RESTRICTEDWORLD TRADE
ORGANIZATIONWT/WGTCP/W/80
18 September 1998
(98-3575)
Working Group on the Interaction
between Trade and Competition Policy
SYNTHESIS PAPER ON THE RELATIONSHIP OF TRADE AND
COMPETITION POLICY TO DEVELOPMENT AND ECONOMIC GROWTH
Note by the Secretariat
Table of Contents
I. INTRODUCT ION ................................................................................................................2
II. REASONS FOR THE IMPLEMENTATION OF COMPETITION LAW AND
POLICY IN DEVELOPING MARKET ECONOMIES...................................................3
(a) Promoting an efficient allocation of resources .......................................................................4
(b) Protecting the welf are of consumers.......................................................................................5
(c) Preventing/addressing excessive concentration levels and resulting structural
rigidi ties ..................................................................................................................... .............5
(d) Addressing anti-competitive practices of enterprises (including multinational
enterprises) that have a trade dimension, and that (possibly) impact particularly ondeveloping countries ........................................................................................................... ....5
(e) Increasing an economy's ability to attract foreign investment and to maximize the
benefits of such investment.................................................................................................... .8
(f) Reinforcing the benefits of privatization and regulatory reform/deregulation
initiatives.................................................................................................................... .............9
(g) Establishing an institutional focal point for the advocacy of pro-competitive policy
reforms and a compe tition culture ........................................................................................11
III. THE INTERCONNECTIONS BETWEEN TRADE AND COMPETITION
POLICY IN FOSTERING ECONOMIC  DEVELOPMENT AND GROWTH ...........11
(a) The complementary roles of trade liberalization and competition policy in promoting
efficiency and econom ic development..................................................................................12
(b) To what extent can trade and investment liberalization be a substitute for competition
policy?........................................................................................................................ ...........12
(c) The importance of economies of scale and critical mass:  possible adverse effects of
competition policy on intern ational compet itiveness............................................................13
IV. ADDITIONAL RESERVATIONS/PRACTICAL CONSIDERATIONS
REGARDING THE NEED FOR AND/OR APPROPRIATE DESIGN OFCOMPETITION LAW AND POLICY IN DEVELOPING MARKET
ECONOMIES...................................................................................................................... 14
(a) Social and economic dislocation caused by the transition to a competition-based
economy........................................................................................................................ ........14
(b) Questions concerning the need for a comprehensive competition law as the vehicle
for delivery of co mpetition policy ........................................................................................16
(c) Priorities for the implementation of competition law and policy in developing and
transition economies ........................................................................................................... ..16WT/WGTCP/W/80
Page 2
(d) The desirability of exemptions/transition periods for the implementation of
competition law in developing countries, pursuant to any new multilateral instrument.......18
V. THE ROLE OF INTERNATIONAL COOPERATION IN FACILITATING
THE IMPLEMENTATION OF COMPETITION POLICY IN DEVELOPING
COUNTRI ES...................................................................................................................... .18
VI. CONCLUDING REMARKS .............................................................................................19
I. INTRODUCTION
1. This note has been prepared by the Secretariat in response to a request made by the Working
Group for a paper that brings together the issues raised and points made on the relationship of tradeand competition policy to development and economic growth, based on the oral and written
contributions to the Group relevant to this topic, including work done in UNCTAD and other
intergovernmental organizations that has been brought to the attention of the Group.1
2. The Relationship of Trade and Competition Policy to Development and Economic Growth is
noted as a specific topic for discussion in the Checklist of Issues Suggested for Study that was
prepared by the Chairman for consideration in the Working Group.2  In addition, the preamble to the
Checklist notes that all elements of the Group's work should be permeated by the development
dimension of the issues.  In fact, the relationship of trade and competition policy to development and
economic growth has been an important focus of discussion in the various meetings of the Group, as
reflected in the records of those meetings.   This relationship and/or the development dimension of the
issues is referred to specifically in a large number of written submissions by Members and observer
intergovernmental organizations, including those of the European Community and its member States(W/1 and 45), Egypt (W/9), Pakistan (W/10 and 41), Venezuela (W/14), Hong Kong, China (W/15
and 26), Nigeria (W/16), UNCTAD (W/17), ASE AN WTO Members (W/19 and 33), Peru (W/36),
the OECD (W/21 and Add.1), the World Bank (W/22), India (W/24), Japan (W/25, 52 and 68), Korea
(W/37 and 56), Australia (W/39), Turkey (W/40 and 76) and Kenya (W/46).  In addition, in
introducing their own national competition legislation and policies, a large number of developing andtransition countries have commented on the specific reasons underlying the adoption of such
legislation.
3  These comments shed further light on the relationship between competition policy and
economic development.  A number of other contributions to the Group, while not explicitly focused
on the development dimension, provide insight into closely related issues.4  In addition, Members and
observers have brought to the attention of the Group a number of supplementary materials that beardirectly on the development dimension of the issues.
5
3. The wide-ranging discussion of issues concerning the relationship of trade and competition
policy to development and economic growth in the Group reflects significant developments in
Members' national legal and policy frameworks.  In the past decade, a large number of developing and
transition countries have implemented or strengthened national competition legislation and related
                                                     
1 See document M/4, paragraph 78.  (In this Note, documents issued in the series WT/WGTCP/M/__
are referred as "M/__".  Documents issued in the series WT/WGTCP/W/__ are referred to as W/__).
2 See "Checklist of Issues Suggested for Study", in document WT/WGTCP/1, Annex 1.
3 See list in Part II, infra .
4 See, for example, relevant contributions by  APEC (W/18), Singapore (W/28), the United States
(W/66 and 67), Canada (W/42) and other submissions referenced in this note, infra .
5 See appended list entitled "Supplementary materials brought to the attention of the Group that are
referred to in the paper".WT/WGTCP/W/80
Page 3
enforcement policies.6 Often, this has been done as an element of a broader package of market-
oriented policy reforms.7  On the other hand, a number of countries, particularly in Asia and Africa,
have not as yet seen fit to adopt comprehensive competition legislation (though they may, at least in
some cases, have adopted elements of competition policy).  The debates in the Group provide
extensive insights into the reasons underlying these respective positions.
4. Without purporting to be exhaustive, the present paper seeks to synthesize the main themes of
the diverse contributions to the Group relevant to this matter.  The paper is developed in five
substantive sections.  Part II of the paper discusses the various reasons that have been given in the
Group for the implementation of competition law and policy8 in developing market economies.
Part III sets out points that have been made regarding the interconnections between trade and
competition policy in fostering sound economic development.  Part IV considers a number of
reservations and/or practical considerations regarding the need for and/or design and application ofcompetition law and policy in developing market economies that have been put forward in oral and
written contributions.  Part V sets out points that have been made regarding the role of international
cooperation, including technical cooperation, in facilitating the implementation of competition policy
in developing countries.  Part VI provides concluding remarks.
II. REASONS FOR THE IMPLEMENTATION OF COMPETITION LAW AND POLICY
IN DEVELOPING MARKET ECONOMIES
5. In addition to the above-noted general contributions on the development dimension of the
issues, extensive insights into the reasons underlying (and benefits expected from) the adoption of
competition law and policy in developing and transition economies are provided in Members'
presentations on relevant legislation and policy in their respective jurisdictions.
9  Materials introduced
in the Group by UNCTAD, the OECD and the World Bank provide useful supplementary
information.
6. A point that has been emphasized by a number of Members in their oral and written
contributions to the Group is that, in many cases, competition law and policy have been implemented
or strengthened not in isolation, but rather as one element of a package of interrelated reforms ofpolicies aimed at promoting economic and social development.
10  In a number of cases, a central
feature of these reforms has been greater reliance on market forces as an engine of development and
adjustment and on the creation of a framework aimed at ensuring that such forces operate in the public
                                                     
