WILL WTO COMPETITION END OLIGOPOLIES?

7:43 AM Dec 18, 1996

WILL WTO COMPETITION END OLIGOPOLIES?
Penang 18 Dec (Martin Khor) -- As the delegates to the first Ministerial Conference of the World Trade Organization left Singapore to wend their way back home, newspaper headlines around the world announced the merger of two US aeroplane manufacturers, Boeing and Mcdonald, narrowing the number of suppliers of large commercial aircraft to just two - Boeing and the European Airbus.

And two days later came the news that the merger of the two Swiss 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.

But it would in developing countries, where the two Swiss companies were competing; but their views can be ignored. The WTO's TRIPs agreement assures the new company of the continuation of the monopoly rights of the two merged companies in these markets.

If any of the developing country delegates thinks in this light that perhaps their decision at Singapore to put competition policy on the WTO agenda, through a working group, was a right one, they should disabuse their minds of such a thought.

For, in the world of the WTO, words will have the meanings assigned to them by the majors and promoted by the secretariat -- and 'competition' means different things to different people.

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 needs to be tackled under 'trade and competition policy', effect of ownership concentration and rise of oligopolies is not something that either sides envisages should be tackled.

In para 20 of the declaration adopted at 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 prejudge whether negotiations will be initiated in the future.

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 Marrakesh, it was some developing country members, who raised the question of competition policy and restrictive business practices 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, and unable to do so, 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 Geneva preparatory process for Singapore, it was the EC that proposed the item and which the WTO Director-General 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 EC paper called for a working party to study the issue 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 (eg 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 (eg 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, 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 has 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.

But 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 that working party to study, besides the issues listed by the EU, also how abuse of trade measures (such as anti-dumping, subsidy and countervailing investigations and measures, 'safeguards' etc) were used for protectionist purposes and thus restricting competition in domestic markets from imports.

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 the interaction between globalization and existing rules (including rules of origin and the GATT articles on border measures to counter unfair trade), the relations between investment rules and competition policy, and any new forms of anti-competitive behaviour.

Understaffed WTO missions of developing countries, caught up in negotiations on other areas, did not pay adequate attention to these discussions nor assess the implications to them of these proposals.

Third World diplomats and negotiators, very unfamiliar with the different concepts lurking behind the term 'competition policy', did not even consider in September that this issue would get such priority at Singapore.

While some of them for example asked the Third World Network to organize some expert briefings and papers on the issue, others thought that it was a low priority for Singapore, and could be taken up afterwards.

But several of the influential developing countries, and business groups within them, felt that the EU proposal was aimed at ensuring greater market access for their transnational corporations in the markets of the developing world, and enabling these 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 visavis the Japanese market and the Japanese auto-manufacturers and their networks.

When some of the developing countries, familiar with the UNCTAD RBP code and its IGE, wanted the RBPs of the TNCs -- such as transfer pricing, intra-firm practices -- to be looked at, the EC and other proponents remained 'cool'.

The EC proposal thus seemed aimed at ensuring anti-monopoly laws at national level, which their corporations and agents could invoke, but not deal at the anti-competitive behaviour of their TNCs.

This asymmetry alarmed the business sector of the developing world.

In April 1996, the ASEAN Chamber of Commerce and Industry Council, representing national chambers of ASEAN countries, issue a joint communique expressing concern about the kind of competition policy advocated at the WTO, and told their governments that this issue should 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."

In their anxiety to ward off the EC moves, several of the developing countries and their business sectors, sought to discourage the view of Third World NGO experts that the developing countries should use the space available in the TRIPs agreement and enact competition laws to attack the monopolistic behaviours of IPR holders.

The developing countries who were opposed to the investment issue on the WTO, were also opposed to any new issues at Singapore.

Several of these countries, in plenary speeches, opposed the new issues. Said, for e.g., the Tanzanian industry and trade minister A.O.Kigoda, speaking on behalf of the 11 SADC countries, "Equally we believe that it will be premature to address the issues of competition policy and government procurement at this stage."

But some of the countries, who in their capitals had been speaking more vehemently against 'competition policy' being brought into the WTO than even on investment, changed their position without any explanation and proposed amendments to the Ruggiero text on this issue -- thus implicitly agreeing to begin work on competition policy in the declaration.

Malaysian Trade Minister, Rafida Aziz, in her plenary speech (after she had proposed amendments in the secretive Ruggiero-Yao consultation process), saw some merit in a WTO working group studying trade-related competition laws and practices, along with anti-competitive practices and abuse of trade measures.

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.

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

It was this view of theirs, that the investment measures of countries (requiring foreign investors to undertake export obligations) were a response to the anti-competitive practices of TNCs, that led to Art 9 of the TRIMs agreement that its review after 5 years should include investment and competition policy questions.

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, and requiring the latter to study issues raised by Members (thus including abuse of anti-dumping and other rules as well as RBPs of TNCs), and requirements for explicit consensus before any negotiations are undertaken, as also 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.

At a press conference just after the Closing Ceremony, Acting US Trade Representative Ms Charlene Barshefsky said, on competition: "The US' 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 has 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 better penetrate the markets 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.

And at another press conference 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 HongKong, Japan and Korea had also insisted on including the effect of trade policy measures like antidumping 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 HongKong, 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 organisation 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.

But the EC Trade Commissioner Leon Brittan, in his post-conference statement said on the competition issue: "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 the 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.

But the EC view that developing countries have also recognised this is contrary to the text of the Declaration that the study process shall not prejudge whether negotiations for disciplines will be initiated in the future.

The EC statement also conspicuously failed to mention the effects of abuse of trade measures on competition as an area for discussion or study. And by portraying the competition rules as one to protect the weak against the strong, Brittan was disguising the real intent of the EC, 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 find common ground with others.

Among the key sets of issues will be:

* 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 globalising 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.

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