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Free trade agreements

Competition provisions in trade agreements: A brief introduction

Published 18 January 2019

Do competition provisions in trade agreements sufficiently cover the issue of government-backed trade policies? Understand the issue at hand.

Steel tariffs are a symptom of deeper malady in the trading system – anti-competitive government practices.

Governments have complained for decades that overproduction by state-owned or subsidized enterprises in commodities such as steel and aluminum is unfairly driving down global prices for producers around the world.

The imposition by the United States of new tariffs on imports of steel and aluminum has provided fresh momentum to global discussions over whether the WTO should enhance its disciplines in the area of competition policy.

After all, tariffs are just a temporary remedy. They do nothing to address the root concerns that often stem from anti-competitive practices, some of which are perpetrated by private firms and some by governments.

Can trade agreements address the problem of anti-competitive behavior?

Trade agreements typically focus on removing conventional barriers to trade. Anti-competitive behaviors, whether by domestic firms or government measures, can nonetheless limit opportunities for foreign firms to participate in the market, diminishing the liberalizing benefits of trade agreements.

With global mergers and acquisitions at an all-time high, governments have increased their scrutiny of major cross-border transactions to investigate the potential for anti-competitive practices or outcomes. Such deals can have implications for home markets even when they don’t involve “domestic” companies. Accordingly, governments have heightened interest in international collaboration among entities responsible for enforcing national competition laws.

Ideally, governments will adopt and enforce competition laws that guard against or remedy anti-competitive conditions, but only about half of WTO members have national competition laws in place. In their absence, governments have negotiated provisions related to competition policy in more than one hundred bilateral and regional trade agreements over the last decade, in large part to facilitate cooperation on anti-competitive behavior affecting trade.

What types of competition-related provisions appear in trade agreements?

Competition-related provisions in bilateral and regional free trade agreements range from “best efforts” to adopt and implement competition laws, to forms of voluntary cooperation among competition agencies (notification of investigations, consultation, data sharing), to the creation of rights to request another party initiate an investigation.

Regional agreements that pursue deep economic integration might seek to harmonize competition laws. The best example is the European Union which has harmonized competition law enforced by the European Commission and applicable to all cases having an effect on intra-community trade.

In the most advanced set of commitments, Australia and New Zealand agreed to replace national antidumping laws with competition law provisions as part their Closer Economic Relations Trade Agreement (ANZCERTA). The parties permit complainants to initiate proceedings in the other country. Their competition offices may hold hearings in either country and issue subpoenas and remedial orders enforceable in the other country.

Trade agreements discipline government behavior.

In the first instance, many bilateral or regional trade agreements seek to promote adoption and enforcement of competition laws in each of the countries that are party to the agreement.

Many countries maintain vertically-integrated or publicly-owned monopolies in sectors such as telecommunications, electricity, natural gas, transportation and other industries that support the provision of public services. As these sectors are progressively opened to private operators and privatized, trading partners have an interest to ensure that competition is not unduly restricted, for example through regulation or licensing regimes.

Are there competition-related provisions in WTO agreements?

WTO members have long recognized the relationship between competition and trade policies as anti-competitive practices can diminish the benefits of trade liberalization. But members have not agreed on a core set of disciplines related to competition policy.

There are, however, articles in existing WTO agreements that may apply in specific cases of anti-competitive practices restricting trade. GATT provisions address certain competition-related governmental actions related to the governance of monopolies, technical standards, and licensing. Competition-related provisions also exist in the General Agreement on Trade in Services (GATS), for example pertaining to exclusive service arrangements by monopolies and the effects of domestic regulation. Provisions can be found in the Understanding on Financial Services and the Telecommunications Agreement that are particular to these sectors.

Competition policy was set aside as a topic for further WTO negotiation.

In 1996, trade ministers from WTO members agreed to form a working group to examine what core principles could be addressed as part of a negotiation on new trade disciplines related to competition policy.

Core principles include minimum elements of competition law, a commitment to create effective enforcement institutions, and due processes such as transparency and non-discriminatory treatment of all firms regardless of their form of ownership or home country.

The group also explored provisions to address “hardcore” cartels, forms of voluntary cooperation, and capacity building for competition institutions in developing country members. However, it became clear by 2004 that the Doha round was at impasse over core market access issues and mired in too many topics. Trade ministers agreed to remove from further consideration competition policy disciplines from a formal negotiating agenda.

Is it time to revisit the topic?

After a decade of setting the topic aside in the WTO, concerns appear to be rising to surface again that certain anti-competitive government practices may not be covered sufficiently – or at all – by provisions in global trade agreements.

Improved application of competition policy could reduce trade frictions, but in the current trade war environment, it might be trade negotiations that pull competition policies forward through new negotiations and commitments.

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Andrea Durkin has returned to public service and no longer serves as an active contributor.

Previously, she was Principal of the trade advisory firm Sparkplug, LLC and the creator of Consensus Learning®, an innovative digital tool for teaching negotiation skills deployed in graduate classrooms, think tank simulations and government training.

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