RESTRICTEDWORLD TRADE
ORGANIZATIONWT/WGTCP/W/74
7 April 1998
(98-1416)
Working Group on the Interaction
between Trade and Competition PolicyOriginal:  Spanish
COMMUNICATION FROM PERU
The following communication, dated 11 March 1998, has been received from the Permanent
Mission of Peru with the request that it be circulated to Members.
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PRICE DISCRIMINATION, MULTILATERAL TRADE RULES
AND COMPETITION POLICIES
As was mentioned in the document entitled "The New Competition and Trade Framework in
Peru", submitted by Peru at the first meeting of the Group, there are major discrepancies in the way in
which certain anti-competitive practices are regulated in the international trade context and at the
level of the national economies.  Practices such as collusion between two or more firms based in
different countries are not regulated by the multilateral trade rules (MTRs), while competition policies(CPs) at national level tend to apply sufficiently clear criteria for the penalization or deterrence of
such practices.  Moreover, although such practices as price discrimination are indeed regulated by
both MTRs and CPs, significantly different criteria are used to evaluate them, as will be seen below.
The existing dissymmetries in the regulation of anti-competitive practices in the international
trade and national economy contexts cause the activities of firms and agents of production to besubject to different regulatory frameworks depending on whether they involve transactions with
foreign or domestic companies.  An illustrative example is provided by discriminatory practices
which, in the international trade context, are regulated at multilateral level by Article VI of the
GATT
1, relating to anti-dumping measures and countervailing duties, while at national level they are
regulated by CPs.
Set out below is a brief description of some of the main discrepancies between MTRs and
CPs in the evaluation of discriminatory practices.
I. MAIN DISCREPANCIES
1. Conception of discriminatory practices
Both MTRs and national anti-dumping laws tend to emphasize the effects of price
discrimination in the international trade context on competition in the country importing a specific
product.  In particular, the regulations in question are geared to preventing pricing policies from beingused as mechanisms to displace rival firms in inte rnational markets.  In contrast, CPs are used to
                                                     
1 GATT 1994.WT/WGTCP/W/74
Page 2
penalize or deter the establishment of different marketing conditions for equivalent services supplied
to different customers for a good or service, prov ided that the latter compete among themselves and
that such competition is affected.  In such cases,  the aim of competition policies is to ensure that
discriminatory practices do not affect the conditions of competition in markets where the economic
agents or enterprises involved are those subject to discrimination.
Thus, while anti-dumping regulation is designed to prevent discriminatory pricing policies
from being set up as unfair competition practices in the market for which exports are intended, the
purpose of CPs is to prevent price discrimination from affecting competition in the market where the
customers for goods or services compete.  While in the first case discrimination "on behalf" of the
customer and "against" competitors in the same market is penalized, the reverse occurs in the second
case.
2. Product delimitation versus tariff heading
A basic analytical concept used in the methodology of competition policy is that of the
relevant market.  One important aspect of the definition of the relevant market is product delimitation,
which is usually established on the basis of the degree of product substitution in relation to other
products which could satisfy the same requirements directly or indirectly.  On the other hand, the
evaluation carried out under the multilateral trade rules is based on the construction of the normal
value corresponding to a product to which a specific tariff heading is assigned.  The tariffnomenclature constitutes a code and classification of the products (commodities) which may be the
subject of trade between countries, and it is designed inter alia  to facilitate identification of such
products for customs regulation purposes.  Accordingly, this methodology does not rely on an
analysis of conditions in the market for the product.  Products covered by different tariff headings
could, therefore, pertain to the same relevant mark et, and conversely, products pertaining to different
relevant markets could be included under the same tariff heading.
3. Geographical configuration versus country
Another important concept used for the definition of the relevant market is that of the
geographical configuration of the market.  The geographical configuration of a market is determined
by the total volume of consumption and production by firms in a specific geographical area.  Theconfiguration is mainly a function of transport costs between different geographical areas, but it may
also be influenced by legal barriers such as tariffs and paratariff measures, among others.  The main
effect of natural or legal barriers is to make arbitration between consumers in geographically different
markets impossible or extremely expensive.
Multilateral trade rules regulate price discrimination as it pertains to firms whose output is
directed to two or more countries, without anal ysing the geographical configuration of the market.
Inclusion of the latter concept, together with the one mentioned in the previous section, would make it
possible to ascertain whether the firm responsible for discriminatory practices has a dominant position
in the markets where it operates.  On the other hand, in the case of an export product, if the
geographical configuration of the market is national, while the relevant market of the countries of
destination is international (or involves the territory of more than one country), the application of the
MTR methodology might have undesirable affects on competition in the countries concerned.
4. Corrective measures envisaged by MTRs and CPs
Article VI of the GATT provides that "... in or der to offset or prevent dumping, a contracting
party may levy on any dumped product an anti-dumpi ng duty not greater in amount than the margin of
dumping in respect of such product ...".  Accordingly, the establishment of an anti-dumping duty is
intended, in cases where the existence of a discriminatory practice on the part of the exportingWT/WGTCP/W/74
Page 3
company is detected, to compensate domestic competitors partially or fully for losses arising
exclusively from such practices, or to prevent such losses.  It should be emphasized that the
imposition of an anti-dumping duty requires not only that the existence of a discriminatory practice
should be proved, but also that such practice "... causes or threatens material injury to an established
industry ...".2
As regards CPs, the penalties envisaged in cases where the existence of a discriminatory
practice is proven normally depend on the characteristics of the market and may include the
imposition of fines and cessation of the practice.  In many countries such penalties are supplemented
by policies geared to the prevention of practices involving abuse of dominant position, such as the
control of mergers and other forms of economic concentration.
5. Efficiency analysis
As was mentioned above, in the case of MTRs, detection of discriminatory practices may
warrant the imposition of an anti-dumping duty, prov ided that injury to domestic production is caused
or threatened.  The injury to domestic production is a function of the volume of dumped imports, their
effects on prices of like products in the domestic market and their impact on the output and profit
margins of domestic companies.
As far as CPs are concerned, discriminatory practices are usually evaluated on the basis of the
so-called "rule of reason".  Under this rule, it is not sufficient to find evidence of discriminatorypractices in the market-place;  it must also be shown that such practices have given rise to a loss of
market efficiency.  This analysis - as was mentioned in the first section - differs from the one applied
for anti-dumping purposes, since its focuses not so much on how pricing policy affects competitors in
the same market, as on competition in the market between the business customers for the product.
From the CP standpoint, therefore, a discriminatory practice may be considered to be justified (interms of greater efficiency in product provision or catering for relatively small markets), even where
this implies injury to competitors in the market for the product.
The harmonization of MTRs and domestic CPs in the regulation of discriminatory practices
will be possible only through approaches that serve to reconcile the methodologies used in the MTRs
for calculating the dumping margin and concepts such as relevant market and dominant positionapplied in the CPs.  On the other hand, with a view to reconciling the structure of incentives offered
under both the CP and the MTR regulatory framework, consideration should be given to a penalty
system which helps to minimize distortions arisin g from existing discrepancies between the two sets
of regulations.  Finally, a regulatory framework designed to unify criteria applied to the treatment of
price discrimination in MTRs and CPs should envisage the establishment of efficient mechanisms ofcoordination between the competition authorities in Member countries, for the purpose of information
exchange and analysis of competition conditions in the different markets.
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2 Article 6, GATT 1994.