The likelihood of achieving international agreement on antitrust and competition policy is speculative, says Jeffrey Lang, a partner in the Washington law firm Wilmer, Cutler & Pickering. A former deputy U.S. trade representative in the Clinton administration, Lang says the U.S.-Japan insurance agreement and WTO basic telecom agreement demonstrate another way to go -- including pro-competitive regulation in sectoral trade agreements.

As trade in goods and services has exploded over the past 30 years, governments have attempted through negotiation to reduce the impact of domestic regulation on that trade.

The process of extending trade policy to domestic regulation began at least 30 years ago. In some striking cases involving the sports equipment and food sectors among others, the U.S. government identified certain Japanese regulations as nontariff barriers effectively keeping U.S. suppliers out of Japanese markets.

Since then, governments from a number of countries have agreed to consider as trade barriers subject to negotiation domestic regulations that discriminate in favor of domestic over foreign suppliers.

Governments have not agreed that regulations discriminating on the basis of national origin are necessarily inconsistent with their trade agreement obligations to each other, any more than tariffs are.

They have agreed, however, that these trade barriers should be cataloged; in many cases they have agreed to reciprocal reductions in these barriers just as they have agreed to reduce tariffs on a mutual basis.

Moreover, World Trade Organization (WTO) members have agreed that certain types of regulatory barriers to trade do violate WTO obligations. For example, WTO member governments may not use technical product standards or food safety regulations in a discriminatory way. These WTO agreements do not eliminate the need for such standards but do discourage governments from using them to discriminate against foreign suppliers.

WTO agreements on regulatory discrimination have been difficult to negotiate and even more difficult to administer because they try to eliminate discrimination without infringing on the power of governments to regulate in the public interest.

The fine line for governments is how to regulate risk adequately for their citizens without discouraging trade in goods and services.

The problem is partly one of process. Often, domestic regulation is worked out in a way that is best for domestic producers, but without considering the way other countries regulate. The problem gets worse if domestic public interest advocates become committed to the domestic regulation without giving foreigners a hearing.

Much Work, Little Satisfaction

The result is that regulators, trade negotiators, business people, and public interest advocates have spent a huge amount of time and energy on this problem over 30 years, yet none of them is so far particularly satisfied with the operation of negotiated anti-discrimination agreements.

At the same time, some people have proposed trade agreements against discrimination by failure of a country to enforce or to have domestic competition law. These proposals have not ripened into serious trade negotiations.

Competition regulation is complex, affecting broad areas of domestic economies, both regulated and unregulated. Indeed, even within countries people have difficulty agreeing on what principles should govern competition and how they should be enforced.

Moreover, domestic law enforcement authorities have difficulty accepting that their activity could be second-guessed by foreign governments under a trade agreement.

The likelihood -- and even the benefit -- of reaching international agreement on such matters is speculative at this time. Of proposals to have WTO competition policy negotiations, we might say, as former U.S. Trade Representative Robert Strauss did in another context, "That sounds good if you say it fast."

The Need for "Re-Regulation"

Nonetheless, there may be another way to think about the problem of competition policy in international trade, an idea that promotes competition without invoking competition law. It is suggested by the evolution in the way U.S. antitrust law is applied to regulated industries.

Antitrust law has been a feature of U.S. law for so long that it has almost assumed constitutional dignity. However, the application of antitrust principles to regulated industries has created some tension. In some cases, the U.S. Congress has insulated regulated industries from antitrust enforcement, but this has been regarded as an exception that has to be justified on policy grounds. In fact, where such exceptions exist, Congress has often provided the regulatory agencies themselves, such as the U.S. Interstate Commerce Commission, with authority to issue special antitrust rules for the industries they regulate and enforce those rules themselves.

Gradually, these exceptions for regulated industries have been modified in the United States to assure regulation in a pro-competitive manner, often (initially) called "deregulation." For example, Congress began to "deregulate" transportation in the 1970s, communications in the 1980s.

The transitions to a competitive environment were not smooth. A common mistake was to assume that eliminating regulation would naturally produce competition. In virtually all cases, deregulation was not itself pro-competitive; competition required "re-regulation" -- my term for changing (but not eliminating) regulations so as to promote competition among suppliers.

Re-regulation seems to be particularly important where a former regulatory regime has left one or a few providers of goods or services with a dominant market position. In such circumstances, it has been necessary to fence off market segments to give newcomers time to build up the good will, capital base, and experience to take on the dominant supplier in the market.

In some instances, the United States has successfully transferred this pro-competitive regulatory thinking to trade negotiations. With regard to market access for insurance suppliers in Japan, the United States and Japan agreed in 1994 to fence off a market segment of insurance services known as the "third sector" for exploitation only by foreign companies for a temporary period. Under this bilateral agreement, domestic Japanese companies may not compete in the third sector until the primary areas of insurance services in Japan have been opened fully to foreign competition for three years.

In another, more far-reaching instance, negotiators from many countries achieved pro-competitive regulatory principles in the 1997 WTO agreement on basic telecommunications. The countries party to the agreement committed to open their telecommunications markets to foreign providers in less than 10 years; most of them also agreed to implement these pro-competitive regulatory principles in their domestic laws.

Adding a Pro-Competitive Overlay

Generalizing from these rather narrow experiences is not easy. We must remember that the Japan insurance agreement and the WTO basic telecommunications agreement do not relate directly to competition law enforcement. Rather, they simply add a pro-competitive overlay to the basic international trade principles of most-favored-nation treatment and national (i.e., nondiscriminatory) treatment.

In both cases, negotiators recognized that they could not succeed without agreeing to some re-regulation. Regulators involved in the negotiations evidently recognized that promoting competition would enhance their public policy objectives. By the agreements they forged, these negotiators and regulators have opened up an opportunity for movement forward in trade negotiations.

An underlying assumption of trade agreements over the past 50 years is that when a country agrees to remove formal import barriers, imported goods can compete in the domestic economy on the basis of commercial considerations. It isn't much of an intellectual leap to apply a pro-competitive overlay to determine what else, if anything, might be necessary to assure the agreement will work as expected by both parties.

Of course, this may have to be done differently for different sectors. It may be necessary to work with specific cases for some time before general principles emerge. Nonetheless, we may be better able to realize the full expected benefits of trade agreements, without endangering domestic regulatory objectives, if governments can agree that foreign and domestic providers should be regulated in the interest of promoting competition in the domestic economy.