6 For summary information on the adoption of competition laws in developing and transition
economies, see World Trade Organization (1997), p. 46, Table IV.1 and UNCTAD (1997a), p. 290, Annex table
A.22.
7 See Part II, infra .
8 In this paper, the term "competition law" refers to statutory provisions (legislation) that deal
specifically with anti-competitive practices of enterprises that impede the efficient functioning of markets andthat apply across more than a single economic sector.  The term "competition policy" includes such legislation
but may also consist of other measures (e.g., pro-competitive regulations, market-opening measures and
advocacy activities by public authorities that are aimed at removing specific impediments to competition orpromoting a national "competition culture").  For related discussion, see Part IV(b), infra .  For a fuller
discussion of the instruments of competition law and policy in a development context, see Khemani and Dutz(1995).
9 See, in particular, the contributions of Hungary (W/27), Peru (W/36 and 59), Korea (W/37), Romania
(W/38), Turkey (W/40 and 76), Columbia (W/44), Keny a (W/46), Mexico (W/54), Argentina (W/55), Poland
(W/69), the Czech Republic (W/71), Chile (W/75), Indi a (W/79), Venezuela (W/86), Brazil (W/93) and Bolivia
(W/97).
10 See, e.g., comments made by the representatives of Mexico, Kenya and Turkey in introducing their
national legislation (summarized in M/3, paragraphs 43, 44 and 45, respectively), contributions by Peru (W/36)
and Brazil (W/93), and general observations by the representatives of Brazil and the European Community and
its member States, reported in M/3, paragraph 29.WT/WGTCP/W/80
Page 4
interest, notably by promoting or maintaining co mpetition in markets.  The related reforms may
include external market-opening measures (including liberalization of trade and foreign investment
regimes), privatization and sector-specific regulatory reforms/deregulation.  The various elements of
the package are considered to be mutually reinforcing.
7. A related point that has been made concerns the heightened importance of competition policy
as a tool of development in the current, globalizing economic environment, as compared to previous
eras.  Specifically, the argument has been made that whereas, in the past, countries could hope to
achieve development through other (possibly more  interventionist) tools and approaches, these
approaches are no longer workable in light of th e extent of trade liberalization and globalization of
business activities that have taken place and the increas ed importance of foreign direct investment as an
engine of growth in the present economic environm ent.  As a result of these developments, anti-
competitive practices of enterprises are increasingly in ternational in scope, and appear to be relatively
more significant than in the past.  Consequently, according to this view, a vigorous competition policy is
necessary to respond appropriately to these concerns and to establish a climate that is conducive to
investment and economic growth.11
8. Beyond these two general points, a number of specific rationales for introducing competition
law and policy have been noted in Members' contributions.  While many of the reasons given andbenefits noted in these materials overlap, at least to a degree,
12 they can also be "broken out" as
follows:
(a) Promoting an efficient allocation of resources
9. The ability of competitive markets and competition policy to contribute to enhanced
economic efficiency provides a key link between such policy and the development process.  In thisregard, a number of contributions have made the point that competition policy can serve the goal of
enhanced efficiency, in both its static and dynamic senses.
13   As elaborated in documentation placed
before the Group by observer intergovernmental organizations, competition in markets promotes
efficiency by:  (i) driving prices toward marginal costs; (ii) ensuring that firms produce at the lowest
attainable costs; and (iii) providing incentives for firms to undertake research and development(R&D) and to quickly introduce new products and production methods into the marketplace.
14
Competition policy reinforces this process by preventing or providing remedies for market structuresand business practices that artificially weaken the degree of interfirm rivalry in markets, thereby
contributing to an inefficient allocation of resources.
15
                                                     
11 See comments of the representative of the European Community and its member States, reported in
M/3, paragraph 22.
12 In particular, it may be observed that most if not all of the various rationales relate, to a degree, to the
promotion of economic efficiency.
13 See, generally, the contributions of Hong Kong, China (W/26 and 53), Singapore (W/28), New
Zealand (W/30 and 81),  ASEAN WTO Members (W/33), the United States (W/35), Turkey (W/40), Pakistan(W/41), Canada (W/42), the European Community and its member States (W/45), Korea (W/56) and Japan(W/68).  Static efficiency refers to the optimum utilisation of a society's existing resources to meet consumerwants ("allocative efficiency"), at the lowest possible cost ("productive efficiency").  Dynamic efficiency, which
is posited by some economists to be even more important than static efficiency, relates to the optimal
introduction of new products, more efficient production processes and superior organizational structures overtime.  For elaboration, see UNCTAD (1997b) and OECD (1991).
14 See UNCTAD (1997b), OECD (1991) and Khemani and Dutz (1995).
15 It has, nonetheless, been acknowledged in discussions in the Group that the relationship between
competition and innovation is complex, and that, in some instances, limited interfirm collaboration in the form
of joint ventures and strategic alliances can also play a role in achieving greater efficiency.  For related
comments, see M/4, paragraph 38.WT/WGTCP/W/80
Page 5
(b) Protecting the welfare of consumers
10. Another, related rationale for the adoption of competition law and policy that is cited in the
submissions of numerous Members is the protection of consumer welfare.16  The point here is that an
adequate legislative and policy framework is required to protect consumers from anti-competitive
practices that raise prices and reduce output.  In the view of some Members, a focus on consumerwelfare as the criterion for application of competition policy may help to avoid the potential for
international conflicts associated with "total welfare" approaches.
17  For some Members, a focus on
protecting consumers is also a question of moral imperative:  in the absence of an appropriate
statutory framework, they will be victimised by unscrupulous actors in the marketplace.18
(c) Preventing/addressing excessive concentration levels and resulting structural rigidities
11. A related role of competition policy that is emphasized in some Members' contributions is
that of preventing excessive market concentration and its associated deleterious effects.19  Th ese , i t
has been suggested, include extensive inefficiencies, structural rigidity and non-adaptability to
external shocks.20  Furthermore, it has been suggested that a failure to introduce an effective
competition policy at an appropriately early stage in the development process can necessitate costly
industrial restructuring at a later stage.21 In a related vein, it has pointed out that far-reaching
structural de-concentration measures served as an important underpinning of the vigorous growth and
development that took place in Japan in the post-World War II reconstruction period.22
(d) Addressing anti-competitive practices of enterprises (including multinational enterprises) that
have a trade dimension, and that (possibly) impact particularly on developing countries
12. The need for effective competition laws and policies to address anti-competitive practices of
enterprises that impact on international trade has been a central theme of discussions in the Working
Group.23  In this regard, at the meeting held on March 11-13, it was suggested that three broad
categories of practices having such effects could be identified:  (i) practices affecting market accessfor imports;  (ii) practices affecting international markets, where different countries are affected in
                                                     
