WORLD TRADE
ORGANIZATIONWT/WGTCP/W/78
7 July 1998
(98-2702)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM THE EUROPEAN COMMUNITY
AND ITS MEMBER STATES
The following communication, dated 29 June 1998, has been received from the Permanent
Delegation of the European Commission with the request that it be circulated to Members.
_______________
Introduction
This submission by the European Community and its member States covers the two issues to
be discussed at the July meeting of the Working Gr oup:  (a) the impact of state monopolies, exclusive
rights and regulatory policies on competition and international trade; and  (b) the impact of trade
policy on competition.  It should be noted that thes e topics are potentially broad and could encompass
the near totality of current WTO activities.  It is therefore particularly important to focus on the
interaction between trade and competition policy and to avoid duplication with the work undertaken
in other WTO forums.  While issues relating to  the review and functioning of existing WTO
disciplines are for consideration in other specific WTO forums, this Group can contribute to a better
understanding of the interaction between different types of government intervention in the economy
and competition.
State monopolies, exclusive rights and regulatory policies often have a very real impact on
trade and competition.  Similarly, competition can be affected by different types of trade policy
measures.  This submission will focus on such interactions.  A presentation is also made of theEuropean Union experience.  While such experience is in many respects unique, in view of the
far-reaching market integration objectives and the broad scope envisaged for the application of
competition law, it may offer some useful insights for the work of the Group.
The application of competition law and policy could complement WTO disciplines so as to
better contribute to the objectives of trade liberalization.  As rightly stated in the 1997 WTO
Secretariat Report on Trade and Competition Policy:  "… any stance on competition law or
enforcement, including the decision not to have a co mpetition law at all, or not to enforce the existing
law, is a policy choice.  This implies that it is often difficult to separate out private restraints from
government policy, since the fact that the private restraints exist might be attributable to thegovernment’s choice not to interfere, or not to implement laws under which it could intervene".  The
issue is not therefore whether WTO rules should impose obligations on private firms, which they
should not, but rather whether governments should accept basic disciplines, on the basis of common
principles or rules, relating to the adoption of a competition law and its enforcement in order to
further the WTO trade liberalization objectives.WT/WGTCP/W/78
Page 2
I. THE IMPACT OF STATE MONOPOLIES, EXCLUSIVE RIGHTS AND
REGULATORY POLICIES ON COMPETITION AND INTERNATIONAL TRADE
I.1 The case for liberalizing monopolies and reforming regulation
(a) The case for liberalizing certain monopoly sectors
In some sectors which have traditionally fulfilled a key role in societies, public authorities
have granted special or exclusive privileges to designated operators, or have allowed other
restrictions of competition.  Often , in exchange for these benefits, designated operators
provide universal supply of a service to all citizens on specific terms and at affordable prices.
For example, in all the member States of the EU, basic postal services, that is the collection,
sorting, transport and delivery of items of correspondence, have been operated by
monopolies.  This organization of postal services has made it possible to meet certain specific
requirements.  The services are provided on request throughout the national territory, at a
uniform level of quality or at a single tariff (that is irrespective of the distance to be covered
and the location of the place of dispatch or of destination) fixed at a level accessible to all.
Recent years, however, have seen significant technological progress, as well as an evolution
in the needs of consumers.  Consequently, the case for maintaining monopolies has become
weaker.  In parallel, the regulatory framework specifically developed for the operation of
these services has lost much of its justification.
At times the protection of state monopolies is also presented, including in developing
countries, as a means to develop the competitiveness of domestic firms or to improve
employment.  This protection too may seri ously undermine an optimal allocation of
resources.  In general, the problems stemming from protected state monopolies are:
- inefficiency.  A firm with market power whose behaviour is not constrained
by actual or potential competition, will have less static incentive to produce at
its most efficient level and will also have less dynamic incentive to innovate.
- "dead-weight" loss.  The higher prices charged by a monopoly result in a
transfer of wealth from consumers to producers but not all of the gain from
higher prices can be captured by producers.  Therefore some of it is lost to
both producers and consumers, creating a "dead-weight" loss, as a result of
the lack of incentives to produce at the most efficient level.
- uncompetitive economies.  The existence of a monopoly, for example in the
supply of electricity, may result in hi gher energy prices increasing production
costs of business and adversely affecting the competitiveness of the economy
as a whole.
A competitive market providing lower prices is therefore generally desirable and welfare
enhancing, unless the need to retain monopolistic structures can be clearly demonstrated.
It should also be noted that a monopoly is no prerequisite for the fulfilment of universal
service obligations.  These may be imposed on companies that are exposed to competition.WT/WGTCP/W/78
Page 3
(b) The case for deregulation
Regulation in itself is ambivalent: while it is necessary it can also have harmful effects.  On
the one hand, it may serve to provide companies with equivalent conditions, for example
through the establishment of transparent and non-discriminatory technical requirements,standards, and public procurement policies, or through regulations affecting the establishment
(e.g. zoning restrictions) or operation (e.g. advertising restrictions) of competing outlets.
Regulation can also be called for in the case of natural monopolies or of production
externalities.  It may also be necessary to inform the consumer, or to respond to social and
other interests.
On the other hand,  as is the case in relation to economic policy in general, regulation can
constitute a trade barrier.  As the 1997 WTO annual report observes, justifications can bealibis for protecting incumbent firms:  "there is an important distinction between the
expressed aim of laws and regulations, and the purposes they serve in practice.  It may
sometimes be observed that economic policies, such as competition and trade policies, serve
certain well-organized interest groups rather than the public at large".
1
Inappropriate regulation may also affect competition, for instance by reducing market
contestability.  It may have negative effects similar to those caused by the maintenance of
inappropriate monopolies (see above), leading to reduced economic growth and development.
In addition , regulation needs to be taken into account when determining the relevant market,
both in its geographic and product dimensions.
The OECD has undertaken extensive work on regulatory reform.  The debates have, inter
alia, shown that regulatory measures should be in line with the principles of transparency,
non-discrimination and should not be more burdensome than strictly necessary.
(c) Economic efficiency gains of competition-enhancing reform
Recent analysis has shown that liberalization and deregulation can be expected to result in
major productivity gains, price reduction and economic growth.  For example:
- in Europe, labour productivity grew twice as fast in those manufacturing
sectors most affected by competition-enhancing reforms of the Single Market
Programme, compared to other sectors2;
- in the telecommunications sector, elimination of monopolies helped stimulate
new technologies and increase the number of subscribers of cellular phones in
OECD countries from 700,000 in 1985 to 71 million in 1995.  After reform,average prices for telephone services fell by 63 per cent in the UK and 41 per
cent in Japan, and long distance prices fell by 66 per cent in Finland
3.
