1. The proposal to add competition policy obligations to the WTO is a perplexing one for many delegations. The competition dossier of the Doha Work Programme (DWP) is sometimes presented simply as one of the “Singapore issues” foisted on the WTO membership by the European Union and some other industrialised participants. However, competition policies are increasingly recognised as primary pillars of economic development for which meaningful international cooperation and effective institution building are the foundations.

2. Dig down a little deeper and we find a further set of agendas. Industrial countries want more cooperation among their own competition authorities; many governments want stronger tools to deal firmly with the activities of “hardcore cartels”; and major banks and corporations are concerned to facilitate the evaluation of mergers and acquisitions around the world. Are these objectives best pursued at the multilateral level; are they most easily accomplished in the WTO? Is it not logical to extend the coverage of WTO disciplines from government behaviour to private sector behaviour? If so, is the system not heaping more burdens on the backs of developing countries already struggling to implement Uruguay Round commitments? Is there a danger of creating multilateral obligations that will end up with the WTO second-guessing powerful national competition authorities?

3. The WTO is far from the only forum in which these issues are being debated. UNCTAD, the OECD, various regional and several private sector-driven initiatives have grappled with them over many years. Although competition policy—and especially its relevance to development—is now much better understood, this work has not so far taken multilateral cooperation very far. Hence the interest in the WTO mandate under the DWP, the core of which reads:

“Recognizing the case for a multilateral framework to enhance the contribution of competition policy to international trade and development, and the need for enhanced technical assistance and capacity-building in this area as referred to in paragraph 24, we agree that negotiations will take place after the Fifth Session of the Ministerial Conference on the basis of a decision to be taken, by explicit consensus, at that Session on modalities of negotiations.”

4. Thus, the dossier is subject to the same negotiating trigger—after the Cancun Ministerial Conference in September 2003—as the other “new” so-called Singapore issues. Paragraph 24 of the declaration calls for particular attention to technical assistance while, in the meantime, clarification will be sought in the areas likely to be covered by any agreement:

“In the period until the Fifth Session, further work in the Working Group on the Interaction between Trade and Competition Policy will focus on the clarification of:  core principles, including transparency, non-discrimination and procedural fairness, and provisions on hardcore cartels; modalities for voluntary cooperation; and support for progressive reinforcement of competition institutions in developing countries through capacity building.  Full account shall be taken of the needs of developing and least-developed country participants and appropriate flexibility provided to address them.”

5. In accordance with the 2002 work programme, four formal meetings of the working group took place. The first two, in April and early July 2002, focused on competition institutions in developing countries and hardcore cartels and modalities for voluntary cooperation respectively. The late September 2002 meeting concentrated on core principles (including transparency, non-discrimination and procedural fairness) while the fourth meeting in late November considered a report for the year [Note 1]. Technical assistance and capacity building issues were raised during each of the scheduled meetings. Two more meetings were scheduled for 2003, in February and late May 2003, ahead of the Fifth Ministerial Conference to be held in Cancun in September 2003, the first to examine the nature and scope of possible compliance mechanisms to be included in a multilateral framework on competition policy. The May meeting, the last one before Cancun, examined a number of issues: the elements related to paragraph 25 of the Ministerial Declaration and matters raised in 2002 to which the members wished to revert; the compliance mechanisms under a multilateral framework on competition policy; stocktaking of national experience and legislation; and technical cooperation and capacity building.

II. What is Competition Policy?

6. Competition policy is about the behaviour of firms, particularly the manner in which that behaviour affects consumers—consumers as private citizens and consumers as other industries and other firms. One representative definition [Note 2] sums up competition policy as follows:

“Effective competition policy covers a range of restrictive business practices. It should cover horizontal and vertical restraints, mergers and acquisitions, abuse of dominance, and hard-core cartels, but should be set in the wider context of commercial law. Competition law strengthens and underpins the efficient working of the domestic market.”