16 See, e.g., contributions by the United States (W/35 and 66), Turkey (W/40), Canada (W/42), the
European Community and its member States (W/45) and India (W/79) and oral comments of the representativeof Singapore, reported at M/3, paragraph 6.
17  See remarks of the representative of the US, reported in M/4, paragraph 32.
18 "The consumer, therefore, needs and deserves legal protection against certain trade practices,
business methods and unscrupulous forces."  Contribution of India (W/79).
19  See, especially, the contributions of Korea and Ja pan to the debate on the relationship of trade and
competition policy to development and economic gr owth that took place in the Group's meeting on
16-17 September (documents W/56 and 52, respectively).
20 The contribution of Korea (W/56, paragraph 11), re ferring to that country's experience, observes that,
as a result of excessive concentration, "automatic adjustment of prices in the market place did not work properly
and deepening monopolistic structures caused economic inefficiency and social inequity". See also, in this regard,
OECD (1991).
21 The contribution by Korea indicates that:  "if competition policy had been introduced earlier, Korea's
economic development would have been achieved in a more balanced and sound manner.  At the early stage ofdevelopment, the negative structural effects of market concentration and the distortions of the market structure
were largely overlooked.  As a consequence, Korea is now confronting the very difficult task of industrial
restructuring.  If competition policy had been introduced before the market structure was distorted, such taskscould have been avoided".  See document W/56, paragraph 13.
22 See the discussion of "Competition policy and the basis for development of the Japanese economy
following  World War II", in document W/52.
23 See, in particular, the discussion of "The impact of anti-competitive practices of enterprises on
international trade" which took place during the meetin g of 11-13 March, reported in  M/4, at paragraphs 21-46;
and written contributions referred to therein.WT/WGTCP/W/80
Page 6
largely the same way;  and (iii) practices having a differential impact on the national markets of
countries.24  Practices that have been cited as falling in the first category include domestic import
cartels, international cartels that allocated national markets among participating firms, exclusionary
abuses of a dominant position, the unreasonable obstruction of parallel imports, control over
importation facilities, vertical market restraints that  foreclose markets to foreign competitors, certain
private standard-setting activities and other anti-competitive practices of industry associations.25
Those falling in the second category include, first and foremost, international cartels, and also someinstances of mergers and abuses of a dominant position affecting international markets.
26  Practices
cited as falling in the third category include export cartels and situations in which mergers are benign
or even beneficial in one market, but have detrimental effects in other markets.27  There appears to be
general recognition in the Group that (possibly in varying degrees) these types of practices, where
they occur, can have significant detrimental effects not only on trade but also on economic welfareand development.
28
13. A number of contributions to the Group have raised the question as to whether developing
countries may be particularly vulnerable to practices such as those outlined above, and possibly other
practices, perhaps especially where these involve multinational enterprises.29  For example, the initial
contribution of Pakistan (W/10, section I(e)) notes that an important focus for the Group should be onthe scope for both traditional and new forms of restrictive business practices by trans-national
corporations, and on the capacity of developing countries to combat such practices.  In the meeting of
11-13 March, the representative of India noted that questions had arisen in his country regarding
apparent practices associated with licensing requirements in the caustic soda industry, and with
foreign investment in the Indian national automobile industry.
30
14. A closely-related concern that has been rais ed both in written submissions and in oral
comments in the Group concerns the impact of  mergers involving multinational enterprises in
developing countries, and the capacity of developing countries to deal with the impact of such
mergers on competition in their domestic markets.  In particular, a written submission to the Group by
Venezuela (document W/14), makes the point that "a situation may arise where the merger of two ormore parent firms does not produce structures which rest rict competition in their countries of origin, for
example owing to their relatively small share in  those bigger markets, and yet would create such
structures in the context of their subsidiary compan ies or affiliates in developing or small countries
where they operate, owing to the new market dominan ce they may have acquired in those countries as a
result of the merger in the countries of origin".
31  Moreover, the submission suggests that, even if the
competition authority of a  developing country refuse s to authorize a merger of subsidiary companies in
its national market, this will not prevent the merger in the country of origin, and that this situation maygive rise to collusive strategies among firms in th e developing country as a result of decisions taken by
the parent firm(s).  The impact on smaller market s of mergers involving multinational enterprises was
                                                     
24 See M/4, paragraph 22.  The observer from the World Bank agreed that this was a useful analytical
framework.
25 See M/4, paragraph 23.
26 See M/4, paragraph 29.
27 See M/4, paragraph 31.
28 Notwithstanding this, some Members have expressed scepticism as to whether such practices can
persist in the context of economies exhibiting a high de gree of openness to foreign trade and investment, or, in
any event, whether a comprehensive competition law is strictly necessary to address such practices.  For relateddiscussion, see Part III(b) and IV(b), infra .
29 See, e.g., written submissions to the Group by Egypt (W/9), Pakistan (W/10 and 41) and India
(W/24) and the European Community and its member States (W/45), and comments by the representative ofIndia, reported in M/4, paragraph 77.
30 See M/4, paragraph 77.
31 See W/14, paragraph 4.WT/WGTCP/W/80
Page 7
also the focus of a specific question posed to Me mbers generally at the meeting of 16-17 September
1997.32
15. Materials brought to the attention of the Working Group by observer inter-governmental
organizations provide additional possible examples and further insights into such practices.  For
example, the 1997 World Investment Report refers to the following possible examples of post-entrycompetition issues relating to foreign direct investment (FDI).
33
(i) Ancillary agreements restraining competition
The Report notes that there can be situations where FDI, although approved at the time of
entry into a developing country market, is accompanied by ancillary agreements that may
involve various restrictions of competition.  For example, international franchisers
establishing themselves in a country might require local franchisees to source certain inputs
from specific sources they control, with the justification that this guarantees quality.
(ii) Secondary effects of competitive entry through FDI
The point is made that, even after the establishment of a foreign affiliate, competition
authorities have a continuing role in ensuring that market situations do not develop that
jeopardize competition in the economy and hinder entry by other competitors.
(iii) Cross-border technology alliances
Inter-corporate alliances, which involve agreements between unaffiliated firms, are becoming
more numerous.  These often involve contractual arrangements that limit the freedom of the
parties in various ways.  Given the many types of alliances, and the different purposes forwhich they are created, the Report suggests that they constitute a "grey area" of competition
law.
16. Materials brought to the attention of the Group by the World Bank provide some further
examples.  For example, in the meeting of the Group on 11-13 March, the observer from the WorldBank referred to anti-competitive agreements involving both local and offshore producers as an
example of a type of agreement that could affect competitive conditions in developing countries.
34  In
discussing the overall impact of anti-competitive practices on trade and development, he commented
on the question of whether the incidence of anti-competitive practices affecting international trade
was greater:  (i) among developed countries; (ii) between developed and developing countries;  or
(iii) among developing countries.  He stated that, although systematic empirical evidence was lacking,
the Bank's experience tended to confirm the third possibility (i.e., that such practices were mostprevalent among developing countries).
35
17. Two main points have been made in the Group, in regard to the appropriate policy response to
the foregoing concerns regarding the impact of anti-competitive practices in developing country
markets.  The first is that all countries, including developing countries, should be encouraged to adopt
and enforce a well-constituted competition law and policy.36  The second response has been to point
to the need for, and potential of, enhanced cooperation between national competition authorities in
                                                     
32 See Questions posed by Members at the meeting of 16-17 September (informal document 5428,
30 September 1997).
33 See UNCTAD (1997a), pp. 203-208.
34 See comments of the observer from the World Bank, reported in M/4, paragraph 24.
35 See comments of the observer from the World Bank, reported in M/4, paragraph 36.
36 See, e.g., the comments of the representatives of the European Community and its member States,
and the United States, reported in M/4, paragraphs 39 and 40.WT/WGTCP/W/80
Page 8
addressing such practices.37  It has been noted that such cooperation may take many forms; it includes
technical assistance and exchange of non-confidenti al information in addition to the more intensive,
case-specific cooperation that sometimes takes place between the competition authorities of
developed countries with extensive experience in this area.  The role of international cooperation is
discussed further in Part V of this paper.  With re gard to the specific question regarding the effects of
mergers involving multinational enterprises in developing country markets, Members responding to
this point have generally agreed that mergers can have different effects in different markets.  In their
view, this highlights the importance of each country having an appropriate competition law and of
participating in cooperation agreements with other countries.38  A final, related point that has been
stressed by some Members in the Group concerns the ambiguous nature of some types of interfirm
arrangements, including, particularly, joint ventures and strategic alliances, and, therefore, the
importance of an enlightened case-by-case approach to the enforcement of competition in this area.39
(e) Increasing an economy's ability to attract foreign investment and to maximize the benefits of
such investment
18. The point has been made in various oral and written contributions to the Group that the
implementation of a transparent and effective competition policy can be an important factor both in
enhancing the attractiveness of an economy to foreign investment, and in maximizing the benefits of
such investment.40  More specifically, these contributions have suggested that competition policy can
enhance the attractiveness of an economy for foreign investment by providing a transparent and
principles-based mechanism for the resolution of dis putes involving such investment that is consistent
with international norms that are widely-accepted internationally.  This increases investor confidence
and therefore the propensity to invest.  Vigorous competition in markets, reinforced by competition
policy, also helps to maximize the benefits of such investment to host countries, by encouragingparticipating firms to construct state-of-the-art production facilities, to transfer up-to-date technology
into host countries and to undertake appropriate training programmes, and by preventing the
exploitation of consumers.
41
19. The 1997 World Investment Report , brought to the attention of the Group by the observer
from UNCTAD and various Members,42 emphasizes the growing, direct relationship between FDI
liberalization and the importance of competition policy as a building block of development.  It
observes that, while FDI liberalization can help to enhance the contestability of markets, which can
provide an important stimulus for greater efficiency, it is not a sufficient condition to achieve this
result.  Rather, to the extent that FDI liberalizati on creates greater freedom for firms to pursue their
interests in markets, effective competition laws, policies and enforcement machinery are necessary toensure that pre-existing statutory obstacles to contestability are not replaced by anti-competitive
                                                     
