RESTRICTED
WORLD TRADE WT/WGTCP/W/64
6March 1998
ORGANIZATION(98-0896)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
COMMUNICATION FROM HONG KONG, CHINA
Thefollowing communication, dated 5March 1998, hasbeenreceived fromtheHong Kong
Economic andTrade Office withtherequest thatitbecirculated toMembers.
_______________
Interaction between Trade andCompetition Policy: TheWTO Approach
I. SUMMARY
1. Since theinception ofthisWorking Group, Hong Kong, China hasemphasized thatitswork
should firmly focus ontheinteraction between tradeandcompetition policy, asrequired byitsmandate
intheSingapore Ministerial Declaration. Thisinourview constitutes the"WTO approach", the
adherence towhich willbeintheinterest ofallWTO Members. Thepurpose ofthispaper isto
summarize themain reasons forthisapproach, andtoelaborate onitsscope, inorder tohelpWTO
Members reach aconsensus onthenecessary priorities andabalanced agenda forthefuture WTO
work ontradeandcompetition policies. Itshould benoted attheoutset thattheWTO approach being
advocated focuses ongovernmental measures affecting competition, butdoesnotpreclude thisWorking
Group fromconsidering private restrictive business practices (RBPs), orothertrade-related competition
issues.
2. Parts II,IIIandIVofthispaper present themainlegal, economic andpolitical considerations
whyGATT/WTO lawshould continue toconcentrate ontheliberalization ofgovernmental market
distortions andmarket access barriers, andontheremoval oftrade-related competition problems.
3. PartVconcludes that,byfocusing oninteraction problems oftrade andcompetition policies,
thisWorkingGroupcanbestcontributetothefurtherliberalizationofworldtradeandgreaterconsistency
oftrade andcompetition policies, thereby promoting theeconomic welfare ofallWTO Members.
Itisnoted thatRBPs constitute oneaspect ofthetrade-related competition agenda, andthey, alongside
suggestions ofexplorations intonewWTO rules ondomestic competition laws orinternational
cooperation between competition authorities, alsomeritattention. However, thisWorking Group should
accord priority tothefundamental problem ofgovernmental restraints anddistortions, which continue
tobethemain threats totheattainment ofcompetition aswellastrade policy objectives.
II. LEGAL CONSIDERATIONS: WTO AGREEMENTS FOCUS ONGOVERNMENTAL
MEASURESTOPROTECTLEGITIMATEEXPECTATIONSREGARDINGCONDITIONS
OFCOMPETITION
4. TheWorking Group inearlier deliberations hasnoted that"most WTO agreements maybe
regarded asrelated tocompetition inthattheylimittheability ofgovernments toimpose trademeasuresWT/WGTCP/W/64
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thatwouldhavetheeffectofconstrainingordistortingcompetition(particularlycompetitionfromforeign
sources) inmarkets forgoods andservices"; andthat"ithasbeenalongpractice, accepted byGATT
CONTRACTING PARTIES andWTO Members, tointerpret GATT andWTO rules asprotecting
non-discriminatory conditions ofcompetition" (paragraph 3ofWT/WGTCP/W/50). Italsonoted that
thepast50years havewitnessed theGATT/WTO always according thehighest priority todealing with
governmental restraints oftrade andcompetition.
5. JustasGATT andWTO lawhasalways focused ongovernmental market access barriers and
market access distortions, GATT andWTO dispute settlement procedures have been usedalmost
exclusively forreviewing governmental traderestrictions anddistortions. Onlyinlessthan2percent
ofthemore than300GATT andWTO dispute settlement proceedings, haveprivate anti-competitive
business practices -withthealleged support bythegovernment concerned -beenchallenged. For
instance:
- the1988Panel Report onJapan'sexport restrictions and"voluntary import expansion
commitments" inthecontext oftheJapan-US Semiconductor Agreement described
thecloseinterrelationshipbetweentheprivatecartelofJapaneseproducersandexporters
ofsemiconductors andthesupplementary governmental export restrictions; yet,the
Panel Report onlyfound thegovernmental export restrictions tobeinconsistent with
GATT Article XI:1(BISD 35S/116-162);
- the1988"Good Offices Report bythePersonal Representative oftheDirector-General
ontheDispute between theECandJapan concerning certain Pricing andTrading
Practices forCopper inJapan" didnotuphold theEC'sclaim thattheJapanese
government hadsupported alleged cartel practices byJapanese copper smelters in
violation ofGATT law(BISD 36S/199-202).
There areother GATT dispute settlement proceedings illustrating theclose relationships between
governmental andprivate market distortions; yetagain, theyfocus onthegovernmental measures.1
6. Notwithstanding theexplicit recognition bytheGATT Contracting Parties that"theactivities
ofinternational cartels andtrusts mayhamper theexpansion ofworld trade …andthereby frustrate
thebenefits oftariff reductions andofremoval ofquantitative restrictions orotherwise interfere with
theobjectives oftheGeneral Agreement" (BISD 7S/29), therepeated proposals -in1948, 1954-1955,
1958-1960, 1980and1986-forintroducing intoGATT lawsupplementary rulesonrestrictive business
practices were never adopted bytheGATT Contracting Parties.
