WT/WGTCP/W/228
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130. In sum, then, as far as competition in its domestic markets is concerned, Chinese
industrial policies have shifted towards encouraging inter-firm rivalry. This has been
accomplished without compromising another stated government goal; that of building a cadre
of large firms able to withstand competition on world markets (see Box I.B4). Moreover, to
the extent that enhancing competition in the domestic markets is a pre-requisite to performingwell on global markets, Chinese industrial policies towards rivalry in domestic markets could
well have underpinned the exporting prowess of this select group of firms.
Box I.B4: The creation of a "national team" in China
Nolan (2001) is probably the leading recent analysis of the Chinese policies towards
development of internationally-competitive industries or so-called national champions. Nolan
starts his discussion by noting that there has been some debate over the relative contribution
of large and small firms to economic growth since the program of Chinese economic reforms
began in the late 1970s:
"It is widely argued that China's rapid economic development was primarily a result of the
explosive growth of small enterprises, often under de facto private ownership. …This was
referred to as a 'quiet revolution from below'…In fact large enterprises played a key role in
China's economic growth in this period. The Chinese state consciously nurtured a group of
large enterprises that it hoped would be able to challenge the world's leading enterprises on
the 'global level playing field'" (Nolan 2001, page 16).
During the 1990s, Nolan contends, the perceived need to develop a number of large
enterprises as China's means of competing in international markets grew even stronger. Nolan
(2001) describes the creation of these enterprises as follows:
"In the 1990s a 'national team' of 120 large enterprise groups was selected by the State
Council in two batches, in 1991 and 1997 respectively. These enterprises were predominantly
in those sectors considered to be of 'strategic importance', including electricity generation (8),
coal mining (3), automobiles (6), electronics (10), iron and steel (8), machinery (14),
chemicals (7), construction materials (5), transport (5), aerospace (6) and pharmaceuticals (5)"
(page 18).
A number of policies were used to support the growth of the national team. Most importantly,
these firms sheltered behind high trade barriers. Foreign firms, it is said, were routinely
excluded from access to domestic distribution channels. Chinese officials often chose the
domestic partner with whom a foreign investor could establish a joint venture. As far as
investment and innovation of these selected firms are concerned, Nolan (2001) notes:
"Members of the national team typically were given enhanced rights at a relatively early stage
in the economic reforms to manage the key aspects of their business, including such
fundamental issues as profit retention, investment decisions and rights to engage in
international trade. They were permitted to establish their own internal finance companies.
They were given the right to manage other state-owned firms within the enterprise group.
Many state-run R&D centres were simply transferred to members of the national team, in
order to enhance their ability to sustain technical progress" (page 19).
As well as a variety of special rights, the national team received large-scale financial support
from the four large state banks, supporting the progress of industrial concentration.WT/WGTCP/W/228
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Encouraged by the State Council, the state banks provided favoured access to large-scale
loans.
As a result, by the late 1990s, Nolan (2001) contends that:
"the 120 enterprise groups chosen by the State Council were invariably leaders in their
industries. The six trial groups in electricity generation and supply, for example, produced
over half of China's electricity. The eight metallurgy groups produced 40 per cent of the
nation's iron and steel and the six approved vehicle makers manufactured 57 per cent of
China's vehicle output. The three civilian airlines controlled over 55 per cent of the domestic
market. The groups were based upon large-scale enterprises which were the 'core members of
the group' with the 'capability to act as investment centres'… In 1997 the 120 groups
accounted for one third of total output value of the whole state-owned sector, they accounted
for over 50 per cent of total profits, paid 25 per cent of taxes and made over 25 per cent of all
sales. Of the 120 groups less than ten were loss-makers at the end of 1995" (page 20).
5. Summary
131. The purpose of this section of the paper (section D) was to assess the role that inter-
firm rivalry and measures to promote or to retard such rivalry have played in the development
of four East Asian economies. The goal was not to present a more general account of theeffects of industrial policies in East Asia, an objective that would have gone well beyond the
remit of this study. Nor was the goal to summarize the current development policies or
priorities of the economies concerned. Even with this study's narrower focus, a number of
findings have emerged from this foregoing discussion of the extant literature.
132. First, in China and Japan, the state occasionally took measures to constrain
competition; and in both cases, scholars have in recent years presented evidence that
questions the effectiveness of such measures. Second, the Korean experience was instructive
in highlighting that the effective enforcement of competition law is needed to counter the
adverse domestic consequences of policies to create national champions. Third, the special
problems faced by transition economies was highlighted in the account of China's reformssince the late 1970s. Concerns about employment loss and social dislocation have, it is
argued, led to some measures to constrain competition. Yet, the frequency with which such
measures are employed seems to have been declining.
133. Overall, any claim that measures constrai ning rivalry were a central component of
development policies, and certainly the view that such measures were effective, isincreasingly at odds with the conclusions of more recent empirical research into East Asian
development. Recent research on the effectiveness of cartelization in Japan seriously calls
into question whether the success of Japan's internationally competitive industries depended
on state-sponsored or state-tolerated price-fixing and similar practices. Korean and Chinese
experience seems to suggest that policies to create large national firms ought to be
complemented by measures to ensure continued rivalry in domestic markets. In sum, this
recent literature adds further credibility to the view that the active and appropriateenforcement of competition law in these four East Asian economies would have reinforced
rather than compromised their national development strategies.
134. In any case, it is apparent that, regardless of scholarly opinion on the merits or
demerits of possible rationales for industrial policy intervention and related empirical
experience, for a variety of reasons governments may—from time to time—wish to limit or atleast not to give priority to promoting competiti on in particular markets or sectors.  Reflecting
this, and as required by the terms of reference for the study, the next section of the study
discusses various ways in which potential tensions between competition policy and industrialWT/WGTCP/W/228
Page 43
policy objectives have traditionally been managed in jurisdictions having active competition
polices.
E. MEANS BY WHICH POTENTIAL TENSIONS BETWEEN COMPETITION POLICY AND
INDUSTRIAL POLICY OBJECTIVES HAVE TRADITIONALLY BEEN MANAGED
135. The foregoing discussions of possible trade-offs and complementarities between
competition policy and industrial policy, that are identified in economic and developmental
literature as well as of historical experience in select Asian economies, have suggested that, in
a wide range of circumstances, competition law and policy are likely to further dynamic
efficiency or other economic goals. Notwithstanding this, it is clear that tensions with
industrial policy objectives can still arise in particular circumstances and, in any case, that for
a variety of economic, political, and social reasons, governments will sometimes wish to
shield particular activities or sectors from the application of competition law or to pursuegoals or initiatives that may be in conflict with the objectives of such a law.  Consequently,
this section of the study discusses various means by which potential tensions between
competition law and industrial or other policy objectives have traditionally been managed in
economies having active competition regimes, including industrialized and developing
economies.  Five such means are identified, although there may be more.  The analysis builds
on discussions that have taken place in the WTO Working Group as well as other public
sources.
136. First  and foremost, it should be emphasized that measures taken by governments in
their capacities as sovereign states, even where they tend to restrict competition in markets,
are not actionable under the competition laws of  most countries having such legislation on
the statute books .  For this reason, most of the traditional instruments of industrial policy such
as tariffs, subsidies, training programs, public ownership and concessionary financing for
exports are most unlikely to be challengeable under competition law.  Even regulations or
policy directives that deliberately restrict entry to markets or otherwise limit competition
(e.g., state-mandated mergers) are unlikely to raise issues under competition law, so long asthey are implemented pursuant to valid governmental authority and otherwise meet tests or
requirements that may apply under national laws (WTO 1997; see Holmes 1993 for a
discussion of relevant US doctrines).
137. A second way  in which potential tensions between competition law and the
attainment of developmental objectives is managed in many countries is through the explicit
incorporation of these goals in national competition laws.  For example, as has already been
pointed out, the Competition Act of 1998 in South Africa includes a multiplicity of objectives(see pages 12 and 13 above).
138. Opinion is divided as to the merits of introducing wider social goals into competition
law, and there appears to be a general trend toward focusing on economic efficiency or on
consumer welfare as the principal goals of competition policy. The following quotation from
a recent submission to the Third OECD Global Forum on Competition by the Republic ofIreland is representative of this point of view:
"Policy makers may seek to use competition policy to further other (broader)
policy objectives such as industrial policy, regional development or the "the public
interest," as for example in a public interest test for mergers. There are two
reasons why it is best not to use competition policy as a wider policy instrument.First, broadly specified policy objectives can be ambiguous and as such are subject
to "capture" or "hijack" by the politically strongest private interests, usually those
of producers or workers. Thus de jure  public interest objectives may de facto  serveWT/WGTCP/W/228
Page 44
private interests. Secondly, non-competition policy mechanisms are generally
superior for achieving non-competition policy objectives. To elaborate, restricting
competition in an attempt to achieve a broader policy objective will have
inevitable anti-competition side effects…" (Ireland 2003b, page 3).
139. Nonetheless, it is beyond dispute that, historically, other goals have frequently been
referred to and served to guide the applicati on of national competition laws, in industrialized
as well as developing countries.
140. A third  point to be made is that, even where developmental or similar goals are not
explicitly written into competition laws, responsible officials can and increasingly do take
into account dynamic as well as static efficiency considerations in the application of relevant
laws.  Indeed, it is important for the purposes of this study to highlight the fact that, in agrowing number of jurisdictions, the actual application of competition law in particular cases
has been deliberately adapted to facilitate dynamic efficiency gains.  This shift towards
greater openness to dynamic efficiency considerations has, in most cases, not required
overhauls of competition legislation; rather, it has been achieved through the progressive
adaptation of guidelines and the techniques used in case analysis.  This trend has been evidentsince at least the mid-1990s and, in some cases, before then (WTO 1997; see Anderson and
Khosla 1995 for a survey of developments in various WTO Member countries).
141. As one illustration of efforts to adapt the application of national competition laws to
facilitate and promote the achievement of efficiency gains, in the United States, successive
versions of the antitrust agencies' "merger guidelines" over the past two decades have placedprogressively greater emphasis on these matters (see US Department of Justice and Federal
Trade Commission 1997).  As already noted, the concept of "innovation markets" was
developed for the specific purpose of ensuring that competition law enforcement in the US is
well-adapted to promote rather than impede the realization of dynamic efficiency gains.  This
concept recognizes that:  (i) competition is a key underpinning of innovation; and (ii)anti-competitive mergers or other inter-firm arrangements can undermine the incentives for
innovation in particular cases (Gilbert and Sunshine 1995).  Such concerns have been the
basis for a number of decisions by the US competition agencies to block mergers in a number
of cases (Gilbert and Tom 2001).
142. The growing propensity to enforce competition law with considerations of innovation
and dynamic efficiency in mind is highlighted in a recent analysis of the evolution of US
antitrust policy in the 1990s by Litan and Shapiro (2001).  These authors point out that:
"…the 1990s covered a period during which new technologies had a marked impact
on a range of markets, with the Internet and information technology leading the way.
Increasingly, the fruits of competition are seen in the form of new technologies which
lead to new and improved products. At the same time, intellectual property rights, in
the form of patents, copyrights, and trade secrets, increasingly have become a keysource of competition advantage for firms controlling such rights. How natural, then,
that antitrust authorities have paid more attention to "innovation competition" and
intellectual property rights" (page 3).
143. Similarly, after carefully reviewing the enforcement records of US agencies since
1990, Gilbert and Tom (2001) conclude that:
"innovation is not quite "King" in antitrust authorities, although its role has become
increasingly important and has been decisive in several merger and non-mergerWT/WGTCP/W/228
Page 45
enforcement actions that have potentially very significant impacts for consumer
welfare" (page 3).
144. It is noteworthy that this shift towards the more long-term consequences of firm
practices was effected without any change in US antitrust statutes.  Rather, it was achievedthrough the progressive adaptation of guidelines and techniques employed in case analysis.
145. One area in which the application of competition law in some countries has had a
particularly clear focus on facilitating the realization of dynamic efficiency gains involves the
application of such law to the exercise of intellectual property rights (see, generally, Anderson
and Gallini 1998, Muris 2001 and American Bar Association 2002.  Indeed, it is worth
emphasizing that, in many countries, competition law has long been recognized as helping to
balance and prevent potential abuses associated with the exercise of intellectual propertyrights.  The WTO Working Group has had a wide-ranging discussion of these issues (see
Anderson 2002).  Consistent with recent learning in this field, in the Working Group, the view
has been expressed that, in many cases, the exercise of intellectual property rights (IPRs) is
consistent with the goals and objectives of competition policy, in that IPRs promote
innovation annd thereby contribute to enhanced competition and dynamic efficiency.Nevertheless, the maintenance of a proper balance between the incentives for innovation and
access to new technology depends critically on competition law being appropriately applied to
the exercise of intellectual rights.  As stated in the Working Group's Annual Report for 1998,
"A proper application of competition law should avoid two extremes:  too
stringent an application could lessen innovation; an ineffective or insufficientapplication could result in an over-extended grant of market power.  Both
outcomes would have an adverse effect on output as well as an inhibiting effect on
trade."
27
146. It is worth noting, in this connection, that Guidelines issued by both the US and
Canadian competition authorities in the 1990s give specific guidance on the application of
competition law vis-à-vis intellectual property rights.28
147. A fourth  way in which potential tensions between competition law or policy and the
attainment of industrial policy objectives can be managed, that has been employed in virtually
all jurisdictions having national competition laws, is to allow for exemptions, exceptions, and
exclusions from competition law.29 Almost all jurisdictions with competition statutes have
some exemptions and exclusions. An analysis of relevant exceptions, exemptions andexclusions prepared by the Secretariat for the Working Group in 2001 makes the following
observations relevant to this issue:
"On the basis of written and oral contributions that have been made by Members
to the Working Group, it is clear that the terms "exception", "exemption" and
"exclusion" can have specific meanings in the context of particular national legal
                                                     
27 WTO (1998b), paragraph 117.
28 US Department of Justice and Federal Trade Commission (1995) and Canada Competition
Bureau (2000).
29 One important trade-related exception to national cartel laws relates to so-called export
cartels. Scherer (1994 page 45) describes these cartels as follows:
"…export cartels (often called export associations) might be formed to save selling, financing,
and customs paperwork costs by letting a common sales organization handle the transactionsof multiple domestic producers, including firms too small to mount their own exportcampaigns. In this case, both buyers and sellers may gain."WT/WGTCP/W/228
Page 46
systems.  Nevertheless, at a general level, the terms have been used somewhat
interchangeably by Members to refer, variously, to sectors and/or areas of activity
and/or categories of conduct that either are excluded altogether from the
application of national competition law or are subject to differential treatment
under such laws.  The term "authorization" has also been used to refer to instanceswhen conduct that would otherwise be prohibited by the domestic competition law
is permitted."
"The breadth of exceptions, exemptions and exclusions varies significantly across
countries.  To some extent, this appears merely to reflect the fact that some
countries rely less on express legislative provisions and more on the enforcement
process in determining whether a particular activity or instance of conduct should
not be covered by the domestic competition law or should be subject to specialtreatment under the law."
"Other differences in national approaches should also be noted.  In some cases, the
criteria used to determine whether an exception, exemption or exclusion are broad
and general, whereas in other cases, the criteria are extremely detailed.  In some
jurisdictions, the question of whether an exception, exemption or exclusion appliesdepends on the outcome of a potentially extensive case-by-case or "rule of reason"
analysis. In others, guidelines, regulations or block exemptions are used to give
guidance in at least a portion of the cases."
"In categorising exceptions, exemptions and exclusions under national competition
law, a basic distinction to be drawn is that between, on the one hand, exceptions,exemptions or exclusions of a sectoral nature and, on the other hand, those of a
non-sectoral nature.  Sectoral exceptions, exemptions and exclusions often reflect
historical decisions, based on political and economic rationales that may be
specific to the country in question.  Sectors may be entirely or partially excluded.
A related distinction is that between, on the one hand, explicit exceptions,exemptions and exclusions and, on the other hand, implicit ones.  The former are
typically contained in legislation or regulations whereas the latter arise when the
application of competition law is displaced by industry-specific regulatory regimes
or other manifestations of state ownership or direction.  Sometimes, the relevant
industry-specific regulation expressly states that the competition law does not
apply.  In other cases, legal principles or doctrines exist that provide that laws of
general application, such as the domestic competition law, must defer to morespecific legislation."
"Regarding non-sectoral exceptions, exemptions and exclusions, these often relate
to specific business arrangements or practices that, although prima facie  anti-
competitive or potentially so, are deemed in particular circumstances to enhance
efficiency and/or strengthen competition.  Such arrangements or practices may,alternatively, be considered to have ambiguous effects with respect to competition
and, therefore, be subjected to a case-by-case analysis to determine whether or not
they are prohibited.  Exceptions, exemptions or exclusions may also exist in
relation to state-owned enterprises or government-encouraged or sanctioned
business practices."
"Finally, some regimes provide that the prohibitions contained in the domestic
competition law do not apply if the conduct or activity in question does not have
an "appreciable" effect on competition.  These are sometimes referred to as "de
minimis" exceptions.
30
                                                     