37 See comments by the representatives of the European Community and its member States, Turkey,
Brazil, Morocco and Tunisia, reported in M/3, paragraph 35.
38 See answers provided by the European Community  and its member States, the United States and
Canada to the questions posed by Members at the meeting of 16-17 September 1997 (documents W/61, 67 and72).
39 See comments of the representative of the United States, reported in M/4, paragraph 38.
40 See points made by the representatives of the European Community and its member States and
several other Members at the meeting of 27-28 November, and reported at M/3, paragraphs 21 and 22.  The role
of competition policy is a factor that can enhance both the magnitude and the benefits of foreign directinvestment is a central theme in UNCTAD (1997a).
41 These points are elaborated in UNCTAD (1997a) and (1997b) and OECD (1991). See also comments
of the representative of the European Community and its member States, reported in M/3, paragraph 22.
42 See, in particular, the contribution of the Eur opean Community and its member States which dealt
most specifically with the relationship of trade and competition policy to development and economic growth
(document W/45).WT/WGTCP/W/80
Page 9
practices of firms, thus negating the benefits that could arise from liberalization.43  T h i s  n e e d
increases as liberalization becomes more widespread and extends to new areas.44
20. Consequently, the Report argues that the ongoing world-wide liberalization of FDI policies
needs to be complemented by the introduction of effective competition laws and policies in
participating countries, to foster a pervasive "culture of competition" throughout the world economy.45
This will provide governments with practical tools to address anti-competitive structural changes and
business practices, and thereby enhance confidence that liberalization will ultimately serve the best
interests of citizens in the liberalizing countries .  Nonetheless, the Report also emphasizes that,
particularly for countries that have limited experience in this area, the transition to a more open,
competition-oriented system cannot be achieved overnight and involves difficult political choices, the
balancing of interests among many stakeholders and the resolution of significant practical problems.46
(f) Reinforcing the benefits of privatization and regulatory reform/deregulation initiatives
21. The point has been made in several contributions to the Group that competition policy can
reinforce, and may even be essential to realizing, the benefits of privatization and deregulation
programmes and initiatives.47  The argument here is that, unless appropriate measures are taken to
ensure inter-firm rivalry, and to prevent the c ontinuation and/or re-establishment of monopolistic
market structures, no fundamental change will occur in the incentives facing firms that will improve
their overall behaviour and performance.  Privatization will simply replace a public monopoly with aprivate one.  Similarly, poor performance and the abuse of market power are likely to continue after
deregulation if deregulated industries are not subjected to the alternative discipline of competition
law.
22. The related matter of the contrasting attributes and potential advantages of competition law
and policy as compared to direct economic regulation have also been the subject of extensivediscussion in the Group.  For example, it has been poi nted out that competition policy is based on the
belief that markets generally work, and that there is a need for intervention only in a minority of
situations where there are clear market failures.  It leaves the vast majority of operational decisions to
the firms involved.  This is in contrast to regulation, which generally reflects a view that there is a
need for continuing government oversight either because the government wishes to pursue somespecific social objective, or due to the existence of a natural monopoly.  It involves much more
detailed supervision of the day-to-day decisions of regulated firms.
48
23. In a related vein, the representative of New Zealand has made the point that reliance on a
comprehensive competition law helps to ensure policy coherence and consistency across sectors.  This
                                                     
43 UNCTAD (1997a), pp. xxv-xxxv.  The Report suggests that the main direct area of interface between
foreign direct investment and competition law will occur in the context of merger review and post-entrycompetition issues.
44 UNCTAD (1997a)
45 The Report recognizes that competition and efficiency are not the only objectives that are relevant to
public policy formulation in developing countries.
46 UNCTAD (1997a), pp. 214-216.
47 See the discussion reported in M/3, paragraph 21, comments of the representatives of Argentina,
Canada and the Dominican Republic, reported in M/4, paragraphs 26, 27 and 63, respectively, and the
submissions of the United States and the European Community and its member States to the meeting of 27-28July, 1998 addressing the subject of the Impact of State Monopolies, Regulatory Policies and ExclusivePrivileges on Competition and International Trade.  This point is also emphasized in OECD (1997).
48 See comments of the representatives of Australia and Canada, reported in M/4, paragraphs 58 and
61, respectively, and the written responses provided by the European Community and its member States, the
United States, and Canada to questions posed by Members at the meeting of 16-17 September (documents
W/61, 67 and 72, respectively).WT/WGTCP/W/80
Page 10
is advantageous from a trade perspective, in that a secure, predictable and transparent approach across
sectors facilitates the free flow of trade and investment.  According to him, sector-specific regulatory
regimes can also open the door to pleading for favourable treatment by incumbent players in an
industry, and raise questions as to why one sector should be treated more favourably than another.
For these reasons, wherever possible, New Zealand favours a policy of reliance on generalcompetition law rather than sectoral regulations.  The allegedly greater risk of "capture" of sectoral
regulators as compared to agencies responsible for a generic competition law has been emphasized by
other delegations, as well.
49
24. Potential tensions between the roles of competition law and sectoral regulators have been
addressed in various ways.  For example, in Australia, sectors such as telecommunications are subject
to a sectoral regulator, which can bring to bear specialized expertise on technical issues.  However,
access to the sector is supervised by the national competition authority under the overall competitionlaw.  In Mexico, the competition law applies to all areas of economic activity, including sectors that
have their own regulatory regime.  The role of sectoral regulators in that country is perceived as
complementary to the competition law, to provide necessary fine-tuning.
50  The competition law of
the European Community and its member States also embodies specific provisions that enable the
administering authorities to address restrictions on competition through government measures,including regulations.
51  On the other hand, in certain other jurisdictions, the role of competition law
can be displaced by sectoral regulations that deal specifically with the relevant conduct, at least in
some circumstances.52
25. It has been suggested that developing countries undergoing transition to a market-based
economy may face particular challenges and dilemmas in introducing the necessary pro-competitivereforms to accompany privatization and deregulation programmes.  For example, a contribution by
Argentina (document W/55, page 7) notes that, in that country, "the privatization process was
influenced by two goals that operated as oppos ing forces:  one microeconomic and the other
macroeconomic.  The microeconomic goal is the most obvious and consisted of seeing privatization as a
tool for increasing the long-term efficiency of the economy, whereas the macroeconomic goal was to
use privatization as a means of obtaining financial resources at a crucial juncture in the stabilization
process.  These were opposing forces because in conc rete terms the former imp lied the need to introduce
the greatest possible competition into markets, whereas the latter implied restricting competition in order
to make the business more attractive to investors and consequently raise the purchase price".  The
contribution emphasizes that the costs involved in the perpetuation of private monopolies and the lack of
competition were realized over time, and that a revitalization of competition law in that country has
played a crucial role in improving performance in the markets concerned.
26. The importance of competition policy in reinforcing the benefits of privatization and
regulatory reform is emphasized in various materials brought to the attention of the Working Group
by representatives of observer intergovernmental organizations.  For example, UNCTAD (1997b)
notes several examples of situations in which the potential benefits of regulatory reform and
deregulation have been attenuated by a failure to apply appropriate competition law disciplines.
53
                                                     
