September -2001
A multilateral competition policy appears to be one agenda item at the WTO where the developing countries might end up losers if they do not take part actively right from its formulation stage. It is immaterial whether they sign any final accord that emerges from the negotiations.
Setting the Premises
During the whole 50-odd year history of the multilateral trading system, its contours have been determined and negotiations driven by the North, with the South in a totally reactive mode. With time, promises and arm-twisting ‘persuasion,’ the South has ended up, more often than not, ‘agreeing’ to the northern agenda.
The scenario remains the same in the run up to 2001’s Doha Ministerial. However, now, the facile assent of the past has undergone a complete U-turn. Turning to the other extreme, and charged with the experience of a pyrrhic victory in Seattle, a group of like-minded group of developing countries (LMG) is now saying ‘No’ to any new items on the agenda. However, neither the past assenting nor the current dissenting spree was founded on any strong logic.
History and philosophy teach us that extremes are not good for any situation. Ideally, we should adopt the middle path, weighing the pros and cons before taking any decision.
Be that as it may, the fallout of the LMG’s ‘Just Say No’ attitude is that they are skeptical of even those agenda items which have the potential to favour their interests, if properly negotiated and drafted. This is of course subject to its implementation, which is another ball game. But, if they don’t take part in the formulation of the agenda and subsequent negotiations, they could be worse off.
A multilateral competition policy (MCP) appears to be one such agenda item where the poor countries might end up losers if they do not take part actively from the beginning. It is immaterial whether they sign any final accord that emerges from the negotiations.
According to trade pundits, if the main protagonists: EU succeeds, MCP could feature on the agenda for the World Trade Organisation (WTO) Ministerial to be held in November 2001 at Doha. Hence, the LMG should be prepared for the same.
Given these premises, this viewpoint paper examines the feasibility of a multilateral competition policy under the WTO umbrella and identifies the elements of the same that developing countries should be pushing for.
Why MCP?
The multilateral trading system under the auspices of the WTO is perceptively loaded in favour of big business, who, with their powerful lobbies, are able to influence their governments to make things happen in their favour. Unfortunately, consumers, being on the receiving side, have virtually no such muscle to influence international trade policy making.
Like a domestic competition regime, a multilateral competition regime could be visualised to discipline big business and rectify the persisting business-consumer imbalance in the WTO. Further research and debate will help to design the exact contours.
Elements of MCP: Southern perspective
With globalisation the rate of cross-border competition concerns is increasing exponentially. One thing is becoming certain that to deal with these issues, a strong domestic competition regime, though necessary, is not sufficient. This is true for both developed and developing countries.
‘Cooperation’ is emerging as an effective tool to deal with cross-border competition concerns. This can be more formal through a bilateral agreement or can be achieved on an ad hoc basis. For developing countries, cooperation would be a highly beneficial element of any future MCP, as they lack the resources and experience to deal with huge, complex and often very well hidden anti-competitive practices of multinational firms.
Besides cooperation, the other elements of a MCP are discussed below.
International Cartels
Globalisation and liberalisation have increased opportunities for firms to participate in price-fixing and territory-dividing cartels, undermining the benefits of healthy competition, which can help consumers, small businesses and economies. Cartels can also maintain their position with high barriers to entry for other producers, which is particularly effective in thwarting competition from developing country producers who are either new or struggling in the international trading arena.
Though the harm caused to developing countries by these cartels is difficult to quantify, a study estimates that in 1997, developing countries imported goods worth US$81.1bn from firms, which had seen a price-fixing conspiracy during the 1990s.
Discovering and proving the existence of international cartels is extremely difficult and the South is more or less powerless to deal with these conspiracies.
Secondly, export cartels, which are generally out side the realm of domestic competition law, and often actively promoted by governments, are also a cause of concern from consumers’ perspective. As cooperation cannot be expected in these cases, hence a need for an international regime to tackle them.
