RESTRICTED
WORLD TRADE WT/WGTCP/W/58
19December 1997
ORGANIZATION(97-5633)
Original: Spanish Working Group ontheInteraction
between Trade andCompetition Policy
SUBMISSION FROM MEXICO
Thefollowing communication, dated 4December 1997, hasbeenreceived fromthePermanent
Mission ofMexico withtherequest thatitbecirculated toMembers.
_______________
Introduction
Competition policies focus onbarriers tomarket entry within theconfines ofan
economy, although therelevant market sometimes goesbeyond these limits. Trade
policies, ontheother hand, focus onmarket access barriers imposed oninternational
trade ingoods inservices.
From theabove, itcanbeseenthatcompetition policies andtrade policies share the
same objective: theelimination orreduction ofbarriers tomarket entry. Bothare
based ontheassumption thatamarket without distortions maximizes efficiency and
allocation ofresources within theeconomy.
Therelationship between competition policy andtrade isthattheabsence ofa
competition policy mayhinder theaccess offoreign products, services andinvestors
toaparticular market, irrespective ofwhether ornotthemarket hasbeenliberalized
asaresult oftrade policy.
Ifthegoalisreally toopenupmarkets, whatisimportant isthatbothpolicies promote
economic competition.
Discussions intheWorking Group should takeintoaccount twomajor issues: the
convergence andstrengthening ofcompetition policy ontheonehand, andspeeding
uptheprocess ofeliminating protectionist elements oftrade policy ontheother.
What isimportant toMexico istheinteraction between tradeandcompetition. Taking
competition alone, orbelieving thattheGroup 'swork could some dayleadtothe
inclusion ofcompetition asafourth pillar oftheWTO system (theother three being
goods, services andintellectual property) would beaserious mistake. Itwould go
against whatwasagreed attheSingapore Ministerial Conference andthuswould be
unacceptable toMexico.WT/WGTCP/W/58
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Competition policy
Competitionpoliciesprotectandpromoteeconomiccompetitionthroughmeasureswhich
interaliaregulate monopolies, monopolistic practices, mergers andtakeovers. They
sometimes prevent theerection ofbarriers totrade orforeign investment.
Asthescope ofcompetition policy objectives andinstruments isnotthesame inall
countries, where suchpolicies existtheirpotential impact onmarket access differs as
well. Thegoalshould betoensure thatcompetition policies havethesame impact
interms ofmarket access, whether bymeans ofcommon principles orrulesorbyany
other means.
Forthemoment, onlyafewregional agreements have incorporated provisions to
harmonize competition policy insome way,forexample those oftheEuropean Union
andtheCloser Economic Relations Trade Agreement between Australia and
NewZealand.
Trade policy
Theobjective oftrade policy should alsobetopromote economic competition by
eliminating barriers tointernational trade ingoods andservices.
TheWorld Trade Organization hasadopted important agreements topromote
internationalcompetitioninvariousfields,includingtariffs,non-tariffbarriers,voluntary
restraint agreements, export subsidies, trade-related investment measures, protection
ofintellectual property rights, anddisciplines concerning anti-dumping measures.
TheWTO agreements havemanaged toeliminate orreduce alargenumber ofbarriers
totrade, buttheyhave notalways resulted intheelimination orreduction of
anti-competitive trademeasures. Some examples aresubsidies, production incentives,
theprotection ofcertain intellectual property rights, trade-related investment measures,
andtheabuse ofanti-dumping measures.
TheWTO should continue tostrive toeliminate tradebarriers andthuspromote amore
competitive environment.
Interaction between competition policy andtrade policy
Competitionpolicyandtradepolicycanbecomplementary,contradictoryoralternatives.
They complement eachother when theybothpromote economic competition. One
example would betoprohibit theuseofpredatory pricing toprevent theentry ofa
good whose tariff hasbeenreduced orabolished.
They conflict when either ofthetwopolicies doesnotpromote economic competition.
Acompetition policy, forexample, mayprohibit recourse topredatory pricing but
notbesufficient toallow theaccess ofaparticular good tothemarket because itis
subject toahightariff oranimport licence. Another example could bethecontrary
case, inwhich imports arenotsubject totariffs orlicences butthelawallows theuse
ofpredatory pricing toprevent theentry oftheimported product intothemarket.WT/WGTCP/W/58
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When competition andtradepolicies haveconflicting effects interms ofmarket access,
thefinaloutcome islesseconomic competition.
Onecaseofparticular interest toMexico isthatofanti-dumping measures. Although
anti-dumping measures areallowed under theterms oftheWTO Anti-Dumping
Agreement, dumping prices donotnecessarily haveananti-competitive impact onthe
importing economy.
Asdumping prices imply price discrimination, itwould beinteresting toconsider
whether competition policies thatprohibit thispractice within aneconomy could be
usedtoreplace anti-dumping measures, when theenterprise utilizing thispractice is
apower intherelevant market.
Theproblem hereisthatifcompetition policy criteria areapplied topricediscrimination
indumping, inmany cases thispractice would notbeallowed. These cases should
beidentifiedandcarefulconsiderationgiventowhetherthepro-competitiveeffectwould
compensate fortheprotection afforded byanti-dumping measures.
Inthisconnection, itcanbestated thatifallcountries strictly prohibited price
discrimination, there would benoneedforanti-dumping measures.
Therules contained incompetition policies arebetter adapted todealing withissues
related tounfair practices andtheypromote greater efficiency thananti-dumping rules;
moreover, competition policies arefullyconsistent withtrade liberalization, unlike
anti-dumping measures, which aresometimes contrary tothespirit andobjectives of
theWTO.
Competition policies aremore appropriate thananti-dumping policies because they
areagreater encouragement totrade andalsoaremore consistent with, andthus
complement, trade policies.
Another wayofmoving away fromanti-dumping measures istocontinue liberalizing
global trade untilthere isnolonger anyincentive toexport atdumping prices, taking
intoaccount thepossibility ofre-exporting goods tothecountry oforigin ataprice
lower thancostprice.
Summary
Mexico considers thattheWorking Group should discuss bothcompetition andtrade issues.
What isreally important hereistherelationship between tradeandcompetition. Discussing competition
alone willnotgetusanywhere.
Thebenefits ofharmonizing competition policies canbeconsiderable. Itcould improve access
tomarkets which areclosed duetorestrictive trade practices eventhough tariffs arerelatively low;
itcould helptoestablish amore appropriate framework fortackling trade problems caused by
anti-competitive practices onexport markets, limiting theemergence ofsuchpractices; itcould also
reduce thecosts oftransactions forenterprises aswellastheuncertainty caused byinconsistency in
theapplication ofcompetition laws, andleadtogreater economic growth attheglobal level.
Thisissue, however, cannot beconsidered orhandled inanisolated fashion. IftheWorking
Group istomake progress, thenecessary elements ofcompetition policy mustbeincorporated inthe
relevant international tradeinstruments sothattheyreinforce theeffectiveness andeconomic coherence
oftrade liberalization measures.