RESTRICTED
WORLD TRADE WT/WGTCP/W/33
26September 1997
ORGANIZATION(97-4007)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
COMMUNICATION FROM ASEAN
Relationship between theObjectives, Principles, Concepts,
Scope andInstruments ofTrade andCompetition Policy andtheir
Relationship withDevelopment andEconomic Growth
Thefollowing communication, dated 10September 1997, hasbeenreceived fromthePermanent
Representative ofthePhilippines onbehalf oftheASEAN countries, withtherequest thatitbecirculated
toMembers.
_______________
I. INTRODUCTION
Thispaper isanattempt toelucidate various considerations thatmayberelevant instudying
therelationship between trade andcompetition policy.
There arethree sections inthispaper. Thefirstsection deals withwhatASEAN could view
astheconcept, objective, principles, andscope ofcompetition policy. Given thelackofacommon
understanding ofcompetition policy among Members, itwould beuseful tolayoutthelandscape of
thisphenomenon.
Thesecond section presents apossible inventory oftheinstruments ofcompetition policy, and
howthese interact withthose oftrade policy.
Thethirdsection covers therelationship between trade andcompetition policy, howtheymay
complement orconflict withoneanother, andtheroletheyplayindevelopment andeconomic growth.
II. THE CONCEPT, PRINCIPLE, OBJECTIVE AND SCOPE OFCOMPETITION POLICY
Asaconcept andprinciple, competition policy refers toasetofgovernment measures that
stimulate andguarantee competition toensure thecontestability ofmarkets. Competition policy would
beirrelevant hadperfect competition existed in--andperfect information were available for--all
products andallbusiness decisions. Unfortunately, thisisnotthecase. Imperfections inmarket conduct
andstructure aretherulerather thantheexception.
Theobjective ofcompetition policy istofoster theefficient allocation ofscarce andfinite
resources withtheendinviewofensuring thatwelfare ismaximized, thatis,consumers getthemost
andattheleastpossible cost.Inpursuit ofthisobjective, competition policy aimsatpreventing restraints
ofcompetition-restraining market conduct andstructure, andatstimulating freeandeffective
competition.WT/WGTCP/W/33
Page2
Itsscope israther wideandcannot benarrowly confined totheregulation ofpricing andmarket
power. Onthecontrary, competition policy must beviewed broadly toinclude, among others,
deregulation andprivatization, fairtrade andconsumer protection rules, intellectual property rights,
andforeign trade regimes because allthese haveanimpact onthecontestability ofamarket.
Nonetheless,ifcompetitionpolicyweretobeviewednarrowlyinthetraditionalsenseofdomestic
regulation, itwould relate totheprevention oftheconcentration ofmarket power, orifexceptions
areallowed bygovernment consent, thecontrol andsupervision ofsuchconcentration. Inthissense,
competition policy would thuscover interaliathefollowing:
(a) Monopolies, which isamarket structure where there isonlyonefirmintheindustry
andhence there isnoeffective competition within theindustry. With thismarket
structure, prices canincrease withconsumers having veryfewother alternatives to
allow them toexercise their right tochoose among products. Asaconsequence,
monopoly situations translate totheleast output atthegreatest possible costto
consumers.
(b) Collusions, cartels, andother forms ofanti-competitive behaviour thatemploy the
following modes ofdoing business:
(i) Price fixing (horizontal andvertical), differential pricing, predatory pricing,
andother forms ofpricing strategies thatmaynotallow theforces ofsupply
anddemand tofreely interact;
(ii) Marketsharing,whetherterritorial/geographical,bycustomers,andotherforms
whichcouldcreateartificialconditionsfortheinteractionofsupplyanddemand;
(iii) Boycotts andrefusals-to-deal, andtiedorexclusivity arrangements which could
proveconvenientorprofitableforsuppliers,butwhichcanpotentiallyadversely
affect consumers;
(iv) Aggressive selling ormarketing tactics thatinvolve ruinous price wars,
comparative advertising campaigns, theintroduction ofnewormore brands
thatonlyconfuse consumers oreffectively leadtomarket power concentration
(i.e., brand crowding), andtheoffer ofseemingly attractive butactually
non-existent aftersalesservice;
(v) Outright intimidation todrive away newentrants from anindustry through
legalharassment orbyother means.
