RESTRICTED
WORLD TRADE WT/WGTCP/W/15
26June1997
ORGANIZATION(97-2638)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
COMMUNICATION FROM HONG KONG
Introduction
1. Thepurpose ofthispaper istoassist intheimplementation oftheSingapore Ministerial
mandate onTrade andCompetition. Ministers in1996 "[h]aving regard totheexisting WTO
provisions onmatters related to...competition policy andthebuilt-in agenda inthese areas, including
under theTRIMs Agreement, andontheunderstanding thatthework undertaken shallnotprejudge
whether negotiations willbeinitiated inthefuture" agreed to"establish aworking group tostudy
issues raised byMembers relating totheinteraction between trade andcompetition policy, including
anti-competitive practices, inorder toidentify anyareas thatmaymerit further consideration inthe
WTO framework". Themandate iscomprehensive andshould beusedforabalanced analysis of
interaction policy issues, suchasmutually supportive aswellasdistortive interrelationships between
trade andcompetition.
2. Therecent interest inthetrade andcompetition interface canpartly beattributed tothe
globalization oftheworld economy. Economies arebecoming increasingly interdependent.
Continuing liberalization ofgovernmental tradebarriers through thesuccessive rounds ofmultilateral
trade negotiations, increased cross-border investment, advanced technology intelecommunications,
enhanced accessibility toinformation, improved infrastructure andtransport, andincreased mobility
ofpersons andcompanies haveallcontributed tothatphenomenon known as"globalization". Trade
liberalization isnolonger arelatively "simple" exercise oftariff reductions. Many other aspects of
governmental measures andpolicies havebecome highly relevant. Trade andcompetition aretwo
most pertinent examples. Itistherefore important thattheWTO hasembarked upon anexercise to
bring more clarity totheirinterrelationships.
Programme ofwork
3. Hong Kong proposes thattheWorking Group lookintothefollowing aspects ofwork.
I. TOSTUDY THE OBJECTIVES OFTRADE POLICIES AND COMPETITION
POLICIES/LAWS AND THEIR INTERRELATIONSHIPS
Some objectives oftrade policy andcompetition policy appear tobeinpartcomplementary
...
4. Trade policy, inabroad sense, encompasses thewhole range ofgovernment policies and
measures regulating trade across national boundaries. Major objectives oftrade policy, asreflected
inthepreamble oftheWTO Agreement which isthecornerstone ofthemultilateral trading system,
are"raising ofstandards ofliving, ensuring fullemployment andalargeandsteadily growing volume
ofrealincome andeffective demand, andexpanding theproduction oftrade ingoods andservices,
while allowing foroptimal useoftheworld ’sresources". Tocontribute tothese objectives, theWTOWT/WGTCP/W/15
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Agreement restrains governmental intervention thatwould impede market access. Impediments to
market access, ordistortion oftrade, arethemselves adistortion ofcompetition. Indeed,
GATT /WTO provisions havebeenconsistently interpreted bydispute settlement panels andMembers
toprotect "competitive opportunities" (asopposed toactual trade flows) andnon-discriminatory
"conditions ofcompetition".
5. Broadly speaking, competition policy covers practices within thedomestic economy which
affect competition andisimplemented through government intervention. Itsbasic objectives areto
promote economic efficiency, prevent anti-competitive practices, givefreeaccess tomarkets, and
maximize thebenefits ofconsumers.
6. Trade policy andcompetition policy therefore havesome objectives incommon: theyaimto
enhance economic welfare through market access andcompetition. They alsoseektoprovide
remedies fordealing withanti-competitive behaviour. Progressive trade liberalization serves to
sharpen domestic competition, andthusreinforce thebroad objectives ofcompetition policy. Trade
policy andcompetition policy should bemutually consistent andcomplementary toeach other.
Governments should promote thegeneral interest oftheircitizens through undistorted competition and
consumer welfare inbothpolicy areas.
Some trade policy andcompetition policy objectives however appear contradictory ...