30 Exceptions, exemptions and exclusions contained in Members' National Competition
Legislation (WT/WGTCP/W/172, 6 July 2001).WT/WGTCP/W/228
Page 47
148. The rationale for exemptions from national competition laws has been clearly
articulated by the Chairman of the Australian Competition and Consumer Commission:
"A competition regime needs to operate in conjunction with other government
policies. Inevitably, conflict between policies will arise and it will therefore benecessary to determine priorities based on an assessment of national interests. For this
reason, a mechanism is needed to provide for exceptions from the general application
of a competition regime" (Fels 2001, pages 3 and 4).
149. The competition law of the European Community contains several exceptions and
exemptions and is a case in point.
31 In a speech in 199532 on the coverage of and exemptions
from European Community competition rules, a senior official from the EuropeanCommission made the following statements:
"The only sectoral exception forseen in the EC treaty concerns agricultural products.
The competition rules apply to this sector only to the extent that the Council specifies
it by a particular regulation" (Schaub 1995, page 4).
And,
"In the context of defense [national security] states may also claim an exception from
the rules of competition, but this happens very rarely and is subject to scrutiny by the
Commission" (Schaub 1995, page 5).
So far as general exceptions are concerned, Schaub stated:
"The EC Treaty specifies one or more general exception to the principle of universal
applicability of the competition rules to all undertakings. Article 90(2) lays down that
(public or private) undertakings which are entrusted with the operation of services of
general interest are subject to the rules of competition in so far as the application ofsuch rules does not obstruct, in law or in fact, the particular tasks assigned to them"
(page 4).
150. Moreover, the European Commission has the power to grant exceptions to the
prohibition against cartels. Schaub (1995) states:
"The Commission can grant individual exemptions under the four conditions laid
down in Article 85(3) of the EC Treaty. The agreement in question:
1. must contribute to improving the production or distribution of goods or to
promoting technical or economic progress
2. must allow consumers a fair share of the resulting benefits
                                                     
31 OECD (1995) contains a description of some of the exemptions and exclusions found in
other jurisdiction's competition laws.
32 This speech was not chosen because it represents a statement about the current state of
European Community competition law. Rather, it was chosen because it highlights the different typesof exceptions and exclusions that can (and, at one point in time, certainly did) exist in a majorjurisdiction.WT/WGTCP/W/228
Page 48
3. may not impose on the undertakings concerned restrictions which are not
indispensable to the attainment of these objectives, and
4. may not afford such undertakings the possibility of eliminating
competition in respect of a substantial part of the products in question"(page 4).
151. This last statement is important as it shows that jurisdictions need not specify all of
the exceptions at the time of enactment of the competition law. Procedures can be established
to grant and revoke exemptions, exceptions, and exclusions from national competition law.
This creates considerable flexibility for national governments and enforcement officials;
flexibility that, it must be admitted, can be used or abused.
152. The fifth option would be to allow a governmental body to overrule a decision made
by the competition enforcement agency on the grounds that national development priorities
would be compromised. The former governmental body could be the national cabinet, the
head of government, or a minister. Although some nations' competition laws, for example
Germany's, provide for such overrides in certain well-defined circumstances, the clear trend istoward eliminating such overrides and strengthening the independence of the agencies that
enforce competition law (WTO 1997; see also Anderson and Khosla 1995).
F. 
IMPLICATIONS OF POSSIBLE PROVISIONS OF A MULTILATERAL FRAMEWORK ON
COMPETITION POLICY FOR INDUSTRIAL /ECONOMIC POLICY OPTIONS
153. This section of the study reflects on the potential implications of possible provisions
of a multilateral framework on competition policy for the attainment of efficiency gains and
other industrial policy objectives.  As one means of shedding light on this issue, attention is
given to the question of whether current proposals for a multilateral framework on
competition policy would have the effect of limiting access to the five traditional means for
managing potential tensions between competition law and industrial policy objectives thatwere discussed in the preceding section.
154. As a preliminary comment, it is recogniz ed that no agreement has, as yet, been
reached in the Working Group on the elements of a multilateral framework on competition
policy, in the event that such a framework should be developed.  Consequently, in order to
assess whether a multilateral framework might limit the ability of countries to achieve
dynamic efficiencies or other industrial policy goals, it is necessary to make certain
assumptions about the possible contents of such a framework.  For purposes of thisassessment, the author has relied on the various elements that are set out in paragraph 25 of
the Doha Ministerial Declaration and on related proposals by the proponents of a multilateral
framework and clarifications that have been offered in the Working Group, as well as existing
summaries of those proposals.
33  These sources indicate that the proposals for a multilateral
framework on competition policy contain the following main elements:
− A commitment by WTO Members to a set of core principles relating to the
application of competition law and policy.  The latter would include, at a minimum,principles relating to transparency, non-discrimination, and procedural fairness in the
application of such law and/or policy.
− A parallel commitment to the taking of measures against hardcore cartels.
                                                     
33 See, e.g., Anderson and Jenny (2001), Anderson and Holmes (2002), page 35 and Anderson
(2003).WT/WGTCP/W/228
Page 49
− The development of modalities for cooperation between Member states on
competition policy issues. The proposed modalities could encompass cooperation onnational legislation, the exchange of national experience by competition authorities
and aspects of enforcement.  The submissions of most Members on this point (in
addition to the wording of paragraph 25 of the Doha Ministerial Declaration) suggest
that the proposed modalities would be voluntary in nature.
34
− A commitment to ongoing support for the introduction/strengthening of competition
institutions in developing countries through enhanced technical assistance and
capacity building, in the framework of the WTO but in cooperation with other
interested organizations and national governments.
It is worth emphasizing that, according to th e proponents of a multilateral framework, the
foregoing elements are not aimed at the international "harmonization" of competition law, in
the sense of seeking to ensure uniform approaches to competition law and policy at the
national level.35
155. It is recognized that, to the extent that the eventual contents of any framework differ
from the foregoing elements, the conclusions be low with respect to the implications for
industrial and economic policy options might have to qualified or revised.
156. With the above as a point of departure, and focusing on whether a framework would
affect the availability of the various tools for managing any potential tensions between
competition and industrial policy goals that are noted above, the following questions seem
relevant.
157. First, it is important to ask whether a multilateral framework on competition policy
would be directed at government measures th at restrain competition. Or would such a
framework focus on anti-competitive acts of enterprises and their treatment under national
competition laws?  In this regard, relevant proposals of Members make it clear that the focus
is on private anti-competitive practices, with particular reference to hardcore cartels.  Withregard to the second question noted, the contribution of the European Community and its
member States (EC) on core principles focuses on the implications of potential provisions for
competition law and not for industrial policy more generally. In the case of the proposed
provision on non-discrimination, the EC states that:
"In other words, what would be at issue would be the treatment accorded to firms
pursuant to the terms of domestic competition laws  as such, and not the treatment
accorded to firms under a range of other policies" (EC 2002, page 4).
158. Moreover, in the specific context of national treatment, the EC has stated that:
"We are not proposing that a competition agreement should seek to introduce an
absolute standard of national treatment to be applied to any form  of government law
or regulation" (EC 2002, page 4).
159. This matter could be further clarified for the potential provisions on procedural
fairness and transparency. If the latter provisions are intended to have the same scope as those
for non-discrimination, it would appear then that most—if not all—kinds of  industrial policy
                                                     
34 At least one delegation, Thailand, has questioned whether the possible modalities for
cooperation should indeed be voluntary in nature.  See Thailand (2002a) and paragraphs 246-248below.
35 WTO 2002e, paragraph 14.WT/WGTCP/W/228
Page 50
instruments (i.e., those consisting of govern ment measures that are outside the scope of
competition law) would be unconstrained by a multilateral framework on competition.
160. Further to this point, the observation has been made in the Working Group that inter-
governmental or state-to-state arrangements would not be covered by a WTO agreement on
competition policy, which would be aimed at anti-competitive practices of enterprises.  Theobservation appears to have been intended to confirm that arrangements such as OPEC
36
would not be affected by a multilateral framework.  In support of this interpretation, the pointhas also been noted in the Working Group that, in the UN Set of Multilaterally Agreed
Equitable Principles and Rules, there is a specific provision (Paragraph B.9) which makes it
clear that the Set does not apply to intergovernmental agreements nor to restrictive business
practices directly resulting from such agreements.
37
161. With regard to the second tool for managing potential tensions noted above, namely
Members' ability to define the objectives of their national competition laws, no proposal has
been put forward to constrain the objectives th at would be incorporated in relevant national
laws.  The following excerpt from the Annua l Report of the Working Group for 2002 is also
germane to this point:
"the proponents also affirmed their belief that the proposed multilateral framework
could and should preserve adequate "policy space" for developing countries to pursue
economic and social policies they deemed necessary for their own development. It is
perfectly legitimate for a government to decide that there were policy goals which
overrode the need to protect competition" (WTO 2002e, page 15).
162. With regard to the third tool for managing possible tensions between national
competition and industrial policies discussed in the preceding section, namely the ability to
tailor the application of competition law to take into consideration possible implications for
innovation and dynamic efficiency, it is worthwhile  to ask what implications, if any, would a
multilateral framework have for the factors that a nation can take into account when itenforces its competition law? In particular, would such a framework prevent a Member from
taking into account long-term or dynamic factors and evidence when implementing its
competition law?
163. In answer to this question, nothing in the proposals would seem to rule out tailoring
the application of competition law to promote innovation or dynamic efficiency gains.
Indeed, as already noted, the proposals do not seek to limit the criteria to be employed in the
application of national competition law. Moreover, in principle, nothing prevents anypotential provisions on core principles being drafted in such a way that non-economic factors,
short-term factors, and long-term factors are stated as permissible considerations during the
enforcement of competition law.
164. With regard to the fourth tool for managing possible tensions between national
competition policies and industrial policy objectives, namely the ability to implement relevantexceptions, exemptions and exclusions, the following excerpt from the Annual Report of the
Working Group for 2002 is pertinent:
"With regard to the relevance of exceptions and/or exemptions from national
competition laws and/or from a multilateral framework as a tool for managing any
conflicts with national industrial policies, the view was expressed that given thediversity in stages and patterns of economic development among Members, sufficient
                                                     