I.2 The present WTO approach to regulatory policies, state monopolies, and firms with
exclusive rights
This section examines the approach taken in th e WTO so far towards regulatory policies, state
monopolies, and firms with exclusive rights.
                                                     
1 p. 43
2 source: OECD : C/MIN(97)10
3 source: OECD : C/MIN(97)10WT/WGTCP/W/78
Page 4
Regarding regulatory policies, the WTO framework of rules has been based on the objective
of providing an equality of competitive opportunities between the products and services of companies,
regardless of their origin, once a tariff has been paid or, in the field of services, once a market access
commitment has been accepted by a government.  In the field of goods, for example, the GATT
provisions on non-discrimination (MFN and national treatment) aim to ensure that governments shallnot legislate or otherwise adopt measures or polici es whose effect may be to restrict the supply of
foreign products or discriminate between them.  Subsequent Rounds of negotiation have further
strengthened related provisions and reduced non-tariff barriers to trade, for example through the
elaboration of provisions in the field of technical barriers to trade
4.
For the purposes of the work of this Group, the interaction with competition policy and trade
would include, in particular, any situation where private anti-competitive practices are required,approved or supported by a government, and where their effect may be to foreclose foreign goods,
services or service suppliers.  A number of GATT and WTO dispute settlement cases seem to indicate
that such government measures, whether undertaken on a formal or informal basis, would be subject
to WTO disciplines.  The scope of WTO rules would not seem, in principle, to cover cases in which
such anti-competitive practices are undertaken autonomously by enterprises without a sufficientdegree of government involvement, even if such practices may have the same or greater restrictive
effect.
In connection with the activities of state trading enterprises with exclusive or special rights or
monopolies, WTO rules also aim at covering the autonomous activities of enterprises insofar as they
may result in obstacles to international trade in goods and services.  The 1997 WTO Report on Trade
and Competition policy includes in section IV.I.C an excellent discussion of the current WTO
approach and highlights three types of market access problems that may arise through the operations
of enterprises enjoying a position of market power.  Such market access problems relate to:  (a) access
difficulties in relation to the market that is the subject of a monopoly or special or exclusiveprivileges;  (b) access to downstream markets, in particular when such access depends on the use of
facilities that are the subject of a monopoly or a position of market power; and  (c) access to the
upstream market for inputs into the production of goods and services by a dominant or privileged
enterprise.  An overview of how the WTO has sought to tackle such market access problems
illustrates the importance of establishing a close relationship between trade liberalization and the
application of competition law disciplines.
The GATT has long recognized that state tradin g enterprises to which special or exclusive
rights have been granted (such as a monopoly right of import on a given product), can through their
activities influence the degree of market access of foreign products.  Article XVII of the GATT was
drafted to ensure that the market access rights of  trading partners would not be impaired by state
trading and requires enterprises with special or ex clusive rights to operate solely in accordance with
"commercial considerations", and discriminatory buying or selling is forbidden
5.  GATT Parties are
further encouraged to engage in negotiations to reduce the obstacles created by state trading, for
example by limiting the exclusive nature of the rights given to the state trading firm.
                                                     
4 The TBT Code includes provisions committing governments to take measures to ensure that non-
governmental (i.e. private) standardising bodies do not adopt technical regulations or standards whose effect isto create barriers to trade.
5 It has not yet been clarified whether the non-discrimination obligation of Article XVII is an MFN or
also a national treatment obligation. There are, howeve r, strong arguments to suggest that Article XVII also
imposes a national treatment obligation, as this is the only way in which a state trading firm could operate
according to "commercial considerations", as well as the fact that the Article would otherwise enable countries
to derogate from a market access obligation they have taken, for example if a tariff commitment has been taken.WT/WGTCP/W/78
Page 5
Article XVII of the GATT, how ever, contains fundamental weaknesses and is generally
considered to have exerted very little influence on the conduct of monopoly traders.  It is interesting
to note that the EC Treaty, which was drafted ten years after the General Agreement, actually includes
an obligation on EC member States to phase out excl usive import or export rights in intra-EC trade.6
There are convincing arguments to consider favourably in the appropriate forums a future
strengthening of Article XVII GATT, for example through a (if necessary gradual) phasing out of
monopoly trading and the enabling of individual traders, at all times, to engage in parallel trade.
From the outset the WTO rules on trade in services have recognized that monopoly and
exclusive suppliers, as well as other suppliers can restrict international services trade, if they engage
in anti-competitive practices.7  The GATS imposes binding obligations on governments concerning
the conduct of such suppliers.  Moreover, the GATS explicitly incorporates competition law concepts,for instance, by providing that WTO Members shall ensure that monopoly or exclusive service
suppliers, when supplying a service outside the scope of their rights, do not abuse their dominant
position to act in a manner inconsistent with such ma rket access obligations (Article VIII:2).  In this
respect, the GATS Agreement already goes visibly further than the GATT, reflecting both its later
drafting and the greater presence, in the serv ices sector, of monopoly or exclusive providers.
The notion that international liberalization of services needs to be complemented by
provisions to protect the openness of a market from potential private anti-competitive practices has
been most explicitly recognized in the negotiations on basic telecommunications, which were
concluded in February 1997.  Traditionally, the telecommunications sector has of course been
dominated by monopoly suppliers.  The principles of the so-called reference paper, which were at the
heart of the negotiations, provide, inter alia,  for appropriate measures to be maintained for the
prevention of anti-competitive practices in telecommunications, including on cross-subsidization,
access to essential facilities, non-discriminatory and cost-orientated interconnection, transparency, as
well as for the establishment of an independent re gulatory body to which complaints can be lodged.
Such disciplines are of course specific to the telecommunications sectors and to  those WTO Members
which have included in their schedules the commitments of the "Reference Paper".