(c) Mergers andacquisitions, which achieve byexternal expansion whatcannot beachieved
byinternal corporate growth orbycontract among corporations (i.e., cartels), butat
times attheexpense oftheconsuming public.
Competition policy canrelate aswelltogovernment measures thatimpact onmarket conduct
andstructure. Forexample, governments cantolerate orevensupport theconcentration ofmarket
power through exceptions toanti-monopoly oranti-cartel laws. Governments alsocondone oreven
sustain anti-competitive conditions through tradepolicy andmeasures suchashightariffs, quantitative
restrictions andtrade defense instruments likeanti-dumping duties. Ontheother hand, governments
mayconsciously forego these trade-restricting measures toencourage competition within thedomestic
market.WT/WGTCP/W/33
Page3
Toreiterate, theabove areonlyanillustration ofwhatcompetition policy could encompass.
Theactual scope, asmentioned, canbemuch wider, depending onaneconomy 'slevelofdevelopment,
itspredominant economic base, itsdegree ofopenness, andthelevelofsophistication interms ofthe
mode, tools, andinstruments ofcompetiton available toit.
III. THE INSTRUMENTS OFCOMPETITION POLICY
Competition policy mayormaynotinvolve theenactment ofcompetition laws. Indeed, some
ofthemore competitive countries maynothaveacomprehensive setoflawstoimplement policy.
Conversely, others would probably havethelawsbutnonetheless donotimplement them properly
andthereby undermine avowed policy. Therefore, competition policy could beconsidered asbeing
broader thancompetition law.
Thebasicinstrument ofcompetition policy inmostcountries areusually embodied intheorganic
lawofacountry, which could becalled theConstitution .Here, national aspirations andobjectives
astheyrelate toeconomic management andpolicy areexpressed.
More specifically, however, thelegalinstruments ofcompetition policy canalsobeembodied
intheso-called corporation codes orbusiness actsthatgovern thebehaviour ofprivate corporations
anditsstockholders; lawsthatgovern parties which engage insalesandpurchases ofgoods orinany
kindofcontract oragreement; securities actswhich provide disciplines forthesale,offering forsale
ordistributionofsecurities,commercialpapers,stocksandbonds,pre-needplansandcommodityfutures
contracts; insome cases, separate instruments including CivilLawthatgovern thebehaviour ofsole
proprietorships andpartnerships; fairtrade laws; andconsumer protection laws.
Other lawsfocus ontheprevention, orcontrol andsupervision, ofmarket power concentration.
These mayinclude, among others:
(a) Aprice control, anti-trust oranti-monopoly lawswhich seektoprevent monopolies,
oligopolies ormonopolistic tendencies, commodity hoarding, injurious speculation,
manipulation andprofiteering;
(b) Laws thatdealwiththeprotection ofintellectual property rights, mostnotably patents,
trademarks, andcopyrights, including theprevention andcontrol ofpossible abuse
byrights holders; andwiththeprotection ofinvestments;
(c) Apublic service law,thepurpose forwhich istosecure adequate andsustained services
forthepublic attheleastpossible cost,toprevent ruinous competition, andtosecure
thepublic against unreasonable charges andinefficient services; and,
(d) Alawonderegulation andprivatization, mostofteninthecaseofeconomies withmore
thanafairamount ofinvolvement bygovernment inbusiness.
Theinstruments ofcompetition policy canbefurther expanded toinclude those thatdonot
directly impact onmarket power concentration, butwhich nevertheless affect competitive conditions.
Forexample:
(a) Ausuary lawwhich isintended toprotect thepublic from usurious transactions;
(b) Laws thatdealwithimmigration andtheadmissability offoreign participation in
industries reserved bylawtocitizens ofacountry; and,WT/WGTCP/W/33
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(c) Sector-specific lawsthatregulate sectors orindustries (e.g., retail trade, banking,
mining, transportation, etc.).
