WORLD TRADE
ORGANIZATIONWT/WGTCP/W/119
27 May 1999
(99-2137)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  English
COMMUNICATION FROM JAPAN
The following communication, dated 16 April 1999, has been received from the Permanent
Mission of Japan with the request that it be circulated to Members.
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Observation on the possible WTO framework on competition
Last December it was decided that the WTO Working Group on the Interaction between
Trade and Competition Policy shall continue the educative work that it has been undertaking pursuant
to paragraph 20 of the Singapore Ministerial Declaration.  It was also decided that the Working Groupwould benefit from a focused discussion on:
(i) the relevance of fundamental WTO principles of national treatment, transparency, and
most-favoured-nation treatment to competition policy and vice versa;
(ii) approaches to promoting cooperation and communication among Members, including
in the field of technical cooperation;  and
(iii) the contribution of competition policy to achieving the objectives of the WTO,
including the promotion of international trade.
In this submission, Japan observes the possible WTO framework on competition, which is
closely related to the items (i) and (iii) above.  Here we intend solely to facilitate discussion on the
issue among Member countries and by no means to commit ourselves to the future work in the WTO.
I. INTRODUCTION
In the era of globalization, competition in domestic markets is affected by an increasing
number of anti-competitive practices that occur either in more than one country or in a third country
(including mergers and acquisitions).  This phenomenon can be explained by the fact that border
barriers such as tariffs have been diminished and trade measures have been regulated strictly by the
WTO rules through successive efforts made at the WTO negotiations, so that markets have
increasingly become multinational, if not global, in scope.  As a result, there are increasing occasionswhere anti-competitive business practices in domestic markets affect competition in foreign markets.
The reduction of border measures has also highlighted non-border barriers as remaining obstacles to
trade.  Anti-competitive practices that affect international trade can be seen as one such obstacle these
days.  Each government, therefore, has recognized the necessity to deal with those practices both from
the competition and from the trade perspective.WT/WGTCP/W/119
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There is a problem, however: trade and competition authorities often find it difficult to
appropriately assess distortive effects on trade and competition of, and to effectively preclude or
deter, such anti-competitive practices with internatio nal dimensions.  It might be possible to eliminate
them by making use of national trade and competition legislation to the maximum extent, although
such an option may not only raise political and economic conflicts with other countries but also mayinvolve practical difficulties in ensuring the effectiveness of enforcement.
Against this background, it has been widely recognized that enhanced international
cooperation is of great importance.  A range of cooperation arrangements in bilateral, regional and
multilateral settings have been made or are under consideration, where notification, cooperation,
consultation and comity are the main tools for solution.  Further development of cooperation
arrangements would be highly desirable.
Cooperation arrangements do have institutional constraints, however.  As regards positive
comity, for example, it is within the discretion of the party requested whether it actually takes
prohibitory and remedial measures against anti-competitive practices in question.  Practices that the
requested party has little or no incentive to eliminate (e.g. export cartel in the requested party) maynot be addressed in an effective manner because its market is hardly affected by those practices.
Furthermore, cooperation arrangements tend to be established only among countries with plenty of
experience in competition policy, because parties expect the arrangement to be mutually beneficial.
From the historical point of view, there were only a few countries that had a competition law
when the Havana Charter for the International Trade Organization was adopted but did not
successfully enter into force.  Today, however, over 70 countries have competition laws, most of
which prohibit such restrictive business practices as competition-restricting horizontal agreements,
acquisitions and abuses of dominant positions, as well as substantially competition-restrictive vertical
agreements (see World Investment Report, UNCT AD, 1997).  In addition, a number of developing
countries are preparing for a competition law.  Therefore, it can be stated that a common background
has been efficiently developed in the field of competition legislation to start discussion of a more
effective, multilateral framework on competition.
II. WHAT THE SUBMISSION INTENDS
Some developed and developing Member countries have expressed their concern that a
framework on competition in the WTO would put constraints on their national sovereignty or on theenforcement discretion of competition authorities, would create difficulties in achieving the necessary
balance between competition policy and other economic policies or in taking political/social
requirements fully into account, and would re duce the discretion of competition authorities in
deciding whether to investigate a particular business practice, whether the practice dealt with is
illegal, or what counter-measures should be taken.
Such concerns are reasonable and should be addressed appropriately.  With careful
consideration of these concerns, this submission aims to explore possible ways in which international
enhancement of competition policy can contribute to the promotion of international trade and
investment, which is one of the primary objectives of the WTO.  The approach taken in the paper isintended to be complementary with other approaches such as voluntary development of national
competition law and bilateral and regional arrangements between competition authorities for
cooperation.WT/WGTCP/W/119
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III. ISSUES FOR CONSIDERATION RELATING TO THE POSSIBLE WTO
FRAMEWORK ON COMPETITION
There seem to be two types of fundamental issues to consider in discussions on the WTO
framework on competition:  (a) the range of countries to participate in the framework;  and (b) the
scope of the framework.  The latter point might also be divided into issues on basic principles and onspecific provisions.
A. W
HO SHOULD PARTICIPATE ?