7. WTO provisions differ, however, from competition policy inmany ways. Forinstance:
(a) Some WTO provisions (such asGATT Articles VI,XVIandXIX) areaimed at
protecting import-competing producers rather thancompetition andconsumer welfare;
notably thesafeguards, anti-dumping andcountervailing dutyrulesareoften usedfor
restricting import-competition without sufficient regard tothecompetition policy
objectives ofopenmarkets, undistorted competition andconsumer welfare.
(b) Competition policy, insome instances, mayalsoimpede market access andthe
competitive process, thusnullifying theobjectives oftrade policy. Forinstance,
competition policy focuses ondomestic consumer welfare andoftenpermits restraints
oftrade andcompetition which maybecompetition-neutral domestically butwhich
mayadversely affect international trade andforeign consumer welfare (e.g. export
cartels).
II. TOTAKE STOCK OFAND STUDY EXISTING WTO PROVISIONS RELEVANT TO
COMPETITION AND COMPETITION ISSUES WHICH MIGHT AFFECT TRADE
Existing trade provisions relevant tocompetition
8. Apart from thefundamental provisions ofGATT Articles I(MFN treatment), III(national
treatment) andX(transparency) andthecorresponding provisions inArticles II,XVII andIIIof
GATS, there arenumerous specific WTO provisions which arerelevant invarying degrees to
competition. Forinstance:
(a) GATT Article VIandtheWTO Agreement onAnti-dumping (e.g.concept ofinjury,
treatment ofprice discrimination, public interest etc.);
(b) GATT Article XVI andtheWTO Agreement onSubsidies andCountervailing
Measures (e.g.concept ofinjury);WT/WGTCP/W/15
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(c) GATT Article XVII andtheUnderstanding onState Trading Enterprises (e.g.
monopolies andgovernment actions);
(d) GATT Article XIXandWTO Agreement onSafeguards (e.g. concept ofinjury,
VERs, export restraints, OMAs andanyother "public orprivate" similar measures
etc.);
(e) Agreement onTRIMs;
(f) Agreement onPre-shipment Inspection;
(g) Agreement onRules ofOrigin;
(h) GATS provisions (e.g.Article IX);
(i) Services Schedules suchasthose onBasic Telecommunications containing regulatory
principles;
(j) Agreement onTRIPS (e.g.anti-competitive practices incontractual licences); and
(k) Annex IVAgreement onGovernment Procurement.
9. TheWorking Group should draw upacomprehensive listofrelevant WTO provisions and
examine further their interaction with competition policies. Inthisregard, theSecretariat has
helpfully circulated aninformal note"Competition-related provisions inexisting WTO Agreements"
which willprovide agood basis forfurther work oftheWorking Group.
Existing competition policy/law relevant totrade
10. Some GATT/WTO provisions areconcerned with anti-competitive business behaviour.
Indeed, GATT recognizes "that business practices which restrict competition ininternational trade
mayhamper theexpansion ofworld trade andtheeconomic development inindividual countries and
thereby frustrate thebenefits oftariff reduction andremoval ofquantitative restrictions ormay
otherwise interfere withtheobjectives oftheGeneral Agreement onTariffs andTrade".1Likewise,
GATS Article IX,TRIPS Articles 6and40include provisions onanti-competitive business practices.
Given thedistorting effects ofsuchbusiness practices, there isaneed fortheWorking Group to
conduct anexamination ofthisarea.
11. Furthermore, there continue toexistsome areas ofcompetition policy/laws where therules
maypermit measures which areinconsistent vis-à-vis theobjectives oftheWTO Agreement and
which might undermine theeconomic efficiency brought about through consecutive rounds oftrade
liberalization. Theresults could undermine thelegal security ofthemultilateral trading system and
putintodoubt thecredibility ofgovernments inpursuance ofthesystem. Such examples include:
(a) certain exemptions fromcompetition policies/laws (sectoral exemptions, government
actions, government-sanctioned monopolies, export cartels etc.); and
1Decision oftheGATT CONTRACTING PARTIES of18November 1960 on"Restrictive Business
Practices -Arrangements forConsultations", in:BISD 9S/28-29WT/WGTCP/W/15
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(b) treatment ofdominant market position (abuse ofmarket power, mergers and
acquisitions).
