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TWN Info Service on WTO Issues (July 03/16)

29 July 2003

Third World Network

Dear friends and colleagues

COMMENT ON FREDERIC JENNY’S REPORT ON CONSULTATIONS ON COMPETITION MODALITIES

In an earlier TWN Info (July03/14) we had a report on the Note by Mr Frederic Jenny, chairman of the Working Group on Trade and Competition Policy in WTO, on his consultations on WTO on how to deal with the decision on “modalities” on the competition issues.  Mr Jenny gave three “options” on handling the matter.

Below is a Comment on Mr Jenny’s report and on his three options.  It is written by Cecilia Oh, who is Legal Advisor and Representative of TWN in Geneva.

We hope you find this analysis useful.

Please check our website www.twnside.org.sg for previous issues of TWN Info Service.

With best wishes

Martin Khor

Third World Network

COMMENTS ON MR. F. JENNY’S NOTE ON CONSULTATIONS ON MODALITIES IN THE AREA OF TRADE AND COMPETITION POLICY

By Cecilia Oh, Third World Network, Geneva 27 July 2003

NOTE:  This is a comment on the “Note on Consultations on Modalities in the Area of Trade and Competition Policy” dated 18 July 2003,  prepared by Mr Frederic Jenny, Chairman of the WTO’s Working Group on the Interaction between Trade and Competition  Policy

1.   Three options for a decision on competition policy have been provided in Mr. Jenny’s Note.  The first is to start negotiations on a binding multilateral agreement on competition.  The second is to have a decision on modalities for a framework for cooperation in the WTO, without any binding rules (termed the “soft agreement” approach).  The third, is for the continuation of the clarification process in the Working Group.

2.   It is clear that the first option is that preferred by the proponents of the MCF, in particular the EC. The third option has been put forward by a number of developing countries, which have serious concerns regarding the implications of the MCF in the WTO. Whilst the second option of a “soft agreement” appears to be a formulation designed to strike a compromise between the first and the third options, it raises rather serious concerns that this may be a means by which the first option is re-introduced through the back door (this concern has been expressed by delegations, see para.  18).

3.   The note below considers the three options, and highlights some of the concerns and questions regarding these options, with particular reference to the soft agreement option.

OPTION 1:  BINDING MULTILATERAL AGREEMENT ON COMPETITION POLICY (paras 11-13)

4.   This is the proponents’ approach.  However, many countries have raised serious concerns about binding multilateral rules on competition.  Some of these concerns are listed in Prof. Jenny’s paper (for example, para 12).  There are also many differences of views on the issues for clarification, as the Working Group minutes and reports make clear.

5.   A precondition for negotiations is explicit consensus on the modalities for the negotiations.   It is obvious from the concerns raised during consultations with Prof. Jenny, and from discussions of the Working Group that the divergences of views arising from the clarification process does not make it possible for modalities for negotiations on a binding agreement to be agreed upon.

OPTION 3.  CONTINUATION OF CLARIFICATION PROCESS (Paras 19-20)

6.   This option is intended to reflect the views of those countries that do not wish for negotiations to be launched at Cancun. A number of countries in this category have expressly stated their position that negotiations should not be launched because the clarification process has highlighted clear divergences of views. As such, they propose that the clarification process should continue.

7.   On this point, three further sub-options have been given in Prof.

Jenny’s report:  1) a more focused mandate on developing modalities; 2) continue clarificatory work on the 4 topics specified in Paragraph 25 of DMD; and 3) a broader mandate to explore competition issues of relevance to trade and development.

8.   A number of developing countries have made it clear that they regard the clarification process as crucial, in order to ensure that their concerns and interests will be sufficiently addressed. In the absence of sufficient clarity, it would not be possible to determine modalities and much less, achieve explicit consensus on those modalities. Therefore, given the current state of the clarification process, the first sub-option of deciding on a mandate for developing modalities is not feasible. Nor is the second option of continuing the clarification process limited to the four issues identified in Paragraph 25 of DMD, since a number of developing countries have stated that the four issues are merely an illustrative list of issues, and that the mandate of Paragraph 25 did not restrict them to this list.

9.   The third sub-option of a broader mandate to explore competition issues of relevance to trade and development has been described as being close to the “soft agreement” approach. This is not accurate. It would be a more accurate reflection of views expressed by developing countries in the Working Group to suggest that a broader mandate under this third option should be one that seriously clarifies and addresses the special needs of developing countries, in the context of trade, development and competition policy.

10. As a number of developing countries had proposed in the Working Group, the clarification process should give proper consideration to issues of interest to developing countries, including the following:

(1)            obligations of foreign firms to host countries;

(2)            obligations of home governments to ensure that firms meet their obligations;

(3)            measures to be taken by domestic firms and governments to enable viability and competitiveness of local firms in the context of liberalisation and globalisation;

(4)            impediments to competition caused by government actions, e.g., anti-dumping and agricultural subsidies;

(5)            impediments to competition by intellectual property rights protection;

(6)            impediments to competition caused by global monopolies and oligopolies, and the anti-competitive effects of mergers and acquisitions by transnational corporations; and

(7)  anti-competitive practices and behaviour of big corporations, such as RBPs and transfer pricing.