Theinstruments ofcompetition policy encompass instruments oftradepolicy aswell,although
thelatter areapplied attheborder. Asmentioned above, acountry 'stariff regime hasabearing on
itsopenness tointernational competition. Quantitative restrictions, technical regulations, standards,
health requirements, rules oforigin, customs valuation andothers have alsobeeninstrumental in
facilitating orhindering tradeamong countries. Anti-dumping practices, countervailing measures and
safeguards arewell-known instruments oftrade policy thathaveundoubtedly influenced theconduct,
andshaped thestructure, ofmarkets andcompetition. Depending ontheopenness ofatrading regime,
theinstruments oftrade policy mayenhance orimpede competition inthedomestic market.
Itshould alsobepointed outthatwhile competition policy andlawareusually applied and
enforced within thedomestic economy, itispossible thatsome countries apply andenforce theirlaws
extra-territorially, perhaps evenwiththeaidoftrade policy. Forexample, theauthorities ofCountry
Acould initiate initsdomestic courts alegal action against thenationals ofCountry Bforactsit
considers against itscompetition laws, when infactsuchactswerecommitted intheterritory ofCountry
Borinathirdcountry. Such action mayalsoinvolve abanonthetrade ofCountry Borthethird
country.
Asafinalcomment, theabsence oflegalinstruments orlawsoncompetition doesnotnecessarily
mean thatacountry doesnotadhere totheprinciples andobjectives ofstimulating andguaranteeing
competition.Aconfluenceofvariousfactorsmaydictatethattheprinciplesandobjectivesofcompetition
policy canbeachieved without making imperative theenactment ofcompetition law,orofadditional
competition law. Ontheother hand, certain countries mayfinditconvenient, ifnotbeneficial, to
enact competition lawtoensure thefullimplementation ofcompetition policy. Thedecision whether
ornottoenact law,inthefinalanalysis, restsonthejudgment oftheresponsible authorities.
III. TRADE, COMPETITION POLICY, ECONOMIC GROWTH AND DEVELOPMENT
(a) Economic Growth andDevelopment
Economic growth, oncesustained, fuelstheprocess ofdevelopment thatimproves thelives
ofpeoplequantitativelyandqualitatively.Thereareofcourseinnumerablefactorsthatcontribute
toeconomic growth -forexample: natural resources, capital, technology, skills, productivity,
work ethics, political stability, andsoforth. Butnational economic policy, particularly that
which stimulate thegainful useofsuchfactors, doesplayanequally pivotal roleinsustaining
growth andoverall development. Theunderlying objective ofnational economic policy,
therefore, should betheefficient allocation ofscarce resources through ensuring competition
within thedomestic market andfrom other countries.
Trade andcompetition policy, asimportant branches ofnational economic policy, playauseful
purpose inassembling andcreating theconditions forefficient resource allocation among players
intheprivate sector. Together, theycansecure thecontestability ofmarkets, improve resource
allocation, maximize welfare, andachieve growth anddevelopment.
ItisinthislightthatASEAN looks forward tothestudy being prepared bytheUNCTAD
Secretariat, under theauspices oftheExpert Meeting onCompetition LawandPolicy, on
"empirical evidence ofthebenefits (including thebenefits toconsumers) tobegained by
developing andleastdeveloped countries andcountries intransition fromapplying competition
lawandpolicy principles toeconomic development inorder toattain greater efficiency in
international trade anddevelopment".WT/WGTCP/W/33
Page5
(b) TheWTO andCompetition Policy
TradepolicyasembodiedintheWTO,however,minimallyaddressesprivatesectorcompetition
perse.Itsmainfocus stillremains toberulesoncompetition between countries, andbetween
governments which regulate theprivate sector.
Nonetheless, WTO provisions which mayrelate tocompetition include Articles III,VI,XI,
XVI, andXVII ofGATT 1994. Inthisregard, Article XXIII andtheDispute Settlement
Understanding arealsorelevant inasmuch asnullification andimpairment caused byanti-
competitive actions bytheprivate sector canberemedied either through aviolation ornon-
violation complaint.