Another definition [Note 3] states:

“Competition policy is defined as ‘those Government measures that directly affect the behaviour of enterprises and the structure of industry.’ The objective of competition policy is to promote efficiency and maximize welfare.”

7. The role of the GATT and the WTO has largely been to promote competitive conditions for trade between countries and between imported goods and domestically produced goods. For the most part, this means providing a framework within which governments can develop trade law and regulation. But it has been for governments to set the conditions under which domestic firms operate. True, the WTO’s anti-dumping rules impact directly on the behaviour of companies. True also, that the Uruguay Round Agreements—those on TRIPS and services for instance—began to circumscribe the flexibility of governments in setting competitive conditions in their domestic economies, especially where foreign firms are active in the market.

8. The GATT and WTO have succeeded in opening markets and improving conditions of international competition; partly as a consequence, the global economy has evolved and with it “global firms” have proliferated. Now, attention is increasingly directed towards those activities of companies that undermine the competitive environment created by the trade rules. This is not entirely new: competition policies are covered partially by the GATT through its rules on state trading enterprises, while Article 40 of the WTO TRIPS Agreement covers anti-competitive practices in the context of the licensing of intellectual property rights.

III. Competition Policy a Tool for Development?

9. It is not, however, the behaviour of global companies that has driven so many governments to conclude that a properly functioning competition policy is a pre-condition for advancing development. According to UNCTAD, more than ninety WTO members already have a competition regime of which more than half have been set up in the last ten years. That means many developing countries are seeking to ensure the best possible allocation of scarce national resources and to protect their consumers from anti-competitive behaviour by local suppliers. Further down the line, insisting that local companies operate in a fully competitive domestic environment is generally considered to be the only way of creating enterprises capable of succeeding in global export markets.

10. UNCTAD’s Secretary-General, told a competition expert’s conference, organised by his institution in 2001:

“I am convinced that correctly implemented competition policy can do much to combat poverty, enhance competitiveness and promote development.” He added that he saw competition as the “soul of the market….not something needed only after attaining a high degree of development.” [Note 4]

11. Indeed, there is wide and growing acceptance that broad economic liberalisation programmes are unlikely to be effective—and may even be counter-productive—in the absence of a competition policy. Thus moves to liberalize trade; privatise public enterprises; deregulate and abolish monopolies; scrap price controls; and stimulate foreign direct investment all need the underpinning of a competition regime [Note 5]. Effective competition regimes can be seen as an aspect of good governance, providing a balance between the rights of consumers and producers and a counterbalance to the pressures of more open domestic markets.

12. In many developing countries the lack of a truly competitive environment stifles the establishment and growth of industries that benefit developing country consumers and the private sector.

13. Unfortunately, establishing workable competition laws and setting up credible competition authorities is neither easy nor straightforward. While it is generally accepted that there is no “one-size-fits-all” ideal—much depends on the level of development and the size of economies, for instance—it is clear that countries with experience in creating and administering competition law have know-how that others need. Hence, the intense focus on technical assistance, capacity building and international cooperation between authorities that have emerged in the WTO discussion and are the basis of continuing work in other institutions. As the Doha declaration infers, it is clear that the delivery of this kind of support will be at the core of any WTO competition agreement that emerges from the DWP. The operative paragraph reads as follows:

“We recognize the needs of developing and least-developed countries for enhanced support for technical assistance and capacity building in this area, including policy analysis and development so that they may better evaluate the implications of closer multilateral cooperation for their development policies and objectives, and human and institutional development.  To this end, we shall work in cooperation with other relevant intergovernmental organisations, including UNCTAD, and through appropriate regional and bilateral channels, to provide strengthened and adequately resourced assistance to respond to these needs.”