36 For a description of various aspects of this arrangement see Scherer (1994 pages 47-48).
37 WTO (2001), paragraph 58.WT/WGTCP/W/228
Page 51
flexibility had to be incorporated in any possible framework to make it workable
among all WTO Members.  A multilateral framework on competition had to provide
for the possibility of appropriate exemptions or exclusions in two respects.  First,
many Members – including LDCs and other developing countries, but also some
industrialized countries – wished to provide greater flexibility for small and medium-sized enterprises than for other firms under their competition laws.  The proposed
framework should permit this kind of flexibility.  Second, as mentioned above,
national interests might be safeguarded simply by providing for exclusion of sensitive
economic sectors altogether from the substantive provisions of a multilateral
framework, or from some of the core principles.  Provisions for exemptions and
exceptions would provide greater flexibility for WTO Members to achieve other
national objectives such as industrial and economic development.  Exceptions andexemptions must, however, be subject to appropriate transparency procedures, in
order that firms trading with a Member or investing in a Member's economy would
know where they stood.  The suggestion was also made that the ability to implement
exemptions should not be phased out over time, or be subject to periodic review"
(WTO 2002e, page 15).
165. Moreover, one leading proponent of a mu ltilateral framework has recognized the
importance of this issue and proposed that a flexible approach be taken to this matter.
Specifically, the Delegation of the European Community and its Member States argues:
"The issue of sectoral exclusions and exemptions from the scope and application of
competition law is of great importance from both a competition and a trade
perspective.  At the same time it must be acknowledged that it constitutes a question
of great sensitivity and complexity both among developing countries as well as
several OECD members, including the EC.  Some countries have made the point that,
in order to gather consensus for the introduction of competition legislation, it hasproved necessary to introduce certain sectoral exclusions and exemptions, but that
these have then been limited over time.  When analysing the recent developments, the
trend has clearly been to eliminate such exclusions or to define them in increasingly
narrow terms.  We suggest that a flexible approach would be to focus - at this stage -
on the essential question of transparency and its application to sectoral exclusions and
exemptions, as well as their review over  time.  For instance, the Working Group
could also usefully examine the experience of WTO Members who have phased outexemptions and exclusions (including the reasons for and the timing of such phasing
out), as well as the domestic processes employed to enact such exemptions and
exclusions" (EC 2002b, pages 6 and 7).
166. With regard to the fifth tool for managing possible tensions between national
competition policies and industrial policy objectives, namely the possibility of ministerial
over-rides or similar mechanisms, there is no text in the current proposals that specifically
addresses this matter.  As noted earlier, the Annual Report of the Working Group in 2002
states that some proponents of a multilateral framework have argued that other national
objectives can over-ride the goal of protecting competition.  It might be worth clarifyingwhether the provisions on core principles would apply to both the agency with primary
responsibility for enforcing a nation's competition law and the state body that can over-ride
this agency.
167. The foregoing discussion has highlighted the continued availability, under the
proposals that have been put forward for a multilateral framework on competition policy, ofmeans by which governments traditionally have managed potential tensions between the
application of competition law and the attainment of dynamic efficiency gains or other
developmental goals.  As has been made clear, the current proposals would not impede theWT/WGTCP/W/228
Page 52
realization of dynamic efficiency gains by developing economies and might well contribute to
it - and to the extent that they reinforce and encourage the sound application of competition
law in these countries.  As well, the preceding discussion provides insights into two related
concerns that have been raised in the Working Group on the Interaction between Trade and
Competition Policy:  (i) the ability of governments to implement competition law provisionsdealing with mergers in a way that discriminates against non-domestic firms (or in favour of
domestic firms); and (ii) the ability of firms to implement certain inter-firm agreements that
(in contrast to hardcore cartels) are believed to yield efficiencies or other benefits such as
export enhancement.
168. With regard to the ability of countries to discriminate in favour of mergers involving
domestic firms (or to discriminate against foreign takeovers of domestic firms), without
commenting on the merits or demerits of such a policy, it would seem that  the incorporationan explicitly discriminatory standard directly  intoa national competition law might well raise
concerns in relation to the core principle of national treatment.  However, and depending on
the wording of any eventual agreement, the same  result might be achievable if:  (i) the policy
is implemented pursuant to foreign investment legislation rather than competition legislation;
and/or (ii) the policy is implemented through an exception or over-ride provision written intothe competition law in a manner consistent with the terms of a multilateral framework.  In a
number of cases it appears that Members have implemented or can implement policies having
this effect through government investment policies, which would not normally come under
competition law.
169. With regard to potential efficiencies or other benefits arising from inter-firm
agreements (for example, agreements relating to pro-competitive joint ventures), discussions
in the Working Group have raised the question of whether the ability to realise these could be
circumscribed by a possible multilateral framework, in particular by the proposed provisions
on hardcore cartels (WTO 2002e, page 20).  The answer to this question would depend on the
way in which a provision on hardcore cartels in a multilateral framework is drafted.  In thisregard, the proposals for provisions on hardcore cartels that have so far been submitted have
not specified that Members would be required to adopt a per  se as opposed to a rule of reason
approach in this area.  Furthermore,, the approach taken in the OECD Council
Recommendation Concerning Effective Action against Hard Core Cartels, which has been
referred to extensively as a point of reference in relevant debates in the Working Group,
defines hardcore cartels so as to exclude, for example, agreements that result in the lawful
realization of cost-reducing efficiencies (OECD 1998, also cited in EC 2002a, page 6).  Theability to implement appropriate exceptions, exemptions or exclusions from relevant general
prohibitions in a national competition law, which has been emphasized in the proposals of
Members favouring the development of a multilateral framework, also seems relevant to this
question.  Consequently, it appears that a multilateral framework on competition policy and
particularly the commitments on harcore cartels which have been proposed as a part of such aframework are not intended to and need not affect the ability of countries to permit
agreements that result in genuine efficiency gains or other public benefits.
II. RESOURCE IMPLICATIONS OF ADOPTING A MULTILATERAL
FRAMEWORK ON COMPETITION POLICY
170. In this part of the study the different types, and possible magnitudes, of resource
implications associated with the adoption of  a multilateral framework on competition policy
are discussed. As in Part I, and for the reasons stated therein, it is noted that the current
proposals for such a framework comprise of:
− A commitment by WTO Members to a set of core principles relating to the
application of competition law and policy, including transparency, non-WT/WGTCP/W/228
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discrimination, and procedural fairness in  the application of competition law and/or
policy.
− A parallel commitment to the taking of measures against hardcore cartels.
− The development of modalities for cooperation between Member states on
competition policy issues. These would be of a voluntary nature38, and could
encompass cooperation on national legislation, the exchange of national experience
by competition authorities and aspects of enforcement.
− A commitment to ongoing support for the introduction and strengthening of
competition institutions in developing countries through enhanced technical
assistance and capacity building, in the framework of the WTO but in cooperation
with other interested organizations and national governments.
171. The contributions made by various WTO Members on the potential elements of a
multilateral framework provide useful elaboration on the foregoing points and are listed and
in some cases described in WTO (2002a,b,c,d,e). A list of the contributions by WTO
Members to the Working Group on each of the four items described above can be found in
Appendices II.A-D to this study.
172. Before examining the resource implications of the possible adoption of each of these
provisions, a number of general observations are called for.
173. First, according to the Annual Report of the Working Group in 2002, adherence to
these provisions would not necessarily require the adoption of a comprehensive competition
law; that is, of a law containing provisions on substantive areas of competition law other thanthat of hardcore cartels. In this regard, the Annual Report notes that the proponents of a
multilateral framework on competition have stated that:
"…the suggestion that all WTO Members ought to have a competition law did not
imply that such laws had to cover all types of anti-competitive behaviour;  the only
practice that would have to be addressed in some way was hard core cartels–preferably both domestic and international cartels" (WTO 2002e, page 29).
174. For this reason, the actual outlays of competition enforcement agencies that
implement many different types of competition law will, other things being equal, overstate
the costs of adopting the proposed provisions of a multilateral framework on competitionpolicy. This argument might be borne in mind when interpreting reported levels of
government spending on competition agencies.
175. Second, the proponents of a multilateral framework have stated that adherence to the
proposed provisions would not necessarily require the establishment of a distinct
governmental body to administer the national competition law or laws. The Annual Report of
the Working Group in 2002 states that:
"It was not strictly necessary to have an administrative body called a competition
authority, but only an identified and sufficiently equipped enforcement capacity of
some kind" (WTO 2002e, page 29).
                                                     
38 At least one delegation, Thailand, has questioned whether the possible modalities for
cooperation should indeed be voluntary in nature (Thailand 2002a). The resource implications of thisapproach are discussed later in this section.WT/WGTCP/W/228
Page 54
In addition, the possibility that the requirements of any multilateral framework might be
satisfied through regional as opposed to national laws and bodies has been explicitly referred
to by the proponents in the WTO Working Group.
176. The foregoing observation is significant since a government may well determine that
the enforcement of the nation's competition laws will be undertaken by an existing state
agency that already has some, or even all, of the requisite expertise. For example, a sectoral
regulator with an established record of invest igative powers and capacity to analyze markets
could well take on the responsibility of enforcing competition law. This observation is
potentially important because expanding an existing government agency may be less costly
than establishing a completely new agency. To the extent that an existing agency's staff is
under-utilized and has some of the expertise n eeded to implement competition law, then the
costs of expanding the former will be even lower. Of course, the relevance of this observation
will vary from jurisdiction to jurisdiction.
177. The third general observation is that the proponents of a multilateral framework on
competition policy have made it clear that they are not calling for WTO Members to
implement a uniform or harmonized approach to competition law. One proponent put it thisway:
"…a framework agreement would not require the harmonisation of domestic
competition law" (EC 2002b, page 1).
178. This remark is important especially in the light of the fact that the number of
jurisdictions that have enacted some form of competition law has doubled since 1985 (see
table II.T1). Of particular interest to this discussion is the fact that at least 15 developing
countries were enforcing their cartel laws in the late 1990s.
39 In fact, the resources expended
by latter developing economies probably provide a better guide to other developing
economies of the costs of adhering to a multilateral framework than the budgetary outlaysreported on competition enforcement agencies in industrial jurisdictions, such as the EU and
the US
.40
Table II.T1: Since 1985 the number of juri sdictions with competition laws has
doubled41
Years Number of jurisdictions enacting a competition
law for the first time
1985-1990 8
1991-1995 25
1996-2000 16
Total for 1985-2000 49
Note: Excluding the European Union, 80 jurisdictions were reported to have some form ofcompetition law in 2001.
Source: White & Case (2001)
                                                     
39 A point that is taken up again in part III of this study.
40 It might be noted that one of the factors that determines how relevant are reported budgetary
outlays on competition enforcement in a given developing country to another developing country is theextent to which the former's enforcem ent efforts are appropriately funded.
41 Estimates differ on the number of jurisdictions that have competition laws. Some
contributions to the Working Group note that just under a 100 jurisdictions have some form of
competition law. The White & Case study was reported here because for the last few years this lawfirm has tried to survey this matter on worldwide basis. This is, of course, no guarantee that the surveyhas been executed consistently over time.WT/WGTCP/W/228
Page 55
179. The fourth general observation is that nations differ markedly, not only in terms of
whether they have enacted competition laws, but also in the extent to which they have
enforced such laws. This implies that the res ource implications of adhering to the provisions
of a multilateral framework are likely to be highly nation-specific . In addition to different
experiences with competition law and enforcement, nations at the same level of development
differ in the cost of hiring skilled labour.
180. In the light of the last two observations, it is inappropriate to generalize about the
resource costs of adhering to a multilateral framework on competition. Sweeping statements
about the potential implementation costs faced by classes of economies should be treated with
considerable skepticism.
181. The final general observation is that it is misleading to consider the costs of adhering
to a multilateral framework on competition policy independently of the potential benefits
from doing so. This point is not just that a full evaluation should consider both. Rather, the
costs incurred determine in large part the magnitude of a number of different benefits of a
multilateral framework.
182. For example, after establishing a reputation for taking strong action against cartels,
the annual recurring cost of enforcement may well be lower than enforcing a cartel law with
modest deterrents; if only because the case load in the former situation is likely to be lower.
Moreover, the stronger deterrence will reduce the harm inflicted on customers by the cartels
that still form.42 Ironically, the relatively weaker enforcement regime may end up spending
over the longer term more state resources on cartel investigations, and this is after theirconsumers have been harmed by a greater number of cartels.
183. In other situations, the costs of enforcing certain provisions of a multilateral
framework on competition policy may well be high precisely because the benefits are
considerable.  Given the voluntary nature of almost all mechanisms for cooperation between
competition agencies, enforcement officials will only incur the costs of cooperation if thebenefits from doing so exceed those costs.  This further highlights the dangers of thinking
about the costs of a multilateral framework without considering the associated benefits.
184. In the remainder of this section, the resource implications of adopting different
provisions of a potential multilateral framework on competition are discussed in turn.
A. 
PROPOSALS REGARDING CORE PRINCIPLES
185. This subsection deals, in turn, with the current proposals regarding transparency, non-
discrimination, and procedural fairness.
1. Proposals regarding transparency
186. The Annual Report of the Working Group in 2002 describes the potential elements of
a provision on transparency in following way:
"In the field of competition policy, a transparency commitment would apply to laws,
regulations, and guidelines of general application.  There would be an obligation uponWTO Members to ensure the publication of such laws, regulations and guidelines in a
comprehensive and timely manner.  This might be done either in print in an official
                                                     
42 Some evidence on the deterrent effects of stronger cartel enforcement regimes is presented
in part III of this study.WT/WGTCP/W/228
Page 56
gazette, journal or the like, or possibly on a publicly accessible website" (WTO
2002e, page 6).
187. This document also notes that:
"A further aspect of transparency would be an obligation on WTO Members to notify
their laws, regulations and guidelines as well as sectoral exclusions and exemptions to
the WTO."
188. With respect to the scope and coverage of a provision on transparency, an issue arises
as to whether all competition enforcement decisions that have precedential value would have
to be reported to the WTO. The Annual Report of the Working Group in 2002 states that:
"With regard to the possible criterion of whether an individual decision had
precedential value, at least in common law jurisdictions, this was an extremely broad
class of decisions because all the court and agency decisions – at least the published
ones – could have precedential effect.  Thus, according to this standard, any decision
by the courts of the United States – not only in government-initiated cases but also in
privately-initiated ones - could potentially be caught by a notification requirement.  Arequirement to publish and notify policies and decisions that were not explicitly
meant to be "competition laws", but that nonetheless de facto bore on competition
might also be burdensome" (WTO 2002e, pages 6 and 7).
189. In assessing the resource implications of a provision on transparency, it will be
assumed here that this provision would apply to all of the competition laws that a nation has
enacted. For countries without any competition laws at the moment, assuming the adoption of
a multilateral framework on competition policy results in the enactment of (at least) a law on
hardcore cartels, then the scope of the transparency provision would extend to whatever laws
were subsequently enacted.
190. The additional expenses incurred by a WTO Member from publishing the relevant
laws, regulations, and administrative guidelines, and in making the notifications described in
the first quotation above, would depend on their current practice. In Members where the
publication of laws, regulations, and administrative guidelines is the norm, then the only
transparency-related expense would be that of notification to the WTO. Otherwise, the costs
of publication would have to be added to those of notification to the WTO.
191. It would be a mistake to believe that the only resource implications of a provision on
transparency are on the cost side, especially for those economies where transparency of
government regulations is not the norm. The following five effects of improved transparency
in competition enforcement can be identified:
− Improved transparency can reduce the uncertainty surrounding official decision-
making, so facilitating business planning and voluntary compliance with the law.  In
this way, enhancing transparency may actually reduce the need for costlyenforcement proceedings.
− Improved transparency attenuates poor governance practices, which can act as a drain
on private sector initiative and resources.
− Improved transparency can reduce the likelihood of discrimination against any class
of firms, as official actions and decisions tend to be reported afterwards.
− Improved transparency facilitates procedural fairness.WT/WGTCP/W/228
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− Improved transparency by a competition enforcement agency helps build confidence
with other jurisdictions' competition enforcement agencies, so facilitating voluntary
cooperation.
192. As this list makes clear, improved transparency complements the objectives of the
other potential provisions of a multilateral framework of competition policy.
193. In jurisdictions where the decisions of the competition enforcement agency can be
challenged in court, to the extent that improvements in transparency result in fewer procedural
irregularities that can be subsequently challenged in judicial proceedings, then the resources
saved in contesting such challenges will reduce state outlays. It would be a mistake, therefore,
to focus solely on the additional costs to the government of improving transparency.
194. In a proper assessment of the resource implications of a provision on transparency the
five benefits outlined above would be compared to any additional government outlays.
However, for nations where the publication of laws and alike is the norm the calculus is
narrower with the principal implication for resources would be the cost of notification of
materials to the WTO.
2. Proposals regarding non-discrimination
195. In part I of this study a distinction was drawn between de jure  discrimination in
competition laws and de facto discrimination in the enforcement of those laws (see
paragraph 64.) Moreover, it was noted (in paragraph 158) that the proponents of a multilateral
framework only envisage disciplines on de jure  discrimination and have explicitly ruled out
provisions requiring de facto non-discrimination in the enforcement of competition law. Thisis not to suggest that the latter is not desirabl e, but rather to identify for the purposes of the
present discussion what matters are at stake.
196. Turning to the resource implications of proposals for a ban on de jure  discrimination,
it is unclear that there would be additional resource costs incurred by a WTO Member that has
no discriminatory provisions in its competition statutes.
197. For a WTO Member with discriminatory competition laws, the adoption of current
proposals on non-discrimination would necessitate th e repeal of the relevant sections of those
laws and possibly their replacement with other provisions; all of which may involve some
costs for the Member.  Moreover, to the extent that the changes in their competition laws lead
to changes in the manner in which those laws are enforced, then there may be costs associatedwith this transition.  However, it is quite possible that such a WTO Member may move from
having two distinct procedures for implementing a given competition law (one for domestic
firms and one for cases where foreign firms are involved) to having a single procedure which,
in turn, may be less expensive to implement.  Therefore, generalizations about the resource
costs of eliminating non-discrimination provis ions in competition law—along the lines
contained in current proposals for a multilateral framework on competition policy - seem
unwarranted.
3. Proposals regarding procedural fairness
198. The relevance of procedural fairness and the potential components of a provision on
this subject were described in the Annual Report of the Working Group in 2002 in the
following terms:WT/WGTCP/W/228
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"With regard to the principle of procedural fairness, the view was expressed that a
common feature of all effective competition policy regimes was that they included
guarantees that the rights of parties facing adverse decisions and sanctions would be
recognized and respected.  Such guarantees could vary both in content and in form,
because they reflected the tools of the legal system and the traditions that hadgenerated the competition regime.  Four broad categories of guarantees were relevant.
First, there should be guarantees relating to access to the system.  For example, this
could involve the right of firms to have notice that a formal investigation by the
competition authority was pending against them, and what the authority's objections
to their conduct were.  A second basic guarantee related to the defence of the firms
involved.  Firms should have the opportun ity and the time to make their views known
to the authority in writing or by particip ating in hearings, by submitting evidentiary
proof or documents, and by having an opportunity to introduce testimony from
witnesses who might corroborat e their views on the facts.  These types of guarantees
would typically include some right of access to the authority's file.  A third guarantee
was the right of firms involved in competition proceedings to have decisions affecting
them reviewed by an independent judicial body.  Finally, the protection ofconfidential information, including business secrets, should also be guaranteed.
These basic guarantees did not need to be harmonized across regimes, but should be
described in a future agreement with some clarity.  Another view was that four broad
concepts could be identified that were likely to promote fairness, namely:  (i) the right
of access and rights to petition a competition authority;  (ii) the right of a firm subjectto an investigation to know the basis for an antitrust authority's objection before the
authority took action, and the right of that firm to respond;  (iii) the right to appeal an
agency's decision; and (iv) timeliness" (WTO 2002e, page 11).
199. In assessing the resource implications of a provision on procedural fairness, much
will depend on whether a WTO Member's existing legal system and its competition
enforcement practices meets the standards described above. If they do, then there are unlikely
to be any major resource implications.  The remainder of this section is devoted to
considering the situation where a WTO Member may not have the institutions and practices in
place to currently meet the provisions outlined above.
200. In the case of the guarantees to access to the legal system and rights of defense, there
may be additional resource costs associated with notifying affected parties and in establishingmechanisms to allow those parties to submit information and statements to the enforcement
agency. It would appear, however, that there is no requirement that the enforcement agency
process, read, analyze, or respond to the s ubmission made by firms; which economizes on
employee time and so on resource costs. The most significant implication of providing these
two guarantees is that, in some cases, they may increase the time taken to make anenforcement decision and this may be associated with greater outlays. Arguably, these latter
effects are to be compared to be benefits to enforcement agencies of having submissions from
all of the relevant interested parties.
201. In the case of the right to appeal, it is noteworthy that existing WTO agreements have
taken a practical approach to this matter and have taken into account differences injurisdictions' legal cultures and systems. Proponents of a multilateral framework on
competition policy have argued for a similarly practical approach to this matter in this context
also (WTO 2002e, page 12).
202. Arguably, procedural fairness is one of pre-requisites for a stable and predictable
business environment. For example, it is difficult to see how domestic and foreign firms couldplan with any degree of confidence and security if they suspected that confidentialWT/WGTCP/W/228
Page 59
information collected during an enforcement action would not be protected. Without
procedural fairness, investment would suffer and planning horizons would inevitably shorten.
203. To summarize, ensuring procedural fairness is common in many jurisdictions. It is
quite likely that most nations' current legal systems, at least on paper, meet the requirements
of a provision on procedural fairness in a multilateral framework on competition policy. Forother nations, there are compelling arguments for instituting procedural fairness irrespective
of the potential implementation of a multilateral framework on competition policy.
4. Proposals regarding Special and Differential Treatment
204. Apart from the foregoing elements which are referred to explicitly in the proponents'
proposals and in paragraph 25 of the Doha Ministerial Declaration (i.e., transparency, non-
discrimination and procedural fairness), some WTO Members have called for the inclusion, as
another core principle of a multilateral framework, of the principle of special and differentialtreatment.  This proposal appears to be motivated by two concerns: first, that developing
countries face different circumstances from other WTO Members and, therefore, may be less
able to bear any resource costs associated with a proposed multilateral framework; and
second, that the adoption of core principles should in no way detract from goal of advancing
economic development in poorer countries.
205. It is important to note that there does not appear to be a common or widely-accepted
view as to how special and differential treatment might modify the application of core
principles in a potential multilateral framework on competition policy.
43  Indeed, further
discussions in the Working Group could clarify th e precise meaning of such treatment in the
application of any potential provisions on core principles.  For the purposes of the presentsection the central issue is how special and differential treatment might affect the resource
implications of adopting provisions on core principles in a multilateral framework.
206. To the extent that special and differential treatment in this context means that
developing countries might not be bound to adopt a specific provision on core principles, a
developing country would be able to forgo an y fiscal costs associated with implementing a
given core principle.  However, it would likely forgo any associated benefits also.  For
example, there may be fiscal savings associated with not implementing a transparent
competition enforcement regime, but the five benefits identified in paragraph 191 would not
accrue either.  This highlights the point that associated with each proposed core principle are
benefits as well as costs;  consequently, special and differential treatment provisions that
enable a WTO Member to refrain from implementing a given core principle would involve it
forgoing the associated benefits as well as the costs associated with the relevant principle.
207. It is worth noting that a provision for special and differential treatment in the
application of core principles is unlikely to have any resource implications for a developing
                                                     