7. Ithasbeencontended thatinaglobalized world economy, RBPs haveassumed increasing
importance asasource ofdistortion tointernational trade andcompetition. Forexample, inthe1997
GATS Protocol ontheliberalization oftelecommunications services, most Members included
commitmentsonregulatorydisciplinesbasedonanagreed"referencepaper"whichsetsoutcommitments
relatingtosuchmattersascompetitionsafeguards,interconnectionguarantees,licensingandindependence
ofregulators.Itseemsobviousthat,ifWTOMembersshouldnegotiateadditionalfutureGATSProtocols
ontheliberalization of,e.g.transportation services, suchProtocols maylikewise benefit from the
inclusion ofcompetition rulesdealing with, forinstance, cartel practices, market-sharing agreements
andmonopolies inthese andother services sectors. TheneedforWTO rules onmonopolies and
anti-competitive practices hasalsobeenraised inaccession negotiations withsome former state-trading
economies.
1The1998 Panel Report onJapan 'smeasures affecting consumer photographic films andpaper isoftopical
interest; ourcomments onthiscasearewithheld pending adoption ofthePanel Report.WT/WGTCP/W/64
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8. Looking forward, weagree withtheremark intheWTO Annual Report 1997 (page 32)that:
"theissueisnotwhether competition policy questions willbedealtwithintheWTO context, buthow
and,inparticular, howcoherent willtheframework bewithin which thiswillbedone". Arange of
negotiation strategies maybeconsidered fortackling thevarious trade-related competition problems
after they have been more clearly identified: such strategies assectoral GATS Protocols,
economy-specific Accession Protocols, additional general WTO rules, orPlurilateral Trade Agreements
interms ofAnnex 4totheWTO Agreement. Yet,the"WTO approach" should lead,inalltheseareas,
toafocus onthe"interaction problems" oftrade andcompetition policies, rather thandealing with
exclusively national competition policies andtheirinternational coordination.
III. ECONOMIC CONSIDERATIONS: FOCUSING ONTHEMOST RESTRICTIVE TRADE
BARRIERS AND COMPETITION DISTORTIONS SERVES BEST THE ECONOMIC
INTERESTS OFALL WTO MEMBERS
9. There areimportant economic reasons forthelong-standing focus inGATT andWTO law
andpractice ongovernmental restraints anddistortions ofcompetition:
(a) Thewidespread governmental market access barriers anddistortions appear tobemuch
moreimportant tradebarriers compared topurely private restrictive business practices.
Inhisrecent 1997Annual Report, theWTO Director-General rightly emphasized that,
evenafterthefullimplementation oftheUruguay Round, asubstantial number ofhigh
tariffs andnon-tariff trade barriers willremain, especially insectors ofparticular
importance fordeveloping countries suchasagricultural trade, textiles andclothing,
footwearandleathergoods.IntheWTOAgreementonTextilesandClothing,Members
areagreed ontheneedfor"increased competition intheirmarkets" (Article 1.5)and
pursue thisobjective through rulesontheliberalization ofgovernmental tradebarriers.
Also inmost other trade sectors, competition willbemore enhanced bytrade
liberalization andbycompetition-oriented reforms ofexisting WTO rulesthanbymere
introduction ofWTO rulesonnational competition lawsandinternational cooperation
among competition authorities.
(b) Eventhough border barriers arewaning inimportance relative toentry barriers behind
thecustoms frontiers, internal governmental market access barriers appears tobemuch
more important (e.g. asregards product standards, services trade, "commercial
presence" intheimporting country) than purely private restraints ofcompetition.
(c) Inmany areas, international trade andcompetition continue tobeimpaired by
discriminatorygovernmentaldistortions,suchasdiscriminatoryrulesoforigindistorting
competition among likeproducts andcompeting suppliers; government procurement
practices discriminating against foreign products andsuppliers; discriminatory
anti-dumping duties andprice undertakings which restrict anddistort competition
between foreign anddomestic products andcompetitors; discriminatory state-trading
practices andspecial privileges granted bygovernments todomestic suppliers, and
trade discriminations resulting from regional trade agreements. Further trade
liberalization andthestrengthening oftheWTO non-discrimination requirements offer
more effective means forreducing government distortions and promoting
non-discriminatory competition.
(d) MostWTO provisions ontrade-related competition problems (e.g.inArticle IXGATS,
Article 40TRIPS Agreement, Article 9TRIMS Agreement) recognize thesovereign
right ofWTO Members toregulate andlimitrestrictive business practices, without
prescribing obligations forsubstantive competition rulesinthisrespect. There issoundWT/WGTCP/W/64
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economic rationale forthisdecentralised andflexible approach, including notably the
lackofaworldwide economic consensus ontheoptimal competition policy rulesand
instruments fordealing withsuchproblems. Thiscontrasts withthegeneral consensus
among economists andamong governments onthemutually beneficial welfare effects
offurther liberalization ofgovernmental trade barriers andmarket distortions, as
envisaged under thetraditional GATT/WTO approach.
