Competing views on "competition policy" in WTO

The WTO Ministerial Conference, in December 1996, decided to set up a working group to "study the interaction between trade and competition policy." Given the negotiating history and the post-Conference statements on this issue, "competition policy" in the WTO context has different meanings for different parties. The US and EU are aiming to get the South to establish "effective" domestic anti-monopoly laws, so that their corporations can have better market access; Hong Kong wants to examine WTO rules in a "globalizing economy", developing countries back Japan and Korea in wanting to look at anti-competitive abuse of trade measures; and some South countries want to bring in the restrictive business practices of TNCs.

by Martin Khor

PENANG: As the delegates to the first Ministerial Conference of the World Trade Organization left Singapore to catch their flights home, newspaper headlines around the world announced the merger of two US aircraft manufacturers, Boeing and McDonnell Douglas, narrowing the number of suppliers of large commercial aircraft to just two - the American Boeing and the European Airbus.

Two days later, came the news that the merger of the two Swiss giant pharmaceutical corporations, Ciba-Geigy and Sandoz, had received approval of the US authorities, implying that the merger would not affect competition on the US market.

Corporate mergers around the world surged 25 percent to a record US$1.04 trillion in 1996, surpassing the 1995 record of $866 billion, according to a New York Times article. The biggest merger ever, between Ciba-Geigy and Sandoz, was valued at $36.3 billion whilst the Boeing purchase of McDonnell Douglas cost $13.3 billion. In Europe, three of the five top mergers were of financial services companies. "French insurers Axa SA and UAP SA announced a merger to create the world's second-largest insurer," said the report. "Sweden's largest insurer, Skandia Insurance AB, bought that country's largest mortgage bank to create one of the Nordic region's biggest financial institutions. Royal Insurance Holdings merged with Sun Alliance Group to form the UK's second largest publicly traded insurer."

Concerns over the greater and greater concentration of economic power in fewer and fewer giant corporations should, in any objective discussion, be the focus or rationale of a move to look at anti-competitive behaviour in the market or to curb monopoly tendencies and practices around the world. Perhaps this is what the public thought was behind a decision at the WTO Ministerial Conference to establish a new working group to study "trade and competition policy" in the WTO.

But if any of the developing country delegates thinks that their decision at Singapore to put competition policy on the WTO agenda was a right one, because it was meant to curb the rising power or anti-competitive practices of oligopolies, they would be sadly mistaken. For, in the world of the WTO, words have the meanings assigned to them by the major trading parties and promoted by the secretariat - and "competition" means different things to different people.

Working groups on "trade & competition policy"

While some of the major trading nations - the US and the EC on the one hand, Japan, Korea and Hong Kong on the other - had differing views on what issues should be dealt with under "trade and competition policy", the effect of ownership concentration by big corporations and rise of oligopolies is not something that either side envisages should be tackled.

One of the WTO Ministerial Conference's most important decisions was to establish a working group on "trade and competition policy", a new issue that had figured quite prominently in the pre-SMC Geneva process.

Many developing countries had opposed the introduction of this new issue into the WTO, but it was brought via the Draft Declaration and the Ruggiero letter to Conference Chairman (Singapore Trade Minister, Yeo Cheow Tong) into the Singapore Conference together with investment, government procurement and labour standards.

Competition policy was discussed at the Singapore Ministerial Conference (SMC) as part of a package that also involved trade and investment, in a small "informal group" of 30 countries selected by Ruggiero and Yeo. The SMC also agreed to set up a separate working group on trade and investment.

As with the other contentious issues (such as labour standards and investment), the majority of developing countries who were not in the "informal group" were kept in the dark on negotiations on competition.

Their role was in the end confined to endorsing (one diplomat termed it "rubber-stamping") what the informal group had come up with, at a heads of delegations meeting hurriedly called on the last night of the Conference.

It is likely that many, if not most, of the WTO Members were really unaware of what they had agreed to in what most admit is the rather obscure issue of "competition policy" in the WTO context.