This brief overview of WTO rules, as they apply to government regulation and the activities
of certain enterprises in a position of market power, shows that:  (a) the WTO has developed a
framework of rules to ensure that government regulation does not upset the equality of competitive
opportunities for the products and services of other WTO Members.  Such framework would in
principle encompass action by governments to facilitate or support private anti-competitive practices;
(b) WTO rules have also sought to ensure that certain types of enterprises in a position of market
power do not act in a manner which detracts from the market opening commitments assumed by
WTO Members;  (c) within the framework of GATS, the obligations assumed by Members in
connection with the activities of such enterprises make explicit reference to competition lawprinciples or concepts.
WTO rules therefore recognize that market-opening commitments can be undermined by
anti-competitive practices undertaken by certain firms in a position of market power.  There are
however, gaps in the current framework of WTO rules.  An anti-competitive practice can have amarket foreclosure effect even in the absence of government intervention.  Market power may be
exercised by firms falling outside the scope of Article XVII of GATT and Article VIII of GATS or as
a result of anti-competitive agreements among undertakings.  While in certain cases competition law
disciplines have been developed at the sectoral level, consideration should be given to the scope of an
appropriate horizontal framework of competition rules.
                                                     
6 Article 37 EC Treaty
7 See Articles VIII and IX of the GATSWT/WGTCP/W/78
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I.3 State Monopolies and Regulated Sectors: the European Union experience
A number of problems arise in connection with the effective application of competition law in
heavily regulated sectors or sectors in which firms have a statutory monopoly position or have been
granted exclusive or special rights.  Problems from both a trade and competition policy perspectivewould, in particular, arise if:  (a) competition laws do not apply on the same basis to private and
public undertakings ;  (b)  a general exemption from the application of competition law applies to
such sectors;  and (c) even in the absence of such a general exemption, a broad interpretation of the
"State action" doctrine would in practice imply that firms are not subject to competition law
disciplines.
Effective trade liberalization can only be achieved through a combination of disciplines
applicable to state regulation or other forms of government intervention and through limiting, to the
maximum extent feasible, the scope for exemptions from competition law disciplines.
The European Union experience in this regard is unique, since competition law disciplines
also apply, under certain conditions, to measures taken by the member States.  This is, of course,closely linked to the legal and institutional framework of the Community and its market integration
objectives.  It is not, therefore, suggested that the European Union experience can be simply
transposed at the multilateral level.  Notwithstanding this, this experience can be of interest to other
WTO Members, in particular, those which are engaged in a process of regional economic integration.
Moreover, the WTO has increasingly recognized the importance of proceeding in parallel
with deregulation and a reinforcement of competition disciplines.  Some elements of the Community
approach could therefore be of broader interest at the multilateral level.
I.3(i) Liberalization of State Monopolies
From the outset, the founders of the EC Treaty recognized that public enterprises or
enterprises with special or exclusive rights could affect intra-EC trade and the conditions of
competition in the European market.  The Treaty therefore includes specific provisions applicable to
these enterprises and their governments.
The Commission has been pursuing a policy of liberalising certain sectors traditionally
subject to monopolies, such as telecommunications, energy, postal services and transport.  Various
provisions of the EC Treaty are key instruments for this policy.8
(a) Prohibition:  Articles 5 and 90(1) EC Treaty
Articles 85 and 86 of the Treaty of Rome apply to anti-competitive practices of enterprises
rather than to measures taken by the authorities of member States.  However, Articles 5 and
90 of the Treaty require that these public authorities refrain from taking measures that may
render ineffective the competition rules applicable to undertakings.9 National regulation may
not require or favour anti-competitive behaviour contrary to EC competition rules, and does
not exempt enterprises from compliance.
The following developments will be limited to the more specific provisions of Article 90(1),
which makes it illegal for member States, in the case of public undertakings and undertakings
to which member States grant special or exclus ive rights, to enact or maintain in force any
                                                     
8 Article 90 applies to measures adopted by a Member State but of course as monopolies have by
definition a dominant position, Article 86 is applicable if they abuse this position.
9 ECJ 17 November 1993, Meng C-2/91 (1993) ECR I-5791WT/WGTCP/W/78
Page 7
measure contrary to the rules contained in the Treaty.  In other words, Article 90(1) is always
implemented in conjunction with another provision of the Treaty of Rome.  For example:
- Article 90(1) in Conjunction with Competition Rules
In the case of public undertakings or undertakings to which member States grant special or
exclusive rights, member States may not resort to restrictive agreements in the sense of
Article 85 or to abusive behaviour in the sense of Article 86.  For example, Article 90(1) in
combination with Article 86 prohibits a Member State from putting such undertakings in a
situation in which they, merely by exercising the exclusive rights granted them, cannot avoid
abusing a dominant position.  For instance, a Member State may not give regulatory power
over their competitors to public undertakings or undertakings enjoying special or exclusiverights.
- Article 90(1) in Conjunction with Rules on Free Movement of Goods and
Services.
Articles 30, 34 and 59 prohibit member States from granting or maintaining, exclusive or
special rights that affect trade within the EU, unless it is necessary to guarantee respect of
certain imperative requirements.  As already noted, Article 37 of the EC Treaty has been
interpreted as requiring member States to phase out exclusive import or export rights in intra-
EC trade.
The obligations upon member States resulting from Article 90(1), in combination with
Articles 30, 34, 59, 85 and 86 of the EC Treaty, have direct effect within the member States
and can therefore be challenged by individuals before national courts.
(b) Exception : Article 90(2)
Article 90(2) contains an exception to the provisions of Article 90(1), according to which
competition rules are not fully  applicable to undertakings entrusted with the operation of
services of general economic interest or having the character of a revenue-producing
monopoly.
For example, Article 90(2) can be used to justify maintenance of certain exclusive rights when
they are necessary for the operation of certain public services;  for instance, the European
Court of Justice10 admits the idea of the justification of certain monopolies by virtue of the
necessity to guarantee financial viability of certain activities of universal service.
However, the exception to the application of co mpetition law is applicable only if restriction
of competition is necessary to guarantee the performance of the particular tasks assigned to
these undertakings (Article 90(2), 1st sentence);  and on condition that the development of
trade is not affected to such an extent as would be contrary to the interest of the Community
(2nd sentence).
The Court of Justice considers that Article 90(2), first sentence, has direct effect within the
member States.  It can therefore be implemented before national courts.
