More level playing fields for TNCs?

Based on oral presentations and papers submitted by various delegations at the WTO Working Group on Trade & Competition Policy (7-8 July 1997), there appears to be a wide gap in perceptions and approaches to the issue of trade and competition policy. The US and EC do not favour any discussion of anti-competitive effects of the use of trade instruments like anti-dumping, whereas Japan and South Korea have called for a comprehensive approach to studying these issues. Many developing countries have called for the inclusion of development issues and the practices of TNCs.

by Chakravarthi Raghavan

GENEVA: The first substantive meeting (7-8 July) of the WTO Working Group on the Interaction between Trade and Competition Policy shows the very wide gap in perceptions and approaches to these questions among the industrialized countries, and as between them and the developing countries.

And while the industrialized countries bring to bear their considerable experiences in the area of competition policy, rules and their application in their domestic markets, developing countries by and large are just starting the process and, if they don't watch out, may find themselves negotiating (as part of the new round in 2000) more disciplines on themselves to create level playing fields for the Transnational Corporations (TNCs) based on the major industrial economies.

In fact, one of the issues raised by the European Commission (which has pushed for a WTO process on competition policy), in terms of the feasibility of WTO commitments by members to adopt domestic competition laws and enforcement systems, is on procedures that apply in different countries on competition law and the areas, where as a result of diverging procedures in different jurisdictions, "the application of competition law can give rise to difficulties or increased costs of compliance."

In plainer language, this appears to be the opening gambit for an obligation by each WTO member to enact and administer competition law, and "harmonizing" procedures so that the TNCs, as the principal instruments of integrating the individual national economies into a "global" economy would have level playing fields everywhere and their costs of compliance could be reduced.

The working group, chaired by Frederic Jenny of France (who also chairs the OECD Competition Law and Policy Committee) at its meeting on 7-8 July, received oral presentations from delegations of the papers tabled by them, as also presentations from UNCTAD, World Bank and the OECD of their own activities in this area.

The US approach

The oral presentations and explanations of the various delegations, and the papers submitted by them and circulated as WTO documents (which in accord with WTO's style of transparency, are "restricted" documents) show that shorn of generalities about merits of competition policies, efficiency and other gains, the US and EC do not favour any discussion of the anti-competitive effects of use of trade instruments like anti-dumping, subsidies and counter-vailing measures, and the more general "safeguard" measures in the WTO agreements.

The US approach to competition policy has been that of the anti-trust law concept in its own domestic law, and the use of its market power to exercise its competition law instruments to tackle anti-competitive practices on its own markets (and consumers), as well as in the third country export markets that affect US corporations.

This US anti-trust approach to competition policy, with some minor changes to meet the views of developing countries, was the one that prevailed in the UN/UNCTAD negotiations and the agreement on the Restrictive Business Practices (RBPs) code adopted by the UN General Assembly.

The US did not push for any WTO disciplines on competition policy, preferring to defend its interests through its own national instruments, including through extra-territorial application.

However, at Singapore it went along with the EC push for a WTO process and leading to rules, but made clear then and now that it would not allow any study or negotiations to consider anti-dumping and other trade policy instruments.

The issue of anti-dumping

In its submission to the working group, the EC has sought to rule out any study of use of anti-dumping and other such rules to counter competition from imports. A footnote reference, says that: "Competition laws are understood to mean what is usually referred to as anti-trust law. While there are a few competition laws (such as in the EC) that also includes rules relating to government subsidies, these are already covered by rules under the WTO and there are specific WTO fora in which their functioning is examined and reviewed. The same applies to rules relating to other instruments of trade defence."

In its paper, the US refers to this and says it "agrees" with the point made by the EC about rules relating to government subsidies and other trade remedies, that these rules are already addressed under the WTO and there are existing committees under whose purview the implementation and functioning of those rules lie. "The work should focus on the role of competition policy in enhancing trade liberalization."

Not surprisingly, the World Bank, in its submission to the working group, has adopted the line of its major shareholders (the US and the Europeans) and says:

"While anti-dumping is sometimes discussed as an application of competition policy, the Bank has found it more useful to think of it as safeguards policy. As safeguards policy is outside the scope of this working group, we will not review our experience with anti-dumping, but if the working group is interested, we would be pleased to provide such a review."

[The Bank would appear to have agreed to provide delegations, its studies on anti-dumping laws and investigations, and measures.]