Though it has always taken a lower profile than investment prior to and at the Singapore Conference, competition policy will certainly gain great prominence in the Geneva post- Singapore process.

In the post-Conference press conferences, the issue has already generated sharp controversy between major developed and developing countries on what was agreed to as the agenda of the working group.

Conditions for the working groups

In para 20 of the Declaration adopted in Singapore, the Ministers agreed to: "Establish a working group 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."

This, along with the working group on trade and investment, was placed under an overall chapeau which related the two to existing WTO provisions on matters related to investment and competition policy and the built-in agenda in these areas, including the TRIMs agreement, and on the understanding that the work undertaken shall not prejudice whether negotiations will be initiated in the future.

Besides the above, the Declaration also places the work of the working group with conditions in the following context:

(i) the two groups (investment and competition) will draw on each other's work;

(ii) it will draw on the work of and cooperate with UNCTAD and other intergovernmental fora;

(iii) the development dimension will be fully taken into account of;

(iv) The General Council will review the work of the two groups and determine after two years how their work should proceed;

(v) future negotiations, if any, on multilateral disciplines, will take place only after an explicit consensus among Members;

(vi) in organizing the work, careful attention will be given to minimizing the burdens on delegations, especially those with more limited resources.

The Declaration in this para also said future negotiations, if any, regarding multilateral disciplines in these areas (investment and competition policy) will take place only after an explicit consensus decision is taken among WTO members regarding such negotiations.

At the GATT Ministerial Conference in Marrakesh in 1994, it was some developing country members, who raised the question of competition policy and restrictive business practices (RBPs) of corporations, as among the subjects needed to be dealt with in a future WTO trade agenda.

Much earlier, in the late 1950s and early 1960s, it was the developing world that sought to bring the anti-competitive behaviour of private parties and corporations under the discipline of the GATT trading system. Unable to do so, they used the UN/ECOSOC/UNCTAD route to convene a conference on RBPs, which in 1979/1980 resulted in the voluntary RBP code. Their subsequent efforts, at every review conference, to put some teeth into it, and get the industrialized countries to "cooperate" and help developing countries tackle anti- competitive effects in their markets originating abroad (by TNCs or cartels) was blocked.

But in the WTO's Geneva preparatory process for the Singapore Conference, it was the EC that proposed the item, which the WTO Director-General then promoted in the informal HOD process.

In a paper to the WTO, the EC said its aim was to develop "an international framework of competition rules in the WTO" and said that "effective application of competition policy can keep markets open and accessible for foreign competitors."

The EU's proposal

The EU's proposal was that a working party on trade and competition policy could be set up and launch work on four tracks:

(i) commitment by all WTO members to adopt effective domestic competition laws; enforcement systems; and access for parties affected by anti-competitive practices to administrative and judicial procedures;

(ii) identify core common competition rules or principles (for example, combatting market-sharing and price-fixing cartels, export cartels, bid-rigging, abuses by firms of a dominant position on a certain market, certain vertical restrictions; approval procedures for mergers of large companies) and procedures (for example, transparency, national treatment and deadlines) and work towards adopting these at international level;

(iii) establish an instrument of cooperation between competition authorities (including for information exchange, consultations on cases, and coordination of procedures);

(iv) identify how the procedural and material elements can be made subject to the WTO dispute settlement mechanism.

At a presentation to the preparatory process, and at an information meeting for delegations, the EC Commission officials were asked why a working party to study the issues was needed, when considerable study and expertise had already been gathered at UNCTAD and its intergovernmental group of experts on the restrictive business practices, and whether the WTO work should not focus on how to put teeth into the RBP code.

The EC officials said the UNCTAD code and work was "too ambitious" and that they wanted more modest work at the WTO.

In outlining its proposals at the WTO, the EC made clear the working group's mandate should only be to explore an "international framework of competition rules" and should not include other competition-related issues like anti-dumping, circumvention and exchange rates.