M&As with international spillovers
The increasing rate of cross-border mergers & acquisitions (M&As) is becoming a major cause of concern for the competition authorities world over. More often than not the South is not in a position even to assess the adverse effects on competition in their market, let alone its regulation. A MCP could consider the anti-competitive impact of cross-border mergers in developing economies and impose such conditions which can address the competition concerns on a country-to-country basis.
Intellectual property rights
Anti-competitive practices involving the use of IPRs could take the form of horizontal restraints or vertical restraints. For instance, IPR licensing agreements among competitors, such as patent pooling, serve as vehicles for establishing cartels to fix price/allocate market/limit output etc. Further, licensing agreements limiting the manufacture or distribution of products in a particular country could be a global competition concern.
In the absence of clear-cut international rules on parallel imports, different countries are following different practices. Given their production structures, parallel imports often help countries to control abuses by the IPR holders, and will definitely benefit consumers. A MCP could strengthen countries that permit parallel imports against attacks by the exploiting brand owners.
Addressing anti-dumping
Due to lack of coherence between trade policy and competition policy, strong sectoral lobbies are able to push governments into imposing anti-dumping duties and other safeguard measures without considering the interests of other stakeholders, especially consumers.
There is a need to discipline the present proliferation of anti-dumping and safeguard measures through domestic and multilateral competition rules.
Whither MCP in WTO?
There are some persuasive arguments against the inclusion of a MCP within the WTO. It is argued that the WTO-DSM (dispute settlement mechanism) does not have the capacity or capabilty to carry out thorough investigation and analysis. Secondly, the producer bias at the WTO could turn competition policy into a producer-protecting instrument drifting away from consumer welfare.
Thirdly, it is also argued that as a trade policy body, the WTO suffers from the stigma of promoting politically acceptable results rather than economic optima that competition authorities are often said to pursue. Last, but not the least, the WTO laws and the DSM are focussed on government measures rather than corporate activity and behaviour.
However, laws and their implementation mechanisms are dynamic concepts and require consistent innovation to
match with the dynamism of economic, social and political activities. The above-mentioned arguments against a MCP in the WTO acquis tend to treat multilateral trade laws as a static concept. There is always scope for further innovation, should the need arise. For instance, in the present case, a carve-out in the existing DSM could be developed that would efficiently tackle cross-border competition issues, without a) the fear that the domestic judicial process can be challenged, and b) the complexity of the single undertaking. However, to develop such a carve-out in the DSM, members have to take part actively in the agenda formulation.
The development dimension
The MCP would have to be designed carefully to make sure that it really serves the interests of developing countries. For a start, the agreement should not create further burden on member states by requiring each country to have a competition law. Further, the MCP should not require harmonisation of national competition laws and should respect developmental goals of national laws.
Operative special and differential treatment should be reflected in specific provisions, including as regard to:
- progressivity,
- sequencing,
- flexibility, and
- support for capacity building
Conclusions
As economic activity is cyclical in nature, so are policy responses. Policy-makers fall back on past approaches when the present strategy seems to be failing. Thus it is very likely that in future developing countries may again start their ‘assenting spree’, if the global economic cycle demands so.
The direction of current trade politics suggests that if consensus among the Members cannot be reached on a MCP, the EU, Japan and some other countries would take this opportunity to sign a plurilateral competition agreement. The other main trader, the US, though opposed to a MCP, has agreed not to block the process proposed by the EU.
Experience with TRIPs and other agreements demonstrate that once an agreement is reached, it is extremely difficult to go back and modify it. Most of the implementation problems could have been avoided if only, developing countries had engaged in negotiations.
Hence, if South enters another ‘assenting’ phase and has to sign onto the plurilateral competition policy sometime in future, without having taken part in the discussions, they would clearly end up being a loser.
In this background, the best strategy would be for the developing countries to reach a common agenda of their own, if possible with a draft agreement on MCP to bring to the negotiating table. Careful preparation is the key to achieving a beneficial outcome.
This Viewpoint Paper is researched and written by Mr. Pradeep S. Mehta and Mr. Ujjwal Kumar of and for the CUTS Centre for International Trade, Economics & Environment.
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