                                                     
10 ECJ, 13 May 1993, case n° C-320/91, (1993) ECR 2563 (postal services) ; ECJ, 27 April 1994, case
n° C-393/92, Almelo (1994) ECR 1477 (energy)WT/WGTCP/W/78
Page 8
The present system strikes a balance between the interest in an integrated and competitive
market and the interest to maintain public services.  This balance is an expression of the
principle of proportionality, that is to say that the means used by member States should not be
more restrictive than necessary.11
Rodby Case 13 April  199412 - An Illustration of Application of Article 90(1) in Combination
with Article 86 : The Essential Facilities Principle
DSB is a public undertaking holding the exclusive right to organize rail transport in Denmark.  It is
also the owner of the port of Rodby and is responsible for its management.
The Danish authorities refused to allow a competitor to build a private commercial port in the
immediate vicinity of the port of Rodby  or to operate from the port of Rodby.
The Commission condemned this refusal under Artcles 90(1) and 86 after stating that an undertaking
that owns or manages and uses an essential facility itself, i.e. a facility or infrastructure without which
its competitors are unable to offer their services to customers, and refuses to grant them access to suchfacility on reasonable commercial terms, is abusing its dominant position.
The Commission also considered that the application of competition rules did not impede the
particular task entrusted to DSB, namely to organize rail services and manage the port facilities at
Rodby.
(c) Implementation of Article 90(1)
For the implementation of Article 90(1), Article 90(3) of the EC Treaty grants the
Commission power to adopt decisions and directives that are binding for member States.
* Decisions
When a member State infringes Article 90 (1) the Commission can, under Article 16913, bring
an action before the European Court of Justice for a judgement that the Member State has notcomplied with its obligations, or adopt a decision on the basis of Article 90(3) requiring the
Member State to put an end to the infringement.
This latter possibility is specific to infringements of Article 90(1).  The decision is binding
and it is up to the State concerned to challenge it before the European Court of Justice if itconsiders that it is ill founded.
Most of problems are dealt with in an informal way between the Commission and the member
States (such an informal procedure has been carried out in relation to telecommunications,
transport and postal services).
                                                     
11 See Commission notice of 11 September 1996 on services of general interest in Europe, OJ C 281,
26 September 1996
12 EC Com. Decision. n° 94/272, 13 April 1994, OJ L 117, 7 May 1994, p. 30
13 "If the Commission considers that a Member State has failed to fulfil an obligation under this Treaty,
it shall deliver a reasoned opinion on the matter after giving the state concerned the opportunity to submit its
observations. If the state concerned does not comply with the opinion within the period laid down by the
Commission, the latter may bring the matter before the Court of Justice."WT/WGTCP/W/78
Page 9
Brussels-National Airport (14)
The Commission adopted a decision under Article 90(3) concerning the system of discounts on
landing fees charged at Brussels-National Airport under the Royal Decree of 22 December 1989.
British Midland, the airline which lodged the complaint, considered that the system enabled the airlineSabena, its main competitor on the Brussels-London route, to benefit from a discount of 18% on its
landing fees while no other airlines qualified for a reduction.
After examining the complaint, the Commission co ncluded that the system constituted a State
measure within the meaning of Article 90(1), read in conjunction with Article 86, as it had the effect
of applying to the airlines dissimilar conditions for equivalent transactions connected with landing and
take-off and hence introducing distortions of compe tition.  The Commission considered that such a
system could be justified solely by economies of scale achieved by the airport required operator.  This
did not apply in the case in question.  The Commission therefore requested the Belgian authorities to
put an end to the system.
* Directives
Article 90(3) also empowers the Commission to adopt directives. A directive is a provision
that is binding, as to the result to be achieved, upon each Member State to which it is
addressed, but the choice of form and methods is left to the national authorities of the member
States.
The Commission has adopted directives in the telecommunications sector.  This policy of
liberalization in the European Union also contributed to the general trend towards
liberalization of telecommunications around the world and to the adoption of the WTO
telecommunication agreement of 15 February 1997.
Telecommunications
On 1 January 1998, the telecommunications market was opened to competition in the European
Union.  This liberalization has been achieved through the use of two sets of legal instruments : an
Article 90(3) Commission Directive concerning the introduction of full competition into thetelecommunications market
15 and various Council directives based on Article 100A of the EC Treaty16
with a view to harmonising the rules for interconnection17, licensing18, etc.  The package thus
demonstrates the need for competition policy to develop in close co-operation with the more general
aspects of Community telecommunications policy.
I.3(ii)  European Single Market Policy
In order to foster economic integration, the European Union has developed a framework forconvergence and mutual recognition of law (information and labelling of goods, technical
specification, etc.) and procedure.  As a result, for instance, goods legally marketed in theterritory of a Member State can move across the European Union without facing further
                                                     
14 Brussels - National Airport, OJ L 216, 12 September 1995. An application for annulment of the
decision brought by Belgium is still pending before the Court of Justice (Case C-291/95)
15 Directive 96/19 EC of 13 March 1996, OJ L 74, 22 Marsh 1996, p. 13
16 Article 100A serves as the legal base for the adoption of Community legislation for the completion
of the internal market programme
17  Directive 97/33 EC of 30 June 1997, OJ L 199, 26 July 1997, p. 32
18  Directive 97/13 EC of 10 April 1997, OJ L 117, 7 May 1997, p. 15WT/WGTCP/W/78
Page 10
formalities or duplicate requirements.  Exceptions to these principles are confined to a list of
mandatory requirements of general interest (public health, safety, consumer protection,
environment, etc.) and are subject to strict conditions (for example, proportionality).  A
notification procedure has also been set up by the European Commission to make sure that
national regulatory measures are in line with the requirements of the single market.Individuals and companies may, under certain circumstances, claim damages before national
courts whenever a Member State has not complied with its obligations.
The following are some examples of how the single-market policy, which is based on the
provisions of the Treaty, has been applied in different sectors:
In the foodstuffs sector, the Commission has condemned in many cases national procedures
which provide that a product may be sold only if authorization has been obtained in advance.
Such procedures are sometimes designed to regulate the composition of foodstuffs and, in
particular, the presence of food supplements (nutrients, vitamins) or additives.
Other obstacles have been condemned in the pharmaceutical sector, involving for instance
marketing authorization procedures.  Such procedures are legitimate where they aim to check,
for example, that a product is not harmful.  It is the responsibility of member States to take all
necessary measures to protect public health.  However, those measures should not constitute
an indirect means of protecting domestic markets.  The Commission therefore examines very
carefully whether they are in fact necessary and proportionate to the aim in view.