Newagreements incorporated intotheWTO bytheUruguay Round inawaystrengthen aspects
ofcompetition policy inthemultilateral trading system.
TheAgreements onTrade-Related Aspects ofIntellectual Property Rights (TRIPS) andTrade-
RelatedInvestmentMeasures(TRIMS),andtheGeneralAgreementonTradeinServicescontain
provisions thatrelate togovernment assurance thatprivate sector players willactinaccordance
withcertain rulesofcompetition. TRIPS refers tothethecontrol ofanti-competitive practices.
TRIMS refers togovernment assurance thatintheinvestment area, Articles IIIandXIshall
beobserved. InthecaseofGATS, thereisevenrecognition thatcompetition-restraining market
conduct andstructure mayexist.
Nevertheless, much ofpresent WTO provisions havekeptclear ofdirectly imposing rights
andobligations ontheprivate sector, asdistinct fromcompetition policy andlaw.Furthermore,
while certain WTO provisions mayrefertothe"public interest", asawhole theydonottake
intoaccount -oratleastnotasacentral substantive obligation -consumer welfare orthepublic
interest.
ASEAN neither suggests thatWTO provisions arewanting incompetition policy orientation,
northatWTO should nowbegin todevelop newortostrengthen existing competition policy-
related provisions. Indeed, thiscourse ofaction maybepremature atthispoint considering
that,first,theability oftheWTO toaddress competition policy-related problems hasnottrully
beentested; andsecond, theremayexistpotential conflict between tradeandcompetition policy
thatneeds tobeaddressed.
Moreover, thereexists theSetofMultilaterally Agreed Equitable Principles andRules forthe
Control ofRestrictive Business Practices oftheUnited Nations, andthismayberelevant in
thediscussions oftheWorking Group.
Withrespect totheability oftheWTO toaddress competition-related problems, governments
willalways haveahandintheformation ofitscompetition policy andtheimpact thismight
haveonother countries. Insome instances, theability ofcertain monopolies andoligopolies
tothrive isduetothetacitencouragement orsupport ofgovernments.
Where government action isinvolved inthese instances, theWTO would havearole,through
itsdispute settlement rules, inadjudicating theconsistency ofcompetition-related practices.
Wehaveseenthishappen insome disputes thathavebeenbrought before theDispute Settlement
Body; andthedispute settlement mechanism oftheWTO maybesufficient toaddress these
types ofproblems, including those withrespect toprivate anti-competitive practices.WT/WGTCP/W/33
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Itcould alsobesaidthattheremayexistpotential conflict between tradeandcompetition policy,
andthatsuchconflict maybeamplified bythecontinuing integration oftheglobal trading
community.
Thetradeliberalizing rulesinWTO maynotalways converge withcertain national objectives -
forexample, inthearea ofservices orinvestments. Toachieve these objectives,
competition-restraining measures maybepermitted, ifnotencouraged, bygovernments.
Parastatal institutions orconglomerates which, sometimes, operate asmonopolies oroligopolies
maybenecessary -andevencritical -inexpeditiously galvanizing economic resources and
spearheading forays inuntested andunprofitable, butsocially desirable, economic ventures.
Thecapital-instensive andhigh-risk nature ofsome types ofeconomic activies maysometimes
necessitate asingle entity, atleastintheinitial years ofitsoperations, toventure intoareas
thatareconsidered asstrategic inthenational interest.
Inother cases, some countries reserve therighttoexploit natural resources ortoengage in
certain types ofeconomic activities totheirnationals. While thismayconflict among others
withArticle IIIofGATT 1994, there could belegitimate national objectives thatnecessitate
thistobethecase.
Thisisnottosaythattheobjectives andinstruments oftrade andcompetition policy willnot
bereconcilable. Inpointing outthese situations, ASEAN onlyacknowledges thatactual and
perceived conflicts cananddoexist.
Theareaofconflict between tradeandcompetition policy isnotanalyzed further inthispaper,
butwillrequire further attention bytheWorking Group.