RESTRICTED
WORLD TRADE WT/WGTCP/W/65
11March 1998
ORGANIZATION(98-0971)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
COMMUNICATION FROM NORWAY
Thefollowing communication, dated 9March 1998, hasbeenreceived from thePermanent
Mission ofNorway withtherequest thatitbecirculated toMembers.
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TheImpact ofAnti-Competitive Practices ofEnterprises and
Associations onInternational Trade
Inresponse totheChairman 'srequest atthelastmeeting, Norway presents below twocases
which illustrate theimpact ofanti-competitive practices oninternational trade.
Case 1:Market foreclosure effect -loyalty discounts
OnanumberofoccasionstheNorwegianCompetitionAuthority(theNCA)hasexaminedsystems
thatreward loyalty bygranting substantial discounts towholesalers. Especially when operated by
dominant enterprises, suchdiscounts mayforeclose access tomarkets.
AsoleNorwegian producer ("the company") hadforyears dominated theNorwegian market
foracertain industrial product ("theproduct"). Fivepercentofthemarket wassupplied byimports,
which means thatthecompany 'smarket share wasabout 95percent. Inaddition tothehighly
concentrated market, there were technical barriers totrade (TBT) intheform ofnational product
requirements thatseriously impeded effective competition.
Thecompany introduced aprogressive annual discount system fortheproduct fortheseason
1990-1991. Therecipients ofthediscounts were wholesalers, whoresold theproducts toretailers
andfarmers. Thediscount ratewasnotrelated tothevolume ofsingle orders buttothevolume of
annual purchases. Thekeyelement inthesystem wasadiscount ladder, which gavewholesalers a
progressively higher discount pertoninproportion tothetotalamount purchased. Thus, theincremental
increase ofdiscounts associated withapurchase order could besubstantial.
Thediscount system made itlessattractive forwholesalers tobuymarginal quantities from
suppliers other thanthecompany. Although themaximum average discount amounted toonly
2.9percentofordinary prices, arivalfirmhadtoundercut thecompany 'sprices by20-30 percent
inorder tobecompetitive formarginal supplies toalarge wholesaler.
Duetoend-users 'loyalty tothecompany 'sbrands, thewholesalers hadtobuyamajor part
oftheirquantities fromthiscompany. Thus, theonlylikely competition wasfromsuppliers ofmarginal
volumes. Because ofexcess capacity intheEuropean market, theNorwegian company wasexposedWT/WGTCP/W/65
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toacertain amount ofcompetitive pressure. However, loyalty discounts impeded competition from
suppliers ofmarginal volumes.
TheNCA found thatthediscount system reduced competition fromimports andmade itmore
costly forforeign producers topenetrate theNorwegian market tonotify allfuture discount systems
prior totheirimplementation. TheTBTproblem wassolved inatrade policy context. Norway 's
accession totheAgreement ontheEuropean Economic Area (EEA) facilitated thesolution.
Conclusions tobedrawn
Case1illustratesthattradeandcompetitionpoliciescomplementeachotherandthatbothpolicies
arerequired inorder tocreate effective competition. There wasamarket access problem forimporters
oftheproduct, bothintheform ofTBTandintheform ofloyalty discounts.
Thecompetition problem originated andhadeffects inNorway, which meant thattheNCA
wasinaposition toapply theNorwegian Competition Act. Bypromoting effective competition the
intervention oftheNCA hadthesideeffect ofpromoting market access aswell.
Thus, Case 1alsoindicates thattheefficient enforcement ofcompetition lawsbynational
competition authorities canbeusedtorealize trade objectives aswell.
Case2:Anti-competitive practices -impact onforeign markets stemming frominternational mergers
In1997 aNorwegian firm(NF)andaforeign firm(FF)merged. Bothfirms wereproducers
ofacertain industrial product. NF'sshare oftheNorwegian market wasabout 70percent, while
FF'sshare wasabout 25percent. Prior tothemerger thefirms hadcompeted inseveral European
countries. NF'sshare oftheEuropean market was80percent.
Inspiteofthissignificant concentration ofmarket shares theNCA decided nottointervene
against themerger. TheNCA considered theeffects ofthemerger intherelevant Norwegian market.
Entry barriers intotheNorwegian market weresmall, andtheNorwegian market wasofalimited size,
reducing theanti-competitive effects ofthemerger. Inaddition, themerger generated efficiency gains
inaEuropean-wide salesnetwork, andalargepartofthegains wererealized intheNorwegian market.
From aNorwegian point ofviewthepositive effects wereconsidered tooutweigh thenegative ones,
andthemerger wasregarded asenhancing national welfare.
However, theNCA didnotanalyse themerger withrespect totheeffects onglobal welfare.
From aglobal point ofview theanti-competitive effects ofthemerger mayhavebeensubstantial,
meaning thatonecannot ruleoutthatthemerger wasdetrimental toEuropean welfare asawhole.
Conclusions tobedrawn
Inthiscase, theanti-competitive effects ofthemerger mayhaveaffected notonlyNorway,
butothercountries aswell. Apertinent question toposeisthuswhether anational competition authority
alone candealwithsuchamerger inanefficient way.WT/WGTCP/W/65
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Onepossible alternative would betonotify themerger tothecompetition authorities ofother
affected countries. Thecompetition authorities ofthese countries would thenhavetoaddress the
problem, forexample byrequesting thecountry oforigin totakeintoconsideration theeffects arising
inthemarkets oftherespective countries. Forthistobeapowerful tool,thefollowing conditions
must hold:
- thecountries involved must havecompetition laws;
- thecompetition authorities mustbeabletotakeintoconsideration effects onforeign
markets;
- thecountries concerned musthaveentered intosome typeofbilateral ormultilateral
discipline inthisrespect.
Case 2illustrates theneed foramore considered wayofdealing withcases which have
international dimensions. Suchcases mayotherwise create concerns onthepartofaffected countries
withregard totrade andcompetition. Thisgroup should consider whether some kindofmultilateral
discipline would beappropriate toaddress suchconcerns.
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