 WORLD TRADE
ORGANIZATIONWT/WGTCP/W/81
14 August 1998
(98-3178)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM NEW ZEALAND
The following communication, dated 22 July 1998, has been received from the Permanent
Mission of New Zealand with the request that it be circulated to Members.
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The Interaction between Trade and Competition Policy
I. SUMMARY
1. The work of the WTO relates predominantly to government policies and practices.  In the
past, the focus has been on border policies and practices that have harmed international trade.  More
recent negotiations, such as TRIPS, TRIMS and GATS, have acknowledged that the ways that
domestic markets are regulated can have a significant impact on international trade.
2. All governments have regulatory policies and practices that impose artificial barriers to trade
and competition and the recent efforts of the WTO to increasingly look behind the border should
continue.  This is the single biggest contribution that this Working Group can make in terms of
shaping the future direction of WTO negotiations.
II. INTRODUCTION
3. Liberal trade policy and competition policy share the same ultimate objective of enhancing
the economic efficiency of markets across the world’s economies.  Trade policies that move
economies toward free trade help achieve efficient production and consumption.  Similarly,
competition policies that remove restraints to the free operation of competitive markets increase thelevel of efficiency in an economy.  In this way trade policy and competition policy are two
complementary instruments that together achieve the same overarching objective of increased
efficiency.
4. Traditionally, trade policy and competition policy have been viewed as separate instruments
applied to achieve different public policy objectives.  Trade policy was seen as a mechanism toregulate international trade at the border.  Its core objectives were to protect domestic producers from
full exposure to foreign competition and to promote exports.  Competition policy primarily attempted
to protect market participants from undue concentrations of market power within the home economy.
5. However, changes in the structure of the world economy and the pressures to secure greater
competitiveness have put this mode of policy making under pressure.  It is increasingly recognizedthat the two policies have interwoven effects on the competitiveness and economic performance ofWT/WGTCP/W/81
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economies and that these effects are felt across borders.  In order to maintain and enhance economic
growth and economic well-being attention should be focused on how trade and competition policies
can collectively contribute to efficiency.  This means focusing on how these two policies are
contributing to competition and, therefore, efficiency.
6. Competition policy has been modified over time from a focus on the protection of small- and
medium-sized businesses and the promotion of national industrial policy to a clearer focus on
economic efficiency and consumer welfare.  In addition, a changing world environment has made it
clear that competition policy is wider than just antitrust law.  It refers to all policies that seek to
enhance the scope of the competitive process generally and in so doing help economies secure the
maximum benefit from the use of their scarce resources.  Thus, competition policy encompasses the
wider regulatory framework within which busin ess operates, and includes policies such as
deregulation, privatization and the rules governing foreign direct investment.
7. The challenge for policy markers in the internationa l arena is to ensure that future trade policy
negotiations are based firmly on competition principles.  Attention in the area of competition policy
should be focused on strengthening aspects of competition policy that are weak or inadequate in a
global context.
III. BROADENED INTERNATIONAL DISCUSSION AND NEGOTIATION
8. The convergence of trade and competition policies has led to a broadening in the scope of
discussions and negotiations to include government regulatory policies and private business conduct
inside the border.
9. The TRIPS, TRIMs and GATS agreements are examples of this broadened discussion and
negotiation.  All of these agreements have competition provisions in them to some greater or lesserdegree.  They illustrate that the way governments regulate intellectual property, investment policies
and services markets are inseparable from trade policy.  The Singapore Ministerial Declaration
contains further examples, including the decisions to establish this Working Group and the Working
Group on Trade and Investment.
10. The WTO negotiations on basic telecommunications also illustrate this policy convergence.
Participants succeeded in elaborating a set of principles conducive to market entry for regulation
governing telecommunications in the "Reference Paper".  The principles cover competition
safeguards, interconnection guarantees, transparent licensing processes and the independence of
regulators.  Participants also agreed that each country would use the text of the Reference Paper as a
tool in deciding what regulatory disciplines to undertake as additional commitments.