43 A useful overview of the different possible types of special and differential treatment in the
field of competition policy can be found in Nottage (2003). It should be noted that Thailand (2002b)
has stated that:
"with respect to the fourth proposed core principle with regard to special and differential
treatment, we believe that developing countries should be allowed to:  (1) exempt national andinternational export cartels.  This is because most developing countries' exporters or importersare mainly small scale and may need to bind together to counter the  bargaining power of
larger buyers or sellers from industrialized countries;  and (2) gradually introduce greater
transparency and due process in the administration and enforcement of competition law"(paragraph 5).WT/WGTCP/W/228
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economy whose competition statutes contain no discriminatory clauses and whose statutes are
already implemented in a transparent and procedurally fair manner.
B. PROPOSALS REGARDING HARDCORE CARTELS
208. Proponents of provisions on hardcore cartels are calling on WTO Members to
consider adopting a ban on hardcore cartels that is backed up domestic legislation, effectiveenforcement of that legislation, and implementation provisions encouraging the voluntary
cooperation between competition enforcement agencies on investigations into cartels.
209. Apart from the resource costs associated with drafting and enacting a cartel law, there
are resource implications are associated with the enforcement of a cartel law. In principle, the
magnitude of the latter depends on a number of factors including:
− The scope of the cartel law, which depends on:
(a) The types of practice that are outlawed(b) The entities covered by the law(c) The sectors of the economy covered by the law(d) Whether there is a mechanism created to consider and grant exceptions,
exemptions, and exclusions from the cartel law
− The nature of the penalties for violating the law including:
(a) Fines(b) Incarceration of individuals
− Whether the offence is subject to a per se  rule or a rule of reason analysis
− The types of investigative procedures and means for acquiring information provided
in the law, including
(a) The staffing and powers of officials in the agency responsible for enforcing
the competition law
(b) Whether the competition enforcement agency can employ the investigative
resources of other government agencies or investigative bodies, such as the
police
(c) Whether a leniency or amnesty programme has been established
− Whether the cartel law is to be administered by an existing government agency or a
new government agency is to be created.
210. With respect to the scope of the law, a num ber of considerations arise. To the extent
that the number of cartel cases that an enforcement agency will eventually have to investigate
depends on the number of sectors and entities covered by the cartel law, and on the number
and definitions of outlawed practices, then any restriction on the scope of the law will reduceWT/WGTCP/W/228
Page 61
the implementation costs. Such restrictions, however, also have a direct bearing on the
expected benefits of adhering to a multilateral provision on hardcore cartels.
211. In addition, if bid rigging on state contracts is included in the definition of a hardcore
cartel, then it is unclear that cartel enforcement will on net raise government expenditures. To
the extent that inclusion increases the case load of the enforcement authority, governmentoutlays may be higher. However, if bid rigging is successfully deterred, then the prices paid
on state purchases of goods and services will fall; generating savings for the government
budget.
44  This example reinforces the point that it misleading to consider the costs of
implementing the provisions of a multilateral framework on competition policy independently
from the benefits of doing so.
212. A tension can arise between the size of the total enforcement costs and the desire to
preserve flexibility in the scope of the cartel law. This flexibility can be implemented throughprocedures to grant exemptions from the scope of the cartel law. Implementing this
procedure, however, can be time consuming and resource intensive; a point that is quite
distinct from the economic merits of discouraging firms from engaging in cartelization. In
short, flexibility comes at a price—which nations wanting to minimize the cost of
implementing a multilateral framework may want to avoid.
213. With regard to the nature of the penalties, these can influence the resource
implications of adhering to a multilateral provision on hardcore cartels in different ways.
First, the nature of the penalties influences the burden of proof, if any, that a competition
enforcement agency must satisfy when prosecuting a cartel. Typically, the burden of proof
needed to incarcerate an individual is greater than for imposing a fine.
45 This emphasizes the
point that a nation's choices when designing and implementing a cartel law have a
considerable bearing on the resource costs subsequently incurred.
214. The second point to be made is that the strength of the sanctions for cartelization
determines in part the deterrent value of a national cartel law and, by implication, the likely
future case load of the agency tasked with enfo rcing the cartel law. To the extent that strong
sanctions deter firms from cartelizing a nation's markets in the first place, then the resulting
case load may well be smaller.
215. Moreover, to the extent that adherence to a multilateral provision on hardcore cartels
encourages a WTO Member to strengthen its cartel enforcement regime, and if over time it
acquires a reputation for doing so, then more firms will be deterred from cartelizing its
markets in the first place. This can result in a falling case load for the competition
enforcement agency and reduced outlays on cartel enforcement over the longer term. In sum,it is not at all obvious that implementing provisions on hardcore cartels will raise government
outlays on cartel enforcement, especially for those WTO Members that currently have quite
tough cartel enforcement regimes.
216. The choice between per se  rules and a rule of reason approach has resource
implications also. Successfully attacking a rule of reason defense of a cartel will require, at aminimum, incurring greater costs to collect the relevant data to undertake an analysis of the
cartel's activities on a given market or markets. More importantly, legal and economic
                                                     
44 An empirical example of the costs of bid rigging in public procurement processes (and
hence the benefit of competition law enforcement in this area) is provided in Part III of this paper.  For
a discussion of the likely savings from deterring bid rigging on government contracts, see Clarke,
Evenett, and Gray (2003).
45 Incarceration also results in two other costs to  society: the cost of imprisonment and the
value of the output forgone by jailing a potentially productive member of society.WT/WGTCP/W/228
Page 62
expertise will be needed to conduct and interpret this analysis. These costs can, in large part,
be avoided if a WTO Member makes cartelization a per se  offence. Again, the design of a
cartel law has some bearing on the type of expertise needed to implement the law and on the
associated resource costs.
217. The proponents of a provision on hardcore cartels do not specify what investigative
tools a WTO Member would have to use in a cartel law. Several options were noted earlier,
each with different resource implications. For example, when designing and implementing its
cartel law, a government may decide that it will use the existing investigative arms of the state
for competition enforcement. If the latter are currently under-utilized, or have some
experience in investigating conspiracies (which is what cartels are), then the resource costs of
implementing the cartel law will be lower than ot herwise. Alternatively, if the state decides to
create a new distinct investigative agency fo r cartel offences, then this may incur more
expense. Both options would require some training in the investigative techniques of cartel
enforcement as well as in the content of the cartel law.
218. Another important choice faced by WTO Members, should a provision on hardcore
cartels be agreed, is whether to implement a leniency or amnesty programme. Whether this is
feasible depends in part on the legal traditions of the Member, and even where feasible, thesetraditions will undoubtedly influence the natu re of such a programme. Recent experience
suggests that these programs provide strong incentives to cartel members to come forward to
the enforcement agencies and to provide the la tter with information about the nature, scope,
and operation of the cartel. In return, a cartel member can qualify for reduced sanctions for
itself and its employees. As will be described in part III, these programs have been successfulin encouraging cartel members to come forward in North America and in Europe.
219. The implications for government outlays on competition enforcement of amnesty
programs may well differ over time. To the extent that these programs reduce the time taken
and the resources needed to gather evidence about, and to investigate, a cartel then
government outlays will be lower. Furthermore, to the extent that these programs strengthenthe deterrence of a cartel law (because potential cartel members fear that another conspirator
may at some future point seek an amnesty), th en the future case load of the enforcement
agency will fall and so may the associated government outlays.
220. In contrast, to the extent that the implementation of a leniency programme results in
an increase in cases against existing cartels, then the case load will increase in the near term.
(In this situation, the case load has increased precisely because of the disincentives to
cartelize in the past were weaker.) Clearing this case load will provide an opportunity to theenforcement agency to demonstrate its commitment to fight cartels, so discouraging other
firms from cartelization in the future. All else equal, then, implementing a leniency
programme is likely to result in a transitory increase in government outlays on cartel
enforcement and a long-term reduction in those outlays. These considerations further
highlight the point that the resource implications of adopting a multilateral provision onhardcore cartels depends in large part on the decisions that a WTO Member makes in
implementation.
221. The foregoing discussion could be summarized as follows. Since the proponents of
provisions on hardcore cartels in a multilateral framework on competition policy are not
advocating one type of cartel law, or the harmonization of existing cartel laws, then WTOMembers would retain  considerable latitude in designing and implementing these laws. For
those nations without a cartel law at the moment, the proposed provisions on hardcore cartels
would require them to adopt a cartel law. Whether those nations with cartel statutes have to
amend their cartel laws would depend in large part on the specifics of the multilateral
provision. In either case, these nations would have plenty of different types of cartel law toWT/WGTCP/W/228
Page 63
choose from—and those choices can differ markedly in their near-term and long-term
resource implications.
222. More importantly, the choice between different constituents of a cartel law has
implications for both the costs and benefits of adopting a multilateral provision on hardcore
cartels; and an excessive emphasis on either is misleading. Strengthening the deterrentprovided by a national cartel law may require more investigative resources and alike, but once
the enforcement agency has acquired a tough enough reputation against cartels that fewer
firms are encouraged to form these conspiracies in the first place, then case loads and outlays
on cartel enforcement may fall.
223. Turning now to the empirical evidence on the resource costs of implementing cartel
laws
46, a difficulty immediately arises in that nations typically report total government outlays
on the agencies and do not break out the expenditure of each law administered by eachagency. Many competition enforcement agencies implement laws other than cartel laws. This
implies that the reported budgetary outlays exceed  the likely cost of enforcing the cartel law;
and so provide an overestimate  of the costs of implementing a provision on hardcore cartels
for a nation that does not currently have a cartel law.
224. Likewise, the reported staffing levels are likely to overestimate the number of trained
professionals needed to implement a cartel law. In the case of Brazil, however, data is
available on the number of officials devoted solely to anti-cartel enforcement, see Brazil
Ministry of Finance (2002). Twelve professionals  (out of 71) at the Secretariat for Economic
Monitoring (SEAE) were engaged in anti-cartel enforcement. At the Secretariat of Economic
Law (SDE) 17 professionals, out of a total of 26, are engaged in anti-cartel enforcement.Given that the SEAE and SDE employ a total of 97 professionals, this implies that fewer than
one-third of their professional staff were dedicated to anti-cartel enforcement.
225. Another important factor to bear in mind when interpreting data on the budgets of
competition enforcement agencies is that reported expenditures may be small precisely
because the relevant competition laws are currently under-enforced.
226. The first set of data comes from a cross-country study undertaken by the Consumer
Unity Trust Society (CUTS), India. CUTS u ndertook "A Comparative Study on Competition
Regimes in Select Developing Countries of the Commonwealth, " see CUTS (2003). Seven
countries from South Asia and Africa were selected for the project popularly named as '7-Up
Project' (India, Pakistan, Sri Lanka, Zambia, Kenya, Tanzania, and South Africa).
227. Out of the seven countries, in three (South Africa, Tanzania and Zambia),
competition laws are relatively new. During the study, two countries (India and Sri Lanka)were in the process of adopting a new law while two others were considering adopting a new
law or a review of the existing law.  In each jurisdiction, all or some types of cartels are
prohibited. The state outlays on the agencies responsible for the enforcing competition laws in
these seven nations are reported in table II.T2.
228. The Fair Trade Practices Commission in Tanzania implemented competition law in
1994, without a governing committee or supporting infrastructure. It has a small budget,
equivalent to 0.01% of the outlays of the fede ral government. Likewise, in Sri Lanka, the Fair
Trade Commission has a budget equal to a only 0.00363% of outlays of the central
government.WT/WGTCP/W/228
Page 64
Table II.T2: The budgets of the competition enforcement agencies in seven developing
countries in 2000
Country Annual budget of
agency primarily
responsible for
enforcing
competition law
(millions of US
dollars)Annual budget of
the central
government
(millions of US
dollars)Percentage of central government
budget that is accounted for by
outlays on the primary
competition enforcement agency
India 0.723 81307 0.00089
Kenya 0.236 3230 0.00731
Pakistan 0.326 13560 0.00240
South Africa 7.743 23270 0.03327
Sri Lanka 0.098 3395 0.00288
Tanzania 0.162 1010 0.01604
Zambia 0.193 340 0.05619
Source: CUTS (2003) table 7, page 54.
229. The second set of data was assembled from the annual reports sent by some nations'
competition enforcement authorities to the OECD (see table II.T3). The reported numbers
should be treated with some caution as not every agency that plays a role in competition
enforcement in a given nation makes these reports to the OECD. Furthermore, there is no
guarantee that the definition of who constitutes an employee of a competition agency iscommon across reporting bodies.
230. The variation in the size of the enforcement budgets reported in table II.T3 is
considerable and reflects, in part, differences in the size of the underlying economies. Another
interesting difference is that middle-income countries tend to employ proportionally more
economists compared to jurisdictions with higher-income, such as the EC and US.
                                                                                                                                                       