The European authorities are also concerned about inappropriate use of standards.  They make
sure that they are not used as a means to foreclose a market or to reinforce a dominant
position.
The single market policy is a key element for free trade and competition within the European
Union.  Third countries also benefit from the European Union provisions.  For instance, goods
imported by any Member State from a third country can freely move across the European
Union.
II. THE IMPACT OF TRADE POLICY ON COMPETITION
II.1 The Relationship Between Trade Liberalization and Competition Law and Policy
Competition in a market can be affected by a wide-array of trade policy measures.  Of
particular concern are high tariffs, quantitative restrictions, domestic regulations designed so
as to favour domestic over imported products, restrictions of market access by state trading
enterprises, discrimination in public procurement or cases in which trade policy remedies are
not applied in accordance with multilateral rules.  A high level of external protection, which
effectively insulates domestic markets from foreign competition, can contribute to a high
degree of concentration in the domestic market and facilitate cartel-type arrangements amongdomestic firms or abuses of a dominant position.  Certain types of trade policy interventions,
in particular when foreign exporters benefit from quota rents, can also foster tacit or explicit
collusion among domestic and foreign firms.  The impact on competition of trade policy
measures is likely to be harmful in the case of long-standing trade restrictions – such as high
tariffs or quotas – in particular if there is a lack of clear commitment to their progressivereduction or elimination.WT/WGTCP/W/78
Page 11
It can be seen from the above that the WT O/GATT system, through successive rounds of
trade negotiations to reduce obstacles to trade and the establishment of clear and enforceable
disciplines on different types of trade policy measures, has made an important contribution to
enhancing competition and ensuring the contestability of markets.  While the implementation
of existing commitments is essential, it is clear that the momentum of trade liberalizationneeds to be sustained.  It is for this reason that the EU is a strong advocate of the need to
launch, at the 1999 WTO Ministerial, a new round of comprehensive trade negotiations.  The
work of this Group on the interaction between trade and competition policy has to be seen
within this broader framework.
In this connection, a key point to bear in mind is that, while the reduction of tariff and non-
tariff obstacles to trade and clear disciplines on trade policy measures makes a vitalcontribution to promoting a competitive environment, a policy of active competition law
enforcement remains essential to ensure effect ive competition and access to a market on the
basis of equality of competitive opportunities.
A key issue for this Working Group is to consider how existing WTO disciplines on
government measures could be effectively complemented by a commitment by governments
to adopt and enforce competition law disciplines in order to more effectively address anti-
competitive practices with a significant impact on trade and investment.  The recently adopted
"Kodak-Fuji" panel has made it clear that WTO rules can apply to a wide range of
government measures, including non-binding meas ures or measures taken by private actors
when there is a sufficient degree of government involvement.  The trade impact of an anti-
competitive practice with a market foreclosure effect does not depend, however, upon the
degree of government intervention.  Indeed, it would be paradoxical if certain practices could
be actionable under the WTO, because of a certain degree of government involvement; while
the same or more restrictive practices would fall totally outside the scope of WTO disciplinesif a government had chosen not to intervene because of the lack of a competition law or
because the practice is not considered as an enforcement priority.  It would also be clearly
undesirable if such issues were to be addressed on the basis of general non-violation standards
and in the absence of a common understanding among WTO Members about the type of
competition law disciplines which should be applicable.  A multilateral approach could be
based on a commitment by WTO Members to adopt domestic competition regimes, based on
agreed common principles relating both to substantive law and its enforcement and throughinstruments of international co-operation to  tackle anti-competitive practices with a
significant international dimension.   Such an approach would reinforce the multilateral
trading system and help to address differences among Members concerning the impact of
anti-competitive practices on international trade.   It should complement and support efforts to
reinforce bilateral co-operation among competition authorities and include appropriateflexibility and support for developing countries.
II.2 The Relationship Between Trade Policy Measures and Competition
The purpose of this section of the submission is to present an overview of the relationships
between competition and different types of trade policy interventions.  An analysis of the
relationship between trade policy measures and competition would need to take into account
the nature and purpose of different types of trade policy measures.  In this regard, this
document is based on the following typology of trade policy measures:  (a) Border Measures
(tariffs and quantitative restrictions);  (b) Internal Regulations (technical regulation, publicprocurement, subsidies);  (c) Safeguard Measures; and  (d) Measures to Counter UnfairWT/WGTCP/W/78
Page 12
Trading Practices (antidumping and countervailing duties).19  In considering different trade
policy measures attention is also drawn to their relationship with competition law.  Such
interactions are considered in the next section of this submission.
2.1 Tariffs and Quantitative Restrictions
Both tariffs and quantitative restriction normally result in higher domestic prices and affect
the structure of competition in a market.  If the domestic market is concentrated, a
quantitative restriction may have a more restrictive effect than its tariff equivalent since
increased imports may not constrain price increases from domestic producers.  In addition,
there is a higher risk of collusion as foreign producers may benefit from the allocation of
quota rents.  Apart from such differences, the key  determinant for the effect of tariffs and
quantitative restrictions on competition is the level of external protection provided and the
extent to which there is a clear commitment to the reduction or elimination of such border
measures.
The WTO contains a clear prohibition on the application of quantitative restrictions, which
may only be applied in clearly defined circumstances, and has greatly contributed to the
reduction of tariffs through successive rounds of trade negotiations.  Still, it should be noted
that many countries still maintain a high level of tariff protection in many different sectors.
Moreover, some countries have not bound their tariffs in some sectors or have only
undertaken ceiling bindings at levels which are much higher that applied rates.  This impliesthat tariffs may be substantially raised without being subject to WTO constraints.  Even in the
absence of an actual tariff increase, uncertainty about the level of external protection may
limit the pro-competitive impact of imports.
2.2 Internal Regulations
The WTO agreement on Technical Barriers to Trade has developed specific disciplines to
ensure that all technical regulations and standards, as well as conformity assessment
procedures, comply with key principles of transparency and non-discrimination, and that such
measures are not more trade restrictive than necessary to fulfil a legitimate policy objective.
Another important objective of the agreement is to promote the use of international standards.
Technical regulations and standards, as well as conformity assessment procedures, canimpose unnecessarily high compliance costs to foreign producers, thereby limiting
competition.  WTO provisions play, therefore, an essential role in minimising the risk that
technical regulations and standards, which can be adopted for a number of legitimate policy
objectives, are used as an instrument of protection and limiting competition from foreign
suppliers.  The TBT Committee has established a work-programme aimed at improvingtransparency of national regimes and at clarifying various TBTA provisions.
