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Introduction to Trade and Competition
Policy in the WTO
OBJECTIVE

Overview of Trade and Competition Policy in the WTO.
My Course series
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I.
TRADE AND COMPETITION POLICY
What is competition policy?
Competition policy deals with the behaviour of enterprises and, specifically, the regulation of anti-competitive
practices, such as cartels, mergers that lessen competition or create a dominant position in a market, and
abuses of a dominant position. In addition, competition agencies sometimes address government-imposed
barriers to competition through "advocacy" and other tools.
I.A.
COMPETITION POLICY AND TRADE
WTO Agreements deal with various specific aspects of the relation between trade and competition policy. For
example:

Article II:4 of the GATT and Article VIII of the GATS contain rules dealing with monopolies and
exclusive service suppliers.

Article 40 of the TRIPS Agreement and Article IX of GATS recognize that anti-competitive practices can
adversely affect trade and establish procedures for cooperation by WTO Members regarding such
practices.

The Reference Paper on regulatory principles, adopted by certain Members as part of the Negotiations
on Basic Telecommunications Services under the GATS, commits such Members to adopt measures to
prevent anti-competitive practices by major suppliers.
What is the relation between Competition Policy and Trade?
There is a complementary relation between trade and competition policy. Competition policy contributes to
the growth of international trade and economic development by addressing practices (e.g. international
cartels or import/export monopolies) that can distort markets and harm consumers or user industries, even
when government-imposed trade impediments have been removed.
Studies prepared for the World Bank
have suggested that, in the 1990s, international cartels raised the costs of developing countries' imports by
billions of dollars annually, thereby impacting adversely on both consumers and user industries.
In the past, support has been expressed for more general rules to ensure that anti-competitive practices do
not hinder the benefits from trade liberalization.* It has also been suggested that a "framework" agreement
on this topic could help developing countries to protect themselves from practices that are harmful to their
development. However, WTO Members have not yet reached consensus on these matters.
* This is a general premise of the United Nations Set of Multilaterally Agreed Equitable Principles and Rules for
the Control of Restrictive Business Practices, a non-binding international instrument addressing these issues.
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I.B.
THE WORKING GROUP ON THE INTERACTION BETWEEN
TRADE AND COMPETITION POLICY
At the Ministerial Conference in Singapore (1996), Ministers established a Working Group on the
Interaction between Trade and Competition Policy (WGTCP).
The WGTCP met regularly from 1997 to
2003. You may access the documents produced by the WGTCP at the WTO Website.
What is a "hardcore cartel"?
"Cartel" refers to agreements between companies that aim to fix prices, reduce output or allocate markets.
The term "hardcore" underscores the harm caused by such agreements and distinguishes them from joint
ventures or other inter-firm arrangements that involve active collaboration and enhance welfare.
In the Doha Ministerial Conference (2001), Members recognized the case for a multilateral framework to
enhance the contribution of competition policy to international trade and development, as well as the need for
enhanced technical assistance and capacity-building in this area. After Doha, work of the WGTCP focused on:

clarifying the core principles on transparency, non-discrimination and procedural fairness;

developing provisions on "hardcore cartels" and modalities for voluntary cooperation; and,

providing capacity building for competition institutions in developing countries.
TO KNOW MORE... PROPOSALS FOR A MULTILATERAL FRAMEWORK ON COMPETITION
POLICY
Proposals were put forward for a multilateral framework on competition policy that would embody the
following five elements:

A commitment by WTO Members to a set of core principles relating to the application of competition
law and policy, including transparency, non-discrimination and procedural fairness.

A parallel commitment by member governments regarding measures against hardcore cartels.

The development of modalities for cooperation between members on competition policy issues.

A commitment to provide technical assistance to developing countries, in cooperation with other
interested organisations and national governments.