IV. THE ELEMENTS OF TRADE AND COMPETITION POLICY AND WHETHER
THEY SUPPORT ECONOMIC EFFICIENCY
11. Trade policy describes the measures and practices relating to countries' trading regimes.
Trade policy can be used both to enhance competition and to protect economies, thereby reducing
competition.  Competition can be enhanced or restricted at the border, through, among other things,
tariff, NTM and subsidies policies, and behind the border where domestic regulation can have a
similarly positive or negative effect on competition.  Trade measures and practices that are and are not
underpinned by the competition/efficiency objective are outlined below.WT/WGTCP/W/81
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(a) Trade policies that enhance efficiency
(i) Trade liberalization
12. One of the major benefits of trade liberalization is an increase in the degree of competition
both domestically and in the world economy.  Progressive reduction in trade barriers opens upmarkets to increased competition.  In the case of New Zealand, trade liberalization has been
accompanied by a reduction in the restrictions on the inflow of foreign capital and a series of micro-
economic reforms.  This makes it difficult to isolate the impact of trade liberalization on the level of
competition in the New Zealand economy.
13. Similarly, there is no measure on an international scale of the competitive gains secured  from
trade liberalization.  However, it is highly likely that the cumulative effects of the removal of barriers
to the international trade in goods and services during the past five decades, by increasing the marketaccess of exporters, has increased the degree of competition in these markets.
14. For a small economy like New Zealand, competition from imports plays a critical role in
enhancing the efficiency of both domestic production and consumption.  The productive efficiency
gains that can be achieved through the exploitation of economies of scale and scope can result in firms
with significant market power.  Such market power can lead to allocative efficiency losses which aredetrimental to the interests of consumers.  However, competition from imports and the threat of entry
from foreign direct investment place pressure on domestic firms to continue to be efficient or lose
market share.
(ii) Tariffication of non-tariff barriers
15. The Uruguay Round secured a valuable boost to international competition through the
tariffication of many non-tariff barriers.   For example, under the Agreement on Agriculture, quotas
and restrictions such as variable levies and minimum import prices have been replaced by tariffs.
16. In comparison with tariffs, quantitative restrictions have a greater detrimental effect on the
level of competition in the importing economy.  This is because quantitative restrictions directly limit
the scope for import competition.  Although tariffs raise the price of imported goods foreignproducers are still able to compete through being mo re cost effective, using marketing strategies, or
though providing a higher quality of good or service.   However, in agriculture many of the tariffs
resulting from tariffication are set at prohibitively high levels.  It is only when these levels are reduced
that competition will increase.
(iii) Trade facilitation measures
17. Trade facilitation measures aim to reduce the costs of trade by eliminating unnecessary
administrative burdens, or technical barriers, through the use of more cost effective processes or newtechnologies (eg operating simplified customs rules and procedures and/or harmonizing such
procedures with other economies).  Such measures, by lowering the costs of trade, stimulate
competition and lead to efficiency gains.
(b) How aspects of trade policy reduce global welfare
18. There are a number of trade policies which protect domestic industries from foreign
competition, restrain and/or distort the free operation of competitive markets.  These measures are
outlined below.WT/WGTCP/W/81
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(i) Antidumping laws
19. Some antidumping laws are applied in a way that harms the interests of both exporting and
importing countries.  The earliest antidumping laws were founded on the need to deal with
international price predation.  However, that focus has long since been lost.  Dumping is, instead,
based on international price discrimination.
20. Competition experts also tend to regard the antidumping focus on whether the dumping
causes material injury to the domestic industry to be inappropriate.  The key competition issue is the
impact of conduct on the process of competition.  Thus, competition experts tend to view antidumping
laws as limiting competition by providing a margin of protection for uncompetitive domestic
producers.  A further concern arises if it induces foreign producers to limit sales or increase prices as
the cost of having antidumping complaints withdrawn.
(ii) Safeguard measures
21. Safeguard measures are emergency measures that restrict imports in a situation where a rapid
increase would cause serious injury to domestic producers.  If abused, safeguard measures restrain
competition in the importing country and in the international economy.  These measures need to be
accompanied by industrial restructuring measures.  Otherwise producers in the importing country face
a difficult task regaining their competitiveness.
(iii) Technical barriers to trade
22. Standards and technical regulation can be necessary to safeguard consumer health and safety,
to prevent deceptive practices and to protect the envi ronment.   However, they will harm international
trade, competition and economic welfare if they are higher than necessary in order to deal with the
health, safety or environmental issue, or if diff ering national standards are not mutually recognized.
This misuse of technical barriers increases the cost of doing business and limits competition in the
importing country.
(iv) Government procurement
23. "Buy national" and other discriminatory government procurement policies restrict access by
foreign suppliers and reduce competition in public sector markets.  This is an area which warrantsfurther attention within the WTO with a view to getting better quality commitments and wider
participation than the plurilateral Agreement on Government Procurement.
