International Trade and Competition Policy
Presented by:
Dr M. A. Razzaque
Content of the Presentation
 International trade and trade liberalisation
Trade liberalisation and competition policy
 Is trade liberalisation helpful to competition policy?
 Does competition policy restrict international trade?
or, does it promote trade competitiveness?
 WTO and competition policy
 Competition policy under trading blocs
International trade and trade liberalisation
International trade – Exchange of goods and services amongst
countries
Trade Liberalisation?
 Undertaking liberal policies for imports
 Having liberal policies for exchange transactions
Trade Policy and Instruments
 Policy => sets out objectives and means to attain
them
 Instruments => a set of tools through which policy
objectives are to be materialised.
Trade Policy Instruments to Control Imports
 Import bans
 Quota – quantitative restrictions
 Tariffs (customs duty, supplementary duty, VAT, Dev surcharge)
 Tariff rate quotas
 Foreign Exchange restrictions
 Import Licensing
Trade Liberalisation would imply:
• Relaxation/removal of import bans
•Relaxation/removal of quantitative restrictions
• Reduction/removal of tariffs
• Relaxation of foreign exchange restrictions
• Simplifying the import licensing procedure
How trade measures are recorded:
• Use of certain classification system (such as HS and
SITC)
• Use of codes to reflect disaggregation of commodities
 Consider the Code:
HS 02
HS 0202
HS 0202200
_ Meat and Edible Meat Offal
_ Meat of Bovine Animal Frozen
_ Meat Bovine Cut w/Bone Frozen
Operative Tariff Schedule
 OTS of Bangladesh 2003-04
Excel Sheet showing Bangladesh’s OTS
Calculate the impact of tariffs
87032113
(luxury
vehicle)
$100
CD
22%
SD
250%
DS
4%
AIT
3%
VAT
15%
$122
$305
$317
$327
$375
On-going Trade liberalisation in Bangladesh
 Significant changes in terms of abolition of import quotas,
simplification of import licensing procedures, reduction in import
tariffs, harmonisation of tariffs, reduction in the number of tariff
slabs.
Bangladesh: Removal of QRs at the 4-digit HS Classification Level
Year
1985-86
1987-88
1988-89
1990-91
1991-92
1992-93
1993-94
1995-97
1997-02
2003-06
Total
478
529
433
239
193
93
109
120
122
63
Restricted for trade reasons
Banned
Restricted
Mixed
275
257
165
93
78
13
7
5
5
5
138
133
89
47
34
12
19
6
6
8
16
79
101
39
25
14
14
16
16
10
Restricted for
non-trade
reasons
49
60
78
60
56
54
69
93
95
40
5.0
2003-2006
1997-2002
1.9%
2.2%
2.2%
1.9%
1994-95
1995-97
3.2%
0.0
1993-94
3.2%
10.0
1992-93
11.1%
15.0
1991-92
14.5%
20.0
1990-91
20.5%
25.0
1989-90
30.0
28.7%
35.0
1988-89
1987-88
1986-87
40.0
38.0%
39.6%
34.7%
45.0
1985-86
per cent
Trade-Related Restrictions as Proportion of Total HS 4digit Import Lines
Bangladesh: Un-weighted Average Duty Rates
License
Fiscal Year
CD
SD
VAT
IDSC
Fee
Total
1991-92
57.23
0.73
14.03
2.22
82.29
1992-93
47.14
1.44
12.17
2.19
69.57
1993-94
1994-95
1995-96
1996-97
35.83
25.95
22.46
21.87
1.67
0.61
0.82
0.97
11.63
10.4
10.58
10.68
-
2.15
1.95
1.98
1.99
56.3
42.43
38.95
38.57
1997-98
1998-99
1999-00
21.1
20.52
17.12
1.11
1.49
2.04
10.66
10.63
10.36
2.27
2.26
1.99
1.99
1.99
2
40.61
40.49
36.86
2000-01
2001-02
17.2
17.13
3.22
3.22
10.81
10.83
2.07
2.07
2.08
2.08
39.38
40.15
2002-03
16.5
1.96
10.94
2.92
-
35.51
Are all these liberalisation good for competition?
