Study of issues relating to a multilateral framework on competition policy
Type
work report
Date Issued
2003
Editor(s)
Abstract
1. This study examines three issues relevant to the work of the Working Group on the Interaction between Trade and Competition Policy. These are:
- possible trade-offs and complementarities between competition policy and industrial policy, both in theory and with reference to historical experience, and the implications of a possible multilateral framework on competition policy in this regard. A key focus here is on whether and in what circumstances the application of competition policy is likely to facilitate or impede the realization of dynamic efficiency gains;
- possible resource implications of adopting and effectively implementing a multilateral framework on competition policy. This includes, but is not limited to, consideration of the resource implications of: (i) adopting a national cartel law and enforcement regime; and (ii) possible modalities of voluntary cooperation; and
- the impact of competition law and policy in tackling anti-competitive practices of firms in a developing country setting.
2. The study is based entirely on existing economic, legal and developmental literature and empirical information that is available from public sources. Where appropriate, the study has attempted to set out the different perspectives that have been advanced in discussions among and between policymakers, practitioners, and scholars. Considerations of space have required a rigid focus on the issues set out in the terms of reference. Consequently, many not directly-related matters-that are often the subject of vigorous debates among, in particular, scholars-have been omitted.
3. With regard to the first issue referred to in paragraph 1, Part I of the study identifies and discusses four arguments that have been put forward in the relevant economic and developmental literature as to how the attainment of dynamic efficiencies might be compromised by the adoption or enforcement of competition law. Analysis of these arguments reveals that one is sector-specific and not of general application, another does not really constitute a case for restricting rivalry between firms, and the remaining arguments have substantial shortcomings. The study goes on to identify five sources of complementarity between competition policy and dynamic efficiency gains that have been advanced in the literature. At least three of these have been shown to have a solid empirical basis. With some potentially important exceptions of a sectoral nature, then, the weight of the evidence suggests that measures to stimulate competition between firms tend to promote rather than impede dynamic efficiency gains and economic growth.
4. Part I of the study also includes an examination of historical experience relating to the interaction between competition and industrial policy in several Asian economies. This reflects the prominence given to the experience of these economies in relevant economic literature and policy debates. An important finding in this regard is that, even when measures to restrict the degree of inter-firm rivalry were employed by some of these economies, subsequent research and policy analyses have found that, in many cases, these measures were unimportant or worse, counterproductive. Reflecting this, recently, the economies examined in this part of the paper have reduced their reliance on policy tools that may limit competition and placed greater weight on the promotion of competition as a means of ensuring satisfactory long run performance.
5. Even though these conceptual, empirical, and historical observations cast doubt on the wisdom of constraining competition between firms as means of improving long-term economic performance, it is recognized that, from time to time, most governments will choose to limit competition at least in some sectors as a means of pursuing their diverse economic, social, and developmental goals. In this regard, the study describes five distinct means by which any perceived tensions between these goals and the enforcement of competition law have been managed in jurisdictions with active competition regimes. The study then goes on to examine whether these five means can be reconciled with current proposals for a multilateral framework on competition policy. It concludes that, by and large, they can be - implying that a multilateral framework on competition policy of the type that is currently being contemplated, while facilitating the effective application of competition policy by WTO Members in various ways, is unlikely to prevent governments from pursuing other policy goals or even from implementing policies that may sometimes limit competition in ways that they have traditionally done so.
6. With regard to the resource costs of adopting and effectively implementing a multilateral framework on competition policy, Part II of the study identifies, for each of the main elements of a multilateral framework that are described in the current proposals, the types of resource implications that might arise. Empirical data on this subject is sparse; nevertheless, the study sets out what is available, particularly regarding the costs of operating a national competition authority, and offers a number of cautions as to how this data should be interpreted. An important premise of this part of the study is that the costs of the current proposals need to be assessed in light of the benefits foreseen. For example, although measures to promote voluntary cooperation between the competition agencies of WTO Members, including developing country Members, would undoubtedly entail some (probably modest) resource costs, the purpose of such measures is indeed to save resources by enabling countries to obtain necessary information and to take appropriate enforcement actions at a lower cost than would otherwise be the case. More generally, the nature and magnitude of many of the benefits of a potential multilateral framework are likely to depend critically on the magnitude of the resource costs that a WTO Member is willing to bear.