Anti-competitive practices by private bodies involved in the setting of standards and
conformity assessment procedures are a matter of particular concern and active enforcement
policy by competition authorities.  For instance, a number of competition law cases in the EC
                                                     
19 The WTO framework as regards state-trading has already been discussed in part I of this submission
and will not be repeated here.  It should be noted that several of the general trade policy interventions discussedin this section may also have a particular incidence in relation to state enterprises.  As regards internalregulations, this section focuses on those types of internal measures which are subject to specific WTOdisciplines in the field of trade in goods.  Countervailing duty provisions under the WTO are not specificallydiscussed although similar considerations apply as in the case of antidumping.  Measures taken in connection
with investment and intellectual property protection are not covered, since such issues can be discussed in the
September meeting of the Working Group.WT/WGTCP/W/78
Page 13
and its member States, as well as in other jurisdictions, have condemned activities by private
certification bodies through which domestic firms excluded foreign competitors from the
market.  Similar problems have arisen regarding access to third country markets.  The
disciplines of the TBT agreement also cover th e activities of private standardizing bodies and
include a Code of good practice for the preparation, adoption and application of standardsopen for acceptance by such bodies.  The TBT Committee is currently reviewing the reasons
why many standardising bodies have not accepted the code.  There appears, therefore, to be
scope for enhancing the complementarity between current WTO disciplines on technical
regulations and standards and competition law disciplines:  (a) competition law would not
normally apply to regulation and standards established by public authorities; thus the
importance of  effective WTO disciplines in this field and of the  review being undertaken by
the TBT Committee;  (b) equally effective disciplines should apply in relation to the activitiesof private standardising bodies.  This is already recognized in the TBT Agreement and is also
being addressed in the TBT review; and  (c) in addition, there appears to be scope for
complementing current discip lines with a commitment by  governments to apply competition
law in relation to anti-competitive practices by standardising or certification bodies which
foreclose access to a market.
Government Procurement is currently exempted from the application of the GATT national
treatment principle and from the coverage of basic GATS disciplines, although in the latter
case multilateral negotiations are envisaged.  At the Singapore  Ministerial, a  Working Group
was set up to discuss transparency in Government procurement with a view to developingelements for inclusion in an appropriate agreem ent.  This situation implies that at present,
except for those WTO Members which are parties to the plurilateral Government
Procurement Agreement, a very significant mark et is not subject to effective competition by
imported products. The acceptance by WTO Members of disciplines on government
procurement would clearly have a beneficial impact on both trade and competition.  Thus theimportance of the current WTO Work Programme in this regard.
Apart from this structural impact on competition, competition authorities have often been
concerned with anti-competitive practices which can develop in connection with tendering
procedures.  Such practices can include, for instance, "bid rigging" or attempts by a dominant
firm to discredit products which are not in conformity with specific standards.  A further issue
of concern from a trade and competition perspective is the purchasing policy of utilities which
enjoy a monopoly or a position of market power .  The Government Procurement Agreement
includes a number of commitments relating to purchases by public enterprises in a number of
utility sectors.  It is interesting to note that the Community regime on procurement by entities
operating in the water, energy, transport and telecommunication sectors also applies to private
enterprises which operate on the basis of special or exclusive rights, except for those activities
which are directly exposed to competition.
Government Subsidies can significantly distort competition both in domestic and foreign
markets.  In certain cases, subsidies can be a legitimate instrument of government policy.  The
WTO Subsidies Agreement has therefore established a comprehensive set of disciplines
which cover different types of subsidies (prohibited, actionable, non-actionable) and provides
specific remedies either in the form of recourse to WTO dispute settlement or through theapplication of countervailing duties.  The Agreement includes a number of exceptions and
transitional provisions for developing countries.  Effective disciplines on trade-distorting
subsidies are an essential component of the multilateral trading system.  In recent years, many
countries have reviewed their policies with a view to limiting the use of subsidies as an
instrument of economic policy.WT/WGTCP/W/78
Page 14
Under most competition law regimes, subsidies are not subject to the jurisdiction of
competition authorities.  In the case of the Community, however, specific competition law
disciplines apply to state-aid granted by the member States.  Important features of the EC
state-aid disciplines are the following:  (a) new state aids are illegal unless notified to and
approved by the Commission;  (b)  in the case of illegal aids, the Commission requires theState to recover the aid already granted; and  (c) the requirement that member States notify
and obtain approval of state aid before granting it can be enforced before the national courts.
As a result of such a strict regime, countervailing duties may not be applied in intra-
Community trade.
2.3 Safeguards
From its inception, the GATT system has recognized the possibility for countries to adopt
temporary safeguard measures.  A key concern has, however, been to ensure that such
measures were subject to clear multilateral disciplines.  Such disciplines were substantially
reinforced through the conclusion in the Uruguay Round of the Safeguards Agreement.  The
Community has repeatedly stressed, within the framework of the Safeguards Committee and
where necessary, through dispute settlement proceedings, the importance that it attaches tostrict compliance with the multilateral criteria for safeguard action.  It is important to note that
safeguard measures are clearly intended as time-limited restrictions aimed at preventing or
remedying serious injury and facilitating adjustment.  The preamble of the Safeguards
Agreement recognizes the need to enhance ra ther than limit competition in international
markets.  Safeguard action should therefore clearly be exceptional in nature.
Of particular importance for the work of this Group is the prohibition in Article 11 of the
Safeguards Agreement of "voluntary export restraints, orderly marketing arrangements or any
other similar measures on the export or the import side".  Such measures had been of
particular concern from both a trade and competition policy perspective because of their lack
of transparency and the incentives for domestic and foreign producers to enter into cartel typearrangements.  It is significant in this respect that, under Article 11.3 of the Safeguards
Agreement, Members should not encourage or support equivalent measures adopted or
maintained by public and private enterprises.
The scope of the Safeguards Agreement would not, however, in principle, cover arrangements
to restrict imports or exports entered into by private or public enterprises in the absence of
government involvement.  Such arrangements would, however, fall foul of competition law
disciplines.  The Safeguards Agreement, therefore, clearly illustrates the interest ofcomplementing current WTO rules with a mu ltilateral competition law framework.  A
commitment by WTO Members to treat "hard core" cartels as a serious breach of competition
law would significantly reinforce the prohibition of "grey-area mesures" and help to address a
potential loophole in current safeguard disciplines.