 Certainly, liberalisation tends to promote competition
We can work out the competitive effects from the impact of
tariffs.
CD
SD+DS+AIT
BD price
World $100
30%
50%
$195
World $100
30%
0
$130
 Domestic producers have to compete with
international firms
 Liberalisation could be an effective means for dealing
with monopoly and oligopolistic market structures.
 Liberalisation can ensure ‘love for variety’ and quality
Liberalisation however may not work, if:
 Importers form cartel and/or are involved in tacit collusion
 Foreign firms can manage to ‘avoid’ competition
 Import of goods is restricted due to such factors as foreign
exchange scarcity/import licensing procedure/political unrest
leading to disrupted transportation and communication system,
international crises leading to supply shortfall.
In the first place, liberalisation may not be possible, if:
 If there is a strong pressure from the domestic industry groups
(vis-à-vis given the isolation paradox and free rider problem
amongst the consumers)
 Political economy of protection – the connection between
domestic producer groups and policy makers.
 Infant industry argument (but what if the infants are never
grown up?)
 Employment argument (but who does the bear the costs?)
Sugar Price Hike
17011100 (raw
cane sugar)
US price $0.46/Kg
($462/mt:)
CD
30%
SD
30%
DS VAT
4% 15%
1$ =
TK.70
0.59
0.77 0.80 0.93
Tk.65
Alternative
Price: $0.46/Kg
0.59
X
X
X
Tk. 41.3
Alternative
Price: $0.46/Kg
X
X
X
0.53
Tk. 37
Shipment and insurance costs have not been considered here, which would
be around 10 percent
For sugar price:
http://www.sugartech.co.za/sugarprice/index.php
 BUT, Note that alternative scenarios might result in loss of
government revenue.
 Flexible trade policy will require flexible revenue raising
capacities.
 The basic point is: on many occasions one can rely on
international trade to tackle the anti-competitive practices.
Does competition policy restrict international trade?
or, does it promote trade competitiveness?
 Evidence for restricting international trade is unknown.
 However, strong possibility of raising the competitiveness of
domestic industry and thus expansion of exports.
 The strategy of providing some protection to begin with and
then setting industries free may be effective, if the right industries
are selected.
WTO and competition policy
• Still not an agreement under WTO
• First proposed in Singapore 1996 but without
any success
• Many developing countries opposed the idea of
bringing in competition policy in WTO – why?
• Having competition policy is not WTOinconsistent as long as the principle of nondiscrimination is maintained.
• In fact, it may be required to have CP to deal
with unfair practices of international suppliers.
Competition policy under trading blocs
• Consider SAFTA
• Suppose, BD and India are to exchange 0 for 0 tariffs under
SAFTA while the tariffs on rest of the world remains the same.
• Let’s get back to our sugar example
Existing situation CD SD DS
17011100 (raw
30% 30% 4%
cane sugar)
US price: $0.46/Kg 0.59 0.77 0.80
India: 0.40/kg
0 tariff under
bilateral FTA
VAT
15%
0.93
0.46
1$ =
TK.70
Tk.65
Tk. 32
(Tk. 60)
Pro-consumer
10% 0% 0% 15%
tariffs
US Price:$0.46/Kg 0.50 0.50 0.50 0.58 Tk. 40.7
Concluding Observations
• Trade is usually good for competition.
• Loss of revenue can however be a concern.
• Trade and competition can promote
competitiveness of the domestic sectors.
• Trade and competition policy does not rule out
the need for providing protection to local
industry.
• Bangladesh has made some significant
progress on trade liberalisation.
• But, there are further scopes for supporting
consumers.
• Well-thought out and flexible use of trade instruments
can serve the purpose of consumers and domestic
industry.
• Regional trading arrangements will have to be
carefully handled to protect consumers.
• Behaviour of the importers need to be carefully
monitored.
Thank You.