49 See, e.g., comments of the representatives of the United States, reported in M/3, paragraph 55.
50 See comments of the representatives of Australia and Mexico, reported in M/3, paragraph 55.
51 See contribution by the European Community and its member States (document W/78).
52 See, for example, the case of the United States, discussed in document W/83.
53 For example, the study indicates that the benefits of deregulation in some sectors in OECD countries
(such as public utilities, airlines an d long-distance coaches) have been reduced because incumbents have been
permitted to cross-subsidize their operations from non-competitive sectors or exploited vertical linkages; orresidual control over airport time slots, computer reservations systems or bus stations.  In the United Kingdom,for instance, despite privatization and deregulation in the express coach market, one of the two original public
sector companies was able to retain its dominant position because of such advantages;  but action was eventually
taken to break it up into regional companies.  In the Unit ed States, in the early years of airline deregulation, theWT/WGTCP/W/80
Page 11
Reflecting similar concerns, the 1997 OECD Report on Regulatory Reform recommends that
governments should expand the scope and effectiveness of competition policy, as an essential
underpinning of competition policy.54
(g) Establishing an institutional focal point for the advocacy of pro-competitive policy reforms
and a competition culture
27. Many contributions to the Working Group have emphasized the importance of competition
advocacy activities as a tool for promoting competition, in both developing and developed
economies.55  Typically, such activities involve making the case for the application of competition
principles in the design or implementation of governmental policies and measures, including the
elimination of unnecessary regulation and the adoption of the least anti-competitive means of
achieving various policy objectives.  In this regard, the point has been made that, while it may not be
strictly necessary, the existence of a competition law coupled with a vigorous enforcement policygreatly facilitates effective competition advocacy work.  This is because a track record of effective
enforcement activity enhances both the credibi lity and the expertise of the responsible agency.
56  In
fact, materials brought to the attention of the Working Group indicate that the laws and/or judicial
processes of several countries give competition authorities the right to intervene in legislative or
administrative processes, while authorities in other jurisdictions may intervene on request.57
III. THE INTERCONNECTIONS BETWEEN TRADE AND COMPETITION POLICY IN
FOSTERING ECONOMIC DEVELOPMENT AND GROWTH
28. The purpose of this paper is not merely to synthesize the points made on the role of
competition policy in furthering economic development, but also to set out the perspectives that have
emerged in the Working Group on the interaction between trade and competition policy as it affectsdevelopment and economic growth.  In this regard, three general points have been made/questions
raised by delegations.  First, a large number of Members have emphasized the complementary roles of
trade liberalization and competition policy in promoting economic efficiency, development and
growth.  Second, some delegations have posed the question of whether, and in what circumstances,
can open trade and investment policies serve as a substitute for competition policy?  A furtherquestion raised in this context is whether there may be welfare trade-offs involved between the
enforcement of competition legislation in a domestic economy and the attainment of economies of
scale and the "critical mass" necessary for firms to succeed in international markets?  The following
subsections attempt to synthesize the arguments that have put forward on these points.
                                                                                                                                                                    
potential consumer benefits appear to have been eroded by a series of mergers that were approved by the
Department of Transportation, in some cases against the advice of the Department of Justice.  See UNCTAD
(1997b), paragraph 31.
54  The Report observes further that " Successful [regulatory] reform should be built on a foundation of
effective competition policy….reform efforts may fail to deliver potential benefits if competition issues are notadequately addressed.  Failures of regulatory reform in  some countries are at least partly due to the lack of
adequate measures to protect and promote competition du ring the crucial transition phase."  See OECD (1997b),
p. 14.
55 See Part IV(c), infra , and contributions cited therein.  In document W/67, the United States observes
that "Advocacy is likely the single most important role of a competition authority in a country undergoing thetransition to market institutions".
56 See related remarks by the representatives of Argentina, Brazil and Canada, summarized in
document M/4, paragraphs 68-70.
57 See UNCTAD (1997b) and OECD (1997).WT/WGTCP/W/80
Page 12
(a) The complementary roles of trade liberalization and competition policy in promoting
efficiency and economic development
29. In the course of the Group's work, a large number of Members have made the point that the
competition policy and trade liberalization play complementary roles in promoting efficiency,
consumer welfare, growth and development.58  Trade policy fosters these goals primarily through the
reduction of government-imposed barriers to in ternational commerce, while competition policy
addresses principally anti-competitive practices of en terprises that impede access to, or the efficient
functioning of, markets.59  Neither instrument is likely to be fully successful in the absence of the
other.60  The point has also been made that a central function of the WTO is to promote the equality of
competitive opportunities for Members in the worl d trading system.  Since competition policy is
essential to the latter condition, this further illustra tes the interdependence and complementary nature of
trade and competition policy.61
(b) To what extent can trade and investment liberalization be a substitute for competition policy?
30. In the course of the Group's discussions, some delegations have suggested that, at least in the
case of small economies characterized by a minimum degree of government intervention in markets,
an open trade policy can serve as a substitute for competition policy.62  The argument here is that, in
such economies, competition from foreign sources can serve as an effective substitute for rivalryamong domestic producers in disciplining the exercise of market power.  Indeed, even delegations
that have emphasized the importance of competition law as a building block of development in the
current economic environment emphasize that private anti-competitive conduct is made more difficult
to sustain by an absence of government barriers.
63
31. Nonetheless, the point has also been made by many Members, and in documentation provided
by observer intergovernmental organizations, that trade liberalization alone is unlikely to be sufficient
as a guarantor of competition in all circumstances .  The reasons for this include the following factors:
(i) a large number of markets (e.g., non-tradeables or tradeables with high transportation costs) remain
local in nature, and are, therefore, not subject to effective discipline from imports (though, in
principle, they may still be subject to internat ional discipline if investment is liberalized);64  (ii) even
                                                     
58 See, e.g., comments by the representatives of the European Community and its member States,
Japan, Mexico, Turkey, Singapore, India, Nigeria and Norway, reported in M/3, paragraph 4. A contribution tothe Group by Hong Kong, China (document W/26, paragraph 8) observes that " Modern economic research onthe competitive advantage of nations suggests that open markets, liberal legal framework rules and a soundcompetition policy play a key role in fostering economic growth, innovation and continuous upgrading of
productivity and product quality.  In this regard, trade liberalization and competition policies foster development
and economic growth by limiting protectionist abuses of both government and private market power.  Theyreinforce one another and result in a more efficient use of resources".
59 See, in this regard, the submission of the United States addressing the General Interaction Between
Trade and Competition Policy (document W/66).  The submission notes, nonetheless, that there is an importantoverlap between trade and competition policy in that competition policy can also address government-imposed
barriers to the operation of market forces through the medium of advocacy activities.
60 See contribution of the United States (W/66, p.11) and comments of the representative of the
European Community and its member States, reported in M/3, paragraph 4.
61 See comments of the representative of the European Community and its member States, reported in
M/3, paragraph 4.
62 See, e.g., comments of the representative of Singapore, reported in M/3, paragraph 48.
63 For example, one of the contributions of the European Community and its member States notes that
"Trade and investment liberalization have an important contribution to make in tackling anti-competitive practices,since such practices are more difficult to sustain in the absence of government barriers to entry".  See documentW/45, section 1.1.
64 See comments of the representative of the European Community and its member States, reported in
M/4, paragraph 44.WT/WGTCP/W/80
Page 13
in regard to tradeable goods, and where formal trade barriers have been removed, competition can be
affected by a host of government or other measures including regulations, standards and licensing
requirements;65 and (iii) even in the absence of the latter type of measures, the ability of imports to
discipline the exercise of market power can be affected by a wide range of anti-competitive practices
of firms.66 For example, firms (including incumbent domestic suppliers and/or foreign-based
suppliers) may divide up markets through price- fixing or geographic market-sharing cartel
agreements, or vertical market restraints may be employed by incumbents as a device for deterring
imports.  Finally, at a practical level, the point has also been made that the experience of jurisdictions
with large internal markets corroborates the need for competition policy, even in the (relative) absence
of trade barriers within their internal markets.67
32. In a recent contribution to the Group (document W/63), Argentina has set out the results of 18
empirical case studies which, in its view, illustrate the importance of an effective national competitionpolicy, even in the context of external market liberalization. The presumption underlying these studies
is that, in general, when a country implements far-reaching trade liberalization, domestic prices will
tend toward import parity levels.
68  The competition agency of Argentina had, nonetheless, identified
several situations where this response had not been forthcoming, due to the existence of anti-
competitive practices of enterprises.  Factors that te nded to facilitate or underlie such anti-competitive
practices included high market concentration levels, inelastic demand (reflecting a lack of substitutes),
the prior existence of a cartel, and control by a dominant enterprise of scarce facilities that were
necessary for imports to occur.  Based on these findings, the representative of Argentina concluded
that effective national competition policies are vital to ensure that the process of adjustment to
external liberalization and resulting benefits for efficient economic development are not circumventedby anti-competitive practices.
69
(c) The importance of economies of scale and critical mass:  possible adverse effects of
competition policy on international competitiveness
33. It has been pointed out in the Group that, while competition (and therefore competition
policy) may indeed be an important factor in the development process, it is only one such factor.Building on this point, it has been suggested that be fore the benefits of competition can be realized,
sufficient supply capability must be present in an economy.
70  Moreover, the argument has been made
that parastatal institutions and conglomerates, or in some cases even monopolies, in addition to special
regulatory regimes for the exploitation of natura l resources, can play an important role in the
                                                     