46 Here the focus is on the governmental outlays on cartel enforcement. This is not to imply
that private sector resources expended in response to government investigations on cartels are trivial.Rather, that data on the private expenditures is even harder to find that data on government outlays.WT/WGTCP/W/228
Page 65
Table II.T3: Year 2000 outlays and employees of government bodies responsible for
the enforcement of national competition laws, as reported by
governments to the OECD
When interpreting these reported statistics it is important to bear in mind that many government
agencies that enforce their nations' competition laws also undertake other regulatory functions. There isno guarantee that the numbers reported below relate solely to the resources employed in theenforcement of national competition law.
Reporting
entityName of
AuthorityAnnual
budget (local
currency)Annual
budget
(US$
Million)Total
number of
employeesEconomists Lawyers Other
staff
Brazil (The numbers
presented hereare the total
for all three
Brazilianagenciesresponsible forenforcingcompetition
laws)$10.96 398 60 50 288
Czech
RepublicOffice for the
Protection of
Competition61.965m
CZK$1.6 113 36 44 33
Hungary Competition
Authority562.1m HUF $1.87 111 39 38 34
Korea Fair Trade
Commission19,300m
KRW$17.55 444 81 51 312
Mexico Federal
Competition
Commission137.7m
MXN$14.6 200 38 50 112
Poland Office for
Competitionand Consumer
Protection17.810m
PLN$4.301 219 89 51 79
Russia MAP and
Regional
Offices130.5m
RUB$4.6 1804 589 408 807
Turkey Competition
Authority_ $21.2*
$6.0**307 44 23 240
Slovak
RepublicAnti-
MonopolyOffice28.7m SKK $0.595 73 25 13 35
European
CommissionDirectorate
General for
Competition6.05m EUR $5.5 537 67 (and 7
lawyer and
economists)139 324WT/WGTCP/W/228
Page 66
United States Department of
Justice110m USD $110 824 56 351 417
United States Federal Trade
Commission25.5m USD $25.5 251 40 159 92
Source for all countries except Brazil: Annual reports of competition authorities to the OECD. See:
http://www.oecd.org/EN/document/0,,EN-document-0-nodirectorate-no-11-29574-0,00.html
The US $ estimate of the annual budget for some of the agencies included in the table was calculated
independently using the appropriate exchange rate.
Source for Brazil: Brazil Mini stry of Finance (2002).
Notes for the above table:
* denotes general expenditure,** denotes expenditure on personnel
231. Bearing in mind the caveats stated already, tables II.T2 and II.T3 may provide some
guide to nations that currently do not have cartel laws as to resource outlays made by othernations at a comparable stage of development. For a nation that already has enacted
competition laws and has an enforcement regime, to the extent that their cartel laws already
meets the standards set by the proposed provision on hardcore cartels, there will be no
additional resource costs. Furthermore, to the extent that an existing cartel enforcement
regime needs to be strengthened then, as discussed earlier, the total resource costs will dependon precisely how the relevant law or laws ar e amended and enforcement practices changed.
Measures that strengthen the deterrent of the law without incurring much additional resource
costs may well end up reducing both long-term government outlays on cartel enforcement and
the harm done to customers by cartels in the first place.
C. 
PROPOSALS REGARDING MODALITIES FOR VOLUNTARY COOPERATION
232. The proponents of a provision on voluntary cooperation in a multilateral framework
on competition policy have argued that it should contain four "tools," which are described in
the passage below.
"The point was made that the tools for voluntary cooperation that, according to this
proposal, would be included in a multilater al framework were practical instruments
which had come from experience with cooperation at the bilateral level.  A first
essential tool was notification, whereby one country would inform another of certaincases which affected the other country's important interests.  Second, there was the
exchange of information other than notifications to facilitate enforcement activities on
either side.  A third tool involved the provision of mutual assistance in the
enforcement process.  Finally, the proposed agreement would provide for:  (i)
traditional or negative comity, meaning that one country would take intoconsideration the important interests of other affected countries when taking a
decision on a case; and (ii) positive comity, which would involve a country taking
enforcement action upon a request from another country which suffered from anti-
competitive practices originating in the territory of the requested country.  All these
tools were already found in the bilateral agreements to which some Members wereparty; regrettably, however, for the most part, developing countries were excluded
from the benefit of such agreements" (WTO 2002e, page 24).WT/WGTCP/W/228
Page 67
233. Figure II.F1 below supports the contention that, at present, there is only a patchwork
of bilateral cooperation agreement on competition law and enforcement. One contribution of a
provision on voluntary cooperation, therefore, would be fill out the gaps identified in this
figure. Further evidence on the prevalence of bilateral cooperation is presented in Appendices
II.E-G.
234. The lack of data on the costs of each type of voluntary cooperation precludes a
detailed assessment of the resource implications of a multilateral provision on this matter.
Nevertheless, some useful observations can be gleaned from official contributions to
international organizations and from elsewhere. Together these observations identify some of
the factors that are central to assessing the resource implications of a provision on voluntary
cooperation.
235. A first observation is that the resource costs of cooperation should not be considered
in isolation from the benefits of cooperation.  There are two reasons for this.  First,  the
experience of countries that are party to existing cooperation agreements shows clearly that
cooperation can provide a major boost to the effectiveness of competition law enforcement at
the national level.  This is due not only to the usefulness of information shared in facilitating
enforcement actions in particular cases but also, very much, to the learning that occurs as aresult of interaction with other, potentially more experienced competition agencies.
47
Furthermore, the main purpose of cooperation is to obtain information and advice at a lowercost than would otherwise be the case.
236. A second observation is that, in many instances, the most effective forms of voluntary
cooperation between enforcement agencies involv es either the exchange of straightforward
facts about a case and the affected markets or exchange of views on the so-called "theory of a
case." Such cooperation does not have to employ formal mechanisms
48 or involve the sharing
of documents to be beneficial, although commitments of one kind or another can be a
valuable underpinning of cooperation processes.
237. Brazilian experience bears out this contention. In a contribution to the OECD, Brazil
argued:
"Despite the signature of the international agreement between Brazilian and North
American Antitrust Authorities, the most valuable source of international cooperation
has been informal" (Brazil 2002, page 31).
238. Brazil goes onto describe how "tips" from US enforcement officials were of
considerable value during the former's investigations of the lysine cartel, the vitamins cartel,and the so-called Airlines Companies Case.
239. Brazil nevertheless goes on to underline the importance of formal commitments on
cooperation, saying:
"Informal cooperation is surely desirable as it can be expeditious, direct and can
sometimes reveal hidden aspects, clues or hints not always present or possible informal mechanisms of technical exchange. Nevertheless, this sort of cooperation has
                                                     
47 WTO (2002c).  See also Evenett et al (2000).
48 This is not to say that formal mechanisms for antitrust cooperation do not deliver benefits.
Waller (2000) describes how the Mutual Legal Assistance Treaty between the US and Canada was, and
is, of considerable help in facilitating investigations into international cartels. A more generaldiscussion of the types of inter-agency cooperation on competition policy matters can be found inICPAC (2000) and Janow (2000). See also the case studies in Evenett et al. (2000).WT/WGTCP/W/228
Page 68
the disadvantage of being excessively based on personal contacts. In this sense,
informal contacts can be a close substitute of formal ones in the short term, but not in
the long term. Persons come and go, institutions remain" (Brazil 2002, page 33).
240. These arguments concerning the benefits of Brazil's bilateral cooperation agreement
on competition matters with the United States would seem to apply with equal force to the
multilateral setting. Brazil's experience would seem to suggest that there are benefits to a
potential provision on voluntary cooperation that draws more nations into cooperation on
competition policy matters and facilitates a move away from ad hoc  cooperative
arrangements.
241. A third observation is that competition agencies are most likely to see voluntary
cooperation from those foreign competition agencies that have both strong track records in
enforcement and the relevant expertise. This su ggests that, in the short to medium term, the
number of requests for voluntary cooperation from jurisdictions that currently have no or
nascent competition enforcement regimes is likely to be minimal; which, in turn, suggests that
the notification-related resource implications fo r the latter will be minor.  Moreover, the
resource implications of voluntary cooperation are likely to grow over the longer term after ajurisdiction has made systematic efforts and investments to strengthen its competition
enforcement regime.  And, as noted above, those longer term resource implications are likely
to be on both the costs and the benefits side.
242. A fourth observation is that the resource costs of provisions on cooperation are more
likely to be manageable and subject to the di scretion of the participating countries to the
extent that cooperation is indeed "voluntary".  It should be noted that the idea of voluntary
cooperation does not mean that WTO Members would be under no obligation to take requests
for cooperation seriously; it simply means that they could not be forced to cooperate in
circumstances where they are unable or unwilling to do so, in view of the resource constraints
that they face and other pertinent considerations.  As has been pointed out in a writtensubmission by one proponent of a multilateral framework on competition policy, this
approach enables countries to take into account relevant resource constraints and is broadly
consistent with that which has been implemented in most existing bilateral cooperation
agreements:
"In other words, the assistance would have to be compatible with applicable laws and
regulations, enforcement priorities, important interests and available resources of the
country presented with a request for such assistance.  Some have argued thatcooperation is unlikely to be effective if it is "merely" voluntary and does not provide
for the exchange of confidential information.  The European Communities
experience, however, is that such limitations have not prevented a very close and
steadily-evolving cooperative relationship with the competition authorities we deal
with on a regular basis.  Similar experiences have also been made by competitionauthorities of most European Communities member states which have considerable
experience in case-related cooperation.  Even the bilateral cooperation agreements
which the European Communities has entered into with other developed economies
(Canada and the United States) – although providing for intensive co-operation – are
essentially voluntary in nature and do not contain provisions which allow one party tocompel the other party to act in a particular manner. In other words, no party to these
agreements can legally oblige the other party to cooperate and a part may have
legitimate reasons not to cooperate on a specific matter" (EC 2002c, page 9).
243. The effects of such a provision on voluntary cooperation for the workload of a
competition enforcement agency—with its attendant resource costs—are ambiguous.  Here anumber of different effects need to be taken into account.  To be sure, personnel time wouldWT/WGTCP/W/228
Page 69
have to be devoted to sending notifications to and processing notifications from foreign
enforcement agencies. In addition, requests for cooperation on case-specific and non-case
specific matters will require resources, even if no action is taken.  Moreover, recipients of
cooperation may well incur implicit obligations to assist a competition enforcement body that
is helping it at present or has helped it in the past.
244. However, other factors are at work, too.  To the extent that voluntary cooperation
enables enforcement actions against hitherto un- investigated cases involving sizeable anti-
competitive conduct, then the workload of the agen cy will increase.  But, in this case, so will
the benefits of national enforcement of competition law.
245. To the extent that the knowledge that enforcement agencies cooperate on a voluntary
basis strengthens the deterrent value of national competition laws, then more firms will be
discouraged from engaging in anti-competitive acts in the first place.  This, in turn, could tendto reduce the case load of enforcement agencies; and, equally or more important, the total
harm suffered by consumers or user industries as a result of anti-competitive practices.  In
sum, therefore, this first type of provision for voluntary cooperation can result in the workload
of an agency enforcing competition law falling as well as rising, and the change in the
workload is an unreliable indicator of the effect of voluntary cooperation on the effectivenessof the national competition law.
246. As an alternative to purely voluntary approach to cooperation, one delegation has
expressed the view  that:
"…multilateral cooperation must guarantee developing countries better protection
against international cartels," (Thailand 2002a, paragraph 3 emphasis in original)
It should be noted that the approach to cooperation which is advocated by Thailand has
important elements in common with that of other Members favouring a multilateral
framework on competition policy:
"Thailand believes that the bilateral co-operative arrangements that are currently in
place are helpful in enhancing capacity, but are not sufficient to protect developingcountries from international cartels because countries with more advanced
competition regimes would see no benefit from cooperating with countries whose
enforcement of competition law is considered inadequate.  Thus, a multilateral
cooperation  would be a favourable alternative for developing economies."  (Thailand
2002a, paragraph 4)
247. Nonetheless, the approach favoured by Thailand differs from that of  other
proponents in at least two respects: (i)  it appears to call for an exclusive focus on cooperationrelating to international hardcore cartels, as opposed to other anti-competitive practices; and
(ii) it would be mandatory at least in some respects.  More specifically:
We believe that the initial commitment  in multilateral cooperation in fighting hard-
core cartels  should consist of the following elements:
- Notification, which requires authorities that are in the process of investigating
and prosecuting international hard-core cartel cases to promptly alert concerned
authorities in countries that the cartels may be operating.  The notification should
include, at a minimum, the background and the preliminary analysis of the particular
case.  Authorities should be kept up-to-date on a regular basis with regard to the
progress.WT/WGTCP/W/228
Page 70
- Mandatory consultation, which requires governments that are investigating an
alleged cartel to engage in discussions with other Member countries whose interests
may be affected.
- Assistance, which requires competition authorities to co-operate in terms of
providing analytical assistance, sharing of experience, suggestions concerning
enforcement techniques, etc.  Requests for information gathering should also be
facilitated" (Thailand 2002a, paragraph 5).
248. The Thai approach also calls for financial compensation of developing countries for
assistance rendered:
Due to the overwhelming discrepancy in financial and technical resources between
competition authorities in developed countries and those in their developing country
counterparts, special and differential treatment  for developing Members would be
necessary in the case of mandatory enforcement assistance.  We propose that
competition authorities in developing countries be financially compensated for
delivering requested services and be allowed to cooperate to the extent possible
subject to technical and financial constraints" (Thailand 2002a, paragraph 6).
249. With respect to the resource costs of such an approach to cooperation, it is useful to
distinguish between the implications for the developing country Members of the WTO and
the other Members of the WTO. As far as the latter are concerned, the mandatory
requirements for notification, consultation and assistance, will in an of themselves all enhance
resource costs. Having said that, to the extent  that the additional cross-border cooperation that
this entails results in information that is useful for these Members, then there may well besome offsetting benefits. Moreover, the requirement to compensate developing country
Members that assist a richer partner will further add to the resource costs.
250. With respect to the resource costs of this proposed provision for developing countries,
on the face of it they will benefit from any payments from other WTO Members for any
cooperation granted. Whether such cooperation will be sought is another matter and willdepend in part on the enforcement capacity of the developing country which, in turn, suggests
that requests for cooperation—and the envisaged payments—will follow rather than precede
investments in national enforcement capacity.
251. Moreover, under this proposal developing countries could expect to receive more
notifications about cross-border anti-competitive practices that might be affecting their
markets. The benefits that flow from such noti fications will depend in part on the strength of
the enforcement authority in country receiving these notifications. If the latter is weak, thennotifications from abroad are less likely to translate into prosecutions of and enhanced
deterrents to anti-competitive acts. Again, the benefits of this particular provision appear
likely to accrue to those nations that have  already invested sufficiently in national
enforcement capacity.
252. Another apparent implication of either of the above approaches to cooperation is that
a developing country would not be able to insist on cooperation from another developing
country. This could be important as cross-border anti-competitive practice need not be
orchestrated in industrialized economies. Moreover, to the extent that this proposal was
effective, it would provide a clear incentive to firms—including multinational corporations—
to orchestrate these practices in those developing countries that were appear unable orunwilling to provide cooperation to other developing countries. The principal effect may,
therefore, may to alter the location from where these practices are orchestrated.WT/WGTCP/W/228
Page 71
253. In sum, in the near term a provision on voluntary cooperation is likely to have the
greatest resource implications for those jurisdictions with the relatively stronger track records
of enforcement. After other jurisdictions' competition enforcement regimes strengthen—an
outcome which is likely to be reinforced by the effective implementation of the other
elements of a multilateral framework on competition policy—then the resource implicationsof cooperation are likely to grow in that a modest number of staff members may be need to be
allocated to cooperation-related functions.  However, the concept of voluntariness, assuming
it is an element of any eventual cooperation modalities, would mean that Members could not
be forced to cooperate where resource constraints did not permit them to do so.  In any case,
the resource costs of cooperation should not be considered in isolation from its benefits.  The
latter include not only the effective investigation and implementation of remedies to deal with
anti-competitive practices, but also the resource savings that result when valuable informationis obtained at a lower cost than would otherwise be the case.  Indeed, in a real sense the
purpose of cooperation is to enable countries to obtain necessary information and thereby to
take appropriate enforcement actions at a lower cost than they would be in a position to do
acting individually.WT/WGTCP/W/228
Page 72
Figure II.F1: Bilateral and trilateral cooperation agreements on competition law
enforcement
- USA EC Ger. Aus. Fra. NZ Can. Chi. Rus. Chi.T Isra
.Jap. Kaz. Bra. PNG Mx. Ice. Nor. Den. Chil.
USA - 1991
and
1998197
61982
and
19971995 199
91999
and
19991999 2000
EC 1991
and
1998- 1999
and
2000
Germany 1976 - 1984
Australia 1982
and
1997- 1994
and
2000
**2000
**1996 1999
France 1984 -
New
Zealand1994and
2000
**- 2000** 1997
Canada 1995 1999
and
20002000
**2000** - 2001 2001
China - 1996 1999
Russia 1996 -
[ChineseTaipei] 1996 1997 -
Israel 1999 -
Japan 1999
and
1999-
Kazakhstan 1999 -
Brazil 1999 -
Papua New
Guinea1999 -
Mexico 2000 2001 -
Iceland - 2001
**2001
**
Norway 2001** - 2001**
Denmark 2001
**2001
**-
Chile 2001 -
Shaded boxes/entries implies no cooperation agreement. White entries indicate a cooperation
agreement exists. Date that the agreement was signed is also indicated.
Key: ** Tripartite agreement.  Source: UNCTAD (2002b).WT/WGTCP/W/228
Page 73
D. CONCLUDING REMARKS
254. The discussion in this part of the study has questioned the wisdom of considering the
additional resource costs of a multilateral framework of competition policy independently of
the benefits. The provisions of the proposed fr amework invariably have implications for both
the costs of enforcing competition law and the benefits that flow from such enforcement. Oneof the major beneficiaries of stronger competition enforcement is in fact the government,
which is often the target of bid rigging and other anti-competitive acts that result in higher
prices being by state purchasers. Moreover, once a full and balanced calculation of the costs
and benefits is undertaken, it is not at all clear that the implementation of a multilateral
framework on competition policy must impose a drain on national finances. Of course, the
benefits of stronger enforcement regimes are felt beyond the government, but the last
observation was motivated by the prominent concern that implementation of a multilateralframework on competition is simply too costly for some jurisdictions.
255. Along with the potential benefits of strengthened deterrence of anti-competitive acts,
there is another important resource-related implication of a multilateral framework on
competition policy. WTO Ministers have reaffirmed the importance of, and the need for,
greater capacity building and technical assistance for agencies enforcing competition laws indeveloping economies. To the extent that a multilateral framework on competition policy
contains commitments to expand such efforts, then this could further increase the benefits of
adopting this framework to jurisdictions with no or nascent competition enforcement
regimes.
49 Moreover, such commitments could enable the newcomers to the enforcement of
competition law to tap the expertise of colleagues in jurisdictions with active competitionenforcement regimes.
III. THE IMPACT OF TACKLING ANTI-COMPETITIVE PRACTICES IN A
DEVELOPING ECONOMY SETTING
256. The previous section gave some indication of the potential resource costs and benefits
associated with implementing a multilateral framework on competition policy. Conversely,this section focuses on one of the potential benefits of such a framework; namely, the likely
reduction in the prevalence and harm done by anti-competitive practices to developing
economies. The analysis in this section is based entirely on official contributions to
international bodies, the published reports of agencies responsible for enforcing national
competition laws, certain data bases, and academic research; all of which are in the public
domain.
257. This section begins with some introductory remarks about the sources of anti-
competitive practices in developing countries and the effectiveness of some state measures to
attack them (section A). Then, the recent record of competition law enforcement by more than
15 developing economies is described (section B). This highlights two important points. First,
that the enforcement of competition law is not the sole preserve of industrialized economies.
Moreover, enforcement agencies have been actively addressing anti-competitive corporatepractices in countries with a diverse range of economic circumstances, openness to trade and
investment, and prior development strategies. Secondly, the fact that many developing
economies are voluntarily enforcing these laws probably indicates that they see value in doing
so.
                                                     