7. With regard to the third major set of issues included in the terms of reference, namely the impact of competition law in tackling anti-competitive practices in developing countries, Part III of the study examines recent records and other publicly available information regarding the enforcement of competition law in such countries. Perhaps surprisingly, extensive information of both a qualitative and quantitative nature is available with regard to the enforcement activities of an increasing number of developing and transition countries with active enforcement regimes. One of the striking findings in this regard is the number of cartel enforcement actions and, in particular, the number of bid rigging cases where the state has been the target of a conspiracy.
8. This part of the study goes on to describe recent empirical economic research on the impact of competition law enforcement on macroeconomic performance and price-cost margins. This literature is very much in its infancy but it does point to the beneficial effects of tackling anti-competitive practices in developing economies.
9. The remainder of Part III of the study is devoted first to describing the extent of international cartel enforcement efforts in the 1990s and then to assessing the likely effects of enhanced enforcement against cross-border hardcore cartels operating in developing economies. Based on publicly available information, estimates are presented of the value of developing country imports affected by private international cartels in the 1990s as well as of the overcharges paid by customers in these countries. The evidence is overwhelming that the latter run into the billions of United States dollars per annum. In the case of one ten year-long cartel with global reach (the international vitamins cartel), the evidence also shows that countries without active cartel enforcement regimes paid considerably more in overcharges than countries with such regimes. This reinforces the view that there are likely to be substantial net benefits, particularly to developing countries, from strengthening national anti-cartel enforcement efforts and international cooperation in this area - which of course are two of the principal goals of a multilateral framework.
- possible trade-offs and complementarities between competition policy and industrial policy, both in theory and with reference to historical experience, and the implications of a possible multilateral framework on competition policy in this regard. A key focus here is on whether and in what circumstances the application of competition policy is likely to facilitate or impede the realization of dynamic efficiency gains;
- possible resource implications of adopting and effectively implementing a multilateral framework on competition policy. This includes, but is not limited to, consideration of the resource implications of: (i) adopting a national cartel law and enforcement regime; and (ii) possible modalities of voluntary cooperation; and
- the impact of competition law and policy in tackling anti-competitive practices of firms in a developing country setting.
2. The study is based entirely on existing economic, legal and developmental literature and empirical information that is available from public sources. Where appropriate, the study has attempted to set out the different perspectives that have been advanced in discussions among and between policymakers, practitioners, and scholars. Considerations of space have required a rigid focus on the issues set out in the terms of reference. Consequently, many not directly-related matters-that are often the subject of vigorous debates among, in particular, scholars-have been omitted.
3. With regard to the first issue referred to in paragraph 1, Part I of the study identifies and discusses four arguments that have been put forward in the relevant economic and developmental literature as to how the attainment of dynamic efficiencies might be compromised by the adoption or enforcement of competition law. Analysis of these arguments reveals that one is sector-specific and not of general application, another does not really constitute a case for restricting rivalry between firms, and the remaining arguments have substantial shortcomings. The study goes on to identify five sources of complementarity between competition policy and dynamic efficiency gains that have been advanced in the literature. At least three of these have been shown to have a solid empirical basis. With some potentially important exceptions of a sectoral nature, then, the weight of the evidence suggests that measures to stimulate competition between firms tend to promote rather than impede dynamic efficiency gains and economic growth.