14. Many developing country delegations have tabled proposals on technical assistance in the WTO Working Group on the Interaction between Trade and Competition Policy. Not that such support would be entirely new. For instance, in a submission to the WTO Working Group [Note 6] the US reported that, for nearly twelve years, the US Federal Trade Commission (FTC) and the US Department of Justice's Antitrust Division (DOJ) had provided international technical assistance, funded principally by the US Agency for International Development (USAID), for the benefit of antitrust agencies in developing countries and economies in transition. The European Union [Note 7]has similar programmes, especially in the transition economies and in states that are candidates for EU membership, as do other industrialised nations [Note 8].

15. However, some critics suggest that such efforts at technical cooperation have been designed to plant the donor country’s particular approach to competition policy in its export markets rather than to tailor the assistance and advice to particular situations. In any event, there is little question that a WTO agreement—even a minimalist agreement—would require a much greater commitment to effective capacity building.

IV. First Step: Creating a Competition “Culture”

16. Competition policy experts—and especially those from developing countries that have gone some distance in establishing competition regimes—consistently stress that the pre-condition for success is a period of competition advocacy and the evolution of a competition “culture”. A paper [Note 9] submitted by Canada illustrates the manner in which reform of the telecommunications sector was spurred by competition policy advocacy by the regulators concerned. Other WTO members have shared their own experiences. It has been suggested that cross-border alliances within the business community as well as consumer groups can be important factors in instilling a competition culture, without which competition law may be difficult to sustain. However, it is also emphasised that competition cultures depend crucially on the credibility of the competition regulators. Again, establishing such credibility may often hang on harnessing the experiences of other countries that have worked through the process.

17. Another theme that bears on the development perspective is the potential of regional trade agreements to provide platforms for the construction of competition policy regimes. It is also suggested that regional groups of small economies could cooperate in the development of effective competition policies and institutions.

V. Industrial and Developing Countries’ Quest for International Cooperation

18. Much of the debat—in the WTO and outside—is generated less by development concerns than by the everyday challenges of operating effective competition policies within a global economy populated by multinational firms whose activities spread through a broad sweep of jurisdictions. Large-scale merger reviews or cartel investigations are seldom restricted to a single jurisdiction; mergers can be reviewed in as many as 60 jurisdictions. The competition authorities that examine these transactions already cooperate. However, a good number of governments believe there is scope for more cooperation in this field, perhaps within the framework of multilateral rules. Further, there is a view that the tendency to exercise extraterritorial reach in merger and cartel reviews enhances the value of a clearer international framework of cooperation—though not everyone believes it should necessarily be within the WTO.

19. However, this is far from an exclusively developed country preoccupation. Developing country members with fully operational competition authorities have similar concerns. For instance, how do poorer countries have an impact on merger proposals that may be seen as principally affecting industrial markets? A merger may be acceptable in Europe or the US given the level of remaining competition in the market; in a smaller or poorer country it may create a monopoly. Yet poorer countries do not always know about a merger soon enough to take appropriate action in their own markets, or they lack the machinery to find out.

20. Cooperation in the pursuit of anti-competitive behaviour has been developed substantially on a bilateral basis, notably by the EU and US. Bilateral agreements allow for a variety of instruments. “Positive comity” provides for one party to an agreement to request the second to take enforcement action against anti-competitive conduct by one or more companies located in that party. “Negative comity” simply requires each party to consider the important interests of the other in its competition enforcement activities. Other instruments provide for notifications, the exchange of information and enforcement coordination.

VI. Improved Cooperation Through a Two-Track Approach

21. Both the EU and the US have envisaged reinforcing bilateral cooperation agreements as well as seeking a broader multilateral approach. The EU has tended to favour the WTO as the vehicle for multilateral action. The US has developed its own views following a report—usually known as the ICPAC Report—by the International Competition Policy Advisory Committee to the Department of Justice’s Anti-Trust Division in 2000. The ICPAC conclusions dwelt extensively on the need for more convergence and less conflict among international competition regimes, especially in the field of merger reviews. It called for a “Global Competition Initiative”—though without the establishment of any new international bureaucracy. It steered clear of endorsing the WTO as a vehicle for such an undertaking.

