WORLD TRADE
ORGANIZATIONWT/WGTCP/W/224
5 March 2003
(03-1270)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM HONG KONG, CHINA
The following is the text of a communication received from the Economic and Trade Office
of Hong Kong, China, which was circulated as an advance copy for the Working Group's meeting of
20-21 February 2003.
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Addressing Needs and Concerns Expressed by WTO Members
I. INTRODUCTION
1. The Doha Ministerial Declaration mandates that negotiations on trade and competition policy
will take place after the fifth Ministerial Conference (MC5) on the basis of a decision to be taken, by
explicit consensus, at that MC on modalities of negotiations.  It also highlights that full account shall
be taken of the needs of developing and least-developed country participants and appropriate
flexibility provided to address them.  It follows that the launch of any negotiations at MC5 will hinge
on whether an explicit consensus could emerge at that MC on modalities.  Also, the provision of
appropriate flexibility to address the needs of developing and least-developed country participants
will be crucial in preparing the ground for a decision to be made.
2. To enable Members to make an informed decision on whether or not they will be ready to
undertake any multilateral obligations in the area of trade and competition policy, it is necessary for
them to know the breadth and depth of possible obligations as well as the provision of any flexibility
in areas they have limited capacities or difficulties.  Only with such knowledge would Members be in
a position to assess realistically the costs and benefits of a possible multilateral framework on trade
and competition policy (MFC) and its practical implications to their economies.  HKC therefore urgesthis Working Group to have more studies and discussions in this respect.   To help address the issue
from a pragmatic and forward-looking perspective, HKC would like to share some ideas with
Members with a view to stimulating further deliberation.  In this paper, we hope to highlight the needs
and concerns of developing Members as well as  Members without horizontal competition laws
regarding a possible MFC and to canvass how to address those needs and concerns.
II. CONCERNS OF DEVELOPING MEMBERS UNDER A POSSIBLE MFC
3. Past discussions in this Working Group indicate that the practical implications of a possible
MFC on WTO Members, developed or developing a like, will depend on the breadth and depth of the
relevant obligations versus the regimes of Members.  Given the extensive diversity among Members
of their economic development, industrial policies, socio-economic circumstances, legal traditions,
competition approaches/institutions/culture, etc, it is only natural that a possible MFC would not be
entirely consistent with the present regimes of certain Members.  Such Members would have to alignWT/WGTCP/W/224
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their regimes in a progressive manner in order to achieve full compliance.  Obligations under a
possible MFC will therefore carry implications in terms of policy, legislative and institutional
changes, and resources requirements.
4. As suggested by the OECD, regardless of whether competition regimes have been put in
place, developing countries face special challenges in establishing effective competition laws andpolicies.  This is often attributable to the problems of developing a "competition culture", weak
enforcement capabilities and court systems as well as markets that may be characterised by high
degrees of concentration and histories of state intervention.
1  Besides, developing countries may not
yet have adequate legal, institutional or economic capacity.  It is not uncommon to find valid
economic justifications to allow a treatment different from developed Members to deal with particular
circumstances.  For instance, a developing Member may have the need to allow a monopoly so that its
own indigenous company can achieve the economies of scale to survive global competition.
5. Since Doha, this Working Group has examined in depth the various core principles listed in
paragraph 25 of the Declaration.  Past discussions have fully demonstrated that the practical
implications of implementing these principles coul d be very different for different Members.  To
name a few examples, many Members have horiz ontal (e.g. statutory m onopolies, small and medium
enterprises (SMEs), Research and Development agreements, efficiency enhancing measures and otherefficiency enhancing arrangements) or sectoral (e.g. agriculture and petroleum) exemptions or
exceptions in their competition laws and/or policies.  These exemptions and exceptions may not be
fully consistent with the principle of non-discrimination , particularly in respect of national treatment.
Developing Members, in particular, may have provided for exemptions or exceptions in their
competition policy in view of other overriding economic, industrial or developmental policies.Therefore, certain elements of non-discrimination, if included as obligations under a possible MFC,
may cause difficulties for some Members.
