Trade and Investment

Why competition can be healthy for development-friendly trade

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Jonathan Fried
Senior Associate, Economics Program, Center for Strategic and International Studies (CSIS)
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Trade and Investment

The 2030 Agenda for Sustainable Development for people, planet, prosperity and peace calls on trade as a means of delivery. In fact, it mentions trade 19 times. But trade alone is not a panacea, it must be accompanied by sound economic regulation. An important support is competition policy, to make markets work better, encourage enterprise and create more choice for consumers and workers. Yet the words “competition” or “compete” are nowhere to be found in the 2030 agenda.

The World Trade Organization has been remarkably successful in addressing a range of impediments to trade. Without robust competition policy preventing unfair arrangements, however, we don’t always succeed in levelling the playing field for all participants in the global economy, or allowing business to succeed across borders.

Developing countries have a particularly acute need for the improvements in economic efficiency and the emphasis on consumer welfare that are at the core of competition policy. Competition law can act as a powerful check on elite privileges and cronyism that frustrate the economic prospects of so many people.

Anticompetitive behaviour – from agreements to share out national markets to abuses of dominant positions to limit imports, to vertical market restraints such as resale restrictions and excluding foreign competitors – undermine the benefits that would otherwise flow from trade in several ways.

So development assistance, and national development plans, should encompass the strengthening of competition laws and policies, and the capacity to administer them, as a central element of a sustainable growth strategy.

Competition and trade-law communities largely work independently of one another. Nonetheless, much like Molière's bourgeois gentilhomme who was surprised and pleased to learn that he had been reading “prose” all his life, the trade and competition communities have been applying similar approaches more than we sometimes admit.

Both regimes are predicated on the theory that free and fair competition optimizes the use of resources and yields the best economic welfare results. Both seek a level playing field. Trade rules typically seek to discourage governments from discriminatory meddling, while competition laws focus on commercial actors.

Four examples may illustrate this overlap:

1. State-owned enterprises. State-backed financial support, tax preferences, regulatory privileges and favourable government purchasing arrangements for SOEs undermine the concepts of free and fair competition that lie at the heart of both trade and competition policy.

2. Telecommunications. WTO negotiators have agreed to specific competition provisions in telecommunications, such as requiring major suppliers to provide opportunities to connect to their networks. Similar approaches could work in other areas, for example, transport or energy.

3. Selective enforcement. Business has complained of antitrust enforcement becoming a tool of industrial policy. For example, following the EU Commission tax case against Apple, where it was found that tax benefits constituted illegal “state aid”, US business cried “foul”.

4. Government procurement. Collusive behaviour is pervasive in bidding for government contracts and purchasing, from construction to healthcare. The WTO’s Government Procurement Agreement increases competition via trade liberalization by requiring transparency in tendering, an open bidding process and opportunities to challenge decisions.

Contributions to convergence have been made by the WTO Working Group on the Interaction Between Trade and Competition Policy, the OECD, the International Competition Network and regional trade agreements. It is unlikely, however, that a WTO Competition Code would meet with much success in the short term.

But a few issues could advance. Can competition policy, which is traditionally focused on domestic consumers, address export restrictions and export cartels? Do the limitations on governments’ ability to access generic medicines that are set out in trade deals result in harmful anti-competitive practices? How should trade and competition rules interact in industries such as communications or transport?

Some developing countries see trade liberalization as locking in current production patterns in global value chains. A path forward may include greater focus on competition law capacity in developing countries, and greater international cooperation among competition and trade authorities to tackle anticompetitive conduct offshore. The Trade Facilitation Agreement is a possible model for how to sequence capacity-building with bringing developing countries into a harmonized international framework. The result could be a boost to trade and development.

The author is Canada’s Ambassador to the WTO, but the views expressed here are those of the author and do not represent the policies or views of the Government of Canada. The author gratefully acknowledges the assistance of Ian Medcalf, Second Secretary at Canada’s Mission to the WTO, and Sean Doherty, Head of International Trade & Investment at the World Economic Forum.

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