22. The question of merger reviews has occupied many large multinational firms as well as the investment banks that advise on such transactions. They want expedited, preferably harmonized, and non-arbitrary treatment of their proposed deals. They point to the costs associated with preparing submissions in different forms, in many different languages to meet many different criteria. They also seek to ensure that competition authorities view mergers not solely in the context of their limiting competition, but in terms of their ability to improve the efficient allocation of resources and, therefore, the international competitiveness of domestic firms. Of course, with the boom in mergers and acquisitions now at an ebb the pressure may be reduced. However, such interests press on some governments and have led to various private sector sponsored initiatives to make concrete the ICPAC competition initiative. Certainly, there is some doubt in the private sector that the WTO is the vehicle to secure short-term results in the fields where large firms have an interest.

VII. Peer Review and Dispute Settlement

23. According to a WTO background note [Note 10], discussions to date in the Working Group have emphasised two main elements of possible voluntary cooperation in a multilateral framework on competition policy: (i) case-specific cooperation and (ii) cooperation in the sharing of information and experiences on issues of common interest. Some participants envisage a WTO Competition Policy Committee that would oversee such work.

24. The attraction of (i) to developing countries lacking the investigative and administrative capacity to pursue competition cases that originate outside their borders is evident. At the same time there is nervousness among established regulators at the prospect of being required to share often highly confidential commercial material with nascent competition authorities without a track record. Even the sharing of information on major merger cases between antitrust/competition authorities in Brussels and Washington can be delicate.

25. Apart from the traditional delivery of technical assistance and capacity building (mostly in the form of seminars), the concept of peer review has entered the debate on competition policy. Discussion in the Working Group has circled around the use of the regular trade policy review mechanism (TPRM) process or a tailored format under a proposed Competition Policy Committee. A discussion paper from the OECD Secretariat [Note 11] sees the use of peer reviews as part of the convergence process in international competition policies as well as an instrument of international transparency and good domestic policy-making. The report looks at the advantages and disadvantages of using the TPRM or the OECD’s own country review procedures and concludes that a specialist hybrid arrangement might be advisable for any WTO Agreement.

26. While the concept of peer review appears to be accepted widely as a valuable tool of capacity building in its own right, some members of the WTO see it also as an alternative to the application of dispute settlement in the competition field. Certainly, references to the dispute settlement issue and the peer review were made in the Working Group, and were an important subject of the discussion of the last meeting of the Working Group before Cancun in May 2003. Submissions from members on the peer review process or the application of dispute settlement until just prior to the included one by the United States [Note 12] the European Community submitted a proposal on options [Note 13].  Ways in which peer reviews and dispute settlement may be used in an eventual WTO Agreement on Competition, not sufficiently debated yet, are likely to be focussed on more closely in future work on the interaction between trade and competition.

VIII. Hardcore Cartels – the Anathema of Competition Policy

27. The most self-evident field for international cooperation in competition policy—with an interest both for developing and developed countries—is in the fight against major commercial cartels. This is the sole practical aspect of competition policy included in the Doha mandate for examination prior to the Cancun Ministerial Conference. It was the principal topic of the June 2002 Working Group session and has been a focus of attention in the Group’s activities since the Singapore ministerial in 1996.

28. There is little wonder that this special attention in the WTO is uncontroversial. A speaker at a recent WTO competition policy symposium stated that developing countries had collectively overpaid as much as $32 billion on imports of products covered by just 16 international cartels. That is one-third of the aid received by developing countries. A further observation was that once cartels are broken up price falls could be expected in the region of 20-40 percent. Among many examples of major cartels are the vitamins cartel, broken up several years ago, and the so-called “East of Burma” steel cartel under which Asian and European steel companies agreed not to compete in markets either side of a line running through Burma. The latter, while illegal, is regularly reported still to be operating. The OECD has worked on the issue for many years and adopted a Recommendation Concerning Effective Action Against Hardcore Cartels in 1998. In a report on sanctions against the members of hard-core cartels [Nota 14], the OECD concluded that even though the average level of fines against companies and responsible individuals were increasing – reaching over $100 million a case in three countries - they were still probably not sufficiently high for effective deterrence.

