A battle of interpretation is looming in the World Trade Organisation over attempts by some major countries to get the WTO to establish a new agreement on 'competition policy'. The rich countries want their companies to be able to enter any country and compete 'equally' with local firms. Developing countries fear that granting such treatment to big foreign firms would mean that local firms would have to struggle to survive and that in the end the foreign monopolies will get even more powerful.

By Martin Khor

April 1999

Policy-makers in major developed countries are advocating the introduction of a new agreement on competition policy in the World Trade Organisation so that their big corporations will be better able to take over a larger share of the markets of developing countries.

Ironically, competition policy was originally understood as a means to help small companies not to be overwhelmed by the big firms. But it is now sought to be used by the rich countries to help their giant corporations compete with the local firms in the developing countries.

By bringing the issue into the WTO, the rich countries plan to make use of the organisation's principle of 'non-discrimination' to argue that local firms cannot be treated more favourably than foreign firms.

The big foreign enterprises must be given 'national treatment' (at least as well as, or better than, locals). In the eyes of the rich nations, this is what is meant by fair or equal competition.

Such an approach would of course be a threat to many local firms, as they are smaller and have fewer resources to compete with the giants. To developing countries, therefore, 'non-discrimination' towards foreigners would in reality be discriminating against locals who would not be able to compete on equal terms.

This clash of perception on what is meant by fair competition, and whether the WTO should set rules on it, is already taking place.

The pressures will build up in the next few months as the WTO's member states intensify their negotiations to prepare for the WTO's Ministerial Conference in Seattle in November/December.

The European Union in particular has been strongly pushing for a decision by WTO member states that the Seattle Conference launch a new comprehensive Round, in which competition policy would be one of the new issues for negotiation towards a new WTO agreement.

Several developing countries have voiced opposition to the proposal for the negotiation of multilateral rules or a framework on competition policy in the WTO.

They argue that the issue is too complex and understanding on it by WTO members is far from agreement, and that instead of developing multilateral rules, the WTO's Working Group on trade and competition policy should continue to study the issue.

In a meeting of the working group recently, the European Community tabled a paper advocating the development within the WTO of a multilateral framework of competition rules. Such a framework would contain 'core principles of competition law and its enforcement'.

The EC paper puts forward the proposal that the WTO principles of non-discrimination (including national treatment) and transparency should be applied to a national competition law that WTO members would be required to adopt under a WTO agreement on competition policy.

Competition law would then combat practices which deny foreign products and foreign firms (that are established in the host country) equal competitive opportunities in the local market.

The result of the EC's approach would be that WTO members would have to enact national competition laws that would have to give foreign firms 'national treatment' in the laws and their application.

Foreign firms can insist on getting 'equal opportunities' as locals in the host country's market, and government measures or private sector practices that favour the competitiveness of local enterprises would be considered impermissible.

Thus, the proposed WTO agreement on competition would place obligations on developing countries to establish a competition law that would very significantly increase the market access that foreign firms would have to their markets, through trade or investment.

Moreover, the WTO's enforcement system (which includes trade sanctions against products of non-complying countries) would ensure that the pressures on members to comply would be immense.

This objective of effectively gaining increased market access and market power for foreign firms explains why the EC, its member states and some other developed countries have chosen the WTO as the venue to develop multilateral rules on competition.

As pointed out by several developing countries, and even by competition policy officials of the North, there can be greater international cooperation between national competition agencies without having legally-binding multilateral rules.

Moreover, if a multilateral legal framework is desired, it could be developed in other organisations, such as the United Nations Conference on Trade and Development (UNCTAD), which already has a 'set' of multilaterally-agreed principles and rules to control restrictive trade practices.

The 'value added' or advantage of having an agreement in the WTO is that 'competition policy' can be interpreted or skewed towards what are considered by its advocates as 'WTO principles'.

These principles, to be incorporated in competition laws and policies to be introduced in developing countries (or possibly to be amended by those that already have such laws), would result in the advocates' real aim, which is to considerably expand the space and possibilities of the big international companies to penetrate markets in developing countries and increase their market share and power.

Thus, ironically, this approach to competition policy would most likely facilitate and accelerate the higher and higher concentration of global market power by a few giant corporations, whose oligopolistic grip on almost all key products and services is already intensifying through mergers and acquisitions.

In a paper presented to the Working Group on 19 April, the EC states that the primary concern in the WTO is that domestic competition law addresses anti-competitive practices which impact on the interests of other WTO members, particularly practices which foreclose access to a market and deny equality of competitive opportunities.

In a 'comprehensive competition law' advocated by the EC, the regime would cover anti-competitive practices among firms and monopolisation or abuse of a dominant position. It would cover anti-competitive practices resulting from horizontal and vertical agreements among firms or certain types of conduct by a firm in a position of market power.

In a non-discrimination approach, competition law would tackle such practices (whether by foreign or local firms, and public or private undertakings) and be applied regardless of whether foreign or domestic interests are affected.

In relation to exclusions, the EC says competition law should in principle apply to all sectors and exclusions kept at a minimum. The absence of competition law disciplines in a sector can result in anti-competitive practices by domestic firms which deny access to a market to foreign competitors.

In a section on the contribution of competition law to ensuring non- discrimination and transparency in trade, the paper says it is vital for a foreign firm that its ability to compete on an equal footing is not undermined by measures taken by governments or business.

A final section (Section IV) of the paper argues for a WTO agreement on competition rules, which would 'establish a basic framework of rules relating to the adoption and enforcement of domestic competition law, and provisions on cooperation among WTO members'. The commitments assumed under the multilateral framework will be incorporated in the domestic competition law of WTO members.

In a response to the EC paper, the representative from India during the working group meeting said the EU submission had made premature conclusions that there should be a WTO rules set-up on competition policy.

India emphasised that while members should be encouraged to gradually introduce competition law, 'it is not at all necessary to have a basic framework of multilateral rules to ensure WTO objectives are achieved'.

Whilst it agreed with the EC that it should be ensured that developing countries benefit from international cooperation and capacity-building on competition law, 'we feel that one does not need multilateral rules to address them. We therefore reject the hypothesis that these issues, so critical from the development dimension perspective, can be addressed by developing multilateral rules on trade and competition.'

India agreed with the view of Brazil that even in the development of national competition policy regimes, there is a need to consider (i) the different levels of development; (ii) the different cultural context in which these regimes will be implemented; (iii) the difference in availability of resources for this purpose: and (iv) the different levels of institutional development.

'It is clear that these issues are much too complex and not as easily amenable to a multilateral solution.' Governments, businessmen and the public in developing countries should pay attention to how the talks evolve and indeed their diplomats in the WTO should be directed to oppose the moves to make competition policy the subject of WTO rules and agreement.

Otherwise we might soon have a situation where big corporations insist on being treated just as well as locals (or better), and the local firms will be struggling to survive. And ironically all this will be done in the name of bringing about more competition. - Third World Network Features


About the writer: Martin Khor is Director of the Third World Network.