Jenny gives three “options” on competition for Cancun

The chairperson of the WTO working group on competition policy, who has been holding consultations with WTO members on how the contentious issue should be addressed by the forthcoming Ministerial Conference, has prepared a note setting out three options before Ministers at the Cancun meeting. The following two articles assess each of the options and explore their implications for developing countries.

by Martin Khor

GENEVA: The Chairman of the WTO Working Group on the Interaction between Trade and Competition Policy has issued a note putting forward three options for approaching the decision that Ministers have to make in Cancun on further work in the WTO on the competition issue.

The note by Prof. Frederic Jenny, dated 18 July, is on his “Consultations on modalities in the area of trade and competition policy”, which he conducted in his capacity as one of the four “Friends of the Chair” to help the General Council Chairman hold informal discussions on the four Singapore issues.

Based on discussions he had with delegations on 23-34 June and 17-18 July, Jenny has set out his impression on members’ views on how to treat the competition issue, and gives three options on how to proceed.

According to Jenny, “a lot of delegates” support the idea that each Singapore issue should be examined on its own merits. Most delegates consider that “modalities” cover both procedural and substantive issues. A number view the scope of a possible agreement as an important part of substantive modalities. Others stress the discussion on modalities should not preempt future negotiations. A number of delegates feel Ministers should be presented with options for Cancun.

According to Jenny, there is quite a lot of support on four points: anti-competitive practices that affect trade are a source of concern and the trade-competition policy interface is relevant to WTO work; international cooperation to eliminate anti-competitive practices affecting trade is welcome; technical assistance and capacity building are important; and concerns of developing countries with respect to a possible multilateral competition framework must be addressed  in a more precise manner than in the past.

Binding multilateral framework

Jenny says that three broad options have been put forward.  The first approach is for a decision on modalities which would launch negotiations at Cancun on a multilateral framework covering the four issues in paragraph 25 of the Doha Declaration. The proponents favour a shorter and less prescriptive mandate, and the modalities would also cover technical assistance and capacity building; the dispute settlement mechanism could apply to laws and regulations but not to individual decisions, and a competition committee would monitor the agreement’s implementation.

According to Jenny, there are a number of concerns about this proposal.  Some concerns relate to domestic implications of the proposed framework.  Some state they cannot accept an obligation to have a horizontal competition law or establish a competition agency. 

“There is also disquiet about the possible implications of the non-discrimination principle, in particular national treatment, for industrial, developmental and social policies, especially as the principle is proposed to cover a country’s competition law in general, including such areas as merger review, rather than only the area of hardcore cartels,” says Jenny.

Another concern is a reluctance to envisage binding rules, especially if the WTO’s dispute settlement mechanism is applicable. Another point is the need for clarity that government-mandated practices would not be affected by the agreement.

Another concern is the agreement would not offer sufficient benefits in areas of interest to some delegations to offset the obligations. In particular, there are doubts whether developed countries would cooperate, for example, to assist in tackling international cartels if cooperation is purely voluntary.  Further, it would be important to cover export cartels in an obligation on hardcore cartels.

Some delegations need greater precision on scope and the elements of flexibility, progressivity, and special and differential treatment that should be provided to meet developing countries’ needs.

“My sense is that proponents of this first approach are open to discussing language to address the concerns of other delegations,” says Jenny.

“Soft agreement”

The second approach is a decision on modalities to develop a framework for cooperation in the WTO without any binding rules. It differs from the proponents’ proposal in having no direct domestic implications for members (since there would be no commitment to have a national competition law meeting WTO standards) and the dispute settlement mechanism would not apply.

Such a “soft agreement” would call for the creation of a Trade and Competition Committee which could promote a competition culture, address issues of competition, trade and development in a broad context, monitor implementation and the peer review process, and promote voluntary cooperation between members. A peer review process (drawing on the experience of the Trade Policy Review) would be established.  And technical assistance and capacity building would be a component. One proponent of this approach suggested the completion of negotiations by end of 2004.