65 See Khemani and Dutz (1995).
66 See, e.g., the contributions by the United States , the European Community and its member States,
and Canada to the foruth meeting of the Group, and the discussion summarized in M/4, paragraphs 23-24.
67 For example, in the meeting on 11-13 March, the representative of the European Community and its
member States made the point that even within the Community itself, with its strong policies relating tocompetition and freedom of movement at the Community level, individual states found it important to have theirown national competition laws.  These were necessary both to address anti-competitive practices within theirown borders, which were not reached by the Community-level competition policy, and to act as an interlocutor
with the Community and other national authorities on matters of common interest.
68 At the Group's meeting on 11-13 March, the observer from the World Bank expressed agreement
with this approach.  See M/4, paragraph 26.
69 See comments reported in M/4, paragraph 26.
70 See comments by the representatives of Thailand, speaking on behalf of ASEAN WTO Members,
and Korea, reported in M/3, paragraph 25 and M/4, paragraph 65, respectively.  In a related vein, UNCTAD
(1997b) points out that, in the extreme case of a natural monopoly, economies of scale and scope involved and
the size of sunk costs make production by one firm the most efficient solution.WT/WGTCP/W/80
Page 14
development process.  These instruments may entail some tension with competition policy
objectives.71
34. In a related vein, it has been suggested that the need to allow firms in developing market
economies to achieve economies of scale may have particular implications for merger policy.  In
particular, it has been suggested that concentrations taking place in the context of economicliberalization are less likely to be linked to anti-competitive practices, but rather to the adaptation of
the domestic economy to the changes resulting from th e new economic environment.  In this context,
the regulation of mergers could constitute an obstacle for economies undergoing transition.
72
35. In reflecting on these concerns, the view has been expressed by several Members that robust
competition in the home market contributes positively to the international competitiveness of firms.73
It does this by providing incentives for the continual upgrading of products, production methods andmarketing and distribution channels.  With regard to the achievement of economies of scale, it hasbeen suggested that it should be possible to fac ilitate this, while still maintaining appropriate
competitive disciplines, if competition policy is introduced in conjunction with external market-
opening measures.
74  This further underscores the complementary relationship between trade and
competition policy.
36. A related point made by the observer from the World Bank in the meeting of
27-28 November is that, in the Bank's experience, a clear majority of cases (80 per cent plus) of anti-
competitive practices in a developing country se tting involve the supply of intermediate products
purchased by other businesses, rather than goods purchased by final consumers.  This is another
important reason why competition policy is more likel y to assist than to harm firms in developing
country markets in enhancing th eir international competitiveness.75
IV. ADDITIONAL RESERVATIONS/PRACTICAL CONSIDERATIONS REGARDING
THE NEED FOR AND/OR APPROPRIATE DESIGN OF COMPETITION LAW AND
POLICY IN DEVELOPING MARKET ECONOMIES
(a) Social and economic dislocation caused by the transition to a competition-based economy
37. Questions and concerns have been raised in the Group regarding possible social and economic
dislocation which may result from reliance on competition policy as a tool of economic development.
Delegations have suggested that, perhaps particularly in developing economies, the application of
competition policy may create unemployment and/or ma y affect the survival of firms and industries,
including locally-based small and medium-sized enterprises.76  In a related vein, the question has been
posed as to what, if any, measures may be appropria te in relation to the exit of inefficient firms (or
industries), particularly in the context of economic transformation?77
38. In commenting on this concern, representatives of observer intergovernmental organizations
as well as some Members have emphasized that, in their view, a key consideration is that, even where
                                                     
71 Comments by the representative of Thailand, speaking on behalf of ASEAN WTO Members,
reported in M/3, paragraphs 25.
72 See comments by the representative of Peru, reported in M/4, paragraph 64, and the written
contribution of Peru on this matter (document (W/59).
73 See, e.g., the comments by the representatives of the United States and Canada, reported in M/4, and
contribution by Hong Kong, China (document W/26).  Related points are made in UNCTAD (1997b).
74 See, e.g., comments of the representative of Norway, noted in M/3, paragraph 28.
75 See comments by the observer of the World Bank, reported in M/3, paragraph 58.
76 See comments of the representatives of India and Tunisia, reported in M/3, paragraph 31.
77 See Questions posed by Members at the meeting of 16-17 September (informal document 5428,
30 September 1997).WT/WGTCP/W/80
Page 15
a transition to competition imposes high costs on individual incumbent firms, these are likely to be
more-than-compensated for by gains accruing to new entrants in the market, and by society as a
whole.  For example, UNCTAD (1997b) notes that, wh ile many of the benefits of competition are
difficult to quantify, evidence from deregulated sectors in developed countries indicates that the
introduction of greater competition yielded signif icant gains in output, employment and welfare.78
39. The point has also been made that  there is a danger of attributing to competition policy social
costs that are really the result of more systemic changes relating to a movement away from pervasive
regulation and state ownership.  These changes, while no doubt generating short run costs, may well
be necessary to achieving sound development.  Further in this vein, it has been suggested that
competition policy should not be expected to provide remedies for all possible concerns relating to
economic adjustment and adaptation to change; these may need to be addressed through other policies
or measures relating to unemployment and job retraining.79
40. Notwithstanding the above points, representatives of some Members supporting the overall
importance of competition policy as a tool of economic development have also accepted that a degree
of flexibility is important, and that competition policy need not be opposed to all forms of interfirm
cooperation.  For example, cooperative arrangemen ts between small and medium-sized enterprises
might be considered acceptable if they served a useful, pro-competitive function.80
41. With regard to the question of what, if any, measures may be appropriate in relation to the exit
of inefficient firms (or industries), the argument has been made that what is most important is a body ofrules that facilitate the exit by the most inefficient firms (i.e., effective competition rules).
Restrictions on exiting the market encourage inefficient firms to continue operating, which wastes
resources, hurts consumers and may lead to layoffs in any event.  Competition measures, in contrast,
work to encourage inefficient firms to become more efficient and competitive, or to be replaced by
newer, more efficient firms – thereby maximizing productivity and creating employment (includinghigher-paid jobs) in the long run.
81  There may, nonetheless, be a case for special rules that enable
weak firms to merge with stronger competitors, at least in circumstances where it is clear that the
weaker firm would otherwise exit the market.82 Incorporating efficiency considerations into merger
analysis is another way in which competition policy can, to an extent, facilitate efficient structural
adjustment in industries in transition.83
                                                     