Japan and Korea agreed that a working party should be formed, but wanted it to study, besides the issues listed by the EU, on how the abuse of trade measures (such as anti- dumping, subsidy and countervailing investigations and measures, "safeguards" and so on) were used for protectionist purposes and thus restricted competition in domestic markets from imports.

The Hong Kong proposal

There were thus two main topics put forward by the proponents: (a) the need for competition policies to counter anti-competitive commercial practices (the EU proposal); and (b) the need to counter abuse of trade measures that restricts competition (Japan and Korea). A Japanese paper at WTO, proposing topics for work for a working party on competition, put the two issues as follows: "to study the impact of competition policies on trade and that of trade measures on competition."

Hong Kong proposed an even broader framework, seeking a review of "WTO rules in a globalizing economy" - a proposal that was virtually ignored by the WTO head in the informal HOD processes. The Hong Kong proposal sought a review of the rules including: (i) the interaction between globalization and existing rules (including rules of origin and GATT Article IV on broader measures to counter unfair trade); (ii) the relation between existing trade and investment rules and competition policy; (iii) and any new forms of anti- competitive behaviour.

Delegations of most developing countries, understaffed and caught up with negotiations in many other areas, were unable to adequately follow the Geneva discussions on competition, nor to assess the implications for them of each proposal.

Most Third World diplomats and negotiators, unfamiliar with the different concepts lurking behind the term "competition policy", did not consider that this issue would get such priority at Singapore. They thought that since even the major countries had not reached agreement among themselves on the parameters of the subject, that it would be given a low priority in Singapore, and would not be granted a work programme and would be discussed further in Geneva later.

Some influential developing countries, and business groups within them, were, however, unfavourably inclined to the issue as they felt that the EU proposal was aimed at ensuring greater market access for their transnational corporations in the markets of the developing world.

The EU focus was seen as using the WTO to commit developing countries to introduce or tighten domestic competition laws to break down local monopolies or practices that helped local companies maintain their market shares, so that the larger transnational monopolies could break into or enlarge their share of the domestic markets of developing countries.

This suspicion was augmented by the fact that the Northern proponents of the competition issue did not seem interested in countering the international anti-competitive and restrictive business practices (RBPs) of transnational corporations (such as transfer pricing and other intra-firm practices). This would have been an issue of greater interest to developing countries as the RBPs of TNCs constituted anti- competitive practices that harmed Third World economies (resulting for example, in reduced taxes, higher prices or unfair commercial advantages).

When some of the developing countries, familiar with the UNCTAD code on restrictive business practices wanted the RBPs of the TNCs - such as transfer pricing and other intra-firm practices - to be looked at, the EC and other proponents remained "cool" to the idea.

Opposition to competition policy

The EC proposal thus seemed aimed at ensuring that developing countries institute "effective" anti-monopoly laws at the national level, which their corporations and agents could invoke, but would not deal with the anti-competitive behaviour and restrictive practices of their TNCs at international level.

Domestic businessmen of some developing countries who became aware of competition policy moves at WTO were concerned that their business position might be adversely affected. In April, the ASEAN Chamber of Commerce and Industry Council, representing national chambers of ASEAN countries, issued a joint communique expressing concern about competition policy being advocated at the WTO, saying this issue "must be dealt with care."

"Competition laws existing in developed countries should not be limited to trade and should not be imposed on ASEAN," it stated. "The formulation of competition laws should be a domestic matter that is best left to each nation to decide after taking into account its own industrial structure, the degree of protection required for consumers and the cost/benefits of the type of business practices."

Some leading businessmen in ASEAN countries worried, for example, that competition laws introduced via a WTO agreement would enable the TNCs to make use of local dealer networks built up by domestic enterprises - the kind of demand that the US made on behalf of its auto-giants vis-a-vis the Japanese market and the Japanese auto-manufacturers and their networks.

The developing countries that had resisted the inclusion of investment during the Geneva preparatory process, as well as other countries, also generally opposed the introduction of competition policy as a new issue into the WTO and its mention in the Singapore draft Declaration.