49 As some developing countries have already acquired considerable experience in enforcing
competition laws, there is no presumption that the only suppliers of technical assistance are industrial
economies.WT/WGTCP/W/228
Page 74
258. The third section (C) describes and assesses the small number of research papers on
the effects of enforcing competition law and other elements of competition policy on broader
measures of economic performance. Such analyses have been made possible by the recent
collection of large cross-country datasets of the strength of competition policy enforcement
and these data sources are discussed also.
259. Turning to external sources of anti-competitive market outcomes in developing
economies, sections D and E describes the factors that account for the surge in international
cartel enforcement after 1993 and provides available estimates of the harm done by some of
these cartels to developing economies. The latter section also includes some evidence of the
deterrent effect of enforcing cartel laws. In the case of one prominent international cartel,
which lasted ten years and was global in operation, the evidence suggests that nations with
active enforcement regimes suffered lower over charges. This implies that, in addition to
deterring the formation of cartels in the first place, more active cartel enforcement regimes
reduce the harm to customers generated by those cartels that do form. Some summary
observations are presented in section F.
A. INTRODUCTORY REMARKS
260. Whatever their motivation—increasing profits, more perks for managers and
executives, or the desire for a "quiet life"—fi rms have often resorted to anti-competitive
practices. These practices can take many forms including, to name a few; initiatives to raise
prices by a single firm or in concert with others; to merge with rivals so as to reduce sharply
competitive pressures; to rig bids; and to sign certain types of exclusive agreements with
suppliers, distributors, and buyers; and to agree with rivals to slow the pace of innovation.Although the effects of these practices may differ across markets and over time, they
invariably make purchasers worse off.
50 For this reason, and others, policymakers in
developing economies have begun to tackle more aggressively such anti-competitive
practices. This section will provide an overview of the effects of such practices and the
consequences of measures taken to address them.
261. As the discussion in section I made clear, competitive markets can have static and
dynamic (intertemporal) consequences. The primary static effect of competitive pressure is to
reduce the ability of firms to raise prices above incremental (or, to use the language of
economists, above "marginal") costs. The dynamic consequences can include the effect of
competitive pressures on the incentive to innovate, to imitate, and to invest. Given that one of
the key objectives of competition policy is to stimulate or to preserve the intensity of
competition in markets, then it is not surprising that studies of the effects of competitionpolicy enforcement in developing and industrial economies have emphasized both its static
and dynamic consequences.
262. It is important to acknowledge at the beginning of this section that competition policy
is not the only government measure that can undermine or attack anti-competitive practices.
Lower state-imposed barriers to entering markets will facilitate the movement of domesticfirms into markets where incumbents are exercising market power.51 Removing restrictions
on foreign direct investments and on imports can also go a long way to attenuate the market
                                                     
50 It is worth noting in this regard that these purchasers can include those in poverty, the
government, and firms which buy items from the cartel members.
51 For the latest academic research on quantifying the barriers to entry in many countries see
Djankov et al . (2002). This study presents a number of different measures of the time-related and
financial barriers that entrepreneurs must overcome to  set up a new firm in industrial and in developing
economies.WT/WGTCP/W/228
Page 75
power of domestic firms; as much published empirical research in the 1990s has confirmed.52
In fact, some have gone as far as to claim that  trade and investment liberalization are a perfect
substitute for national competition policy (see, for example, Blackhurst (1991)). The
evidence, however, casts serious doubt on such  a sweeping generalization—as the following
discussion of the data reported in table III.T1 highlights.
263. Singapore and Hong Kong, China are said to have almost open borders; certainly
more open than many other trading economies. Yet, evidence published by the International
Monetary Fund (IMF) indicates that Singaporean manufacturing firms have been able to
consistently raise prices above costs by twice the percentage of firms in OECD nations (see
table III.T1).53 Admittedly, many factors can account for higher price-cost mark-ups.
However, what is striking about the IMF's findi ngs for Singapore is how persistently large the
mark-ups were during the 1980s and 1990s. In its assessment of this evidence, the IMF notedthat such mark-ups were:
"suggestive of the relative lack of domestic competition in Singapore" (IMF 2000a,
page 12).
                                                     
52 The idea that open borders can tame domestic market power is not a new one. In fact,
Bhagwati (1968) forcefully made this argument over thirty years ago. However, it was not until the1990s that careful micro-econometric studies were published that substantiated what had been up untilthen a purely theoretical point. The principal empi rical contributions in this regard are Levinsohn
(1993) and Harrison (1994), both using data from developing economies. See chapter one of Evenettet al.  (2000) for a concise review of the empirical literature of the effects of international trade flows
and foreign direct investment on the ability of domestic firms to raise prices above incremental costs.
53 Unfortunately, the relevant IMF paper does not state the methodology employed for
calculating these Singaporean price-cost margins.WT/WGTCP/W/228
Page 76
Table III.T1: Comparison of price-cost margins in Singapore; Hong Kong, China; the United States; and the OECD economies
Singapore Hong Kong,
ChinaOECD
economiesUnited States Industrial
codeIndustry
1980-1989 1990-1998 1980-1998 1986-1997 1986-1997 1986-1997
MANUFACTURING
15 and 16 Food, Beverages and Tobacco 21.0 27.4 24.0 20.6 11.7 13.4
15 Food and Beverages 20.0 25.6 22.1
16 Tobacco Products 33.8 38.7 35.6
17 Textiles 28.5 26.7 27.6
18 Wearing Apparel 23.6 26.5 25.09.5 9.7 8.8
19 Leather Products and Footwear 19.8 18.4 19.2
20 Wood and Wood Products 20.9 22.7 21.7 10.4 11.9 13.6
21 Paper Products 31.1 34.1 32.5
22 Publishing and Printing 43.3 47.5 45.3 15.6 12.3 13.9
23 Refined Petroleum Products 13.2 16.8 14.9
24 Chemicals and Chemical Products 40.0 40.8 40.4
25 Rubber and Plastic Products 28.7 30.4 29.514.0 15.9 10.8
26 Non-metallic Mineral Products 30.5 31.7 31.0 13.6 8.4 9.5
27 Basic Metals 34.4 28.4 31.6 6.8 8.8 6.7
28 Fabricated Metal Products 28.5 30.0 29.2 12.3 15.1 12.5
29 Machinery and Equipment 33.7 30.8 32.3 15.0 10.1 10.0
30 Electrical Machinery and Apparatus 27.6 26.4 27.0
31 Electronic Products and Components 23.3 24.1 23.719.3 11.0 17.4
32 Instrumentation and Scientific
Equipment35.7 35.8 35.8 10.3 14.5 6.3
33 Transport Equipment 51.7 50.2 51.0 16.3 6.4 5.1
34 Furniture and Other Manufacturing
Industries23.2 20.7 22.0 9.1 10.0 21.6
35 Recycling of Waste and Scrap 38.5 25.3 32.3
Total Manufacturing 24.9 27.6 26.2 12.6 11.5 11.8
Total Manufacturing Excluding
Refined Petroleum Products29.5 29.2 29.3WT/WGTCP/W/228
Page 77Singapore Hong Kong,
ChinaOECD
economiesUnited States Industrial
codeIndustry
1980-1989 1990-1998 1980-1998 1986-1997 1986-1997 1986-1997
5-8 SERVICES 8.3 14.6
5 Construction 6.1 16.3
61-63 Wholesale and Retail Trade 5.2
64.-65 Restaurants and Hotels 12.9
71 Transportation 14.1 14.0
83 Real Estate 14.3
Sources: IMF (2000a,b)
Notes:
1. These reported numbers are the price-average cost margins. Gross ou tput is used to calculate these margins. As Table I.1 of IMF  (2000b) makes clear,
using gross output to calculate these margins produces smaller margins than using value-added.
2. The margins reported here for Food and Beverages and for Tobacco Products in Singapore are calculated using data from 1990-1996  only.WT/WGTCP/W/228
Page 78
264. The comparable IMF estimates of the price-cost margins for Hong Kong, China are
more mixed.54 There are several internationally tradeable sectors reported in table III.T1 -
such as Food, Beverages, and Tobacco, Non-metallic Mineral Products, Machinery and
Equipment, Electrical Machinery and Apparatus, and Transport Equipment—where price-cost
margins are well above the average for those sectors in OECD nations. Perhaps moreinteresting than the level of these price-cost margins is how these margins have changed over
time especially in the industries that presumably face the disciplining effects of import
competition. Further analysis by the IMF lead to the conclusion that:
"[Hong Kong, China] has become slightly less competitive in the last
decade…Within industries, gross output [price-average cost] margins have increased
slightly in the last 10 years, as have value-added [price-average cost] margins in
manufacturing…" (IMF 2000b, page 31).
Presumably, whatever disciplining effect open borders had on price-cost margins in this
economy was offset by some other factor, possibly entry-impeding private anti-competitive
practices. To the extent that the latter were responsible, it does suggest open borders may
need to be complemented with the enforcement of certain competition laws.
265. At a minimum the data reported by the IMF on these two economies reinforces a
more general  point; namely, that relatively more open borders and greater exposure to
competition from overseas markets—useful as these policies are in facilitating trade and
investment—cannot guarantee to lower price-cost margins below the averages seen in
industrialized economies.
55 On the basis of this and other published evidence56 perhaps the
appropriate conclusion to draw is that open borders, while undoubtedly attenuating market
power, do not eliminate it.
B. EVIDENCE FROM THE RECORDS OF COMP ETITION ENFORCEMENT IN DEVELOPING
ECONOMIES
266. As the number of developing economies adopting competition laws rises over time,
more evidence of anti-competitive practices is emerging from the enforcement records of
competition authorities. Many such authorities have their own websites, where annual reports
and press releases are posted. In addition, numerous developing economies have reported on
significant enforcement actions in submissions or notifications to the OECD, to UNCTAD,
and to the WTO. The evidence reported in this subsection was assembled from such sources.
267. Table III.T2 summarizes the information presented to the OECD by 12 developing
economies on 27 recent enforcement actions against cartels, an important class of anti-competitive corporate practice. These twelve economies differ markedly in their stages of
development and yet they were all affected by the detrimental effects of cartels.
57
268. Furthermore, the number of big rigging cases reported (six) in Table III.T2 suggests
that the private sector is not the only victim of cartelization—governments (and, by extension,
taxpayers) are too. In fact, the three cartel cases described by the Chinese authorities were allbid rigging examples. Moreover, bid rigging in donor aid projects has been uncovered in
                                                     