78 See UNCTAD (1997b), p. 10, and arguments made by the representative of the European
Community and its member States, reported in document M/3, paragraph 33.
79 See points made by Argentina and the United States, reported in M/3, paragraphs 32 and 31,
respectively.
80 See arguments made by the representative of the European Community and its member States,
reported in document M/3, paragraph 33.
81 See responses given in by the European Community and its member States, the United States and
Canada in W/61, 67 and 72, and related commentary in UNCTAD (1997b).
82 See responses given by the European Community and its member States, the United States and
Canada in W/61, 67 and 72. United States merger policy provides a narrow exception for some mergersinvolving failing firms.  The exception applies where the failing firm:  (i) is unable to meet its financial
obligations; (ii) is unable to reorganize successfully under the bankruptcy laws; (iii) has made unsuccessful but
good-faith efforts to find other buyers who may pose less harm to competition; and (iv) would be expected toexit the market, absent the merger in question.  Although initially intended in part to ease dislocations and injuryto workers, creditors and others who suffer when fi rms are forced into bankruptcy rather than sold, US
authorities consider that the policy's current narrow interpretation is consistent with sound competitionprinciples.  See document W/67.
83 See contribution of the United States (W/67), and related comments by the representative of Canada,
reported in M/4, paragraph 67.WT/WGTCP/W/80
Page 16
(b) Questions concerning the need for a comprehensive competition law as the vehicle for
delivery of competition policy
42. Apart from arguments regarding the fundamental desirability of competition policy as a
building block of development, delegations have posed questions regarding the need for a
comprehensive competition law for delivery of competition policy.84  Further to this point, the
argument has been made that competition policy actually comprises the full range of government
measures that impact on market structure and conduct, including trade liberalization measures.  Thus,
a commitment to competition policy need not entail the adoption of a traditional competition law. 85
In a presentation at the meeting of 11-13 March, the representative of Hong Kong, China indicated
that his jurisdiction had made a commitment to a comprehensive competition policy (to be
implemented through sectoral regulatory policies, codes of conduct and other appropriate means), but
had not found it necessary, at least at this stage, to adopt a comprehensive competition law.86
43. In response to such arguments, some other delegations have expressed the view that, while it
may indeed be possible for a country to have a competition policy without having a competition law,
having such a law provides important benefits.  These include ensuring greater consistency in
enforcement approaches across industries;  giving the policy statutory character, enforceability and
stability;  enhanced ease of adaptation of new analytical techniques applicable across sectors and areduced danger of institutional "capture" of a comprehensive competition authority as compared to the
situation of regulators that focus on particular economic sectors.87
(c) Priorities for the implementation of competition law and policy in developing and transition
economies
44. Questions regarding priorities for the implementation of competition law and policy in
developing and transition economies have been the subject of a rich and wide-ranging discussion inthe Group.  To begin with, Members have discussed the question of the sequencing of the introduction
of competition policy with trade liberalization and other economic reforms in the context of
developing economies.  One perspective was that two "extreme" views should be rejected:  (i) the
view that countries should liberalize first and implement competition policy at a later stage of
development;  and (ii) the view that countries should first industrialise their economies throughgovernment targeting of industries, and implement competition policy later
88.  While the first view
reflected an underestimation of the possibilities for private market failures, the second was based on
an underestimation of the likelihood of government failures in targeting industries and firms for
support.  A better approach would be to adopt  competition policy simultaneously with trade
liberalization and other economic reforms such as privatization and deregulation.  In this way,competition policy would act as a catalyst for economic reform and development based on market-
oriented principles.
89
                                                     
84 See comments of the representatives of Singapore and Hong Kong, China, reported in M/3,
paragraph 48 and M/4, paragraph 44.
85 See comments of the representative of Thailand, speaking on behalf of ASEAN WTO Members,
reported in M/3, paragraph 12.
86 See comments by the representative of Hong Kong, China, reported in M/3, paragraph 42, and
related comments by the representative of Singapore, reported in M/3, paragraph 48.
87 See comments by the representatives of  India, the United States and the European Community and
its member States, reported in M/3, paragraphs 31, 54 and 55.
88 See comments by the representative of Brazil, reported in M/3, paragraph 29.
89 The representative of the European Community and its member States expressed agreement with the
point that trade liberalization and competition policy should  proceed together, and that neither one could
succeed fully without the other.WT/WGTCP/W/80
Page 17
45. With regard to priorities regarding the implem entation of specific elements of competition
law and policy in developing and transition economies, the point has been made that these priorities
must take account of the circumstances and institutional endowments of such countries.90  F o r
example, in markets that have been characterized by  a high level of state ownership and intervention, for
example through price controls, the environment fo r competition law is not comparable with that in
more market-oriented and advanced economies.91  In addition, developing countries may lack the
expertise and other resources to implement a comprehensive competition policy all at once.
46. In the light of the foregoing considerations , a phased approach to the implementation of
competition policy has been suggested by the representative of Brazil.92  Under this approach, a
national competition authority would first focus on the suppression of horizontal cartels (the most
unambiguously harmful type of enterprise practice) and on basic competition advocacy activities
relating to essential market reforms.  After gaining adequate experience in these areas, it would thentake on additional responsibilities for matters such as merger review and dealing with anti-competitive
vertical restraints.  In the last stage, it would take on more sweeping responsibilities for competition
advocacy activities relating to all aspects of the interplay between competition policy and regulation.
The representative of Romania has also highlighted the area of anti-competitive agreements among
firms (i.e., cartels) as a key focus of enforcement ac tivity for competition agencies in developing and
transition economies.
93  On the other hand, it has been suggested that the area of merger control be
accorded low priority for competition authorities in developing economies that are characterized by a
high degree of openness, reflecting the view that mergers in such economies can contribute
importantly to desirable rationalization, and that foreign competition may be adequate to discipline
any resulting capability to exercise market power.94  The observer from UNCTAD has also
emphasized that it is advantageous for countries to begin by implementing the more basic aspects of
competition law and policy (e.g., provisions dealing with horizontal cartels and abuse of a dominant
position) in addition to advocacy work, and then progress to more complex aspects such as the treatment
of vertical market restraints.95
47. Notwithstanding generally wide acceptance of the importance of advocacy activities in the
Group, another delegation has made the point that a key consideration in framing an agency's activities
in its early stage should be to establish and preserve its independence from the domestic political
process.96  This may be undercut if the agency is too broadly-focused in its advocacy efforts.  In fact,
public and governmental acceptance of competition po licy may best be promoted through well-targeted
and vigorously-pursued enforcement initiatives that  demonstrate the relevance of competition law and
policy to businesses and consumers.97
48. In a related vein, a number of delegates have expressed interest in and stressed the importance
of building a "competition culture", as a means of supplementing and reinforcing the positive effects
of implementing a competition law and policy.98  This involves a process of public education to
facilitate acceptance of competition policy principles as a central element of national economic
                                                     
90 See comments of the representatives of Brazil and the United States, reported in M/3, paragraphs 29,
30 and 34.
91 See discussion summarized in M/2, paragraph 15.
92 See comments of the representative of Brazil, in M/3, paragraph 30.
93 See comments summarized in M/3, paragraph 34.
94 See contribution of Peru (W/59).
95 See comments reported in M/3, paragraph 27.
96 See comments of the representative of Argentina, reported in M/3, paragraph 34 and M/4,
paragraph 68.
97 See comments reported at M/4, paragraph 68.
98 See Questions posed by Members at the meeting of 16-17 September (informal document 5428,
30 September 1997) and answers provided by the European Community and its member States, the United
States and Canada (documents W/61, 67 and 72, respectively).WT/WGTCP/W/80
Page 18
policy, both politically and within the national business community.   According to some Members,
the building of a competition culture can be facilitated by:  (i) developing allies in government, in the
business sector and among consumers or consumer groups;  (ii) giving speeches that demonstrate to
consumers the savings obtained from enforcement actions; and (iii) other measures that enhance
transparency and public understanding of competition policy rules and decisions, including mediacontacts to help publicize important case developments.
99  However, the point has been stressed that
building a culture of competition also requires vigorous enforcement activities in appropriate cases, to
underscore the message that rules regarding anti-competitive practices must be respected.100
Expanding on the latter point, delegations have observed that there are important synergies betweenadvocacy, enforcement and general public education activities in the implementation of competition
law and policy.  All three are important, and it is important that none be given undue emphasis at the
expense of the others.
101
(d) The desirability of exemptions/transition periods for the implementation of competition law in
developing countries, pursuant to any new multilateral instrument
49. Questions have been posed by delegates regarding the desirability of preferential or differential
treatment for developing countries in the area of competition law and policy, including transition periods
for implementation of any new WTO requirements in this area.  In reflecting on this matter, the
representative of UNCTAD has said that the interests of developing countries themselves are unlikely to
be best served by general preferential treatment  for existing monopolies or sweeping derogations from
the implementation of competition law.  The issue mer iting consideration is whether there is a need for
time-limited exceptions with respect to specific sectors of national interest.102
V. THE ROLE OF INTERNATIONAL COOPERATION IN FACILITATING THE
IMPLEMENTATION OF COMPETITION POLICY IN DEVELOPING COUNTRIES
50. The potential benefits of enhanced international cooperation, of one form or another, in the
implementation of competition policy have been discussed extensively in the Working Group.103
Particularly in the debate that occurred in the November 1997 meeting of the Working Group, severalcountries, including the European Community and its member States, Turkey, Brazil, Morocco andTunisia, expressed support for an enhanced framework for international cooperation in competition
law enforcement, for the specific purpose of facilitating the effective use of competition policy as a
tool of economic development.
104
51. Members' submissions105 and other documentation106 provided to the Group have made it
clear that cooperation in competition law enforcement already takes place at various levels.  At the
multilateral level, various WTO agreements, including the General Agreement on Trade in Services,the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) and the Agreement
                                                     