(v) Various "voluntary" agreements
24. Voluntary import expansion agreements, voluntary export restraints and other similar
arrangements can harm competition and consumers by manipulating markets and encouraging
industry cartels to develop, often under the supervisi on of governments.  While some of these types of
arrangements were dealt with under the Uruguay Round, there are others that may still need to beattended to.
(c) Competition policy and global welfare
25. Effective competition policy assists in preventing and reducing private barriers to
competition.  If trade liberalization occurs without effective competition policy, imports may beunable to break through private barriers.  There can also be a risk that foreign operators may engage in
restrictive business practices to the detriment of consumers in the domestic economy.  To secure theWT/WGTCP/W/81
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efficiency gains that free trade offers, it is necessary for governments to have deliberate policies that
are aimed at strengthening competition and removing anti-competitive policies and practices.
26. The growth in international trade has tended  to expose a number of weaknesses in the
competition policies and laws that operate across the world.  The main weaknesses observed in
varying degrees across jurisdictions are discussed below.
(i) Regulatory environment
27. On the positive side, deregulation policies which reduce the barriers to would-be competitors
in industries are forms of competition policy.  So too are regulatory interventions that seek to address
market failure by, for example, exposing utilities to as much competition as possible and regulating
the natural monopoly elements of those businesses in a way that encourages them to control costs and
reduce prices.
28. On the negative side, barriers to trade and competition occur when the regulatory
environment places unnecessary restraints on the activities of foreign firms.  Such barriers occur when
regulation:
• is applied exclusively to foreign firms.  For instance, regulations governing foreign direct
investment  reduce the level of trade and competition in services markets.  This is becausethe provision of many services requires a physical presence in the market;
• is designed in such a way that although it is applied equally to both domestic and foreign
firms, it creates significant disadvantages to firms which are not located in the country in
which the regulation is imposed;  and
• favours incumbents at the expense of new entry.
(ii) Territoriality issues
29. Increasing international trade means that anti-competitive policies and practices in one
country can increasingly impact on other countries.  However, territoriality issues can mean that it
may be difficult, if not impossible, for effective investigations, legal processes or remedies to beapplied.  This can potentially be remedied by the application of co-operation and co-ordination
agreements between governments and competition authorities.
(iii) Conflicting objectives for competition policy
30. The overriding objective of competition policy is to protect the competitive process as a
means to increase economic efficiency.  However, some economies pursue additional objectiveswithin the ambit of competition policy.  These include the protection of small business and the
promotion of industrial policies.  Mixed objectives send conflicting messages to the competition
authority and the business community and may result in greater uncertainty and arbitrary outcomes.
Moreover, objectives that do not focus on competition as a process compromise competition,
efficiency and economic growth.
(iv) Exemptions from competition law
31. Many jurisdictions provide for exemptions from their competition laws to further competing
domestic policy objectives.   Such exemptions have the effect of preserving anti-competitive
structures and practices.  They can raise barriers to entry for both domestic and foreign competitorsWT/WGTCP/W/81
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and reduce competitive forces in the relevant markets leading to higher prices and/or a reduction in
quality and a decline in global welfare.
(v) Weak enforcement of competition laws
32. The gains to be made from having competitio n law can only be realized with effective
enforcement.  Weak enforcement of competition law can, in some economies, be as significant animpediment to market access as an absence of competition law.  Weak enforcement often reflects a
number of factors, such as inadequate funding of the enforcement authority.  It can also reflect the
enforcement agency’s lack of political independence.  Alternatively, the level of penalties and
remedies available for breaches of competition law may not be a sufficient deterrent to achieve
compliance.
V. CONCLUSION
33. This paper has highlighted a number of issues where there is conflict between the objectives
of trade and competition policy.  This Working Group is at an early stage of evaluating those issues.
We consider that the key tasks for the Working Group are:
• To set priorities by assessing which trade and competition policy restrictions have the
most adverse impact on global welfare.
• To determine which of those issues are best suited to negotiation at the WTO and which
are better dealt with at other international forums or through other processes such as
plurilateral or bilateral negotiations, bearing in mind that the work of the WTO isessentially about the actions of governments.
• To promote policy coherence.  The WTO deals with a wide range of issues that have an
impact on domestic and international competition in one way or another.  The Working
Group should focus on how competition principles can encourage and support
consistency in analytical approach in all of these areas.
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