54 Unlike the study of Singapore, the IMF's report (IMF 2000b) describes in detail the different
econometric techniques used to estimate the price-cost margins.
55 Similar points were made in paragraph 88 above, especially with reference to a contribution
of Argentina to the Working Group in 1998 (W/63).
56 For a review of that evidence see chapter 1 of Evenett et al.  (2000).
57 Moreover, Table III.T5 (below) includes reports that in 2001 alone the Czech, Estonian,
Hungarian, Latvian, Polish, Slovak, and Slovenian competition authorities took actions against 86"restrictive agreements," which includes cartels.WT/WGTCP/W/228
Page 79
recent years as a case involving firms bidding for USAID projects in Egypt can attest (see
Box III.B1 below).
Box III.B1: Bid rigging on USAID-funded construction projects in Egypt, 1989-1995
American International Contractors Inc. (AICI) pled guilty and was sentenced to a
$4.2 million fine for participating in a conspiracy to rig bids for construction contracts funded
by the United States Agency for International Development (USAID) in the Arab Republic of
Egypt.  In a one-count felony case filed on 11 August, 2000, in the US District Court of
Birmingham, Alabama, AICI was charged with participating in a conspiracy involving bid
rigging on certain wastewater treatment facilities construction contracts from June 1988 until
at least January 1995, in violation of Section 1 of the Sherman Act.  In addition,
Philipp Holzmann AG, a Frankfurt, Germany, based construction company, pled guilty and
was sentenced to pay a $30 million fine for its participation in the cartel.
The conspiracy involved a number of USAID and United States Core of Engineers contracts
to build water treatment and disposal facilities in Egypt. This conspiracy started in 1989 and
continued until at least 1995 and involved deliberately submitting "losing" bids to the
procuring authority. The "losing" firms were compensated with direct payments by the
winning company. In so doing, the market for such construction projects became far less
competitive with the procuring entity unable to ob tain the lowest possible price. In turn, fewer
projects were probably undertaken in Egypt, with a direct effect on the quality of life of
citizens of this developing economy.
Source: USDOJ Press Release "German Compan y Pleads Guilty to Rigging Bids on USAID
Construction Contracts in Egypt," 18 August 2000, downloaded at
http://www.usdoj.gov/opa/pr/2000/August/485at.htm
Table III.T2: Cartel enforcement cases in selected developing economies
Economy
engaging in
enforcement
actionCartelized market Duration
of cartelSummary of conspiracy and any fines imposed
Transportation on
variable routes
(intermediate
transportation)2000 The conspirators agreed on a price increase of
approximately EUR 0.1 on transportation
services. The companies were fined a total of
EUR 47,000.
Phone cards sales One year
(year not
specified)A common shareholder acted at an intermediary
in price co-coordination scheme by two
conspiring companies. Both were fined of EUR9,000.Bulgaria
Gasification 2002 Two companies agreed on a five-years contract
with no-compete clauses. A fine of EUR 25,500
was imposed on both companies.
China Brickyard 1999 Bid rigging conspiracy involving five groups of
companies affecting the operation of a brickyard
plant in Zhejiang Province. They were fined EUR
6,500 each.WT/WGTCP/W/228
Page 80
School building 1998 Bid rigging involving ten construction companies.
The bid was declared invalid and illegal gains
confiscated.
Engineeringconstruction1998 Bid rigging involving two construction
companies.
Milk products 2000 Price-fixing attempt by four leading milk
processors and ten wholesalers. A prohibiting
order was issued before an agreement came inplace.
Taxi services 1999 Three taxi companies (over 40% of the taxi
market) convicted of price fixing, and fined EUR
639 each.Estonia
Road transport 1999 The Association of Estonian International Road
Carriers was prosecuted for participating in price
fixing involving the provision of international
transport services. The Competition Board issued
a prescriptive order. No sanctions were applied.
Indonesia Pipe and pipe
processing servicesFormed in
May 2000Bid rigging involving four companies. The
ensuing contract was dissolved. No fines wereimposed.
Aviation 1998-1999 International cartel involving one Latvian and one
Russian company agreeing to co-operate in the
organization of passenger flights between Riga
and Moscow. The Latvian company was fined
0.7% of its total turnover of 1998.Latvia
Courier post 1999 Agreement between a Latvian state-owned courier
post service and an international courier service
operator. No sanctions were applied, as nopractical effect on competition was ascertained.
Building andconstruction1997 Three companied involved in bid rigging. Fines of
nearly EUR 1,800 were imposed on each of the
respondents.
Taxi Tours 1999 Price fixing agreement between a number of local
companies. Only one company, which did not
express their commitment to cease the restrictive
practices, was fined EUR 900.Peru
Poultry market 1995-1996 Several associations and 19 firms investigated and
subsequently prosecuted for price-fixing, volume
control, restrain of trade, for a conspiracy toestablish entry barriers and for the development of
anti-competitive mechanisms to suppress and
eliminate competitors, in the market of live
chicken in Metropolitan Lima and Callao.
Mineral water 1997 Price fixing conspiracy relating to the bottling ofmineral water. Fines not specified. Romania
Drugs 1997-2000 Members of the Pharmacists Association were
found to be participating in a conspiracy relating
to market sharing in pharmaceutical distribution(approx. EUR 430 million per year) and to be
deterring entry by other competitors. Fines were
calculated as a percentage of profit of the
Pharmacists Association (amount not specified).WT/WGTCP/W/228
Page 81
Electric energy 2000 (year
of
enforcement
decision)Price fixing conspiracy relating to the provision of
electric energy in Slovenia. The cartel was
prohibited.Slovenia
Organization of
cultural events2000 Two companies agreed to co-operate and prevent
entry in the market. The amount of fines imposed
is not specified.
South Africa Citrus fruits 1999 Conspiracy  relating to the purchase, packaging,
and sale of citrus fruits. Fines not specified.
Wheat 1997-1998 The Flour Association was convicted of
organizing a buyers' cartel, instituting quantity
controls, and quota system among 32 flourproducers. The association was imposed a fine of
EUR 620,000.
Mobile cranes 1998 Six companies convicted of bid rigging. No fines
specified.ChineseTaipei
Liquefied
Petroleum Gas
(LPG)Not
specifiedTwenty seven companies, controlling most of the
market share, convicted of participating in a price
fixing conspiracy relating to delivery of LPG in
southern Chinese Taipei. Total fines amounted to
EUR 4,123,000.
Electronic cashmachines1999 Price fixing conspiracy involving two companies.
As a result of the agreement prices rose by EUR1.0–2.0. The sanctions applied, if any, were not
specified.Ukraine
Kaolin 2000 Two competing distributors concluded a contract
specifying amounts of sales of the product. The
sanctions applied, if any, were not specified.
Poultry Not
specifiedTwo companies, the dominant producer and the
largest buyer in the poultry market, made
agreements foreclosing competition. The
agreement was declared invalid.Zambia
Oil 1997 – not
specifiedNine oil-marketing companies convicted of price
fixing. The cartel leaders also forced othercompanies to comply with standard behavior on
prices. The sanctions applied, if any, were not
specified.
Source:   Assembled from national submissions to the First and Second OECD Global Forums onCompetition.
269. Cartelization is, of course, not the only form of anti-competitive conduct. Firms with
sizeable market shares may individually or collectively raise prices and take other measures to
distort market outcomes. Such corporate acts are said to be abuses of a dominant position and
are regularly the target of developing economy competition policy enforcement (see tables
III.T3 and III.T4). In their last annual repo rts to the OECD on competition enforcement,
Hungary, Korea, Mexico, Russia, and Turkey took steps against abuses of dominant positions
(see table III.T3). Some transition economies—such as the Czech and Slovak Republics—
have been taking action against abuses of dominant positions for many years (see table
III.T4). Since 1992, the Czech authorities have undertaken 142 investigations into potential
abuses of a dominant position, a finding that may reflect the fact that many large formerlystate-owned enterprises retain the capacity to wield significant amounts of market power.WT/WGTCP/W/228
Page 82
Table III.T3: Findings of anti-competitive conduct in selected developing economies
Economy YearFindings of horizontal
agreements, cartels, and
concerted agreementsFindings of abuse of a
dominant position
1997 0 8
1998 2 5
1999 7 7Hungary
2000 11 19
Korea 2000 38 0
1999 10 Mexico
2000 34
Russia 2000 9 438
Turkey 2000 12 -
Sources: Named countries' annual reports to the OECD on competition policy enforcement. Obtained
from http://www.oecd.org/EN/document/0,,EN-document-768-nodirectorate-no-11-29574-768,00.html
Table III.T4: Investigations of anti-competitive conduct by agencies in the Czech and
Slovak Republics
Economy Year Investigations of horizontal
agreements, cartels, and
concerted agreementsInvestigations of abuse of a
dominant position
1992 15 20
1993 9 20
1994 15 16
1995 28 29
1996 30 24
1997 27 5
1998 67 4
1999 54 13Czech
Republic
2000 36 11
1996 8 26
1997 18 27
1998 217 58
1999 131 41Slovak
Republic
2000 29 35
Sources: Named countries' annual reports to the OECD on competition policy enforcement. Obtained
from http://www.oecd.org/EN/document/0,,EN-document-768-nodirectorate-no-11-29574-768,00.html
270. This quantitative evidence on recent enforcement actions against private anti-
competitive practices in developing countries can be supplemented by a growing body ofmore qualitative accounts of enforcement actions. Appendix III.B contains a description of a
number of important recent enforcement actions by Brazil, the Czech Republic, Hungary,
Poland, Russia, and the Slovak Republic. Other useful sources in this regard are CUTS
(2003), Hur (2002), Kovacic (2001), Mavri odis and Neven (2000), OECD (2003), and
UNCTAD (2002c). The latter describes enforcement actions in Brazil, South Africa,
Venezuela, and Zimbawbe.WT/WGTCP/W/228
Page 83
271. The factual record on competition policy enforcement in Eastern Europe is
particularly well developed. This reflects the fact that many of these economies have been
preparing to accede to the European Union and that the European Commission has in recent
years published annual reports on (amongst other matters) the status of each applicant's
competition policy enforcement regime. The latest reports published in 2002 refer to theenforcement record in 2001 and the key findin gs are summarized in table III.T5. Perusing
these reports reveals that many of these Eastern European nations have active competition
authorities and that they are increasingly targeting anti-competitive practices (see, for
example, the comments made about the Polish and Czech enforcement regimes in
table III.T5). It would appear that the fact that these economies' competition enforcement
agencies have been established only recently has not prevented some of them from taking an
increasingly aggressive stance against private anti-competitive practices; suggesting thatnations need not wait long before investments in competition enforcement begin to bear fruit.
This is not to say that all of these economies' competition authorities are up to full strength as
the European Commission's commentary on the resources and personnel available to the
Latvian and Slovenian competition authorities makes plain (table III.T5).
272. This evidence, of course, relates only to those anti-competitive practices that national
competition authorities have investigated or prosecuted. Few sub-national authorities report
comparable data on enforcement activities; suggesting that the evidence in tables III.T2-5
understates the extent of enforcement activity in these economies.
273. In sum, this evidence is difficult to reconcile with the view that private anti-
competitive practices are not a feature of the commercial landscape in developing economies.Moreover, this evidence suggests that throughout the 1990s a growing number of developing
countries found it in their own interests to star t, or to increase, or to reinvigorate the
enforcement of their competition laws.WT/WGTCP/W/228
Page 84 Table III.T5: European Commission reports on the activities of competition authorities in selected accession countries
EU Accession
countrySelected comments on competition policy enforcement in 2001
Czech Republic "The Office for the Protection of Competition, which is the national competition authority in the Czech Republic,  has continued to
build on its enforcement record over the past year. In 2001, 132 anti-trust decisions were adopted (22 on restrictive agreement s, 5
on abuse of dominance, and 105 on merger cases), 12 of which were prohibitions and conditional approvals (4 with fines). In
2001, there were three court appeals against the competition office decisions and all were rejected" (page 65).
"In an effort to concentrate its resources on the most serious anti-competitive behaviour, the Office has revised its LeniencyProgramme of July 2001 in line with the Commission's new programme of February 2002, in order to further encourage whistle-
blowing by participants in cartels" (page 65).
"As regards administrative capacity, the Office for the Protection of Competition is a fully independent authority and has suff icient
resources and expertise in place. It has broad powers to enforce the competition rules. Currently, the Office employs 129 offic ials
in total" (page 66).
Estonia "The Competition Board has continued to build on its enforcement record over the past year. In 2001, it took 33 anti-tru st
decisions (compared to 31 in 2000), of which 4 were prohibitions  (1 with fines). The decisions included 9 cases of abuse of
dominant position, 8 cases of restrictive agreements, 8 merger cases (merger control was introduced in October) and 7 sectoral
investigations. Staff remained at around 40 and training activities continued" (page 58).
Hungary "The Office of Economic Competition, together with its decision-making Competition Council, has continued to build on it s
enforcement record over the past year. In 2001, it took 120 anti-trust decisions (compared to 144 in 2000), two prohibitions (t wo
with fines). The decisions included 30 cases of abuse of domina nt position, 10 cases of restrictive agreements and 80 merger ca ses.
Staff increases by 14 to 124, and training efforts continue" (page 63).
Latvia "The Competition Council, together with its investigative Competition Bureau, has continued to build on its enforcement r ecord
over the past year. In 2001, it took 30 anti-trust decisions (compared to 20 in 2000), including 6 prohibitions (1 with fines).  The
decisions included 15 cases of abuse of dominant position, 11 cases of restrictive agreements and 4 merger cases. The Competiti on
Council (in its decision-making capacity) has operated, for a large part of the year, with only 3 of the required 5 members. Th e
level of overall staffing remained at around 40, but with a continued high turnover rate of 30%. The budget for the Competition
Council was increased by 3.8%" (page 63).
Poland "The Office for Competition and Consumer Protection (OCC P), which is the national competition authority in Poland, has
continued to build on its enforcement record over the past year. In 2001, a total of 654 decisions were adopted, of which
20 concerned restrictive agreements, 218 abuse of a dominant position and 416 were adopted under the modified merger control
regime" (page 63).
 "The Office for the [sic] Competition and Consumer Protection is an independent authority and has satisfactory resources in
place. Currently, the Office employs 220 officials. Of those staf f who work in the field of competition policy, 20 officials wo rk in
the state aid departments and 65 in the corresponding anti-trust departments" (page 64).WT/WGTCP/W/228
Page 85EU Accession
countrySelected comments on competition policy enforcement in 2001
Slovak
Republic"In terms of administrative capacity, in 2002 an increase in the number of staff of the Anti-Monopoly Office to 75 (from 65) wa s
approved by the Slovak Government. Of this increased number, 38 would be case-handlers directly involved in the
implementation of anti-trust legislation [sic]. As far as en forcement is concerned, the Slovak Anti-Monopoly Office in 2001
adopted 167 decisions of which 24 concerned agreements restricting competition, 25 abuse of dominant positions, and 118
mergers. Of these, 9 decisions (including 2 imposing fines) prohi bited vertical or horizontal restrictive agreements. There hav e
been no prohibition decisions on abuse of dominance. However, in 2002, several resource-intensive investigations into
international merger cases led to approval decisions subject to substantive conditions" (page 62).
Slovenia "The Competition Protection Office, the national anti-trust authority in Slovenia, has continued to build on its enforc ement record
over the past year. In 2001, the Office adopted a total of 49 anti-trust decisions, in the field of restrictive agreements (6),  abuse of
dominant position (3), and merger control (40). These led to 4 conditional approvals and prohibitions" (page 58)."While the Competition Protection Office is an authority with th e necessary legal powers to enforce competition rules, it needs  to
be given the necessary resources to carry out the enforcement of the rules in an effective way. Currently, the Office employs 1 2
civil servants" (page 58).
Source: The text for each country is taken from that country's "2002 Regular Report on [Country's name]'s Progress Towards Acce ssion." These
reports can be downloaded from the following website: http://europa.eu.int/comm/enlargement/report2002/
Note: These reports tended to distinguish between measures taken against state aids and other competition or antitrust enforcem ent activities. All of
the above statements about the number of investigations of a na tional competition enforcement agency refer to the latter. This is not to suggest that
state aids are unimportant and that such aids do not distort market outcomes.WT/WGTCP/W/228
Page 86
C. STUDIES OF THE IMPACT OF COMPETITION POLICY ON BROAD MEASURES OF
ECONOMIC PERFORMANCE
274. The 1990s saw the number of jurisdictions that had enacted competition laws exceed
seventy (Palim 1998). A growing body of academic research supports this growing emphasis
on competition policies to enhance resource allocation in an era of internal reform, economicrestructuring, and trade and investment liberalization.
275. Such research has drawn upon recent collections of large cross-country datasets of the
factors which impede or facilitate competition in national markets, including measures of the
strength of national competition or antitrust policy. The Global Competitiveness Report 2001-
2002
58, for example, reports the average responses of business leaders in over 70 economies to
three competition-related and competition policy-related questions.59 Each business leader
was asked to grade on a seven point scale their responses to the following statements:
− "Anti-monopoly policy in your country is (1=lax and not effective at promoting
competition, 7=effectively promotes competition)."
− "In most industries, competition in local markets is (1=limited and price cutting is
rare, 7=intense and market leadership changes over time)."
− "Is competition in your country's transportation sectors sufficient to ensure high
quality, infrequent interruptions, and low prices? (1=no, 7=yes, equal to world best.)"
276. The first statement refers to the effectiveness of one form of competition policy60,
the second to the extent of competition in a nation's market, and the third to a measure of the
intensity of competition in a sector of the economy that is often seen as critical to
development. The reported values of these survey responses for over 70 non-OECD andOECD nations are reported in Appendix III.A. The measure of the effectiveness of anti-
monopoly policy takes a value of 3.7 in non-OECD  nations and 5.1 in OECD members (recall
the scale is from one to seven.) The correlation coefficient in the non-OECD nations between
measure of the effectiveness of anti-monopoly policy and the perceived intensity of
competition in national markets is 0.68, which is strikingly high. Similarly suggestive of alink between antitrust enforcement and the intens ity of competition in national markets is the
data in figure III.F1, which plots these two measures for all of the nations surveyed in the
Global Competitiveness Report 2001-2002 . To the extent that intense competition results in
                                                     
