WTO and competition rules: Will there be an explicit consensus?

Date April 3, 2002
Speaker Frederic JENNY(Vice Chairman, Conseil de la Concurrence)


The issue of whether there will be an explicit consensus to start negotiations in the so-called "new" areas in the Doha round depends on many things. Some of it has to do with competition, some with other trade-related areas, and some with geopolitical considerations. I will focus today on the issue of competition.

Explicit consensus connotes that countries are going to be more cautious on certain issues. For example, developing countries have felt that rules on intellectual property rights have been unfair.

I want to present my conclusions at the beginning of this discussion. There are two reasons for an explicit consensus on competition. One is that there are private practices that limit the benefits from trade or that simply prevent trade liberalization. The second is more general: one of the effects of globalization of markets has been to deprive national authorities of their operational abilities. In particular, they have had a difficult time enforcing their own laws when it comes to offshore practices. Something has to be done to meet the challenge of globalization for competition policy.

Another related issue is even more political. The critics of the multilateral trading system have said that trade liberalization has mostly favored the large multinational firms, but has done little for weak or small economies. They say that globalization moves along without any governance. National authorities cannot face the issue of competition solely on their own territory, and firms are able to enter into offshore practices where they are nearly immune from prosecution. The gap between global markets and the narrow scope of jurisdiction creates a problem of governance. There is a social policy element too because addressing the existence of export cartels would help the weaker countries.

Firms, too, would like to see new rules of governance in the area of merger control. There has been a mushrooming of competition laws: there are 100 countries with competition and antitrust laws. Firms would like to see a way to lower transaction cost from this explosion of rules. For all these reasons, if there were an explicit consensus, we would probably be moving in the right direction.

Developing countries will need technical assistance in this area. And it would help if international organizations explained to developing countries why it would help them to enter into an international agreement on competition.

The issue of competition dates back to 1945, which is about as old as an issue can be in international trade. There was a clear awareness of the relationship between trade and competition policy.

One of the fears of developing countries was that they were going to be told to adopt the EU style or US style or Japanese style of competition law. They felt that this would be detrimental to their interests because they were trying to develop national champions and promote economic growth. So there has been a lot of discussion within the WTO about the adaptability of antitrust law. Because competition law is a law, it must take into account the economic, legal, and political setting, as well as social values of the country in which it is implemented.

There is a variety of competition laws, with different goals, around the world. Though the common goal is efficiency, it is not the only goal. The EU law tries to accomplish efficiency, as well as integration of the European market. European integration is a political goal, which can conflict with economic aim of efficiency. Unemployment, inflation, and social goals are other concerns that enter into the discussion on competition. The point is that we must not be ideological: we must recognize that competition policy can take different forms.

A major concern is the relationship between competition policy and economic development. Developing countries are skeptical because, they say, developed countries developed first and then they adopted competition law. Why should developing countries do otherwise? Actually there is an argument that says that competition will not lead to development or foreign direct investment. In other words, the argument goes, competition policy reduces profit rates. Therefore, it makes investment prospects less interesting. When eastern European countries started privatizing former state enterprises, foreign investors said they were willing to buy parts of the firms but only if they were given the security of knowing that they would have a monopoly for the next ten years or so. The developing countries then conclude that what they really need is industrial policy, and national champions, to build domestic forces to be internationally competitive.

So the question becomes what is the relationship between competition policy and industrial policy? Japan has had both. The target becomes the ideal level of competition rather than the maximum level. There have been plenty of studies that suggest that in countries in the early stages of development, a certain level of government intervention is a good idea. It is also clear that as development progresses competition policy becomes more important and industrial policy less so.

Another question concerns small, open economies with, say, less than six million people: What is the point of having competition policy in a small and open economy when competition already comes from imports and the country's smallness precludes competition problems? I have come across a number of local issues that people have raised. For example, will local banks offer lower interest rates? Will lawyers' fees be reduced? What about phone service? Would building costs be reduced if there were more than one source? Would medicine costs go down if there were competition from importers? These are questions that are raised all over the word in small, open economies.

One way to look at trade and competition is to divide the issue into two: practices that defeat trade liberalization (such as an import cartel) and practices that deny trading nations the benefits from trade (such as anticompetitive transnational mergers). The international steel cartel carves up the world into regions and punishes the violators of the cartel. This means that importers cannot get competitive prices, even though these countries may have competition laws.

A solution is to have some sort of cooperation in the area of competition among countries when they face a problem that one country cannot solve alone because it does not have the jurisdictional means to go after it. We have several agreements with varying degrees of scope and cooperation, such as consultation, investigation, or exchanging information.

There are two types: the optional type is basically a bilateral agreement to have the option to cooperate; the commitment type is an agreement among many countries to cooperate. Optional agreements are problematic because they are optional in two ways: the country chooses with which country it will cooperate and it chooses on which particular case to cooperate. This is why the US-EU optional agreement ran into problems with the Honeywell case.

The EU's current proposal contains four elements. The first element would be that everyone would have some kind of competition law. The only common denominator would be a ban on cartels. For the other policies, it would be up to each country to decide what to do. Second, the laws would meet the criteria of the WTO, be nondiscriminatory and transparent, and respect due process. Third, there would be a cooperation mechanism (consultations or something more ambitious). Fourth, there would be technical assistance for the development of competition law for developing countries.

Dispute settlement is not talked about much. Most people agree that the WTO dispute mechanism would be inappropriate for determining the outcome of individual cases. For example, it would not be appropriate for a panel in Geneva to tell the US Supreme Court that it does not know how to apply US law.

There is more work to be done. In the Doha round, we hope to look at these elements in great detail and look at concepts such as nondiscrimination, due process, and transparency in the era of competition law. It may seem simple, but if you look at the perspectives from one country to the next you see a variety of opinions.

Can a consensus emerge? I would say definitely not if dispute settlement is to be applied to sets of decisions, if there is not thinking about special and differential treatment of developing countries in relation to competition, if competition is seen as a market access issue, or if antidumping is linked to competition. Consensus will emerge if there is flexibility in the system on what is expected from individual countries.

Is there a danger that in getting consensus, you risk weakening the regime? We need something to build on. In this area, trust is built over time. So I do not think we will weaken the regime. Look at the WTO dispute settlement mechanism: it was once very weak but is now remarkable.

Questions and Answers

Q: Japan was the staunchest supporter of the Singapore issues at Doha. Japan believes that it is time to incorporate competition policy in the WTO. We must be realistic. How do you see the perceived mistrust between competition and trade authorities in various capitals?

When the Doha document was being put together, the EU felt that it should keep competition issues and still go for consensus. Institutions behave just as expected: competition authorities do not want to cede authority. They want to be acceptable, which means independent from the government. But the more independent they get, the less relevant they become to policymaking. Mutual distrust has to fall away, with the help of working groups. The International Competition Network pushes for harmonization of laws, while the WTO recognizes different laws and tries to create an interface.

Q: At Doha, representatives agreed, "that negotiations will take place." What does this mean in terms of the working group? How does the process work at Doha?

I am a student of creative ambiguity, but not an expert. The mandate given to the competition group includes four elements of possible agreement. There has been a general statement. There has been a commitment that in Mexico, it will be a definite yes or no.

Q: How can the WTO deal with international cartels?

If a country is dependent on foreign steel and believes there is collusion, the country should say it has a law that prevents a cartel. If the country can prove the existence of the cartel, it should be able to enforce the law-with the cooperation of competition authorities, I would hope.

*This summary was compiled by RIETI Editorial staff.