South's focus on development, TNCs in competition policy

by Chakravarthi Raghavan

GENEVA: Developing countries, in their presentations to the WTO working group on inter-relationships of trade and competition policy, have underlined the need to focus in the study process, the development aspects of competition policy, and the practices of Transnational Corporations (TNCs) in terms of the globalization process.

Many of their presentations stress, explicitly or implicitly, the fact that their enterprises and exporters are generally small and medium-sized enterprises, and that they face anti-competitive practices in the export markets due to the TNCs.

In effect, some of the presentations are trying to pick up the original stands and positions of these countries - at Havana, in the negotiations for and the agreement on the Havana charter, their subsequent efforts to have international competition rules to discipline the behaviour of private parties, their attempts in UNCTAD to put teeth into the RBP code, particularly in terms of making them binding and to secure cooperation of the developed countries to stamp out anti-competitive practices originating in these countries, but affecting the export and import trade, and development of developing countries.

Even during the Uruguay Round, when Japan, US and EC led the drive to put disciplines on the use of various performance requirements of developing countries on their foreign investors, the developing countries countered that their conditions and requirements were a defensive mechanism against the anti-competitive behaviour of the TNCs.

As a result, they insisted that in the review of TRIMs to be taken up after five years, the issues of investment policy and competition law had to be looked - so that any disciplines on national governments in investment policy had to be matched by competition disciplines on anti-competitive behaviour of foreign investors and TNCs.

Even at Marrakesh, they raised the issue.

Subsequently, in the run-up to Singapore, in an effort to concentrate on implementation problems (which were in fact, side-railed by the majors and the WTO leadership even before Singapore), they tried to block all new initiatives, but were in disarray at Singapore, when suddenly some of their ministers agreed to "studies" on new issues of investment, but opposing competition policy.

As a result, developing countries as a whole found themselves in a defensive reactive position, not only on efforts to open up their markets to TNCs (via investment or trade), but even on competition policy questions - since the EC and US sought narrowly to focus it on enforcing domestic competition laws to provide level playing fields for TNCs as against domestic operators.

The various initial presentations of the developing countries have now sought to regain the high ground on competition, but needs to be buttressed by further studies as well as more coordination.

That anti-competitive practices of TNCs are not part of the dogma of the 1970s and thus something of the past that they should give up, but are probably current, has been brought out in a speech delivered, in New Delhi in March this year, by the chair of the working group, Prof. Frederic Jenny of France, who however, has said in that speech that there is no international consensus to have an international regime to deal with such practices and behaviour!

Operation of international cartels

In that speech, Jenny has cited operation of international cartels, documented from academic research, parliamentary hearings and case law of national competition authorities. In particular, he has mentioned:

* the operation of the international cartel on heavy electrical equipment, under the auspices of the International Electrical Association (involving most of the North American, European, some East European and Japanese firms) that applied to all procurement outside of the EC and the US;

* Senegalese complaints about the operation of a North American aluminium cartel that forced them to buy aluminium and tin from European sources, rather than cheaper North American sources;

* an international cartel on flat rolled steel products (which was in existence at least until end 1994, and may still be, according to Jenny) þ with participation of European, Korean and Japanese firms þ that divided the world (other than the US) with the area west of Myanmar coming under the sphere of European suppliers and the area to the east under Korean and Japanese suppliers. This brought steel importers of Thailand, Indonesia, Malaysia or the Philippines under the influence of Japanese mills, while India, a large importer of hot rolled flat steel, could only import small amounts from Japan since it was under the sphere of European mills;

* the European cement cartel which "dumped" surplus cement on North American markets in order to keep prices up in domestic markets;

* the international potash cartel between North American manufacturers; and

* the industrial diamond cartel.

Egypt, in its communication, for example, says that the way competition policy was looked at in the past, delinking it from international trade, might have been sensible then, but that it can no longer be confined to the national framework.

While there is a new environment in which international trade operates, its benefits for developing countries could not be taken for granted and "to level the playing field on the global level, developed and developing countries should cooperate to establish an enabling framework that should allow (them) to make use of the benefits accruing from free trade and freer investment, thus increasing the need to look at linkages between trade and competition and investment and competition from the global perspective. There is thus a need for a comprehensive approach."

Egypt's proposal for a work programme

In terms of work programme, Egypt has said the study of competition policy should look at:

* the extent to which national competition laws can effectively deal with RBPs of TNCs at international level, and how to control the international mergers that create monopolies or dominant positions in the national market;

* how international cooperation could enable countries to deal effectively with competition issues involved in by foreign firms abroad and affecting their local markets, and

* the need for and possible scope of a multilateral framework.

Egypt also seeks an indepth study of the development dimension, drawing on the relevant principles of the UNCTAD RBP Set, among other things on:

* how to ensure an optimal transition for firms previously protected from competition;

* empirical experiences to compare shock vs. gradualistic approaches;

* extent to which exemptions need to be given to developing country firms, particularly their SMEs; and

* the inter-relationship between investment and competition policy.

Pakistan's paper

Pakistan, in its paper, notes that benefits of trade liberalization in products of interest to developing countries are sometimes impaired by private, business and government anti-competitive practices and these should hence be studied, including:

* how private, business and government actions and measures distort competitive conditions against products of developing countries;

The paper has not spelt these out, though newspaper reports show how quickly the US and EC resort to transitionary safeguards and anti-dumping investigations and measures even in areas where there are import quota restrictions, as in textiles and clothing, operating to hold down Third World competition.

* whether existing market structures and competition frameworks in developed countries create a truly level playing field for SME exports from developing countries.

In terms of the issues of economic development, the main issue for developing countries, the Pakistan paper calls for study of:

* the relationship between competition framework, domestic capacity building and development;

* special measures favouring developing countries in the areas of trade and competition policy so as to further the objective of economic development;

* the appropriateness of existing competition frameworks in developed countries in terms of developing countries and their SMEs, and

* the definition of level playing field for unequal competitors.

Focusing specifically on TNCs and their global reach and efforts to maximize global profits by controlling investment flows and intra-firm trade (which now accounts for one-third of total international trade), Pakistan also asks for study of issues in this area including:

* scope for both traditional and new RBPs of TNCs in age of globalization;

* capacity of developing countries to combat these RBPs;

* competitive significance of global competition among TNCs.

As a basic approach, both government as well as private actions and measures should be looked at, as also anti- competitive practices within a country and across the border.

The Pakistan paper has called for examination of WTO agreements and provisions: Art. VIII and IX of GATS (on competition issues and consultations), Art. 2 of the Agreement on Safeguards, Art. 8, 31 and 40 of the TRIPs agreement, and the WTO Agreement on Art. VI of the GATT (on anti-dumping).

Nigeria, in its paper has also called for a comprehensive study of issues raised by members, in a balanced and integrated way.

It notes that while it is useful to study and gain from the experiences of the few countries (mostly industrial) who have had active competition policy laws, "it has to be clearly understood that the experience of these members... have focused virtually on domestic and not on international competition policy."

The classical approach to competition policy, namely, the anti-trust approach to domestic competition is valuable, but not sufficient to address the effects of globalization and the objectives of development.

Peru, in its paper, has raised the issue of impact of competition policy on performance of trade and national economies, as also the relationship and balance between intellectual property rights and competition policy. (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.