In general, it would be easier to eliminate an ti-competitive practices with international effect
and to facilitate economic development and trade flows based on efficient competition if a greater
number of countries participate in the internati onal framework on competition.  Therefore, the WTO
framework on competition needs to be joined by all Member countries.
On the other hand, the disparity in the scope and level of competition laws might reduce room
for consensus on high level disciplines and hinder the effectiveness of the multilateral framework.
Moreover, it does not seem appropriate to call for countries to establish an ambitious set of disciplines
at time of entry, because such a request would ov erburden those that have no competition law.  Some
consideration should be made in making the framework, including transitional measures in favour of
developing countries.
B. WHAT DISCIPLINES SHOULD BE INCLUDED ?
The WTO framework on competition should not address anti-competitive practices that have
domestic influence only, but rather those that affect external trade and competition, bearing in mind
that the existing WTO rules stipulate Members' rights and obligations relating to issues with cross-
border effects.  Each principle and provision should be developed in this context.
1. Basic Principles
Consideration should be given to setting out certain basic principles that all rules of the
framework should meet, including a "most-favoured-nation treatment", "national treatment",
"transparency" and "competition-oriented principle".
The principles of "national treatment", "most-favoured-nation" and "transparency" are the
basic principles of WTO rules and necessary to be ensured as basic principles within the framework
under the WTO.  For example, it is important to consider the application of competition laws in a non-discriminatory way and the publication of the establishment or revision of competition laws and
relevant guidelines before entry into force.
A "competition-oriented principle" is a fundamental concept of competition law.  It is based
on the idea of NOT obstructing the market mechanis m.  It implies prohibiting those anti-competitive
practices that distort the market mechanism (e.g. cartels, boycotts) and systems that relate to
competition law and that restrict the sectors or areas where the market mechanism is allowed to work
(e.g. exemption systems).
2. Specific Provisions
For the effectiveness of the framework, it is important to enhance mutual understanding not
only on the basic principles above but also on specific provisions.  Such provisions could cover
substance, enforcement procedure, cooperation and dispute settlement, although the explanation
below is not necessarily intended to be exhaustive in nature.WT/WGTCP/W/119
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(a) Substantive provisions
When discussing substantive provisions, as stated above, it is appropriate to deal with
practices that affect external trade and competition.  Examples of substantive provisions to be
discussed are those that prohibit the following practices in case it is clear such practices have tradedistortive effects:
(i) hard core cartels (i.e. price fixing, bid rigging, output restriction or allocation
and market division);
(ii) horizontal concerted boycotts (both directly and indirectly);
(iii) import cartels.
In fact those collective practices are recognized as per se  illegal or the like by almost all
competition agencies.
As regards export cartels, there has been little incentive, and often unclear legal basis under
domestic competition law, for the responsible competition authority to address such practices.  This is
because export cartels generally have little adverse effects on the market of the exporting country.However, export cartels may directly distort international trade and other markets, and are often
difficult to detect on the side of the importing country.  Therefore, possible approaches to export
cartels should be examined internationally.
Private monopolization or the abuse of dominant position might also be profitably discussed
because some of them may have trade-distortive effects.
As regards international mergers and acquisitions, it seems difficult at this point to establish
in the framework provisions about when they should be prohibited.  However, it seems worthwhile to
examine possible common procedures for the review and evaluation of such activities by nationalauthorities, such as filing format, organization to receive the file, its deadline and so forth.
In addition, ways to minimize exceptions to and exemptions from competition law should be
discussed among Member countries in order to ensure effective enforcement in each country in
accordance with the above provisions.
(b) Enforcement procedure
In order to ensure the effectiveness of the framework, it is important that Member countries
have effective and proper stipulations on the enforcement procedures under their competition law.
Such stipulations may include investigation methods, the opportunity to express views by the
respondent, protection of confidential information and remedial measures.
(c) Cooperation
Provisions relating to international cooperation might include:  (i) notification to the WTO
Secretariat of domestic competition legislation and regulations that restrain free market-entry in case
of their modification;  and (ii) information exchange and consultation that can be requested by
Member countries concerned on a specific case or system.  Consideration would also be made toincluding provisions intended to avoid conflicts caused by external application of domestic
competition legislation.WT/WGTCP/W/119
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(d) Dispute settlement
Dispute settlement procedures might be applied to the following types of violations by the
Member governments: (i) failure to adopt domes tic legislation in conformity with obligations
stipulated in the framework;  (ii) measures that  directly violate the framework (e.g. expansion of
exemption systems);  and (iii) inappropriate actions or tolerances against specific cases.
Among the three, it is important to deal with specific cases in the dispute settlement so that
Member countries can enjoy as much as possible the economic and trade interests brought by efficient
competition.  On the other hand, however, disputes on specific cases would entail huge difficulties in
finding facts and in evaluating violations agains t the framework.  Disputes on specific cases are also
closely related to the issues of national sovereignty and the discretion of competition agencies.
Furthermore, confidential information of firms need s to be treated in a careful manner.  Accordingly,
due consideration should be given to those concerns in discussions on the application of dispute
settlement to specific cases.
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