Multilateral rules on competition policy: an overview of the debate

Summary Competition policy has become an important topic in the context of the global trade and capital liberalization processes of the past decade. The average tariff rate on imports has decreased substantially and various non-tariff restrictions have been abolished. Barriers to trade erected by private parties have hardly been tackled, however, although these business practices can distort trade and investment flows and lead to conflicts between countries. Competition policy deals with anti-competitive business practices (sometimes called restrictive business practices). Competition laws were first introduced in the United States and later in European countries. Latin American countries have only recently adopted competition laws. The subject is complex and interdisciplinary. It combines the fields of international law, corporate law, industrial organization, innovation policy, transnational corporations, international trade and transport. Competition policy seeks to prevent companies from reducing the efficiency of market mechanisms. It is aimed at keeping firms from forming cartels or monopolies and from abusing a dominant market position and at ensuring that mergers and acquisitions and subjected to proper scrutiny. These practices often limit competition and take away incentives to excel, innovate, reduce prices and improve customer service. Anti-competitive practices mayalso act as trade barriers that distort trade and investment flows. They may reduce gl obal welfare and lead to conf l i ct s between countries. Hence, some sort of international agreement may be necessary to forestall or eliminate these new kinds of trade barriers. Such an agreement could, in addition, take the place of anti-dumping measures and thus avoid their detrimental effects. The United States was the first country to introduce competition policies. The European Union has a supranational system of competition policies that regulate anti-competitive practices, mergers and acquisitions having transborder effects. Competition laws in Latin American countries are relatively new, and their structure and wording resemble those of Western countries. Enforcement activity in these countries has, however, been less than energetic. There have been various unsuccessful attempts in the past to establish a multilateral agreement on competition policy. International organizations such as the Organization for Economic Cooperation and Development (OECD) and the United Nations Conference on Trade and Development (UNCTAD) have studied and discussed the topic extensively. UNCTAD has been involved in many competition policy initiatives and has assisted developing countries with the introduction of suitable legislation. In addition, UNCTAD has made available a set of non-binding multilateral rules to control restrictive practices. OECD perceives competition policies as a step towards the creation of contestable markets at the international level. It recommends that all countries adopt competition policies and establish the required enforcement agencies. The OECD countries should cooperate to restrain anti-competitive practices that have effects on more than one country. Currently, competition policies are being discussed in various international organizations. The World Trade Organization (WTO) has a working group that is studying the subject, and some countries even want to establish a multilateral agreement on competition rules. Furthermore, the OECD are also studying the topic and have published several proposals. In Latin America, discussion groups are taking place on the theme. Various subregional groups, including the Southern Common Market (MERCOSUR), Group of Three, the North American Free Trade Agreement (NAFTA) and the Asia-Pacific Economic Cooperation (APEC) have formed working groups that are examining questions related to competition policy. The topic is also included in the preparatory work for the creation of a Free Trade Area of the Americas (FTAA). The United States does not support a new international agreement on competition policy. Instead, it advocates bilateral agreements whose scope would be confined to cooperation between national competition-policy enforcement agencies. Furthermore, the United States prefers to keep its domestic anti-dumping legislation. The European Union, on the other hand, is more enthusiastic about multilateral rules on competition policy. The European Union would also like other countries to make their courts accessible to foreign firms. The next step would be the adoption of common rules by all countries and international cooperation between enforcement agencies. The developing countries position on multilateral rules governing competition policy is more vague. Before Latin American countries commit themselves to international agreements on competition policy, they should carefully study the issue as it relates to their development needs. On the one hand, it is in their own interest to adopt competition policies. However, there are a number of as yet unanswered questions concerning the impact of competition policies on foreign direct investment. Nevertheless, certain modifications can be made in the legislation to address those concerns. For instance, exemptions for certain practices and sectors might be given. The authority of the enforcement agency might even be extended to such an extent that it could act as a general promoter of economic liberalization. It is sometimes argued that developing countries should adopt more lenient policies in order to build large, competitive domestic enterprises. This probably has a negative overall welfare effect, however, and should be avoided. The final point made in this study is that multilateral negotiations are more in the interest of Latin American countries than bilateral agreements with industrialized countries. This paper reviews the current debate on competition policy. It starts with an introduction to the subject, followed by a short survey of competition policy in the United States, Europe and Latin America. An overview of anti-competitive business practices is then provided. Subsequently, the paper examines the reasons for the adoption of multilateral rules on competition policy. Chapter II describes the different domestic competition policies in the United States, Europe and Latin American countries. The following chapter deals with the rationale for multilateral rules on competition policy and reviews previous attempts to establish multilateral rules, as well as the work of UNCTAD and OECD on competition policies. The current discussions at WTO are outlined in chapter IV, with emphasis on the negotiating positions of the United States, the European Union and developing countries. The paper closes with a discussion of issues that could be important to the formulation of a negotiating position for Latin American and Caribbean countries. It addresses questions such as (1) whether it is favourable or necessary for Latin American countries to adopt domestic competition laws, (2) whether these laws need a specific form (different from the laws in developed countries) to meet their development needs and (3) whether multilateral rules are in the interest of developing countries.