The establishment of a WTO standing committee on competition policy.
At the Cancun Ministerial Conference (2003), no agreement was reached with regard to these proposals or the
modalities for negotiations.
On 1 August 2004, the General Council decided that work on trade and
competition policy would no longer form part of the Doha Development Agenda (DDA), but left open the
possibility of resuming work in this area after the conclusion of the round.
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Competition Policy and Developing Countries
Consumers in developing countries are probably more vulnerable to anti-competitive practices and have a
particularly compelling need to be protected against cartels, monopoly abuses and the creation of new
monopolies through mergers, due to:

inadequate business infrastructure and distribution channels;

asymmetries of information in product and credit markets; and,

greater proportion of local (non-tradable) markets.
The relation between competition policy and economic development was at the core of the WGTCP, which
identified ways in which anticompetitive practices hinder economic development and how competition policies
can support development.
In countries where incomes are limited, it is important that the purchasing power of consumers is not further
diminished through anticompetitive practices.
There is growing evidence that anticompetitive practices are
particularly common in regard to goods for which there are limited substitutes in developing country markets,
for example foodstuffs.
Competition policy may be particularly important for the effective prevention of bid rigging developing
countries.
Empirical data suggest that the costs of bid rigging to public treasuries exceeds the costs of
establishing a competition office to investigate and deter such activities. The possibility of rigged bids cannot
be prevented merely by opening procurement processes to foreign competitors, since the latter may be party
to any bid-rigging conspiracies.
Fortunately, evidence shows with appropriate resources and training developing countries can deal effectively
with anticompetitive practices and protect their consumers.
Approximately 100 WTO Members now have
competition laws and/or policies. In general, work in the WGTCP and in other venues has highlighted the need
for a pragmatic approach to the introduction of competition policies in developing countries, focusing on the
most blatantly harmful practices and adapting to the economic circumstances of each country.
EXERCISES
1.
Why is government procurement relevant for international trade?
2.
What are the potential benefits and costs derived from joining the plurilateral Agreement on Government
Procurement?
3.
What is the relationship between trade and investment as well as trade and competition policy?
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II.
SUMMARY
With regard to the "Singapore Issues", that is, trade facilitation, transparency in government procurement,
trade and investment, and trade and competition policy; only the first one remains in the Doha Round of
Negotiations.
There is a complementary relationship between trade and investment, as well as trade and competition
policy. Each one contributes to the promotion of trade and economic development in various manners. The
main areas of work in the WTO on trade and investment currently include the TRIMS Agreement and the
GATS, while in the case of trade and competition policy these areas include diverse provisions of the WTO
Agreements, such as Article II.4 of the GATT 1994, Articles VIII and IX of the GATS and Article 40 of the
TRIPS Agreement.
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PROPOSED ANSWERS
1.
The procurement of goods and services by government agencies plays a key role in development and
economic growth.
In most countries, government agencies are – collectively – the single biggest
purchaser of goods and services, ranging from basic commodities to high-technology equipment and
specialized services. Open, transparent and non-discriminatory procurement is generally considered to be
the best tool to optimise competition among suppliers, resulting in a more efficient use of resources.
2.
The work on accessions to the Plurilateral Government Procurement Agreement (GPA) has helped to
clarify the potential benefits to WTO members from joining the Agreement in addition to related costs and
challenges.
In broad terms, the main benefits are likely to be: assured access to the procurement
markets of other GPA Parties; enhanced competition (including international competition) and improved
governance in the acceding country's domestic procurement markets; coordination and harmonization of
procurement policies; attraction of inbound foreign direct investment by companies interested in the
procurement markets; and, the opportunity to participate in discussions on and influence the future
evolution of the Agreement. The main costs of accession are likely to include the direct costs of preparing
an offer and negotiating with the existing Parties, as well as the institutional costs relating to the
implementation of the GPA, including the adoption of related legislation and the adjustment of domestic
firms to foreign competition. The relative magnitude of these costs may depend partly on the terms of
accession that are negotiated.
3.
There is a complementary relationship between trade and investment, as well as trade and competition
policy. Each one contributes to the promotion of trade and economic development in various manners.
The main areas of work in the WTO on trade and investment currently include the TRIMS Agreement and
the GATS; while in the case of trade and competition policy these areas include diverse provisions of the
WTO Agreements, such as Article II.4 of the GATT 1994, Articles VIII and IX of the GATS and Article 40 of
the TRIPS Agreement.
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