According to Jenny, some delegations who are advocates of negotiating binding rules, and some supporting continuation of the working-group process, are showing interest in these ideas.

Questions arising on this approach include: the nature, role and terms of reference of  the Committee and how to ensure it stays within the mandate; what safeguard could ensure this option does not amount to Option 1 being reintroduced in the round through the backdoor; can it be explicit that this option would not entail domestic obligations or constraints for members; would the peer review be voluntary regarding which country gets reviewed and the implementation of recommendations; the nature of the peer review mechanism; what technical assistance should be given before negotiations end; and what is the timing of negotiations and is it part of the single undertaking?

Continuation of working group

The third approach is of countries in favour of not opening negotiations in Cancun. They argue that they do not know enough yet about competition or the benefits of a competition agreement in the WTO and are in favour of continuing the working group.

Jenny says ideas on what the group might do include having a more focussed mandate on developing modalities, continuing clarificatory work on the four issues of Doha Declaration para 25, or having a broader mandate exploring competition issues of relevance to trade and development.

The third approach is supported mostly by countries which have little or no experience in competition law and have limited resources to follow the work of all committees and groups in the WTO. Their stand was motivated by reticence to engage in negotiations on a binding agreement. They have not studied Option 2 yet.

Support for third option

Jenny’s note says these are the main options that emerged and further work is required to develop a decision at Cancun.

Jenny’s note does not state how many countries support each of the options, nor how many countries he consulted.  According to some delegations that took part in the June two-day consultation, the consultations involved discussions with small groups of some proponents and opponents of an agreement, and then a bigger group of about 25 countries involving both sides.  Thus, many (or most) countries were not involved.

The impression given in the Jenny note is that there is support by many countries for what he calls Option 2, and that Option 3 is mainly supported by countries lacking capacity.

However, the number of countries in “Option 3” is much larger than what Jenny’s note may imply.  Recent ministerial meetings of the least developed countries and of the African Union adopted declarations that the process of clarification on the Singapore issues, including competition, should continue after Cancun.

And a recent communication to the WTO on modalities of the Singapore issues by 12 developing countries has the same message, namely, that there is a divergence of views and thus no basis for consensus on modalities, and that more discussion and clarification of issues would be necessary. Those countries include India, Indonesia, Malaysia, Pakistan, Bangladesh, Venezuela, Cuba, Egypt, Zambia, Zimbabwe, Nigeria and Kenya. 

Thus, a large number of countries (in fact, the majority of developing countries), and not only those that most lack capacity to understand competition law or to negotiate in the WTO, are in support of Option 3.

Of course, it is also true that few trade delegations, policymakers or “experts” adequately understand the complex issues involved in competition policy, let alone the issues in the interface between trade and competition, the more complex issues in trade, competition and development, and the ultra-complex issue of how this mixture will turn out in the context of a WTO agreement, and the implications for policy and development outcomes.

Jenny’s note is the only paper circulated so far on the consultations held on the Singapore issues.  There have not yet been similar papers on investment, transparency in government procurement and trade facilitation. At a 21 July meeting of heads of delegation, China urged that reports on these three other Singapore issues be made available.

Some trade ambassadors who did not want to be identified said that some of the developing countries are keeping some options open. If they were forced somehow to negotiate investment rules, these countries are then expected to push for strong competition rules, requiring the advanced countries to undertake obligations and cooperate with developing countries initiating competition actions against foreign investors for any anti-competitive practices in their countries or affecting their exports and operating from the home bases of these corporations.

Such obligatory cooperation, they say, must include competition authorities of home countries raiding the offices of the corporations, seizing documents and enabling the host country to scrutinize them and/or take actions. However, judged by their remarks in their own countries, the major industrialized countries (the US, EC or Japan) are stoutly opposed to this obligation on their part. (SUNS5390)