Even at Singapore itself, several Ministers spoke up against starting work on this issue during their open plenary speeches. For example, on 10 December, Tanzanian Industries and Trade Minister A.O. Kigoda, speaking on behalf of the 11 SADC countries, stated: "Equally, we believe it will be premature to address the issues of competition policy and government procurement at this stage."

However, at an early stage of negotiations in the informal group at Singapore, a few countries that had previously opposed starting work on this issue, changed position by instead proposing changes to the text and thus implicitly agreed to including work on competition policy in the Declaration.

The text that Ruggierio brought to Singapore was as follows: "We also agree to establish an Experts Group open to all Members to study issues raised by Members relating to competition laws and policies in order to identify any areas that may merit further consideration in the WTO framework and report its findings to the General Council. The General Council will review the work of the Experts Group at the end of one year and determine how to proceed."

At the plenary, Malaysian Trade and Industry Minister Rafidah Aziz said, Malaysia saw some merit in a WTO Working Group studying trade-related competition laws and policies, along with anti- competitive practices and abuses of trade measures. However, she also stressed "it is important that such a study does not lead to negotiations within the WTO."

Several other countries also moved to this position, with several of them attracted to the idea that the working party would also discuss the abuse of anti-dumping and other "safeguard" measures used by the major industrial countries against exports of developing countries.

On condition that the Working Group's mandate would also cover "anti-competitive practices" (as part of the issues to be studied in "the interaction between trade and competition policy"), many of the developing countries in the informal negotiating group agreed to the setting up of the Working Group. "Anti-competitive practices" was a code for the abuse of trade measures (such as anti-dumping actions), and for some countries, the restrictive business practices of transnational companies.

Some who were opposed to the investment issue, when its inclusion seemed inevitable, saw much merit in simultaneous work on competition policy questions and the anti-competitive behaviour of TNCs.

During the Uruguay Round negotiations, these countries had taken the view that the investment measures of countries (for example, requiring foreign investors to undertake export obligations) were a justifiable response to the anti- competitive practices of TNCs. Thus, with the curbing of such measures through the TRIMS Agreement, they had proposed (in Article 9) that the review of this Agreement after five years should include the question of investment and competition policy.

Developing countries at the end of the Singapore meeting felt they had built enough safeguards - by combining the investment study with the competition policy study; requiring the latter to study issues raised by Members (thus including abuse of anti-dumping and other rules as well as RBPs of TNCs); that the development dimension would be fully taken account of; requiring an explicit consensus before any negotiations are undertaken; and the stipulation that the expertise and work in UNCTAD would be drawn upon at the WTO. But it remains to be seen if all parties will abide by the "bargain" struck at Singapore. Major developed countries were already backsliding even as the Singapore Conference ended.

Backsliding by some North countries

At a press conference just after the Closing Ceremony, Acting US Trade Representative Charlene Barshefsky said, on competition, that: "The US's position on this issue ensures that work on competition will not threaten our laws which protect the principles of fair pricing and fair competition. We should not undo work within the WTO on anti-dumping issues that have barely begun. The work plan must focus on the problems of cartels and other private anti-competitive behaviour which can impede US exporters' access to foreign markets."

When a Japanese journalist asked for clarification on what she meant by the work on competition should not threaten US laws, and whether this meant the US would not want a discussion on anti-dumping trade measures in the Working Group, Barshefsky emphatically replied: "For the United States, and for the EU as well, anti-dumping laws are not on the table (for discussion). There is no question of that at all. The study is going to focus on competition policy and anti-trust laws to counter commercial behaviour that impedes our market access." The Japanese journalist could not contain his shock, and responded: "This is really to my surprise."

The US position appears to confirm the concern or suspicion of some developing countries that competition policy has been put on the WTO agenda by the major countries to be used as an instrument to change the domestic industrial-commercial- business structures of developing countries, so that the corporations of the developed countries can have greater access to and can better penetrate the markets and economies of developing countries.