58 This report is published annually by the World Economic Forum and is listed in the
references as World Economic Forum (2002).
59 It should be noted that academic opinion is divided over the usefulness of these subjective
measures of national business environments and the policies that impinge upon them. One concern isthat having observed desirable economic outcomes—such as higher levels of economic growth orforeign direct investment—business leaders assume  that the policies in the economy in question are
playing a beneficial role. Others have argued that it is difficult—if not outright misleading—tocompare the responses of business people in one country with a different set of business people in
another country. It is said that national differences in culture may condition how business people
respond to surveys of this kind. Having said all of this, it is striking just how often measures from thisReport  are being used in economic research and in policy analyses; and this is indicative of at least
some researchers' confidence in the value of these survey responses. A distinct rationale for reportingthese survey responses here is that they do, for better or for worse, constitute part of the empiricalrecord on national competition enforcement in developing and industrialized economies.
60 This Report  does not define precisely what is meant by the term "anti-monopoly" policy. It
could, for instance, be taken to mean policies to prevent the creation of monopolies; a rather narrowdefinition. Alternatively, it could mean policies to prevent incumbent a firm or firms from exercisingmonopoly power—even if those firms are not monopolists in the markets that they serve.WT/WGTCP/W/228
Page 87
lower prices and a better allocation of national resources, then on this evidence competition
policy may play an important role in attaining these goals.
277. Other studies have examined the impact of competition policy on different measures
of economic performance. These studies invariably employ econometric techniques to strip
out—or "control for" in language of researchers—the variation caused by other pertinentfactors, so enabling the analyst to isolate the impact of competition policy on the measure of
economic performance being studied. Dutz and Hayri (1999) found that, after controlling for
the many determinants of economic growth, national output grew at a faster rate in economies
that took more strenuous steps to promote competition and to attack market power.
Figure III.F1: Intensity of competition and antitrust policy
Source of data: Mean survey responses for these variables in the World Economic Forum (2002).
278. More ambiguous results on the effectiveness of competition law can be found in
Hoekman and Lee (2003). Using data from 28 industries in 42 countries for the years 1981 to
1998, they first estimate the price-cost mark up in each industry in each country. They then
show that these estimated mark ups tend to be smaller in economies with greater import
penetration and lower domestic barriers to entry. They further show, using a dichotomous
indicator of whether a country has a competition law or not, that such laws have no directindependent and statistically significant impact on the estimated price-cost margins. However,
once they take account of the fact that nations choose whether to enact a competition law,
they find that:
"…industries that operate under a competition law tend to have a larger number of
domestic firms, suggesting that in the long run, competition laws may have an
indirect effect on domestic industry markups by promoting entry" (Hoekman and Lee
2003, page 4).
279. Although these authors would prefer to stress the importance of barriers to entry, this
latter finding is also consistent with the view that the enforcement of competition law
discourages incumbent firms from taking steps to frustrate the entry of new firms.1.02.03.04.05.06.07.0
1.0 2.0 3.0 4.0 5.0 6.0 7.0Measure of effectiveness of antitrust policy (higher value, more
effective)Measure of intensity of
competition in national
markets (higher value, more
intense)WT/WGTCP/W/228
Page 88
280. On the basis of these findings Hoekman and Lee (2003) conclude:
"While competition law is potentially an important component of a pro-active
competition policy, the analysis in this pa per suggests that dealing with trade barriers
and government regulations that restrict domestic competition by impeding entry and
exit by firms may generate a higher rate of return" (page 23).
281. This carefully crafted conclusion should be interpreted with caution. Hoekman and
Lee (2003) do not calculate the rates of return on trade reform, investment liberalization, and
measures to reduce barriers to entry, as one might expect given the strength of their
conclusion. The costs of relevant reforms—which in the case of tariff reductions would
include the potential loss of tariff revenues—are not considered in their paper, even though
they ought to be part of any cost-benefit analysis of this issue. At best, this paper hasilluminated one set of factors that are central to any such a cost-benefit analysis.
282. The effects of competitive policies have also been traced through to firm behaviour.
In a study of Eastern European and other tran sitional economies, Dutz and Vagliasindi (2000)
found that enhanced enforcement (not merely enactment) of competition policies facilitates
the growth of higher productivity firms in an industry—that is, inefficient firms cannot becushioned by the profits acquired through the exercise of market power.
61
283. Carlin et al . (2001) used survey data on 3,300 firms in 25 countries to examine
whether the degree of competition that a firm's manager perceives he or she is up against has
a positive effect on a number of dimensions of performance. They found that the more rivals a
firm perceives itself as having and the more sensitive a manager perceives the demand for itsproducts to be, the better was the firm's record at improving productivity, cutting costs, and
the greater the rate at which it developed new products and improved existing products.
284. To summarize, there is a nascent but growing empirical literature that has identified
positive effects on macroeconomic performance of stronger enforcement of national
competition laws in developing economies. This research complements the large body ofevidence on the beneficial impact on the long-term performance of firms and customers of
greater rivalry, which can be enhanced by the appropriate enforcement of competition law. To
the extent that the adoption of a multilateral framework on competition policy encourages
more active and appropriate enforcement of competition laws then, on the basis of the above
evidence, both macroeconomic and firm level economic performance will improve in
developing (and, for that matter, industrialized) economies.
285. This section and the last one primarily focused on the domestic subjects of, and
domestic consequences of, the enforcement of competition laws in developing economies. In
the following sections the focus shifts to on e major external source of anti-competitive harm
in developing economies, namely that of private international cartels. Following an increase
in enforcement actions against these cartels, by the end of the 1990s a body of research
emerged that better documented the nature, scale, and effects of these cartels on commerce inboth developing and industrialized economies. Although there may be other external anti-
competitive practices that are damaging the interests of developing economies, the empirical
record on them is far less well developed than in the case of cartels. That is not to say that the
former are unimportant; rather, that similarly convincing demonstrations that they are
important have yet to be established.
                                                     
61 Please note that this paper was circulated at the OECD's Global Forum on Competition in
February 2002.WT/WGTCP/W/228
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D. THE GROWTH OF INTERNATIONAL CARTEL ENFORCEMENT SINCE 1993
286. In recent years the anti-competitive harm to developing economies caused by private
international cartels has received much attention.62 This type of private cartel arises when:
− private firms from more than one economy make an explicit agreement to either fix
prices, divide up markets, or rig bids for contracts; or
− private firms from the same economy make an explicit agreement to either fix prices,
divide up customers, or rig bids for contracts in more than one nation's markets.63
As will become clear below, such cartels have effects other than raising prices above costsand in so doing shifting the benefits of international trade towards cartel members.
287. On the face of it, the integration of national markets through trade and investment
reform should have made it harder to sustain private international cartels—at least thosecartels that raise prices substantially. Even if it is generally the case that trade reform
undermines market power, the large number of international cartels uncovered in the 1990s
suggests that market forces alone do not offer complete protection against this menace to
international commerce.
64
288. A brief account of why international cartel enforcement surged in the 1990s is
instructive as it highlights the potential effectiveness of national anti-cartel regimes.65 The
pick up in cartel prosecutions occurred after 1993, when the United States revised its cartel
enforcement practices so as to strengthen the incentives for a cartel member to break away
from its co-conspirators and to provide evidence of the cartel's operations to authorities in
return for a reduction in the penalties subseque ntly imposed. Essentially the US authorities
guarantee, under certain conditions, that the first cartel member which cooperates with their
inquiries will obtain a full amnesty from fines and criminal sanctions for the firm's
executives.66 Combined with the very strength of sanctions against cartelization in the United
                                                     
62 This is not to suggest that cartels invo lving state-owned enterprises are unimportant.
63 This definition of a private international cartel is to be distinguished from that of a
"hardcore" cartel. This latter term has acquired a special significance since Organisation for EconomicCooperation and Development (OECD) members agreed to a non-binding "Recommendation" on such
cartels. In this recommendation, a hardcore cartel is
"an anti-competitive agreement, anti-competitive concerted practice, or anti-
competitive arrangement by competitors to fix prices, make rigged bids (collusive tenders),establish output restrictions or quotas, or share or divide markers by allocating consumers,suppliers, territories, or lines of commerce" (OECD 1998,  page 3).
Perhaps the most important distinction between the definition of private cartels elaborated in
the text above and that of hardcore cartels is the repeated use of the phrase "anti-competitive" in thelatter. This raises the issue as to whether a cartel could be pro-competitive, that is, whether a cartel's
formation could result in lower prices for purchasers. As some Chicago-school scholars (such asLandes, 1983) have pointed out, as a theoretical matter it is possible for a cartel—under certain specificcircumstances—to result in large enough cost reductions that prices paid by purchasers actually fall.
The relevance of this theoretical observation for policy discourse has not been established in the
available empirical evidence on private international cartels.
64 OECD (2002a) contains a detailed overview of the enforcement actions against hardcore
cartels in the 1990s.
65 This is not to suggest that international car tels have not been the subject of policy debate
and enforcement actions before 1993. See Scherer (1994) for an account of the relevant history in this
regard.
66 Details of the US leniency programs for criminal antitrust violations, such as cartelization,
can be found at http://www.usdoj.gov/atr/public/criminal.htm . More generally, the role of leniency
programs in prosecuting hardcore cartels is described in OECD (2002b).WT/WGTCP/W/228
Page 90
States—which include provisions for executives to be jailed—this change in amnesty (or
leniency) provisions provided cartel members with strong incentives to come forward with
information. Moreover, the alternative to inducing firms to come forward with evidence is for
enforcement authorities to search for evidence of cartelization, which is often costly, a
potential source of harassment of the private sector, and can be fruitless—especially whensophisticated cartel members hide evidence of their meetings and agreements beyond the
reach of a nation's enforcement agency.
289. What did this combination of strong sanctions for cartelization and a specially-
tailored leniency program accomplish for the United States? Before 1993, approximately one
firm a year applied for leniency and significant international cartel cases were rare. Now, on
average one firm a month applies for leniency. US fines against domestic and international
cartels during the 1990s totaled $1.9 billion. These fines were based in part on the damagedone to the US economy by these cartels, and do not include harm done abroad.
67
290. In recent years the European Commission has stepped up its cartel enforcement
efforts, so much so that in 2002 the EC fined cartel members over a billion euros for their part
in conspiracies that distorted markets in the European Union. The EC has also revised its
Leniency Programme in February 2002 so as to strengthen the incentives of cartel members tocome forward with information.
68
291. The US and European Commission's antitrust authorities alone have prosecuted
during the 1990s forty international cartels involving private firms. Twenty-four of these
cartels lasted at least four years—calling into question the view that market forces quickly
undermine cartels (Evenett, Levenstein, and Suslow, 2001). Moreover, firms from thirtyeconomies—eight of the developing economies—participated in these cartels, suggesting that
membership is not confined to a small group of countries. Furthermore, the variety of goods
involved in recent cartel cases suggests that this anti-competitive practice is not generic to a
few industries (see table III.T6 on both counts).
292. Many of the cartels uncovered by the US and European authorities were conspiracies
to carve up international markets. The publicity associated with these prosecutions, plus the
substantial fines imposed, attracted the attention of other countries' enforcement agencies and
now attacking cartels is no longer the exclus ive preserve of a small number of industrial
nations. Brazil and Korea, for example, have undertaken investigations and prosecutions of
private international cartels.
                                                     
67 US antitrust officials have given numerous speeches on their cartel enforcement experience
which contain much illuminating material. These speeches can be downloaded at
http://www.usdoj.gov/atr/public /speeches/speech_criminal.htm .
68 Further information about EC cartel enforcement can be found at
http://europa.eu.int/comm/competition/speeches/index_theme_1.html.