2.4 Measures to counter unfair trading practices
Antidumping and countervailing duty law aim at removing the trade-distorting effects of
dumped or subsidized imports and to restore effective competition in the market when injury
is being caused to a domestic industry.
Article VI of the GATT recognizes the right of WTO Members to apply antidumping duties
when a product is introduced into the commerce of another country at less than its normal
value and provided that material injury to a domestic industry can be established as a result of
such dumping.  The specific conditions for the implementation of Article VI have been
developed in great detail in the Uruguay Round Antidumping Agreement, and suchWT/WGTCP/W/78
Page 15
disciplines are subject to monitoring in the Antidumping Committee. It may be useful,
however, to discuss in broad terms the relationships between antidumping and competition
law.
Antidumping law and competition law apply in different economic, legal and institutional
contexts.  Competition law prohibits and subjects to strict penalties certain forms of pricingbehaviour by firms.  While competition law applies in principle within the context of an
integrated market, Antidumping law applies in an economic setting which is still
characterized by border measures and other regulatory obstacles and distortions of trade.
That is to say, it applies to pricing practices between markets, rather than within them. To this
basic economic difference should be added the different legal and institutional setting under
which competition law applies.  The effective application of competition law requires the
establishment of a competition authority with comprehensive powers of investigation andenforcement and a uniform interpretation of the law by a judicial body or common arbitrator.
The development of a multilateral framework of competition rules would clearly not envisage
attributing such powers to an international body.
At the multilateral level, competition law cannot therefore be seen as a substitute for
antidumping law; nor can the concepts developed under one legal framework be simplytransposed to the other.  Concerns about possible incorrect application of the antidumping
instrument can best be addressed through a strict implementation of the disciplines of the
Uruguay Round Agreement.  It can be expected, however, that in so far as countries apply a
stricter policy of competition law enforcement, and further progress is made in the integration
of markets, the need to have recourse to antidumping action would be reduced over time.
The experience of the Community illustrates the point that antidumping action loses its
raison d’être  within the context of a fully integrated market.
20  This has implied not only the
elimination of all border measures, but also conditions to ensure full freedom of movement
for goods, services, investment and labour.  At the same time, EC competition law is applied
effectively by an authority with autonomous powers of enforcement and investigation and
there is a judicial authority to ensure the uniform interpretation of the common competition
rules.  Of course, each regional economic integration agreement has to reach its own
decisions as to the degree of market integration envisaged and the scope for common
competition law structures.  In this context, consideration can be given to the issue of whether
or not antidumping action is compatible with the degree of integration achieved.  The
Community experience is one amongst others and it would seem to be neither realistic nor
desirable to envisage a single model of general application.
It should be noted that WTO Members are encouraged to implement the WTO Anti-dumping
Agreement in a manner which does most to minimize competition concerns. Article 9.1 of the
Antidumping Agreement indicates that "it is desirable that the imposition (of anti-dumping
duties) be permissive in the territory of all Members, and that the duty be less than the margin
(of dumping) if such lesser duty would be ad equate to remove the injury to the domestic
industry".  Under Community Antidumping la w, antidumping duties do not exceed the
minimum required to eliminate the injurious effects of dumping and, before any such measure
is imposed, consideration has to be given to whether such measures are in the Community
interest.  In this regard attention is given to consumer concerns, the structure of competition
and restoring effective competition in the market.
                                                     
20 The same principle applies to the European Econ omic Area, except for sectors falling outside the
scope of the market integration agreements.WT/WGTCP/W/78
Page 16
II.3 The Interaction Between Trade Policy Measures and Competition Law
An issue of particular interest for the Working Group is the interaction between trade policy
measures and the application of competition law.  Trade policy measures, like other forms of
government action, are not subject to competition law.  However, when considering and applying
these measures competition concerns should be duly taken into consideration.  At the same time, the
application of trade policy measures in no way exempts firms from competition law disciplines.  This
interaction is better understood by referring to different circumstances in which trade policy measures
may be relevant from a competition policy perspective:
(a) A trade restrictive agreement among domestic and foreign producers would be fully
subject to competition law disciplines, ev en if such an agreement may have been
entered into as an alternative to or in order to avoid the possible application of tradepolicy measures.  The enforcement of competition law in such cases is of particular
importance, since it limits the risk that domestic producers may use the threat of
initiating action under domestic trade remedies law, or otherwise lobby for protection,
in order to induce foreign exporters to enter into restrictive agreements.  It also
ensures that trade policy measures may only be taken by public authorities inaccordance with domestic procedures and in conformity with WTO obligations.
(b) Competition law is fully applicable if, following the adoption of a trade policy
measure, domestic and/or foreign producers engage in anti-competitive practices,
which further restrict trade or have a negative impact on consumer welfare.  Thiswould include both agreements and concerted practices among competitors, whether
domestic or foreign, as well as possible abuses of a dominant position.  The
application of competition law, under such circumstances, is an important guarantee
to limit the risk that trade policy measures foster an anti-competitive structure in the
market or result in non-transparent and permanent restraints on trade flows.
(c) The presence of trade policy measures – as well as other forms of government
intervention – is a factor taken into account in competition analysis, in particular for
the definition of the relevant market.  Competition authorities will define such a
market in national terms if actual or potential import competition is limited as a result
of trade measures or other regulatory obstacles.  Since this would make it easier to
establish the existence of a dominant position in the market, there is a greater risk fordomestic firms of being subject to competition law remedies or of a merger being
prohibited by competition authorities.  Regulatory obstacles can also result in a more
narrow product definition of the market or enhance the restrictive effects of an
agreement among firms, such as certain types of vertical restraints (for instance, when
government regulation makes it more difficult to set up alternative distributionoutlets).
(d) Apart from those instances in which competition law applies, competition authorities
can also play a role in the trade policy field through competition advocacy.  Such
advocacy can take different forms and its specific modalities depend on the domesticlegal and institutional framework.  In some instances, competition authorities can
play a general advocacy role in support of an overall open trade policy stance by
highlighting the benefits of such liberalization for consumer welfare and enhancing
the structure of competition in the market.  Competition authorities may be directly
involved in trade liberalization and deregulation initiatives, in particular whencomplementary competition law disciplines are seen as essential to ensure that the
benefits of such liberalization are not negated through anti-competitive practices
undertaken by dominant firms.  Competition authorities may also be consulted when,WT/WGTCP/W/78
Page 17
within the framework of the application of trade remedies law, issues arise
concerning the structure of competition in the market.
