10:28 AM Mar 25, 1997

COHERENCE NEEDED BETWEEN COMPETITION & DEVELOPMENT

Geneva 25 Mar (Chakravarthi Raghavan) -- Competition policy of countries, and at global level need to be reconciled with other policy objectives and instruments -- not only economic, but also social and cultural, the Secretary-General of the UN Conference on Trade and Development, Rubens Ricupero, said Monday.

He was speaking at an executive session of the Trade and Development Board to outline some preliminary ideas in this area to be addressed at the October high-level segment of the Trade and Development Board.

The proposal to devote the high-level segment to competition and development questions received broad support at the Board, with several speakers though favouring more inter-governmental discussions and less time to panellists views.

The Board was meeting in executive session where it heard the UNCTAD Secretary-General's views on this issue and had a broad exchange of views. The issue is to be taken up further in the consultations of the President of the Board and the Secretary-General.

A number of speakers made references to the mandate on new issues at the Singapore Ministerial meeting and called on UNCTAD to focus specially on the development aspects of these issues, and provide analytical focus.

Ricupero said earlier that the notion of competitiveness lay at the heart of both the promise and challenge of globalization and liberalization. To be able to repeat the benefits of these, countries and firms must improve their economic efficiency and developing countries that find it difficult to do so faced the risk of marginalisation.

Competition, he said, was the prime instrument to provide the discipline that spurred economies and firms, under appropriate conditions, to operate more efficiently. Exposure to competition was thus a means to improve competitiveness.

But globalization and liberalization in order to lead to competitiveness and development must be accompanied by appropriate competition policies to prevent a situation in which elimination of tariff and non-tariff restrictions to trade is negated by firm-imposed barriers to competition or government-imposed distortions to free competitive markets.

"While these propositions command a large degree of consensus among both development analysts and policy-makers, there is also agreement that the pursuit of competition must take into account the specific development features and constraints of countries at different levels of development," the UNCTAD head observed.

"Taking as given that competition will normally generate static efficiency gains in the short-run, governments still need to decide what types of market structure are best suited to their economies in order to obtain dynamic efficiency gains in the long term. Similar issues arise at the global level in connection with, for example, the protection of intellectual property rights."

Competition policy thus needs to be reconciled with other policy objectives and instruments, including not only economic -- promotion of domestic enterprises and entrepreneurship -- but also social and cultural objectives. The achievement of competitive markets must be subject to the requirements of policy coherence with broader development objectives in the context of the promotion of sustainable growth and development.

This already rich set of issues, Ricupero said, has become even more complex in the new context of globalization and liberalization.

"As international firms begin to operate in the world economy as if it was a single market and production space, the issue of competitive markets is now being posed in terms of "contestability" of markets i.e. not only actual trade competition in goods and services, but also potential competition resulting from the establishment of foreign firms through direct investment.

"This has rekindled concerns about the impact of the growth of international investment flows or large firms on the competitive nature of domestic markets. One result is that growing attention is being paid at the national level to the need to combine increased contestability with competition policies aimed at preventing market concentration and abuse of dominant positions, and/or with policies directly aimed at improving the competitiveness of domestic enterprises.

"At the global level, globalization has given rise to the emergence of new forms of cooperation/competition among firms which create new challenges to competition policy. For example, cooperation arrangements, including strategic alliances, among large firms to undertake joint research and development, with a view to competing later in the commercialization of the results may help to advance the frontiers of technological progress.

"However, they may raise barriers to entry into world markets, particularly for developing country firms. In such circumstances, competition policy needs to create the conditions under which prospective new entrants can improve their competitiveness, so as to overcome the cumulative disadvantages of late entry".

Ricupero suggested that in the light of these, the high level segment of the Board could consider the issues raised through a comparative examination of successful development experiences. In particular it should examine:

* the role of exposure to competition in the development of competitiveness in developing countries that present successful development experiences, and whether there is a need for policies for promotion of competitiveness in supplementing the efficiency-creating effects of exposure to competition.

Discussion on this, Ricupero said, could draw on a comparative analysis of experiences of Chile, Korea, India, Ghana and Brazil.

* conflicts between promotion of competition and attainment of other development objectives including economic, social and cultural objectives and how they have been dealt with, and with impact on competitiveness.

Ricupero said in this regard that there were limits to competition, particularly in developing countries. It was also a highly topical issue in many OECD countries.

* the effect of globalization on competition in world markets, the new concerns raised and the current thinking on how to address them.

Globalization, he noted, increased the concentration of market power at the world level, raising barriers to entry. The pros and cons of a multilateral framework could be discussed under this.

* increased risk of marginalization caused by the changes in competitiveness brought about by globalization and what policies could be devised in response.

An issue that arose in this regard, Ricupero said, was the failure of the OECD countries to admit contestability in such sectors as agriculture, textiles and services.

In the discussions, a number of developing countries referred to the decisions of the Singapore Ministerial Conference establishing working group on new themes, and suggested that the WTO should capitalize on the work done at UNCTAD.

Switzerland said that the high-level segment of the Board should place more emphasis on inter-governmental discussions, with the involvement of civil society, and not spend too much time on panels.

Morocco for the African group said it was important that UNCTAD, while working on the same topics that WTO was dealing with, should provide analytical focus to development. Jamaica, for the Latin American and Caribbean Group said the documents for the executive session had referred to the implications of the Singapore WTO decisions. It was necessary to go beyond 'implications'.

Cuba wanted UNCTAD to bring its analytical capacities to bear on the new themes of investment and competition, and also undertake a more critical analysis of the work in the OECD on the Multilateral Agreement on Investment. UNCTAD should also undertake work on the other new themes -- competition, government procurement and trade facilitation. Within the UNCTAD framework, Cuba added, the group of 787 should create a working group chaired by ambassadors to address these questions.

Canada stressed the UNCTAD role of building a consensus on the new issues.

Ricupero in responding to the discussions said he had only offered some preliminary ideas. Competition policy, he added, had to look at some broad issues including the result on other policies like income-distribution and social effects.

The agenda and subjects for the high-level segment, the Board President said, would be taken up further in the monthly consultations.