RESTRICTED
WORLD TRADE WT/WGTCP/W/8
19June1997
ORGANIZATION(97-2517)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
COMMUNICATION FROM AUSTRALIA
Thefollowing communication hasbeenreceived fromthePermanent Mission ofAustralia with
therequest thatitbecirculated toMembers.
_______________
Background
TheSingapore Ministerial Conference established aworking group tostudy issues raised by
Members relating totheinteraction between trade andcompetition policy, including anti-competitive
practices, inorder toidentify anyareas thatmaymerit further consideration intheWTO framework.
Thispaper isaninitial contribution totheWorking Group, andseeks topresent some ideas forfuture
discussion. Australia stands ready toexamine carefully anyother ideasdelegations maydecide tobring
forward.
Trade andcompetition policy
Itiscustomary todivide competition practices intonarrow competition policy andwide
competition policy. Theformer dealsinwhatisusually known asantitrust matters. Thelatteraddresses
effective competition andregulatory policy regimes which helpensure thatinternal regulatory practices,
including competition lawsandbusiness practices, promote, rather thanundermine market access and
efficiency gains arising from thetrade liberalization.
Thetrade dimension ofcompetition policy canbesaidtoinvolve thetrade-related aspects of
some forms ofprivate andpublic sector behaviour andgovernment regulation. Many oftheissues
attheconvergence between trade andcompetition policies aretherefore ofconsiderable complexity.
Effective competition regimes canhelpensure thatinternal regulatory and/or private business practices
donotundermine thehard-won market access andefficiency gains arising fromprogressive reductions
inborderprotection.Similarly,effectivetradepoliciesaugmentdomesticcompetitionpolicybyreducing
barriers tomarket entry.
Australia isoftheviewthatboththewideandnarrow categories ofcompetition policy warrant
consideration bytheWorking Group, withanemphasis intheearlystageonwider competition toensure
thattheeconomic benefits ofadequate competition regimes receive proper analysis.
Tothisend,AustraliaproposesthefollowingfivetopicsassubjectsfordiscussionbytheWorking
Group.WT/WGTCP/W/8
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Possible issues fordiscussion
Transparency ofdomestic regulations
Thetransparency ofdomestic competition regulation andlawisimportant inensuring thatthe
regulation is,ultimately, pro-competitive withrespect tobothdomestic andforeign firms. Transparency
hastheeffect ofmaking countries andbureaucracies aware ofandmore responsive todueprocess.
Byincreasing predictability anddecreasing theamount ofriskfaced bybusinesses, transparency in
domestic regulation canhelpexpand thevolume oftrade.
Appropriate minimum standards ofregulation/minimum amount ofregulation necessary
Appropriate minimum standards ofregulation, including effective competition laws, areneeded
torunaneffective competition regime. However, itisimportant toensure thatthisdoesnotresult
inover-regulation which canhavetheeffect ofstifling competition. Significant economic benefits
canbegenerated bydomestic governments replacing unwieldy regulatory practices withmore efficient
regimes. Over-regulation bygovernments orcollusion bydomestic business interests hasthepotential
todistort international trade flows andcompetition, leading toinefficiencies andlossofproduction.
Common understanding onconcepts anddefinitions intrade policy andcompetition policy
Atthisstage there islittlecommon understanding oftheconcepts andcomplexities oftrade
policy andcompetition policy, andtheirinterrelationship. Onedifficulty isthatthesame termmay
havedifferent meanings inthetrade policy andcompetition policy communities. Theevolution of
themultilateral trading system since 1948 hasledtoaconsiderable convergence inthemeanings of
mosttradepolicy terms. Though national competition authorities engage inabroad range ofcooperative
activities, theydonotyethaveaccess toaplurilateral ormultilateral competition regime. There are
some differences alsobetween competition jurisdictions astothegoals andcoverage ofcompetition
policy andregulation. Adiscussion would notonlyhelpusunderstand howothers seetheissues, but
itwould alsoserve tohighlight potential difficulties thatwould befaced indeveloping acommon
understanding onconcepts.
Structural reform ofpublic monopolies
Thestructural reform ofpublic monopolies andtheintroduction ofcompetitors tothese
monopolieshasplayedanimportantroleinthecompetitivereformsofmanycountries.Somederegulated
monopolies would, ifallowed toactrationally, defend market share byrestricting supply overtheir
services orinfrastructure. Buttherearecases where monopolies, oncestructurally reformed, including
byvertical and/or horizontal disintegration, tendtobecome anagent forcompetition.
Where significant essential facilities with natural monopoly characteristics thatarenot
economically duplicable areprivatized, consideration should begiven toensuring thatreasonable access
isavailable totheusers oftheservice, andtoencourage competition inrelated markets. Forexample,
access onreasonable terms toanelectricity gridmaybeneeded toencourage competition inthe
generation ofelectricity.
Onprivatization ortheintroduction ofcompetition intoamarket supplied byapublic monopoly,
there isalsotheissueoftheseparation ofthemonopoly 'sregulatory functions fromitscorebusiness
activities andcommercial objectives.WT/WGTCP/W/8
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Competitive neutrality
Competitive neutrality aimstohavetheprivate andformer public sector onequal terms when
competing forbusiness. Itapplies toactivities where theprivate andgovernment sectors compete on
acommercialbasis,orwhereoneprivatesectorfirmhasexcessivemarketpower.Competitiveneutrality
requiresmorethanderegulationorprivatization,andincludes"pro-competitive"reform.Thisrecognizes
thefactthatremoving barriers tomarket entryandending government monopolies maynotbesufficient
topromote effective competition. Thegoalistogetridofexcessive market power which could exist
asacontinuing, andjustaseffective, shadow oftheprevious legislative barrier toentry.
Competitive neutrality isachieved bysubjecting theformer government entity tothesame
regulatory regimes thatareapplicable toprivate business. Thiscould include additional regulation
toenable potential competitors access tothefacilities oftheoldmonopoly onfaircommercial terms.
Itcould alsoleadtotheremoval ofregulation thatisnotpro-competitive, andother legislation that
hasanadverse effect oncompetition. Inthecaseofthepublic sector orregulated monopoly, thiscan
include theremoval oftaxexemptions, anendtoexemptions from competition regulation, andthe
opening upofsome domestic professional licensing regimes tocompetition. Inthecaseofpublic sector
businesses itcould mean removal oftheadvantage ofnothaving toearnacommercial rateofreturn
onassets usedincompetitive business activities. Itcould alsobeachieved, forexample, byimposing
taxequivalent payments anddebtguarantee feesongovernment business enterprises.
GATT Article III(National Treatment) isbased ontheprinciple ofequality ofcompetitive
opportunity. Adiscussion ofcompetitive neutrality could welltakeplace partly inthecontext ofthis
Article.