A number of examples can illustrate the interaction between trade policy measures and the
application of competition law:
The Aluminium case :21  In this Decision, the European Commission condemned an agreement by
which the main western aluminium producers agreed to buy certain limited quantities of aluminium
from foreign trade organization of East European countries in exchange for their commitment not to
sell to other potential buyers in the Western European market.  One of the arguments put forward as a
defence by the parties to the anti-competitive agreement was that the restriction was justified since
aluminium sales from the foreign trade organizations would have been at dumping prices.  The
argument was dismissed by the Commission, which stat ed in its decision:  "This argument assumes
that private parties may arrogate to themselves public functions.  It obscures a clear difference
between the regulation of trade by a public authority and regulation by cartels.  A public authority
must take into account the rights and interests of third parties as well as a general public interest.  A
cartel is habitually for the benefit of the participants and takes no account of the other two concerns".
The Soda Ash  case:22  The Commission condemned as an abuse of a dominant position a policy of
progressive fidelity rebates and supply contracts tying up its major customers undertaken by Solvay,
the dominant producer of Soda Ash in part of the Community market.  Several aspects of this case are
of interest.  At the time of the investigation, antidumping duties were in force on US and Eastern
European producers.  At the same time, the Commission Decision notes that, as a result of changes in
exchange parities, Solvay was well aware that US producers could sell in Europe at prices
substantially below average EC prices without being guilty of dumping and that the duties were under
review.  In establishing that Solvay had a dominant position in the market, the application of
antidumping duties was one of the factors taken into account by the Commission.  Moreover, the
Commission found that the effect of the system of progressive rebates applied by Solvay was to make
it difficult or impossible for other suppliers to enter the market for the marginal tonnage without
selling at unprofitable or dumping prices.  The Commission issued a termination order requiring
Solvay to abandon its system of fidelity rebates and applied a fine of ECU 20 million.
Competition law can therefore play an important role in limiting the risk that private restraints
are either substituted for trade policy measures or developed under the cover of such measures.  An
issue that could be considered under a multilatera l framework of competition rules would be how to
promote a strict enforcement of competition law in such circumstances.  Moreover, such a multilateral
framework should also contribute towards closer cooperation between trade and competitionauthorities, which is an important condition for the effectiveness of their advocacy role.
III. SUMMARY AND CONCLUSIONS
This submission should be seen together with  previous submissions by the EC and its member
States, where the case has been presented for the development of a multilateral framework of
competition rules within WTO as a complement to current WTO disciplines. In this submission, we
draw particular attention to the following issues:
                                                     
21 Commission Decision of 19 December 1984, OJ 1985 L/92/1.
22 Commission Decision of 19 December 1990, OJ 1991 L/152/21.WT/WGTCP/W/78
Page 18
− In order to ensure effective access to markets including in those sectors which are subject to
widespread government regulations and/or where enterprises have been granted special orexclusive rights, it is generally recognized that trade liberalization needs to be complemented
by the application of competition law disciplines.
− As regards government regulation, the interaction between trade and competition policy
would, in particular, arise when the government requires, facilitates or supports anti-
competitive practices by firms with a market foreclosure effect.  While WTO jurisprudence in
this regard is still evolving, it would appear , in principle, that such forms of government
intervention are subject to WTO disciplines.   An issue for consideration is how a competition
law framework could back up and complement such disciplines.
− Certain activities by enterprises in a dominant position can hinder market access.  Concerning
certain enterprises with monopoly or exclusive rights, specific disciplines have beendeveloped within the WTO.  As regards state-trading, the contribution of this Group could
focus on clarifying how commitments by governments to apply competition law disciplines
could complement the current framework of rules applying to monopolies and firms with
exclusive rights.  Another issue for consideration is the commitments which governments
could undertake as regards the application of competition law to anti-competitive practices
with a market foreclosure effect by other firms in a dominant position or as a result of anti-competitive agreements.
− In order to achieve its market integration objectives, the European Union has developed a
unique framework in which competition law disciplines also apply, under certain conditions,to measures taken by the member States.  This framework may be of interest to other WTO
Members engaged in a process of regional inte gration.  It is not suggested, however that a
similar framework could be applied at the multila teral level.  In considering the interaction
between trade and competition policy, the following issues could require specific attention:
(a)  the application of competition law on the same basis to private and public undertakings;
(b) consideration of the scope for reducing or eliminating sectoral derogations to the
application of competition law; and  (c) clarifying that government intervention does notjustify broad derogations from the competition la w disciplines applicable to firms.  In this
context, it may also be useful to further clarify the relationship between WTO disciplines and
government action to foster and support anti-competitive practices.
− This submission has discussed how the impact of trade policy on competition encompasses a
wide range of trade policy measures. These include high tariffs, quantitative restrictions,
regulations favouring domestic products, restraints on market access by state trading
enterprises, discrimination in public procurement or cases in which trade policy remedies are
not applied in accordance with multilateral rules.  WTO Members must ensure strict respectof WTO disciplines, further liberalize their trade regimes and endeavour to avoid or minimize
adverse effects on competition.
− Measures to counter unfair trading practices aim at restoring effective competition in a
market under the conditions provided in the relevant WTO Agreements. In the absence of full
market integration and common institutions fo r competition law enforcement, there is a
distinct and complementary role for competition law disciplines and specific trade remedies
to deal with unfair competition in intern ational trade.  The Antidumping Agreement
encourages WTO Members to implement the Agreement in a manner that does most to
minimize competition concerns.WT/WGTCP/W/78
Page 19
− As regards trade policy measures, the interaction between trade and competition law would
arise in particular in those instances in which private restraints substitute for, or develop underthe cover of, trade policy measures.  In further discussing the possible development of a
multilateral framework of competition rules, it could be useful to consider how such a
framework could contribute to a strict enforcement of competition law in such cases.
− Competition authorities also have a role to play  in the trade policy field through competition
advocacy.  The specific modalities for such advocacy depend on the domestic legal andinstitutional framework of each WTO Member.  This Working Group has already contributed
to a closer dialogue between trade and competition authorities.  It can be expected that such
dialogue and co-operation would be significantly enhanced through the development of a
multilateral framework on competition within the WTO.
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