6. For transparency , there are two levels of transparency from the perspective of existing WTO
requirements.  First, laws, policies and decisions that are relevant to or bear upon a WTO obligation
should be published or otherwise be made available publicly.  Second, relevant government actionsbearing on a WTO obligation should be notified.  To put these two levels of requirements in the
context of a possible MFC, not only laws, policies and decisions directly relating to competition may
be required to be notified, but those bearing de facto  upon competition (e.g. laws regulating specific
sectors with certain competition-related clauses) may also be subject to the notification requirement.
The second level of transparency may extend to government actions that affect competition in other
policy areas (e.g. allowing or restraining new entry into a particular sector).  Clearly, these two levels
of transparency carry very different implications for Members depending on the scope of theobligations.
7. The principle of procedural fairness  would likely require Members to set up and maintain
some procedures, or even a judicial framework, for handling appeal cases.
2  Appeal and review
proceedings involved in a due process can be very costly to developing Members, in particular small
economies.  Even for those Members who have already put such proceedings in place, the exactinstitutional setup, scope of application and jurisdiction, appeal and review process, etc vary from one
Member to another.   If the unique features of  individual regimes are not fully taken into account,
obligations in this area are likely to create co stly or even insurmountable compliance problems.
                                                     
1 See OECD's paper, COM/TD/DAFFE/CLP(2001)21, para. 29.
2 In its submission, WT/WGTCP/W/212, para. 18(c), Korea suggests that both domestic and foreign
individuals and firms should be guaranteed the right to appeal to and to request remedy measures from
competition authorities or courts against anti-competitive practices.WT/WGTCP/W/224
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8. For provisions on hardcore cartels , further deliberations are needed on whether and, if so,
how the MFC should cover hardcore cartels.  Some relevant issues may include the definition and
scope of hardcore cartels, implications on domestic regimes in terms of any requirements for
establishment or harmonisation of laws/institutions, the effect of hardcore cartels on international
trade flow, the exemptions required from cartel prohibitions, the rationale and merits for the WTO toventure into this area, the possible scope of multilateral obligations, and possible ways for
implementation.  Due to the vast differences in legal and administrative structures, any possible
obligations must embrace those differences and provide for adequate flexibility in order to command
the necessary consensus for their inclusion in the MF C.  If the obligations are prescriptive, developing
Members will face serious compliance problems.  Some argue that whatever the multilateral
obligations would be developed, the burden of adjustment lies with developing Members as the
developed ones have already had the institutional capacity and basic legislation in place.
9. Voluntary cooperation , while voluntary in nature, nonetheless causes resources and capacity
concerns to developing Members, especially in the context of a possible MFC under the WTO.
Different types of international cooperation arrangements in the competition field require different
levels of resources.  At the basic level, cooperation may simply seek to allow dialogues between
competition authorities to foster greater understanding of one another's regime and to promotedissemination of general information of common interest.  At a higher level, cooperation may entail
the establishment of a dedicated forum to facilitate peer review of competition policies and/or joint
analysis of regional or global competition issues.  At the most sophisticated level, cooperation can
extend to case-specific collaboration among competition authorities to tackle cross-border anti-
competitive practices.  For this type of cooperation, a high degree of similarity in enforcementapproach and experience is called for, not to mention the resources implications.  There are also
worries that certain developing Members are frequently required or targeted to provide cooperation
assistance to developed Members, thus creating tremendous burden to the former.
10. Putting aside the question of whether the above elements should be included in a possible
MFC under the WTO, obligations in respect of these elements will possibly require changes indifferent extents to the laws and institutional setup of certain Members.  New multilateral obligations
will add certain compliance costs in many cases.  Members, in particular the developing ones lacking
legal or economic capacity, will need to make a realistic assessment on the breadth and depth of
possible obligations under an MFC before they can decide whether or not they are capable of taking
on the obligations involved.