Therefore, a mandate for the next stage of the clarification exercise to be undertaken by the Working Group can be formulated to incorporate these issues.

OPTION 2.  “SOFT AGREEMENT” APPROACH 8PARAS 14-19).

11. This option appears to have surfaced as a compromise, during the consultations with delegations. It has not been previously discussed in any great depth.  It is thus unusual that it is given such a lot of space and detail in Prof. Jenny’s paper.  This option raises a number of serious questions and concerns.

12. It is unclear what is meant by the term “without any binding rules” (para 14). It may imply that the rules are not binding in a legal sense, in which case there would be no treaty or agreement. The “rules” as such would merely be guidelines. If this were the case, it must be questioned as to why Members should negotiate further guidelines, when the UN Set of Principles and Rules already exists.

13. It is also unclear what practical effect adoption of the guidelines in the WTO context would have. If the conduct of a WTO Member does not conform to the adopted guidelines and although no enforcement measures can be taken, such conduct may still be considered illicit or illegal. The danger then is that pressure to conform can be exerted, either bilaterally, or through the proposed peer review mechanism and/or the Trade and Competition Committee.

14. The effect of the peer review mechanism is also to be questioned. There has not been discussion of what will be the objective, scope and criteria of the mechanism. However, there are indications that the mechanism can be seen as a compliance mechanism. It is already envisaged in Option 1 that a peer review mechanism can be seen as a complementary or substitutable mechanism for dispute settlement (see para. 11). There is no guarantee that a peer review mechanism, with a wide-ranging mandate on the pretext of a capacity building and cooperation promotion tool, will not be imposed on developing countries.

15. If the peer review mechanism extends to national policies with a bearing upon competition policy, it can lead to the questioning or de-legitimization of industrial policies, as well as criticism and pressures upon countries to abolish exemptions which they would legally be entitled to maintain. There is also the potential implication for non-violation complaints. It is also unclear who would be doing the reviewing and by what criteria would the reviewer be evaluating the policies of the country concerned.

16. On the other hand, the soft agreement may mean that there is a treaty, as with all WTO agreements so far, but that the content and wording of its provisions would be so vague that in practice, they do not provide for any enforceable rights or obligations. In these circumstances, vagueness or ambiguity may also entail dangers for weaker countries, by giving other countries the possibility of alleging, and applying pressure relating to, alleged breaches of the treaty. This may well lead to the so-called “chilling effect” on developing countries.

17. The soft agreement option also entails the establishment of a Trade and Competition Committee, for the purpose of promoting a competition culture, address issues of competition, trade and development in a broad context and monitor the implementation of the soft agreement. First, it is not clear what is meant by promoting a competition culture, over and above technical assistance and capacity building, which in any case, could only be done at the national level, and not by a Committee. A question that could be raised is whether this would apply only to developing countries, or would there be an effort to promote a competition culture among developed countries in sectors where such competition culture may be sorely needed, such as agriculture, textiles or steel. It is also unclear how the Committee would promote voluntary cooperation.

18. A deadline - December 31, 2004 - is specified for completion of negotiations for the soft agreement. The implication of this deadline seems to be that the soft agreement is considered to be part of the single undertaking.  If so, what are the implications?

CONCLUSION:

19. As noted above, the option for a soft agreement has been made to appear as a compromise. However, developing countries should be wary of agreeing to such an option, for a number of reasons:

(1)  First, there has not been sufficient time to discuss and clarify the nature, extent and effect of this soft agreement.

(2)            Second, there is a real danger that the soft agreement approach will be used by the proponents as a first phase, i.e., to start negotiating a “non-binding” framework agreement on competition policy, which can then easily be turned into a binding agreement at the second phase, subject to the DSM. The history of GATT and WTO negotiations demonstrate that a fairly innocuous proposal is often put forward as a means of gaining agreement, in order to push through the real objective of the proponents. The mandate for negotiating the TRIPS Agreement, which developed countries contrived to infer from the Punta del Este Ministerial Declaration of 1986, is a good illustration (see Annex below on this point).

(3)  Third, if the real intention is to develop non-binding rules or guidelines, it would be far more constructive to consider how the UN Set of Principles and Rules could be implemented in the context of UNCTAD, rather than duplicating the effort in the WTO.

20. For developing countries, the option of continuing the clarification process is in their best interests.  In this context, it should be proposed that a new mandate be developed for the post-Cancun work programme of the Working Group. This new mandate of the Working Group should:

(1)            explicitly state that the Working Group is not mandated to negotiate modalities for negotiations, but rather to proceed with the second stage of the clarification process; and

(2)  clarify and address the issues related to the inter-relationship between trade, development and competition policy, as set out in para. 10 above.

 


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