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

Reproduced hereunder is a statement delivered by the representative of the Permanent Mission of India at the meeting of the Working Group on the Interaction between Trade and Competition Policy which took place on 15-16 June 2000.

It was agreed that during 1999 the Working Group would benefit from a focussed discussion on: (i) the relevance of fundamental WTO principles of national treatment, transparency and most-favoured nation treatment to competition policy and vice versa; (ii) approaches to promoting cooperation and communication among Members, including in the field of technical cooperation; and (iii) the contribution of competition policy to achieving the objectives of the WTO, including the promotion of international trade. It was also agreed that the Working Group “will continue to ensure that the development dimension and the relationship with investment are fully taken into account”.

The mandate set for this Working Group by the Singapore Ministerial Conference was to “study issues raised by Members relating to the interaction between trade and competition policy, including anti-competitive practices, in order to identify any areas that may merit further consideration in the WTO framework”. Subsequently, the General Council decided in December 1998 that the Working Group on the Interaction between Trade and Competition Policy should continue the educative work that it has been undertaking pursuant to paragraph 20 of the Singapore Ministerial Declaration. India is of the view that much work remains to be done in terms of broadening and deepening the understanding of the issues involved in the interaction between trade and competition policy within the same mandate referred to above.

The principles of non-discrimination and transparency are fundamental to the multilateral trading system. Competition policy, however, covers a much larger canvass than trade policy, and submissions so far have related it to investment policy and industrial policy, among other areas. National treatment in the context of competition policy in that sense is more complex. Besides, there is the question of the development dimension. How are the developmental concerns of developing countries going to be met? The proposal in the previous meetings included sectoral exemptions and transition periods. Some delegations have stated that transparency is the most essential element and that once transparency is ensured it would not be easy for Members to discriminate. While transparency could be the essential first step, concerns related to the different stages of development of developing countries, and differences in their endowments, need to be taken care of. We have received some interesting submissions looking at developmental aspects of competition policy from delegations such as the European Community and its member States and Trinidad and Tobago. These would need to be carefully looked at by us before we can make definitive comments on these submissions.

It has been stated by many delegations that the objective of competition policy is to obtain efficiency enhancement. What some of them may have in mind may be “allocative efficiency”. Liberalized trade certainly could lead to better allocation of domestic resources in the trading countries. However, gains from allocative efficiency enhancement are once and for all involving the outward shift of the “production frontier”. What the developing countries are looking for is dynamic efficiency gains or gains in productivity over and above that due to increases in the factors of production. This is the concept of total factor productivity (TFP) growth. TFP enhancement is possible only through increased knowledge, technology upgradation, better organizational and management techniques in production and through general enhancement of education and skill levels. Trade could aid economic development only to the extent that it helps transfer knowledge, embodied and other, aid absorption of technology and enhance technical and skills development, and thereby enhance TFP, in the trading developing countries.

International trade in itself is not a “zero sum” game. Trade could benefit both the players. However, anti-competitive behaviour by either of the two trading entities could help it corner the gains from trade. Much of the benefits of international trade over the last century have been made possible through the very same “beggar-thy-neighbour” policies pursued by countries in the absence of any binding rules restraining such practices. Such practices are generally promoted by making “competition policy” subservient to “industrial” policies.

The essential focus of competition policy in advanced countries is the promotion of allocative efficiency and reduced price for consumers. This static perspective may not aid economic development. The debate related to “consumer welfare”, “producer interests” and “public interest” in the context of development is still alive. The Japanese experience for the period 1950-1973 indicates that the very high growth of the Japanese economy was facilitated by “subordination” of competition policy to “industrial policy”. Various scholars have brought out how MITI encouraged a variety of cartel arrangements in a wide range of industries – exports and import cartels, arrangements to combat depression or excessive competition, rationalization cartels, etc. Similarly, believing that large scale enterprises were required for promotion of technical change and for Japanese firms to compete effectively with their western counterparts, MITI encouraged mergers between leading firms in “key industries”.