4. Part I of the study also includes an examination of historical experience relating to the interaction between competition and industrial policy in several Asian economies. This reflects the prominence given to the experience of these economies in relevant economic literature and policy debates. An important finding in this regard is that, even when measures to restrict the degree of inter-firm rivalry were employed by some of these economies, subsequent research and policy analyses have found that, in many cases, these measures were unimportant or worse, counterproductive. Reflecting this, recently, the economies examined in this part of the paper have reduced their reliance on policy tools that may limit competition and placed greater weight on the promotion of competition as a means of ensuring satisfactory long run performance.
5. Even though these conceptual, empirical, and historical observations cast doubt on the wisdom of constraining competition between firms as means of improving long-term economic performance, it is recognized that, from time to time, most governments will choose to limit competition at least in some sectors as a means of pursuing their diverse economic, social, and developmental goals. In this regard, the study describes five distinct means by which any perceived tensions between these goals and the enforcement of competition law have been managed in jurisdictions with active competition regimes. The study then goes on to examine whether these five means can be reconciled with current proposals for a multilateral framework on competition policy. It concludes that, by and large, they can be - implying that a multilateral framework on competition policy of the type that is currently being contemplated, while facilitating the effective application of competition policy by WTO Members in various ways, is unlikely to prevent governments from pursuing other policy goals or even from implementing policies that may sometimes limit competition in ways that they have traditionally done so.
6. With regard to the resource costs of adopting and effectively implementing a multilateral framework on competition policy, Part II of the study identifies, for each of the main elements of a multilateral framework that are described in the current proposals, the types of resource implications that might arise. Empirical data on this subject is sparse; nevertheless, the study sets out what is available, particularly regarding the costs of operating a national competition authority, and offers a number of cautions as to how this data should be interpreted. An important premise of this part of the study is that the costs of the current proposals need to be assessed in light of the benefits foreseen. For example, although measures to promote voluntary cooperation between the competition agencies of WTO Members, including developing country Members, would undoubtedly entail some (probably modest) resource costs, the purpose of such measures is indeed to save resources by enabling countries to obtain necessary information and to take appropriate enforcement actions at a lower cost than would otherwise be the case. More generally, the nature and magnitude of many of the benefits of a potential multilateral framework are likely to depend critically on the magnitude of the resource costs that a WTO Member is willing to bear.
7. With regard to the third major set of issues included in the terms of reference, namely the impact of competition law in tackling anti-competitive practices in developing countries, Part III of the study examines recent records and other publicly available information regarding the enforcement of competition law in such countries. Perhaps surprisingly, extensive information of both a qualitative and quantitative nature is available with regard to the enforcement activities of an increasing number of developing and transition countries with active enforcement regimes. One of the striking findings in this regard is the number of cartel enforcement actions and, in particular, the number of bid rigging cases where the state has been the target of a conspiracy.
8. This part of the study goes on to describe recent empirical economic research on the impact of competition law enforcement on macroeconomic performance and price-cost margins. This literature is very much in its infancy but it does point to the beneficial effects of tackling anti-competitive practices in developing economies.
9. The remainder of Part III of the study is devoted first to describing the extent of international cartel enforcement efforts in the 1990s and then to assessing the likely effects of enhanced enforcement against cross-border hardcore cartels operating in developing economies. Based on publicly available information, estimates are presented of the value of developing country imports affected by private international cartels in the 1990s as well as of the overcharges paid by customers in these countries. The evidence is overwhelming that the latter run into the billions of United States dollars per annum. In the case of one ten year-long cartel with global reach (the international vitamins cartel), the evidence also shows that countries without active cartel enforcement regimes paid considerably more in overcharges than countries with such regimes. This reinforces the view that there are likely to be substantial net benefits, particularly to developing countries, from strengthening national anti-cartel enforcement efforts and international cooperation in this area - which of course are two of the principal goals of a multilateral framework.
Language
English
Keywords
competition policy
trade
HSG Classification
not classified
Refereed
No
Publisher
World Trade Organization's Secretariat
Subject(s)
Eprints ID
22163
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