12. Itisalsonoted thatsome customs unions andfree-trade areas pursue theirobjectives offree
trade andundistorted competition through prohibitions onbothgovernmental aswellasprivate trade
restrictions andcompetitive distortions. Inparticular, some havereplaced theirtradeprotection rules
bycompetition rules andprocedures. There maybescope fortheWorking Group totakestock and
draw ontheexperience ofsucharrangements withtheaimofenhancing thecomplementarity oftrade
andcompetition.
III. TOEXAMINE AREAS OFPOTENTIAL INCONSISTENCIES BETWEEN TRADE AND
COMPETITION POLICIES
13. Relevant economic literature often points toincoherences between trade andcompetition
policies, leading toeconomic inefficiencies, legalinsecurity andpower-oriented income redistribution
atthenational levelforthebenefit ofprotectionist interest groups. Without wishing topreempt the
conclusions which theWorking Group might drawfromitsstudies, itwould occur toHong Kong that
suchproblematic areas could include thefollowing:
(a) anti-dumping duties onlow-priced imports eveniftheduties reduce consumer welfare
andimport competition. Different standards areapplied bytheanti-dumping regime
andcompetition policy/law totheallegedly low-priced imports, e.g.ontheconcept
ofinjury;
(b) countervailing duties onsubsidized imports evenifthecompeting domestic industries
benefit from similar subsidies;
(c) theconcept oforigin which prevails intheWTO Agreement although competition
policy tends toignore the"nationality" ofcompetitors. Further distortion mayalso
arisefrompreferential rulesoforigin inregional trade agreements, which canresult
inlessthanoptimal useofresources;
(d) "voluntary export restraints" andgovernment-supported "crisis cartels", monopolies
orvertical restraints ofdistribution systems;
(e) abuses ofintellectual property rights;
(f) competition-distorting production subsidies;
(g) certain exemptions incompetition laws(e.g.export cartels, import cartels, vertical
restraints, etc.).
IV. TOEXAMINE THERELATIONSHIP BETWEEN COMPETITION AND DEVELOPMENT
14. Competition policy canbeseenashelping toenhance theinternational competitiveness of
domestic industries. Itcanalsohelptoeliminate economic inefficiencies thatmight arisefromcertain
market failures suchasmonopolies. Ontheother hand, concerns havebeenexpressed about the
potential conflict between competition policy andother development-related policies suchasthose
which support "national champions". Itmaybeuseful fortheWorking Group toexamine indetail
howcompetition policies mayrelate todevelopment.WT/WGTCP/W/15
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Conclusion
15. Hong Kong, inlinewithitslong-standing policy topractice andpromote freetrade, believes
thattrade andcompetition policies should bemutually supportive andcomplementary inthepursuit
ofglobal economic efficiency andthewelfare ofpeople. Wesupport acomprehensive andbalanced
work programme fortheWorking Group which would beconstructive inthepursuit ofthatobjective.
Tothatend,werecommend totheWorking Group tostudy issues suchasthose identified inthe
preceding paragraphs ofthispaper. Wepropose thattheWorking Group approach those issues by
adopting thefollowing broad framework:
(a) tostudy theobjectives andprinciples oftradepolicy andcompetition policy andtheir
interrelationship;
(b) totakestock ofandstudy existing WTO provisions which arerelevant tocompetition
andcompetition issues which might affect trade;
(c) toidentify andexamine areas ofpotential inconsistencies between trade policy and
competition policy; and
(d) toexamine therelationship between competition anddevelopment.
16. Webelieve thatawork programme along these lineswould facilitate adecision bytheGeneral
Council atanappropriate timeonhowthework ofthisWorking Group should proceed.
17. Hong Kong alsowishes torecall thattheMinisterial Decision inSingapore instructed, inter
alia,theWorking Groups oninvestment andcompetition todraw upon each other'swork as
necessary. Weurgethatmodalities bedevised toenable thistotakeplace.