Discussions on competition policy in the context of development cannot end without touching the concerns of developing countries related to the provisions of the TRIMs Agreement. Some TRIMs have been seen to be useful tools to control horizontal as well as vertical restrictive business practices of multinational corporations. A need to remove the prohibition of such measures under the TRIMs Agreement has been suggested on the basis that this withholds from developing countries important instruments to counteract anti-competitive practices. Similarly, well-known trade authorities have separately shown that TRIMs could be used by host countries in bargaining with multinational companies. Their argument goes as follows: FDI would take place only in case there is a benefit (rent). The MNCs tend to utilize their market power to appropriate most of the gains (rents) to themselves. Hosts respond with TRIMs and performance requirements to capture rent for themselves. TRIMs are characterized as implicit bargaining over the allocation of rents from FDI. It has been demonstrated how potential RBPs could nullify the benefits arising out of FDI and how TRIMs could counter such RBPs like import from parent, market allocation, transfer pricing, etc. In this context, it has been suggested that the pursuit of a market access agenda may result in outcomes that are detrimental from a welfare point of view. This is a key reason why some competition authorities are leery of putting anti-trust on the WTO agenda and why doubts have been expressed about the ability of a WTO-based process to play as constructive a role in the area of competition law as it does in the area of trade law. The same argument could be used to indicate that TRIMs could be used to enhance the gains from trade by developing countries.

During the discussions, the available options before Members in the area of competition policy such as unilateral, bilateral, regional and international or multilateral routes have been mentioned. The feasibility and enforceability of any agreement on international competition policy that goes beyond general procedural cooperation and the introduction of transparency mechanisms has been questioned by many Members. Bilateral agreements, regional agreements or plurilateral agreements have found support from some Members. The absence of competition law in half the WTO Member countries, the difficulties in harmonization of competition policy principles, the enforceability of the principle of “positive comity” in an effective manner especially from the point of view of developing countries and the general lack of confidence in the ability of the system to build in the development dimension in an effective and operational way into any competition policy agreement on a multilateral level results in a situation wherein my delegation does not, at least at the current stage of the educational process, see any great advantage in having a WTO Agreement on Competition Policy. The practicability of enforcing the principle of positive comity or information sharing among competition authorities is doubtful especially because the ability of developing countries to make any effective use of such positive comity arrangements is anybody’s guess. Therefore, the practicability and effectiveness of principles like that of “positive comity” among all the Members of WTO is doubtful at this stage. The international instruments like the UN Set and the various OECD guidelines, based on which the elements of a multilateral arrangement are being worked out by some of the Members, are non-binding. The extent to which the elements identified in such instruments could be replicated in WTO may be limited.

This does not mean that enterprise practices having cross border effects and having significant impact on distribution of gains of international trade among developed and developing countries should be left unbridled. The Working Group process has contributed enormously to the understanding of the subject by the Members. However, substantial work remains to be done.

During the discussion in the Working Group some delegations have dwelt on the need to address governmental measures in a multilateral competition policy framework. Trade policy’s concern is with governmental measures. The very rationale of talking about competition policy in the context of WTO has in fact been the apprehension that once the (government) policy-induced restrictions are removed through the implementation of Uruguay Round commitments by Members, the vacated space might be occupied by private enterprise practices of an anti-competitive nature.

As Jacquemin and others (1998) have brought out “… the role of competition policy is to curtail the misbehaviour of firms, in contrast to that of (international) trade policy which is to prevent misbehaviour of governments in the trade area. Nevertheless, the two do overlap as, for example, in disputes with respect to non-border trade barriers. Further, the international aspects of competition policy interface not only with trade policy, but also with other important questions such as cross border mergers and acquisitions, industrial policies of national governments, strategic business alliances, etc.”. After outlining an international competition organization outside WTO, but in cooperation with it, these authors have concluded that “… at present the WTO remains a system which deals almost exclusively with the actions of national governments, while competition policy deals primarily with the actions of private agents. Both are meant to increase welfare but each achieves this in its own way. Competition policy considerations which are broader in scope and more complex in terms of contents than trade questions, are being in danger of being submerged by trade policy considerations”. We need to guard against this.

We look forward to very useful contributions from Members on all aspects of competition policy, especially those related to the developmental needs of countries. As we have pointed out during our earlier interventions, it may be too early to rush to conclusions on issues like this that are complex and for which the social and institutional systems in many countries are not yet well developed.