III. CONCERNS OF MEMBERS WITHOUT  HORIZONTAL COMPETITION LAWS
11. Apart from the above developmental considerations, HKC has maintained that the domestic
policies and concerns of Members should be fully respected in deliberating and designing any
possible multilateral obligations.  These concerns may include public policy considerations such as
industrial and economic development, SMEs support, employment, environment, need for prudential
supervision in the sectors, need to maintain se rvice reliability, need to meet social service
commitments, safety needs, and other public interest  considerations.  Only by respecting the domestic
policies and concerns of Members could they achieve some common will to negotiate and implementa possible MFC.
12. One of the domestic policies and concerns that HKC hopes to highlight in this paper relates to
the absence of a horizontal competition law.  As suggested by Japan, flexibility in the form of S&D
should be considered for those economies without competition laws, irrespective of whether the
country is developing or not.
3  Up till now, about one quarter of WTO Members does not have a
competition law.  Some of them may have capacity constraints, while others may choose not to enact
                                                     
3 See Japan's submission, WT/WGTCP/W/217, p. 3.WT/WGTCP/W/224
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competition laws because of valid domestic policy concerns.  There is no reason why the concerns of
these economies should be sidelined.  A consensus for any MFC could not possibly emerge without
addressing these concerns.
13. As we have highlighted in previous WGTCP meetings, many of the past discussions in this
Working Group have focussed on proposals requiring Members to have a competition law.  Yet, from
the economic point of view, there is little, if any, systematic evidence indicating that there have been
significant improvements in the performance of developing economies that have adopted a generic
competition law.  Similarly, economies without competition laws are not necessarily less competitivethan the others.
4  Taking HKC as an example, whilst not  having a horizontal competition law, we
have long been a small, open, and externally oriented economy that maintains free trade, minimal
barriers on market entries as well as free flow of capital and investment.  An IMF study has noted
empirically that "Hong Kong SAR is neither significantly more nor significantly less competitive than
the average OECD country".5  The Trade Policy Review on HKC in 2002 also commended HKC as
one of the most open economies in the world.6
14. In this connection, the Secretariat has pointed out that "[i]n cases where no such law exists or
the law is not effectively applied, or where competition rules are applied through sector-specific
legislation, the relevance of the fundamental WTO principles to competition rules is unclear".7
Without a clear picture of the scope of possible obligations, it is as yet unclear how certain elements
in paragraph 25 of the Doha mandate (such as provisions on hardcore cartels) can be put into effect by
those economies without competition laws.  Moreov er, even among Members with a competition law,
the scope and application of their laws vary considerably.  These Members would face compliance
problems should there be an MFC imposing an obligation to enact competition laws or introducing
requirements inconsistent with their existing regimes.
IV. FLEXIBILITY ARRANGEMENTS TO ADDRESS CONCERNS
15. As illustrated above, competition policy is an area where one size does not fit all.  Time and
again, past discussions in this Working Group have underlined the difference between this subject and
other traditional trade issues.  The above analysis also indicates that any possible MFC would
inevitably carry with it substantive and substantial implications which stretch out and straddle
Members' domestic policy, legislative and institutional set-ups.  Certain new obligations may also
bring compliance problems due to inadequate capacity or domestic policy considerations.
16. In the light of the above and in recognition of the diversity among Members of social and
economic development levels, differences in scope and emphases of competition policy, different
choices of implementation instruments, and variations  in legal traditions, sufficient flexibility has to
                                                     
4 There does not seem to have any authoritative objective measurements for a lack of competition in an
economy or a particular sector.  Any such measurement must  rest on some concept of what is and what is not an
anti-competitive practice.  On this, while there is consensus on a subset of practices that are considered anti-
competitive, there is no complete consensus.   The correlation of the Herfindahl index, used as a measure of
market concentration, with the competitiveness of a market is also imperfect.  If a market is contestable, theconduct of sellers in that market is not likely to be anti-competitive even if the number of such sellers is low(such that the Herfindahl index is high).  In addition, while the IMF has provided a methodology for measuringcompetition by using the extent of the company’s pr ofit margins (price less average cost) to ascertain the
intensity of competition in particular sectors, this approach is arguable conceptually.  The application of
different measures of profit margins shows results which are not entirely consistent.