An hour later, at a press conference given by Ruggiero and Yeo, a journalist asked the WTO Director-General and the Conference Chairman, whether they thought the agreements on new issues would be honoured, since the US head of delegation had already said that the US and EU would not entertain anti- dumping measures as an issue for study at the competition working group, and whether therefore, the WTO would continue to have the image of a "rich men's club."

Neither Ruggiero or Yeo answered the question in relation to competition and the honouring of the bargain on new issues.

Later, at another press conference held by India, a journalist asked whether anti-dumping would be included in the work of the competition working group, given the US's comment to the contrary.

India's Ambassador to the WTO, S. Narayanan, said that on the competition issue, it had been India's insistence that the restrictive business practices of transnational corporations should also be studied. He added that Hong Kong, Japan and Korea had also insisted on including the effect of trade policy measures like anti-dumping on competition.

Referring to the phrase "including anti-competitive practices" in the operational paragraph on competition in the Declaration, Narayanan said: "It is our understanding, and also that of Hong Kong, Mexico and Korea, that this will enable the working group to look at the effect of trade policy measures on the competition situation. It was agreed to by the US. This clearly implies that it is covered."

Narayanan added it was the general practice of the WTO that the General Council would frame the terms of reference of a new group, and that the organization would have to reach a consensus on this.

To a question what would happen if there was a problem of interpretation, Narayanan replied that trade had a high political visibility and negotiators sometimes make use of "constructive ambiguity" in language. "We usually find a way to agree on the terms of reference," he concluded.

Meanwhile, EU Commission Vice-President Sir Leon Brittan, in his post- Conference statement, said on competition: "I welcome the recognition of developed and developing countries alike that better competition rules are essential to a prosperous world economy. Like the rules-based system of WTO itself, good competition rules protect the weak against the abuse of the strong."

This left little doubt that the EC's main objective is to get the working group to endorse its proposal to get the WTO to establish multilateral rules on competition policy.

Brittan's view that developing countries have recognized the need for competition rules and in the WTO context is also contrary to the Declaration text that the study process in the Working Group shall not prejudge whether negotiations for disciplines will be initiated in future.

It is also against the views of at least some developing countries; as in the Malaysian Trade Minister's Singapore speech that such a study on competition should not lead to negotiations within the WTO.

Terms of reference for working group

The EU statement also conspicuously does not mention effects of abuse of trade measures on competition as an area of discussion. And by portraying competition rules as protecting the weak from the strong, Brittan was disguising the real intent, which the US (often, more blunt and frank) acknowledged, namely of getting greater market access for their TNCs in the countries of the South.

From the background to the pre-Conference and Conference discussions and the differing post-Conference responses on this issue, it would seem that the first difficult task of the WTO in following up on trade and competition would be the framing of the terms of reference of the working group that the Ministers have decided to set up.

Being part of the decision to begin work on this issue, developing countries now have to prepare, in the short time available before the WTO General Council meets, what issues they should put on the agenda that will be in their interests, and in what context to place all the issues that are going to be proposed by Members, especially the major countries.

And in the study process, after the terms of reference are determined, a massive amount of work would be required for each country to prepare their positions, as well as to find common ground with others.

Among the key sets of issues will be the following:

* The EU proposals for getting WTO members to commit themselves to adopting and enforcing domestic competition laws; development of "core" common rules, principles and procedures; international cooperation among competition authorities; and use of WTO's dispute settlement mechanism;

* The proposals (originally from Japan and Korea, backed by several developing countries) to study how abuse of trade measures, like anti-dumping adversely affect competition;

* The broader Hong Kong proposal to examine WTO rules in the context of a globalizing economy;

* The restrictive business practices of TNCs, an issue that developing countries have been trying, not too successfully, to put on the international agenda, and on which, much work has been done by UNCTAD; and

* The appropriate role, if any, of the WTO in handling (or not handling) these and other issues. (SUNS3895)

Martin Khor is the Director of Third World Network.The above first appeared in the SUNS of which Chakravarthi Raghavan is the Chief Editor.