Japan and South Korea have however, called for a comprehensive approach. Korea has said, "no aspect of related policies should be excluded a priori from the scope of the study" and the group should study "the impact of competition policies on trade (including their anti-trade bias), as well as the impact of trade measures on domestic competition (including their anti- competitive bias)".

Japan has specifically mentioned WTO agreements on Art.VI of the GATT (rules on anti-dumping), as well as on Subsidies and Countervailing Measures and on Safeguards, and asks for specific analyses by the group on the effects of trade remedies such as anti-dumping, safeguards, subsidies and countervailing measures, over the competitive conditions of foreign and domestic goods and services.

Interestingly, Jenny, in a speech delivered in New Delhi in March, quotes authorities justifying the "infant industry" argument of developing countries to shield domestic industries from foreign competition, and the use of industrial policy in early stages of development (as Japan and South Korea had done), and need to ensure that governments do not replace the general reduction of tariffs and abolition of non-tariff measures with "abusive anti-dumping measures or safeguards".

In the specific context of Japan, South Korea and Taiwan, Jenny notes that successful countries that have based their economic development on export-led growth have come under increasing pressure from their trading partners to adopt or reinforce their competition laws and enforce them vigorously.

"Until the international community is (rightly or wrongly) satisfied that they have bowed to that pressure, they remain prime targets of anti-dumping measures...."

In specific terms, the EC paper suggests a work programme to identify the main anti-competitive practices that restrict international trade or development and take stock of development of competition regimes in WTO member countries so as to facilitate how "an effective, coherent and non- discriminatory application" of competition policies might be enhanced, as also to examine the particular problems and concerns facing developing countries on competition rules as well as effects of international cartels on their markets.

Features of competition laws

But in operational terms, the EC paper seeks an examination of the feasibility of a commitment by all WTO members to adopt domestic competition laws and enforcement systems, taking account of structures and levels of development of national markets. This work, the EC says, should address which basic features of competition laws could be said to be of general application:

* in terms of material law, which types of business behaviour are covered by competition law, how they are categorized, which practices are considered anti-competitive in most jurisdictions, what exceptions exist and the rationale behind such exceptions and whether there is room for their reduction or elimination;

* in terms of procedural law, the EC wants focus on procedures applied in different countries, areas where, due to diverging procedures in different jurisdictions, application of competition law can give rise to difficulties or increased costs of compliance;

* how access to courts or review bodies for competition cases are generally regulated in different jurisdictions, and what thresholds or barriers exist;

* effective and non-discriminatory enforcement of competition laws, what are the legal powers of competition authorities, and how much resources are allocated to them to enforce the competition laws, and the nature of sanctions against anti-competitive behaviour and how commensurate (and its deterrent effect) they are with economic harm caused by the offending conduct;

* transparency of competition law enforcement in various jurisdictions;

* whether and how cooperation among competition authorities can be supported within the WTO; and

* whether a "core of common principles" of competition law could be identified and adopted at international level, both in field of procedures (for mergers, access to courts, cases subject to international cooperation) and substantive principles or laws relating to cartels, including bid-rigging and export cartels, boycotts, alliances, mergers, abuse of dominance, vertical practices and so on.

As a final point, in a second stage of the work of the group, the EC wants an examination of the extent to which the WTO's dispute settlement machinery (and thus, cross- retaliatory trade sanctions?) could be applied to ensure compliance with multilateral provisions on competition policy.

The US, in its paper, explaining its approach and a possible work programme, adds as a conclusion: "Although the US has stated on other occasions, and continues to believe, that there is not the degree of consensus today that would support negotiation in the WTO of constructive competition policy disciplines, the proposed work program is intended to foster among member countries a common understanding of the relationship of competition matters to the WTO framework and to be neutral regarding any conclusions that may be reached."

"Whether or not Ministers subsequently decide to work towards a negotiation, the educational and exploratory process they have mandated should have independent value for all member countries in the formulation of their own policies in relation to competition and trade."

Japan, South Korea and Hong Kong on the other side, want to address these issues. And while there are some references to corporate behaviour, Japan skirts around the issues of behaviour of TNCs as investors and traders, and their RBPs, how these can be disciplined and enforced internationally. (TWE 166 1-15 August 1997)

Mr Raghavan is the Chief Editor of the South-North Development Monitor (SUNS) from which the above article first appeared.