5 See "Domestic Competition, Cyclical Fluctuations, and Long-Run Growth in Hong Kong SAR", IMF
Working Paper WP/00/142.
6 See minutes of Trade Policy Review meeting WT/TPR/M/109, para. 134.  (Subject to finalisation of
the minutes of the TPR meeting.)
7 See Secretariat’s Notes, WT/WGTCP/W/209, para. 25.WT/WGTCP/W/224
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be incorporated into any possible MFC to make it workable and acceptable to the wide membership.
Needless to say, even if a decision could be reache d by explicit consensus on the modalities at MC5,
the conclusion of any subsequent negotiations for an MFC would again hinge upon a consensus
among the WTO membership on the outcome, i.e. the exact scope and coverage of obligations under
the MFC.
17. As HKC sees it, flexibility can be built into both the "breadth" and "depth" of obligations.  In
terms of "breadth", obligations under different core principles or major issues can be divided into
blocks of common and optional obligations.  Common obligations could encompass general
obligations and disciplines  as well as any best-endeavour provisions  (e.g. on the core principles and
capacity building) that are to be subscribed by all Members.  Optional obligations could include non-
binding guidelines or specific commitments  that are to be adopted by each Member individually and
voluntarily.  In our view, detailed elements under the core principles as well as other elements set outin paragraph 25 of the Doha mandate (i.e. hardcore cartels and voluntary cooperation) should be under
this category.  Individual Members are free to choose what optional obligations they agree to abide by
and what specific commitments to undertake, when they are ready to do so.  It provides adequate
flexibility for Members to undertake specific commitments commensurate with their needs and
circumstances, without impeding their pursuit of other domestic policy goals.  This could also helpminimise the compliance problems of Members, including those without horizontal competition laws.
18. Japan has suggested that in a possible MFC, a general rule could be worked out leaving the
possibility to give a more detailed explanation or examples in the form of non-binding guidelines or a
menu of options.
8  Moreover, the experience of the GATS Basic Telecommunications Reference
Paper, which provides a set of regulatory principles/disciplines for basic telecommunicationsservices, may serve a relevant reference.  Members can choose to incorporate the Reference Paper
with or without modifications in their Services schedules as additional commitments.
19. In terms of "depth", a consensus on a satisfactory outcome is only achievable by avoiding
overly prescriptive and burdensome provisions that entail significant adjustments to domestic
regimes.  To address the concerns about onerous obligations and compliance problems , it is most
important that any possible MFC should avoid prescribing the means through which relevant
obligations are to be fulfilled by Members .  It should focus on the ends, not the means.  We have to
accept the reality that the community of trading nations is very diverse with different domestic
circumstances and levels of development.  The ap propriate means for implementing the obligations is
therefore no better than left to a domestic policy decision by each Member.  A Member should be free
to choose how to apply a competition regime in a way that reflects its economic situation and
development/policy objectives.  In the circumstances,  allowances have to be made for differences in
domestic regimes provided they are not contradictory to or in conflict with the underlying
consensus expressed in the fundamental WTO principles .  The fact that GATT and GATS do not
specify the means (legislative or otherwise) through which individual Members implement the
fundamental WTO principles does not hamper the effectiveness of enforcement of such principles.
20. Where appropriate, flexibility such as transitional period should also be provided to address
Member's concerns.  In the end, a Member must be satisfied that its concerns have been adequately
addressed and it will not have compliance problems before that Member could readily accept the final
package of an MFC.
V. CONCLUSION
21. HKC believes that whatever multilateral outcomes to be achievable should take due account
of the needs of developing and least-developed Members as well as fully respect the domestic policies
                                                     
8 See Japan's submission, WT/WGTCP/W/217, p. 2.WT/WGTCP/W/224
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and concerns of Members.  We hope this submission could provide some basis for further deliberation
on the relevant issues in the Working Group with due regard to the needs of all WTO Members.  We
also hope that our ideas on flexibility arrangements will be able to meet the needs of pro-negotiation
Members whilst retaining sufficient flexibility for those with different domestic circumstances and
concerns.
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