Working Group on the Interaction between Trade and Competition Policy – Communication from India

Working Group on the Interaction between Trade and Competition Policy

(97-2894)
Original:English

Liberalization and globalization have characterized international economic activities in recent times. Consequently, at the micro level for firms to remain competitive, they are now required to adopt global strategies. As the number, size and scope of activities of transnational firms increase more and more of them forge and operate strategic alliances, their commercial practices are having an increasing international dimension than ever before. These processes are resulting in increased cross border trade and at times anti-competitive practices. Such practices undermine the benefits of liberalization by countries. There may be a need, therefore, for an international framework to enhance the effectiveness and coherence of competition structures.

The mandate given by the Singapore Ministerial Declaration stipulates, inter alia, that:
it will study issues raised by Members;
having regard to the existing WTO provisions in this area and the built-in agenda including that under the TRIMs Agreement; while
ensuring that the development dimension is taken fully into account. The mandate included, but was not limited to, an examination of all such anti-competitive practices. This paper is an initial contribution by India to the work of this Group and provides views, in conjunction with the views expressed in some of the already circulated papers. We hope that this would help the Group in formulating an appropriate framework within which the analysis could be initiated.

Trade and trade liberalization are not an end in themselves. The preamble to the WTO clearly stipulates that “their relations in the field of trade and economic endeavour should be conducted with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income … in a manner consistent with their respective needs and concerns at different levels of economic development”. There is no doubt that trade, is very closely related to competition policy. The nature of any competitive policy regime affects trade, whether in inhibiting or encouraging its growth. To this extent a review and subsequent analysis of the issue of trade vis-à-vis competition policy is both important and contextual. However, this relationship is not only very complex, but has yet to be studied in depth in any multilateral forum. Only UNCTAD has done some work in this area, a reference to which was made in the related paragraph of the SMC declaration. The complexity of the problem is further compounded not only by the different interpretations of what should constitute the operational framework of any study, but also by the fact that Member countries have different, and often varying domestic legislation in the area of competition policy. This is understandable since in the widest sense of the term, the term “Competition Policy” potentially encompasses a wide range of government policies, affecting both competition and restrictive business practices.

An examination by the WTO of the links between trade and competition policy would therefore help ensure that trade liberalization, deregulation and globalization, lead to increases in competition. At the same time, in order to maximize the benefits of globalization to consumers, it is essential to establish a mechanism that ensures a healthy competition in a globalized economy. While it is true, that the classical approach to the competition policy focuses largely on the anti-trust approach to domestic competition, it cannot be denied that there is now a broadening of approaches and assumptions to include a wider perspective of the issues that address the effects of globalization and the objective of development. Some of the elements of governmental competition policy would therefore include anti-dumping policies and measures, safeguard actions, countervailing measures, rules of origin, etc. On the other hand, some of the restrictive business practices by the private sector would include tied selling, resale price maintenance, mergers and acquisitions, exclusive dealings, intrafirm ‘international trade’ and strategic alliances that have particularly adverse effects on developing countries, transfer pricing, etc. The link between these two needs to be studied and a regulatory mechanism evolved. Hence, it is important that the Working Group addresses all these issues and areas which will be of help to Members to better understand the relationships between trade and competition policy as of trade and investment, so that they could then take such measures that would ensure that trade contributes more meaningfully to economic growth and development.

Accordingly, we feel, that the Group could consider adopting the following framework for examining this issue.

We agree with the suggestion made in some of the other country papers that it would be of both primary and fundamental importance to initiate the work with a conceptual study of the relationship between trade and competition policy, particularly, the impact that the latter has on the economic development of countries. It is therefore important that the issue of competition policy is dealt with in totality and not merely from the point of view of commercial enterprises. Some of the proposals which have been mooted are perhaps not comprehensive as they do not deal with the dimension of competition policy dealing with trade policy measures, such as anti-dumping measures, subsidies, safeguard measures, countervailing measures, technical standards, rules of origin, etc. which are of special interest to developing countries, particularly in the context of the fact that in recent years trade liberalization and the relaxation of foreign investment regulations (such as in India) has led to an increasing tendency of cross-border mergers and alliances which need to be looked at from the national perspective. Hence, any global policy in this sphere needs to effectively deal with all categories of potential abuse. It is therefore important that the Working Group studies the contradictions, between trade policies and competition policies, so that both are harmonized. We are aware that certain Members feel that some of these issues are already being addressed in other forums of the WTO. While we may not necessarily disagree with such an averment, we feel that adopting a holistic approach which takes into account all ramifications, would in the long run be more beneficial to the multilateral system.

As stated earlier, the preamble to the establishment of WTO states that relations in the field of trade and economic endeavour should be conducted with a view to raising the level of economic development. There can therefore be no doubt, that the ultimate aim of any analysis of a Working Group can only be to suggest ways and means of removing impediments to development. Competition policy is a new area for developing countries. The link between trade and competition policy, and consequently on development has yet to be fully understood. It is therefore important that the Group focuses on the relationship between any competition framework and its capacity to influence the economic development, particularly of developing countries. Competition policies must ensure equal conditions for any one to market their product and to have freedom of activity in the economic sphere so that both welfare and efficiency are promoted. We therefore wish to reiterate our special interest in examining the development dimension of issues related to trade and competition policy. As a large and diverse developing country we have always taken an interest in, and stressed the need for this aspect of trade policy. We feel that examination of development dimension would play a significant role in the perception of the work of the Group.

There are considerable variations between countries in their existing national legislations on anti-competitive behaviour. There are also variations in the definitions of anti-competitive practices depending upon the size of the economies, degrees of regional integration and levels of development. Therefore, a consideration needs to be given to the fact that there are considerable differences between domestic laws and policies of different countries and that many countries lack domestic competition laws and enforcement principles. In our view therefore, it is important that the development dimension should include an analysis of the experiences and practices of countries at their various stages of development, so that developing economies can ensure an optimal transition. In this context, it may perhaps be appropriate to keep an open mind towards providing developing countries, particularly the LDCs, a certain amount of flexibility in this regard. Under this category, it would also be useful to consider the appropriateness of existing competition framework in the developed countries for trade endeavours from the developing countries, so as to ensure a level-playing field. At the same time, the development dimension could also examine the manner in which the growth of the TNCs and their global alliances is affecting development both within and outside the context of possible use of restrictive business practices.

Any study would necessarily have to be done in the background of the relevant provisions of WTO/UR Agreements relating to competition. It would be important to examine the factual background of the provisions, and where possible indicate the extent to which these provisions are compatible with basic competition principles and whether they have been able to deliver the required objective, or they suffer from inherent constraints. For instance, though the TRIMs Agreement forbids trade distorting performance requirements, it does not recognize that restrictive business practices by foreign investors that have a similar distorting effect. In fact, several of the Trade Related Investment Measures in countries are a response to the anti-competitive behaviour of the transnational investors and corporations. Similarly, the Agreement on Safeguards provides that a Member shall not seek, take or maintain any voluntary export constraints, or such other measures which could affect trade. However, it may be relevant to examine whether certain non-governmental measures, particularly those adopted by the private sector are adequately covered under the safeguard measures, in the context of competition policy. In this, the Group draw upon the work done by UNCTAD, which could provide a framework from which to initiate the analysis.

Although we are aware that in view of the complexities and diversified views regarding the definition of competition, there may not be a consensus, at least in the beginning, on a number of issues. However, we feel that the proposed work programme would foster among Member countries an understanding of the relationship of competition matters, and would help them to better understand the characteristic conditions and perspectives under which they view the whole concept of trade and competition.