RESTRICTED
WORLD TRADE WT/WGTCP/W/41
1October 1997
ORGANIZATION(97-4068)
Original: English Working Group ontheInteraction
between Trade andCompetition Policy
COMMUNICATION FROM PAKISTAN
Thefollowing communication, dated 15September 1997, hasbeenreceived fromthePermanent
Mission ofPakistan withtherequest thatitbecirculated toMembers.
_______________
Introduction
Theprocess ofrapid integration oftheworld economy hasthrown insharper relief theinterface
between trade andcompetition policies. Itisincreasingly recognized thatthese policies cannot be
compartmentalized.Norisitpossibleanymoretocategorizetheirrelationshipsimplyascomplementary
orthatofsubstitutes. Thisisachallenge forpolicy makers around theworld butmore soforthose
inthedeveloping countries whoarestruggling todevise policy mixes toachieve arespectable rate
ofeconomic growth andkeeppacewiththeforces ofglobalization andliberalization atthesame time.
TheWTO Working Group isexpected tomake important contributions toabetter understanding of
thisinterface. Thissubmission isaninitial attempt toprovide some ideas tostartthediscussion: it
cannot claim tobeexhaustive orprescriptive.
Objectives ofTrade andCompetition Policies
Governments pursue policies inmayareas toachieve efficient allocation ofresources and
maximize welfare (measured bythesumofconsumers 'andproducers 'surplus). These policies include
those relating totrade, competition, investment andregulation, etc.Themainobjective ofthesepolicies
isoften toincrease thecontestability ofmarkets, which leads tobetter allocation ofresources and
ultimately, welfare maximization.
Governments indeveloping countries alsohavethesame objectives andusethesame array
ofpublic policies, e.g.trade, investment, deregulation andcompetition, etc.However, there aretwo
important considerations indeveloping countries thatdifferentiate themfromdeveloped countries and
hence deserve special attention. First, themainobjective ofdeveloping countries istoachieve ahigher
rateofsustained economic growth anddevelopment sothatthepresent gapbetween them andthe
developed countries isnarrowed. Second, thestructural andinstitutional features ofmany developing
countries including underdeveloped andfragmented markets, inadequate infrastructure andlimited
capacities, etc.necessitate careful tailoring ofpolicies toindividual circumstances.
Instruments andScope
Theprimary instruments oftrade policy are:tariffs andnon-tariff measures ontheimports
side, export facilitation measures ontheexports side, while subsidies canbeusedtoimprove the
competitive position ofnational firms bothagainst imports andintheexport markets. Itisobvious
thatuseoftheseinstruments canincrease orreduce thelevelofcompetitive pressure fornational firms.WT/WGTCP/W/41
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Moreover, these instruments areusedbygovernments, though often inconsultation withprivate
enterprises.Competitionpolicyinstruments,ontheotherhand,areadministrativeandjudicialprocedures
targeted atanti-competitive business practices inthedomestic markets only-atleastinthevastmajority
ofcases.
Theuseoftrade andcompetition policy instruments issometimes notaligned. Thiscanlead
tosub-optimalresultsifinstrumentsoftradepolicy-designedinconsultationwithinterestedlobbies-are
allowed toprevail overthatofcompetition policy -oftenbased onconsiderations ofeconomic efficiency
andconsumer welfare.
Developing countries facetwochallenges inthisrespect. First, while theyhavesomeexperience
ofusing trade policy instruments, competition policy iscomparatively anewarea. Many developing
countries haveintroduced competition legislation onlyinthelastdecade andthere aremany others
which donothaverelevant legislation andmechanisms yetinplace. Thispoints totheurgent need
forcapacity building inthisareaindeveloping countries. Second, theyconfront thedifficult taskof
aligning trade andcompetition policy instruments while maintaining some exceptions todevelop the
competitive capabilities ofnational firms. Theyhavebeenallowed theseexceptions under international
trade agreements. However, tomaintain them under acompetitive framework isnotalways easy.
Economic Growth andDevelopment
Trade policy indeveloping countries isfocused onliberalization sothatthecompetitiveness
ofnational firms isimproved ontheonehand, and,international trade flows reflect thecomparative
advantage, ontheother. Thisshould increase global welfare and,atthesame time, increase exports
fromdeveloping countries intheareasoftheircompetitive advantage, resulting inexport-led economic
growth. Competition policy indeveloping countries issimilarly focused tocheck business anti-
competitivebehaviourindomesticmarketstoensuremaximizationofwelfareresultingfromliberalization
oftrade. Consideration ofdomestic capacity building isoften builtintoboththese policies.
Theinterface oftrade andcompetition policies andtheirrelationship witheconomic growth
giverisetotwosetsofissues fordeveloping countries, related todomestic andexport markets,
respectively.
(a) Issues related todomestic market:
(i) Trade liberalization should increase thecontestability ofthedomestic market
andnotconcentration. Ofconcern arethemarket powers thatforeign exporters
cantranslate intodominant market position, collusion among foreign exporters
andcollusion among foreign exporters andlocalfirms.
(ii) Satisfactory domestic capacity building isnoteffected. This relates to
institutions, infrastructure andmarket structure aswellastoaconducive
environment forthedevelopment ofSMEs.
(iii) Trade liberalization andcompetition framework improves thecompetitiveness
ofnational firms. Thismayrequire selected exceptions andcareful graduation.
(iv) Benefits ofliberalization arenotcaptured byafewbutarewidely spread and
increase thesumofproducers 'andconsumers 'welfare.WT/WGTCP/W/41
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(b) Issues related toexport markets:
(i) Itisimportant thattrading partners implement theirliberalization commitments
faithfully andontime. Thiswillmake theprocess ofadjustment fordeveloping
countries lesspainful andkeepthemomentum forfurther liberalization.
(ii) Tradingpartnersdonotusetheinstrumentsoftradepolicytoimpairthebenefits
accruing from liberalization.
(iii) Trading partners dealwiththeissues related toalevelplaying fieldintheir
markets through competition policy andnottrade policy principles and
instruments. Considerations ofeconomic efficiency andwelfare maximization
mayrequire thatresort toanti-dumping andsafeguard actions isreplaced by
appropriate measures bycompetition authorities thatarenotbased on
protectionist tendencies.
(iv) Competition framework intrading partners isneutral between domestic and
foreign suppliers.
Wehope thatthese issues, among others, willbediscussed bytheWorking Group. This
discussion mayindicate elements forfurther work inthisarea.