As international trade agreements remove government impediments to free trade, how can we ensure that those impediments are not replaced by anti-competitive schemes on the part of private firms to impede market access?

How can we better work with foreign authorities to build an international consensus concerning the adverse effects of anti-competitive arrangements?

In connection with our discussion on competition policy, how do we effectively and accurately measure the contestability of foreign markets?

How do development policies in various nation-states relate to trade and competition?

In an illustrative rather than comprehensive manner, this article discusses the interface of trade and competition issues, giving special attention to the work of the International Competition Policy Advisory Committee of the U.S. Department of Justice, which I co-chair. This committee's work demonstrates that we still have more questions than answers.

The Goals of Trade and Competition Policy

Theoretically, trade and competition policy share objectives and values, both contributing toward making domestic markets more competitive and thus improving the allocation of resources and promoting efficiency and consumer welfare. In practice, however, the goals and objectives of international trade and antitrust policy can diverge.

The principles of nondiscrimination, transparency, most-favored-nation, and national treatment applied to competitors in a liberal trading system are all central pillars of the codes of the General Agreement on Tariffs and Trade and its successor, the World Trade Organization (WTO). The principal goal of antitrust laws is the preservation and maintenance of competition and the efficient allocation of resources by prohibiting practices or transactions that restrain competition.

WTO-consistent trade laws in the United States and other member states actually spell out when counterbalancing trade restrictions in the form of duties can be imposed on firms deemed to be engaged in unfair trade or when a nation can impose trade-restraining retaliation against another nation's trade practices. In contrast, the antitrust laws focus on protecting the competitive process and consumers, not competitors.

The December 1998 report of the WTO's Working Group on the Interaction Between Trade and Competition Policy elaborates on other differences between trade and competition policies, but it emphasizes complementarity rather than tension, noting that: "Trade policy was basically concerned with governmental action, whereas competition policy focused on the behavior of enterprises. Trade policy was traditionally focused on measures at the border, whereas competition policy regulated competitive conditions and behavior of enterprises within the country. In illustrating this complementarity, reference was made to the role of competition policy in ensuring effective market access and the role of trade liberalization in facilitating the removal of governmental measures that facilitated anti-competitive behavior enterprises."

The International Competition Policy Advisory Committee

Here in the United States, the formation of the International Competition Policy Advisory Committee reflects the recognition that, in today's global economy, the international dimension of antitrust enforcement plays an increasingly significant role.

During the past year, the committee -- representing the business, academic, legal, and economic professions -- has conducted meetings and hearings designed to generate input from experts in both trade and competition policy.

Three days of hearings in November 1998 brought together antitrust enforcement officials, professors, and practitioners from around the world to discuss issues under consideration by the committee. There was broad recognition that competition problems are increasingly transnational in character and that national responses may not be fully up to the task of effectively addressing competition issues, absent cooperation from foreign authorities. In response to this trend, deepening bilateral cooperation is important, and further consideration of international approaches to addressing competition issues is needed.

There was considerable discussion among those at the hearings regarding the form these international approaches should take. Antitrust enforcement agreements with Australia, Canada, the European Commission (EC), and Germany promote cooperation and coordination in the enforcement of each country's antitrust laws. The U.S.-EC and U.S.-Canada cooperation agreements also include provisions for "positive comity," which allows one country to request that the other country proceed against anti-competitive conduct that is harming the interests of the requesting country. These agreements are considered important steps toward minimizing disputes over the extraterritorial application of the antitrust laws and improving communication between the various antitrust authorities. Participants also debated what role, if any, the WTO should play in competition policy and whether it should proscribe certain practices or serve only as a broad advocacy forum.

During the coming year, the committee will continue its work, culminating with an autumn 1999 submission of a report to the U.S. attorney general that contains policy recommendations for the next century in this critical area of international competition policy.

Core Objectives

In its analysis of the interface of trade and competition issues, the advisory committee is attempting to develop policy responses that will:

Deter anti-competitive restraints.

Reduce barriers to effective prosecution of anti-competitive restraints with adverse effects in the United States.

Address problems of lax or discriminatory enforcement.

Increase transparency.

Promote effective competition in jurisdictions that do not have competition laws.

To meet these core objectives, the advisory committee is considering policy responses in four general subject areas.

First, the committee is considering the feasibility of the unilateral enforcement of U.S. antitrust laws against foreign market access restraints.

Second, the committee is analyzing the record of bilateral cooperation agreements. We are considering whether enhanced bilateral cooperation, including through expanded positive comity and traditional comity approaches, offers a potential solution.

Under positive comity, one country requests that another country initiate or expand an antitrust enforcement action against anti-competitive conduct that is harming the interests in the country that made the request.

Third, the committee is considering the use of traditional trade policy, including enforcement of unilateral trade laws and negotiated bilateral agreements.

Fourth, the committee is evaluating the usefulness of a variety of international initiatives. As examples, the committee is considering the following proposals:

The development of core principles advanced through international fora or agreements.

The development of new or expanded dispute-resolution mechanisms.

The pursuit of expanded plurilateral agreements or regional agreements, e.g., Organization for Economic Cooperation and Development (OECD), North American Free Trade Agreement (NAFTA), Asia-Pacific Economic Cooperation (APEC).

The development of initiatives at the World Trade Organization.

Besides these policy options, the advisory committee is considering how foreign governmental restraints should be handled as a competition policy issue. The committee is not considering U.S. dumping laws, which have attracted considerably more debate at home and in the WTO, and thus could detract attention from other important agenda items of the committee.

Contestability and Other Issues

A threshold issue in any set of policy proposals is "contestability." Economists have struggled with developing a means to measure the contestability of markets or the barriers to entry to new sellers. This has proven to be an elusive task. In order to gain a sense of the anti-competitive barriers abroad, the advisory committee is gathering information on the experiences of U.S. companies. In particular, it is seeking to learn about the experiences of U.S. companies that have had difficulty penetrating foreign markets because of anti-competitive practices.

After the breakup of the Soviet Union's command-and-control economy and with ongoing global financial crises in Asian economies that imitated Japan's export-led industrial development policies, it is also imperative to analyze the relationship of trade and competition policies to national policies designed to encourage development and economic growth.

The recent WTO report argued that, "whereas in the past, countries could hope to achieve development through other (possibly more interventionist) tools and approaches, these approaches were no longer workable in light of the extent of trade liberalization and globalization of business activities that had taken place and the increased importance of foreign direct investment as an engine of growth in the present economic environment. As a result of these developments, anti-competitive practices of enterprises were increasingly international in scope and appeared to be relatively more significant than in the past. Consequently, according to this view, a vigorous competition policy was necessary to respond appropriately to these concerns and to establish a climate conducive to investment and economic growth."

Next Steps: A Summary

As the global economy continues to expand and the web of commercial relationships become even more tightly woven, the effect of the anti-competitive actions of private firms on trade flows will increase.

In recognition of the increasing importance of the interface between trade and competition policies, international and regional organizations such as the OECD, the WTO, and the EC are all considering the next steps in international competition policy.

With the establishment of the International Competition Policy Advisory Committee, the U.S. Justice Department has also signaled that it recognizes the importance of these issues. The committee is considering how the interface of international trade and competition policy should be guided by the ultimate goal of ensuring the international free flow of goods and services without anti-competitive restraints. Its work rests on the belief that improved competition leads to greater economic growth and better living standards for all actors in the global trading system.

Economic Perspectives
USIA Electronic Journal, Vol. 4, No. 1, February 1999