29. The WTO Secretariat background paper on hardcore cartels [Nota 15], circulated in June 2002, notes a general view in the Working Group that cartels are the most pernicious type of anti-competitive practice from the point of view of trade and development as well as of competition law enforcement. They impose heavy costs on consumers and the economies of WTO members. Even where they do not affect market access per se, which they often do, the paper noted that cartels distort the efficient functioning of international markets and thereby undermine realization of the benefits that should flow from trade liberalization. The impact is not always simply a direct price hike on retail items; frequently the products whose prices are held up by cartel actions are industrial inputs. In such cases, price effects may be felt by consumers on a multitude of final products.

30. Much of the Working Group’s discussion focuses on international investigative and enforcement cooperation to fight cartels. However, a key element of current proposals by some WTO members for the development of a multilateral framework on competition policy is a commitment to the prohibition of hardcore cartels.

IX. The Role of Core WTO Principles in a Multilateral Competition Agreement

31. The Doha mandate requires the working group to clarify core WTO principles, including transparency, non-discrimination and procedural fairness. Until now the post-Doha activities of the Group have concentrated on technical assistance, capacity building, international cooperation and hardcore cartels, elements of progressivity and flexibility. Detailed proposals have been tabled both by developed countries and by developing countries, notably among the latter Argentina, China, Hong Kong, China, India, Korea, and Thailand, among others. The 2001 and 2002 reports [Nota 16] to the General Council provide an outline of points covered.

32. Discussions have examined the principles of non-discrimination (including national treatment and most-favoured-nation treatment), transparency, flexibility and progressivity, special and differential treatment and due process. Some participants considered that a framework built around such principles could, regardless of the size of an economy or country, be a basis for putting in place a competition policy contributing both to consumer welfare and development-related objectives [Nota 17]. On the other hand, some developing countries have expressed concern that the application of such principles could reduce their regulatory sovereignty in key development and social policy areas. While the proponents of a competition agreement reject this view, it is clear that much further work is needed to clarify what the principles really mean in the context of national competition policies.

33. In any event, it has often been stressed that, other than in the area of hardcore cartels, the proponents were not calling for the adoption of common provisions relating to substantive competition laws or enforcement policies. Under the proposed framework, there would remain a large amount of flexibility in regard to most aspects of any national competition law regime.

X. Likely Elements in a Prospective WTO Competition Agreement

34. The Cancun Ministerial Conference will be required to take a decision on the “modalities” of the negotiations that might follow. That term is usually taken to refer as much to the procedural form (architecture) of a possible agreement as to the substantive ground it might cover. The key question will be how the developing countries will be treated, particularly the scope for special and differential treatment. While it is too early for the WTO Working Group to take on this delicate issue formally, some pointers to the nature of flexibility and progressivity that might be envisaged can be found in pre-Doha discussions and in offerings from other institutions. Both UNCTAD and the OECD [Nota 18] have looked at some possibilities. Among them:

● A flexible GATS-like (WTO services agreement) structure allowing progressive and essentially voluntary commitments.

● A broad framework agreement containing a very few core principles and scope for exemptions and exclusions.

● A plurilateral agreement. Prior to Doha, the EU floated the idea of an agreement from which members might opt out or opt in at the conclusion of the negotiations. This was widely criticised both for reintroducing the notion of a two-level WTO and because of the interlinkages that might be established with other aspects of the Doha Work Programme.

● Generous transition periods. Here it has been noted that S&D can be a double-edged sword. On one hand, time is needed by many countries still only at the start of the process of establishing credible competition laws and institutions; and with time they need intensive technical assistance. On the other, leaving developing economies open, for any longer than absolutely necessary, to restrictive business practices—especially the operation of monopolies and cartels by domestic firms—could prove counterproductive and might be a drag on the development process itself.