99 See answers provided by the European Community  and its member States, the United States and
Canada to the questions posed by Members at the meeting of 27-28 November (documents W/61, 67 and 72,
respectively).
100 See, e.g., contribution of the United States, W/67, answer 10.
101 See, especially, comments by the representative of Brazil, reported in M/4, paragraph 69.
102 See summary of questions posed to, and answered by, the representative of UNCTAD in M/1,
Annex 1.
103 See, e.g., relevant submissions by the European Community and its Member States (especially W/45
and 62), and the United States (W/48) in addition to oral remarks by a number of Members, reported at M/4,paragraphs 41 and 53-56.
104 See M/3, paragraph 35.
105 See, particularly, submissions by the European Community and its member States, the United States
and Canada (documents W/62, 48 and 70 respectively).
106 See World Trade Organization (1997) and UNCTAD (1997).WT/WGTCP/W/80
Page 19
on Trade-Related Investment Measures (TRIMs) t ouch upon aspects of anti-competitive practices by
firms, and provide for consultation between Members affected by such practices.107  At the regional
level, cooperative approaches to competition law enforcement have been encouraged in the context of
a number of regional integration arrangements.  While the European Community is clearly the most
advanced such arrangement, related efforts have been undertaken in the context of NAFTA, Mercosurand other arrangements.
108  Probably the most intensive forms of cooperation take place at the
bilateral level, where arrangements involving a small number of jurisdictions with extensive
experience in competition law and policy provide for notifications, consultations and, in a few cases,
the exchange of confidential informa tion to facilitate law enforcement.109  Representatives of a
number of Members have made the point that the extent and intensity of international cooperation in
competition law enforcement that is feasible depends importantly on the institutional capability,
experience and degree of trust that has been built up over time among the participating countries.110
52. In a related vein, the importance of technical cooperation as a vehicle for facilitating effective
implementation of competition law and policy in developing economies has been referred to by a
number of Members.111  However, the nature of specific requirements in this area has not been
extensively discussed.
VI. CONCLUDING REMARKS
53. In sum, the discussions to date in the Working Group have revealed broad (if not universal)
agreement on the importance and relevance of competition policy as a building block of economic
development.112  The specific benefits that have been attributed to such policy include promoting an
efficient allocation of resources, preventing/addressing excessive concentration levels and resulting
structural rigidities, addressing anti-competitive practices of enterprises, including multinationalenterprises that have a trade dimension, and that (possibly) impact particularly on developing
countries, enhancing an economy's ability to attract foreign investment and to maximize the benefits
of such investment, reinforcing the benefits of pr ivatization and regulatory reform initiatives, and
establishing a focal point for the advocacy of pro-competitive policy reforms and a competition
culture.  Moreover, both Members' contributions and materials provided by observerintergovernmental organizations have emphasized the heightened relevance of such policy in the
context of factors such as globalization, the reduction of many conventional trade barriers, and
increased reliance world-wide on market forces as the primary engine of growth and development.
Many Members would also argue that a comprehensive competition law is essential as a vehicle for
anchoring and giving expression to competition policy, in developing as well as developed countries.
The latter is not, however, a universal conclusion :  some Members take the view that an effective
competition policy may be achieved even in the absence of a competition law (at least, perhaps, in thecontext of a small, open economy).
54. With respect to the inter-relationship of trade and competition policy as it affects economic
development and growth, most delegations would emphasize the broad complementarity of
competition policy and trade liberalization in creating incentives for innovation and productivity
improvement and otherwise supporting efficient de velopment patterns.  Some delegations would
                                                     
107 For details, see World Trade Organization (1997), pp. 76-80.
108 See comments of the representatives of Mexico and Argentina, reported in M/3, paragraph 65, and
M/4, paragraphs 52 and 53, respectively.
109 See, e.g., submission of the United States (document W/48) and, for additional factual background,
World Trade Organization (1997), pp. 76-85.
110 See, e.g., comments by the representatives of the United States and Canada, reported at M/4,
paragraphs 54 and 41, respectively.
111  See comments reported in M/2, paragraph 15.
112 Recall the definition of competition policy in note 8, supra , as not necessarily including a
comprehensive competition law.WT/WGTCP/W/80
Page 20
argue further that, at least in some circumstances, trade liberalization (and an absence of other
government-imposed barriers) can serve as a substitute for competition policy.  However, a number of
Members would dispute this, arguing that even in a liberal trading environment, experience shows
that competition policy is necessary to private conduct that impedes or distorts trade.
55. The discussions in the Working Group have also touched upon reservations expressed by
some delegations regarding the wider economic and social repercussions associated with a transition
to a competitive market-based economy, including through the application of competition law.  These
range from possible short-term losses of employment to concerns regarding the implications of
merger control for the achievement of desirable economies of scale and inter-firm synergies.  A
majority of delegates, however, would seem to favour the view that, in most circumstances,
application of a well-constituted and appropriately flexible competition policy is more likely to
enhance than to detract from the efficiency and competitiveness of domestic industries and firms.
56. Finally, the discussion in the Group has provided extensive insights into the matter of
priorities for the design and implementation of competition law and policy in a developing economy
setting.  While a variety of perspectives have been expressed, a view that would seem to command
wide support is that countries do not necessarily need to implement all aspects of competition policy
at the beginning of the process.  Rather, it may be appropriate to focus initially on deterring practicesthat are unambiguously harmful (e.g., horizontal cartels) and on competition advocacy activities.  In
framing the latter, however, it may also be important to bear in mind possible implications for the
independence of the administering authorities.  A number of delegations from disparate regions have
also stressed the importance of international cooperation, including technical cooperation, as a means
of facilitating the effective application of competition law and policy in developing countries.WT/WGTCP/W/80
Page 21
Supplementary materials brought to the attention of the Group
that are referred to in the paper*
1. Khemani, R.S. and M.A. Dutz (1995).  "The instruments of competition policy and their
relevance for economic development," in Claudio R. Frischtak (ed.), Regulatory Policies and
Reform:  A Comparative Perspective  (World Bank).
2. OECD (1991).  Competition  and Economic Development  (Paris).
3. OECD (1997).  Report on Regulatory Reform  (Paris; two volumes).
4. UNCTAD (1997a).  World Investment Report:  Tr ansnational Corporations, Market
Structure and Competition Policy  (Geneva).
5. UNCTAD (1997b) Empirical Evidence of the Benefits from Applying Competition Law and
Policy Principles to Economic Development in order to Attain Greater Efficiency in
International Trade and Development  (Geneva, document  TD/B/COM.2/EM/10).
6. World Trade Organization (1997).  "Special Study on Trade and Competition Policy", in
Annual Report 1997  (Geneva), chapter 4.
__________
                                                     
* All materials included in this list have been brought to the attention of the Group by Members,
observer intergovernmental organizations, or the Chairman.