considering the application of anti-dumping measures, each country should take into
consideration not only producer interests by focusing only on "injury to domestic industry", but also
consumer benefits that are expected to increase with the help of low-priced imports and which
otherwise would suffer from the application of anti-dumping measures.  The application of anti-dumping measures should be examined from the view point of the impact of low-priced imports on the
domestic economy as a whole.
Based on the above discussions, the addition of a few words in the following manner would
make the GATT Article VI bette r correspond to its objective:
"The contracting parties recognize that dumping, by which products of one country are
introduced unfairly into the commerce of another country at substantially
 less than the normal value
of the products, is to be condemned if it causes or threatens material injury to an established industryin the territory of a contracting party or materially retards the establishment of a domestic industry
and impairs competition in the market of a contracting party and deteriorates the overall economic
welfare of the contracting party."
4. Introduction of Competition Policy Perspectives into the Filing of Anti-dumping Suits
As described in Section 6, the mere initiation of an anti-dumping investigation will have a
vast impact on exporters.  When an anti-dumping investigation is initiated, the potential surfaces for
anti-dumping duties to be imposed at some point in the future.  This results in products becoming farless attractive to importers.  Initiation of an anti-dumping investigation also places significant burdens
on the companies being investigated.  They must answ er numerous questions from the authorities in a
short period of time, spending enormous amounts of labour, time and money to defend themselves.
The legal costs involved are particularly high.  For example, in one case involving high-volume
exports to the United States, the legal fees alone were US$1 million a year.  Such burdens obviouslyhave the potential to impair ordinary business activities.  Thus, regardless of their findings, the mere
initiation of an anti-dumping investigation is in itself a large threat to companies.
Therefore, when anti-dumping regimes are reviewed from the perspectives of competition
policy, not only the trade distortion effects by the application of anti-dumping measures, but also
those by the filing of anti-dumping suits should be considered.
One of the prominent scholars in this field su ggests that, as a means to introduce competition
policy perspective into the filing of anti-dumping suits, it is worth consideration to require anti-
dumping petitioners to meet standards more like those faced by a plaintiff in an antitrust action, e.g.
the requirement to prove "standing to sue".
2  US antitrust law requires a plaintiff to prove "injury to
                                                     
2 Robert A.  Lipstein (1997).  "Using Antitrust Principles to Reform Antidumping Law".  In Global
Competition Policy,  ed.  by Edward M. Graham and J. David Richardson.  Washington: Institute for
International Economies.  He also writes about the competition distortion effects of the petition of antidumping.Those are "After all, one may reason that no antidumping measures will be imposed unless Commerce issatisfied that the imports under investigation are being sold at less than fair value and the ITC concludes that
such LTFV imports are injuring the domestic industry.  Such a simplistic view, however, ignores the real-world
consequences of an antidumping proceeding.  One need look no further than the recent round of steel cases
(Flat-Rolled Carbon Steel Products case: 1993) to appreciate the tremendous impacts that the pendency of anantidumping case has on supply and pricing.  Shortly after the steel cases were initiated, domestic steelproducers increased prices on flat rolled products, even though the ITC eventually found imports of suchproducts not to be causing material injury and did not impose duties.  With each milestone in the case, the
domestic industry hiked price again.  After the preliminary LTFV determination, many foreign suppliers
virtually abandoned the United States as a market, rather than risk millions of dollars in antidumping dutyWT/WGTCP/W/122
Page 7
business or property" stemming from the violation of US antitrust law as "standing to sue".  In anti-
dumping suits, a petitioner's action must be on behalf of the domestic industry that produces the
product under investigation.  Injury to the whole domestic industry is necessary to be proved because
anti-dumping measures can only relief the whole industry itself.  Therefore, it is suggested that it
deserves consideration to require a petitioner to identify each and every domestic production sourcethat is engaged in the manufacture of the products under investigation and to produce written evidence
from those manufacturers supporting commencement.
Another prominent scholar suggests that the application of the legal doctrine of "sham
litigation" as found in US anti-trust laws to anti-dumping regimes be also considered to be useful for
the prevention of the abuse of anti-dumping petitions.  "Sham litigation" refers to abuse in the form of
groundless litigation merely for the purpose of impeding competitors, and such litigation is considereda violation of US antitrust laws.  The introduction of the principle of "sham litigation" to antitrust
regimes could be an effective remedy to the practice of abusing anti-dumping statutes and other trade
laws for anti-competitive purposes.
3
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liability.  Talk of shortages arose as the cases drew to a conclusion and, despite the negative injury
determinations, price increases were not rolled back.
3 Toshiaki Takigawa (1994).  "Trade Frictions and Competition Laws".  Tokyo: Yuuhikaku.