(e) Some WTO provisions specifically refertothepossible anti-competitive effects oftrade
policy measures, suchasanti-dumping measures (cf.thereference to"trade-restrictive
practices ofandcompetition between theforeign anddomestic producers" inArticle 3.5
oftheWTO Anti-dumping Agreement) andother safeguard measures (cf.Article 11
oftheWTO Agreement onSafeguards). AfewWTO provisions alsoexplicitly
recognize thattrade restrictions should be"inthepublic interest" (cf.Article 3.1of
theAgreement onSafeguards). Such explicit references inWTO lawtopotential
"interaction problems" oftrade andcompetition policies deserve priority attention in
ourfuture work inview ofthetoday worldwide consensus among economists that
anti-dumping andother safeguards measures tendtoreduce competition andeconomic
welfare ofalleconomies concerned forthebenefit ofrent-seeking lobbies.
IV. POLITICAL CONSIDERATIONS: PROTECTIONIST RESTRAINTS OFCOMPETITION
AND REGULATORY CAPTURE CAN BERESISTED BEST BYINSISTING ONMORE
CONSISTENCYOFTRADEANDCOMPETITIONPOLICIESANDGENERALCONSUMER
INTEREST
10. Overthepastdecades,GATT/WTOparties,inparticularthedevelopingeconomies,havesuffered
from long-standing protectionist trade restrictions (e.g. inagricultural andtextiles trade) and
discriminatory restraints ofcompetition against low-cost imports (e.g.inthefieldofanti-dumping
measures). Many studies, including theWTO Annual Report 1997 (page 43),haveacknowledged
thatmuch ofthistradediscrimination reduces anddistorts competition, often asaresult of"regulatory
capture" byspecial interest groups. ThisWorking Group would benefit initsfuture work fromopenly
andclearly acknowledging thisfact.
11. Though contention ismade intheWTO Annual Report 1997 (pages 50-51) thatcompetition
policy isneeded evenwithtrade liberalization, nothing inthesame report argues against thevalidity
ofaWTO approach inaddressing competition issues. Instead thereport hascome totheconclusion
that: "...there isastrong presumption, based ontheoretical considerations, aswellaspractical
experience, thattrade liberalization intheformofreduced tariffs, theelimination ofQRsandsoon,
haspro-competitive effects". Ontheother hand, onnational competition lawsandpolicies andwith
respect totheirsubstantive oroperational standards, clearinternational differences existincluding among
several major economies. Asregards thenotion ofharmonizing competition lawsandpolicies, a
consensus seems tobelacking sofar,bothpolitically andintellectually, onspecific international norms
tobepursued (e.g.aprohibition ofprice andoutput cartels including bid-rigging andexport cartels,
international coordination ofmerger control policies). While thefuture work ofthisWorking Group
might contribute topreparing suchaconsensus, weshould continue thesuccessful "WTO approach"
ofdealing withtrade-related competition problems byaccording priority attention tothe"interaction
problems" oftrade andcompetition policies, ormore precisely governmental market distortions. In
doing so,weshould alsodevote priority togovernmental market distortions under existing WTO rules
(such asanti-competitive anti-dumping measures andstate-trading measures).
12. Topromote abroader trade andcompetition perspective, andtohelpdevelop aninternational
political consensus, thisWorking Group willbenefit from taking intoaccount available independent
economicresearch,includingsuggestedwaysandmeanstoreconciletheexistinginconsistenciesbetweenWT/WGTCP/W/64
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trade andcompetition policies. Aproposal hasrecently emerged, forinstance, toremove the
inconsistencies between trade andcompetition policy: "(w)orld trade lawsshould bereformed sothat
theydonotthwart theobjectives ofcompetition policy".2Thisproposal looks into,interalia,the
replacement of"anti-competitive aspects ofcurrent trade remedies (anti-dumping andcountervailing
duties) withmore efficient andmore equitable competition-policy safeguards ...".3Theemphasis on
thereform ofWTO rules isworthy oftheWorking Group 'sattention.
V. CONCLUSIONS
13. Since the"interaction problems" oftrade andcompetition policies arenotdealtwithinother
specialized WTO bodies, theWorking Group ontheInteraction between Trade andCompetition Policy
hasauniquemandateandcomparativeadvantageforanalysing,withdueemphasisoneconomicefficiency
andthegeneral interest inconsumer welfare, thevarious inconsistencies between tradeandcompetition
rules. Without duplicating thework inother specialized WTO bodies, theWorking Group must be
guided byabalanced agenda, andnotside-tracked bytheself-interest ofprotectionist trade lobbies
orcompetition lobbies.
14. Inthelightofthelegal, economic andpolitical considerations mentioned above, thefocus of
theWTO approach onthepromotion ofinternational competition through trade liberalization should
bethebasisoftheWorking Group 'sdiscussions. Study isalsoenvisaged onprivate RBPs which may
haveadverse effects oncompetition andinternational trade. Competition-oriented reforms ofexisting
WTO provisions should beamain element leading totheremoval ofinconsistencies between trade
andcompetition policy.
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2E.M. Graham andJ.D.Richardson (ed.); Global Competition Policy, 1997, page 559
3Ibid, page 4